Case Title: POWDER RIVER COAL COMPANY V. WYOMING DEPARTMENT OF REVENUE

Citation: 

Docket Number: 05-296

State: wyoming

Court: Wyoming Supreme Court

Date: 2006-10-31T00:00:00Z

Document:
POWDER RIVER COAL COMPANY V. WYOMING DEPARTMENT OF REVENUE2006 WY 137145 P.3d 442Case Number: 05-296Decided: 10/31/2006
OCTOBER 
TERM, A.D. 2006

 
 
POWDER 
RIVER COAL COMPANY,

 
 
Appellant

(Petitioner),

 
 
v.

 
 
WYOMING 
DEPARTMENT OF REVENUE,

 
 
Appellee

(Respondent).

 
 
Rule 
12.09(b) Certification from

the 
DistrictCourtofCampbellCounty

The 
Honorable John Perry, Judge

 
 

Representing 
Appellant:

            
Lawrence J. 
Wolfe of Holland & Hart, LLP, Cheyenne, Wyoming.

 
 

Representing 
Appellee:

            
Patrick 
J. Crank, Attorney General; Michael L. Hubbard, Deputy Attorney General; Martin 
L. Hardsocg, Senior Assistant Attorney General; Karl D. Anderson, Senior 
Assistant Attorney General; Ryan T. Schelhaas, Senior Assistant Attorney 
General.  Argument by Mr. 
Schelhaas.              

 
 
Before 
VOIGT, C.J., and GOLDEN, HILL*, KITE, and BURKE, JJ.

 
 
*Chief 
Justice at time of oral argument.

 
 
KITE, 
Justice.

 
 
[¶1]      Powder River Coal 
Company (PRCC) produces coal and sells it away from the mouth of each of its 
mines.  Wyo. Stat. Ann. § 
39-14-103(b)(vii) (LexisNexis 2005) requires the coal be valued for severance 
and ad valorem tax purposes using the proportionate profits method.  In applying this method, costs must be 
categorized as either direct or indirect and PRCC contended employee healthcare 
costs were indirect costs.  The 
Department of Revenue (DOR) disagreed, determined those costs should be treated 
as direct mining costs, and assessed PRCC accordingly for production years 
1997-2000. Because the DOR treated healthcare costs as direct, rather than 
indirect, mining costs, PRCC's assessed value was higher because the ratio of 
direct costs to total costs was higher.  
PRCC appealed those assessments to the State Board of Equalization 
(SBOE).  After a hearing, the SBOE 
affirmed the DOR's classification of employee healthcare costs as direct costs, 
and PRCC appealed that decision to the district court which certified the case 
to this Court pursuant to W.R.A.P. 12.09(b).  We accepted the certification and, 
finding the SBOE properly interpreted the applicable statutes, we 
affirm.

 
 
ISSUES

 
 
[¶2]      PRCC presents the 
following issue:

 
 
            
Appellant operates a self-insurance program that pays healthcare costs 
for employees and dependents.  In 
valuing Appellant's coal production, the Department of Revenue included these 
costs in direct labor costs which has the effect of assigning the costs by where 
employees work in the facility.  The 
Appellant treated the healthcare costs as indirect costs.  Did the State Board of Equalization err 
when it affirmed the Department's treatment as direct costs, when the holding is 
contrary to the State Board's factual finding that the costs do not follow 
employment?

 
 
The DOR 
re-phrases the issue as follows:

 
 
Did the 
State Board of Equalization properly conclude that Powder River Coal Company's 
employee healthcare costs were direct costs pursuant to the proportionate 
profits statute, Wyo. Stat. § 39-14-103(b)(vii)?

 
 
FACTS

 
 
[¶3]      PRCC is a 
subsidiary of Peabody Investments Corporation (Peabody) and owns three coal 
mines in Campbell County, 
Wyoming.  Peabody offers a healthcare plan to all of its 
employees funded by the company through a program of self-insurance.  Employees pay a monthly fee of $25 for 
an individual participant, $50 for an employee plus one dependent, and $75 for a 
family and receive coverage for medical, dental, vision and prescription drug 
expenses.  Employees who choose not 
to participate in the plan are paid $1,200 annually.  While this plan is funded by the company, 
it is administered through a third party administrator under a service 
contract.  PRCC pays a monthly fee 
per employee to the administrator and, in return, the administrator processes 
and adjudicates the claims and pays the providers.  The healthcare plan is similar to 
traditional insurance coverage in that it has enrollment requirements, 
limitations for pre-existing conditions, employee co-pays, participating 
provider requirements, coverage exclusions, pre-certification of coverage and 
provider payment limitations based upon "usual and reasonable customary 
charges."  Healthcare providers 
submit their bills for reimbursement directly to the administrator rather than 
to PRCC.  The administrator reviews 
all claims, determines eligibility, pays eligible claims and sends Peabody a weekly summary 
of the claims paid.  Peabody then pays the 
administrator to cover those payments.  
No accruals or reserves exist to cover healthcare costs; the claims are 
simply paid as incurred.  Monthly 
reports are provided to Peabody identifying the claims made by each 
individual employee by social security number.  This information allows Peabody to attribute 
healthcare costs back to individual employees at a particular mine.  However, in the interest of employee 
confidentiality, this information is not shared with the mine management.  Instead, the mines are provided with the 
total healthcare costs for each facility.

 
 
[¶4]      PRCC has a 
sophisticated accounting system allowing it to attribute its salary costs to the 
separate functions of mining, transportation and processing.  Employees use time cards to record where 
they worked in the mine.  PRCC then 
enters that information into its accounting system and tracks its labor costs by 
functional category.  From 1990, 
when the proportionate profits method was adopted by the legislature, to 1997, 
PRCC treated healthcare costs as direct costs and attributed those costs to the 
three operational functions, mining, transportation and processing.  Although its accounting system did not 
capture healthcare costs by operational category, PRCC used the salary 
percentages for each function to determine the percentage of healthcare costs 
for that particular function.  The 
DOR agreed with and accepted PRCC's method of attributing its healthcare costs 
to the various mine functions.

 
 
[¶5]      In the course of 
the audit of PRCC's tax returns for the years 1997-2000, the company took the 
position that healthcare costs should no longer be treated as direct costs. The 
explanation given by Jeff Maher, Assistant Controller of Operations for 
Peabody, who was 
responsible for the tax returns, was that healthcare costs were indirect because 
they did not track directly with employee wages, and PRCC could not attribute 
healthcare costs to a particular function where the employee worked.  Don Coovert, a PRCC consultant who 
assisted with preparation of the tax returns, provided a further reason for 
treatment of healthcare costs as indirect.  
He explained his understanding of the legislative history of the statutes 
establishing the proportionate profit method and concluded that healthcare costs 
fit the statutory definition of indirect costs because they are not specifically 
listed as a direct cost in the statute and could not be attributed to an 
operation function without allocation. 

 
 
[¶6]      PRCC agrees its 
healthcare benefits are part of its compensation package and are a substantial 
inducement to potential employees.  
It also recognizes that good healthcare benefits are one of the things 
the company offers to discourage unionization.   

 
 
STANDARD 
OF REVIEW

 
 
[¶7]      When we review 
cases certified to this Court pursuant to W.R.A.P. 12.09(b), we apply the 
appellate standards applicable to the court of the first instance.  State ex rel. Wyo. Dep't of Revenue v. Buggy 
Bath Unlimited, Inc., 2001 WY 27, ¶ 5, 18 P.3d 1182, 1185 (Wyo. 2001);  see also Union Tel. Co. v. Wyo. Pub. Serv. 
Comm'n, 907 P.2d 340, 341-42 (Wyo. 1995).  Wyo. Stat. Ann. § 16-3-114 (LexisNexis 
2005) governs judicial review of administrative decisions.  Buggy Bath 
Unlimited, Inc., ¶ 5, 18 P.3d  at 1185; Everheart v. S & L Indust., 957 P.2d 847, 851 (Wyo. 
1998).

 
 
[¶8]      When an appealing 
party contests an agency's findings of fact, we examine the entire record to 
determine if the agency's findings are supported by substantial evidence.   RT Commc'ns, Inc. v. State Bd. of 
Equalization, 11 P.3d 915, 920 (Wyo. 2000).  If the agency's findings of fact are 
supported by substantial evidence, we will not substitute our judgment for that 
of the agency and will uphold the factual findings on appeal.  Id. 
at 921.  "Substantial evidence is 
more than a scintilla of evidence; it is evidence that a reasonable mind might 
accept in support of the conclusions of the agency."  Id.   

 
 
[¶9]      We review an 
agency's conclusions of law de 
novo.  Wyo. Dep't of Revenue v. Guthrie, 2005 WY 
79, ¶ 13, 115 P.3d 1086, 1091 (Wyo. 2005).  
If a conclusion of law is in accord with the law, it is affirmed.  Airtouch Commc'ns, Inc. v. Dep't of Revenue,  2003 WY 114, ¶ 10, 76 P.3d 342, 347.  "However, when the agency has failed to 
properly invoke and apply the correct rule of law, we correct the agency's 
error."  Id.  
This case requires interpretation of the relevant tax statutes.  Statutory interpretation is a question 
of law. Powder River Coal Co. v. Wyo. 
State Bd. of Equalization, 2002 WY 5, ¶ 6, 38 P.3d 423, 426 (Wyo. 2002); Chevron U.S.A., Inc. v. State, 918 P.2d 980, 983 (Wyo. 1996).

 
 
DISCUSSION

 
 
[¶10]   We discussed the proportionate 
profits method and its statutory and constitutional underpinnings in Powder River, 
as follows:

 
 
The 
genesis of this dispute lies in the constitutional and statutory construct for 
the taxation of minerals in Wyoming.  
The Wyoming Constitution provides that all mines "shall be taxed . . . in 
lieu of taxes on the lands[ ] on the gross product thereof . . .;   provided, that the product of all 
mines shall be taxed in proportion to the value thereof."   Wyo. Const. art. 15, § 3.  The statutes then impose ad valorem and 
severance taxes upon the value of the gross product mined.   Wyo. Stat. Ann. §§ 39-13-103, 39-14-103 
(LexisNexis 2001).  "The value of 
the gross product shall be the fair market value of the product at the mouth of 
the mine where produced, after the mining or production process is 
completed."  Section 
39-14-103(b)(ii).

 
 
For coal 
sold away from the mouth of the mine pursuant to a bona fide arms-length sale, 
the statute mandates applying a formula to determine what portion of the sales 
value is attributable to the value of the gross product at the mouth of the 
mine, the point at which the product is valued for tax purposes under this 
constitutional and statutory scheme.  
This formula is a modification of the proportionate profit method of 
valuation utilized by the Internal Revenue Service (I.R.S.) in determining the 
value of the product mined for purposes of calculating depletion allowances 
under the Internal Revenue Code and corresponding regulations.  "The objective of the proportionate profits method of 
computation is to ascertain gross income from mining by applying the principle 
that each dollar of the total costs paid or incurred to produce, sell, and 
transport the first marketable product . . . earns the same percentage of 
profit."   26 C.F.R. § 
1.613-4(d)(4) (2001).  The federal 
formula multiplies the gross sales by the ratio of mining costs to total 
costs.  Wyoming's formula differs 
slightly by using a ratio of direct 
mining costs to total direct 
costs.   Section 
39-14-103(b)(vii).

 
 
Critical 
to this analysis, the statute specifies direct mining costs include 

 
 

mining 
labor 
including mine foremen and supervisory personnel whose primary responsibility is 
extraction of coal, supplies used for mining, mining equipment depreciation, 
fuel, power and other utilities used for mining, maintenance of mining 
equipment, coal transportation from the point of severance to the mouth of the 
mine, and any other direct costs 
incurred prior to the mouth of the mine that are specifically attributable to 
the mining operation[.] 

 
 
Section 
39-14-103(b)(vii)(B).  Total direct 
costs are likewise defined to include a similar list of costs "attributable to 
the mining, processing or transportation of coal up to the point of loading for 
shipment to market." Section 39-14-103(b)(vii)(C). Indirect costs are differentiated from 
direct costs and allocated by the same ratio.  Those costs are characterized as 
including, but are not limited to, "allocations of corporate overhead, data 
processing costs, accounting, legal and clerical costs, and other general and 
administrative costs which cannot be specifically attributed to an operational 
function without allocation."    Section 
39-14-103(b)(vii)(D).

 
 

Powder 
River, 
¶¶ 7-9, 
38 P.3d  at 426-27 (emphasis added).

 
 
[¶11]   The fundamental question we must 
answer in this case is what the legislature intended by the phrase "direct 
mining costs include mining labor" as it is used in § 39-14-103(b)(vii)(B).  Our rules of statutory construction have 
been oft-cited and focus on the plain language chosen by the 
legislature.

 
 
We first 
decide whether the statute is clear or ambiguous.  This Court makes that determination as a 
matter of law.  A "statute is 
unambiguous if its wording is such that reasonable persons are able to agree as 
to its meaning with consistency and predictability."  Allied-Signal, Inc. v. Wyo.State 
Bd. of Equalization, 813 P.2d 214, 220 [(Wyo. 1991)].  A "statute is ambiguous only if it is 
found to be vague or uncertain and subject to varying interpretations."   813 P.2d  at 
219-20.

 
 
If we 
determine that a statute is clear and unambiguous, we give effect to the plain 
language of the statute.

 
 
We begin 
by making an "'inquiry respecting the ordinary and obvious meaning of the words 
employed according to their arrangement and connection.'"   Parker Land and Cattle Company v. Wyoming 
Game and Fish Commission, 845 P.2d 1040, 1042 (Wyo.1993) (quoting Rasmussen v. Baker, 7 Wyo. 117, 133, 50 P. 819, 
823 (1897)).  We construe the 
statute as a whole, giving effect to every word, clause, and sentence, and we 
construe together all parts of the statute in pari materia.

 
 

State 
Department of Revenue and Taxation v. Pacificorp, 872 P.2d 1163, 1166 (Wyo.1994).  If we 
determine that the statute is ambiguous, we resort to general principles of 
statutory construction to determine the legislature's 
intent.

 
 

State v. 
Bannon Energy Corporation, 999 P.2d 1306, 1308-09 (Wyo.2000) (some citations omitted).

 
 

Powder 
River, 
¶ 6, 38 P.3d  at 426.  

 
 
[¶12]   While we can assume the legislature 
believed it was putting to rest all of the debate concerning mineral valuation 
when it completely revamped the mineral taxation statutes in 1990, the industry, 
the responsible agencies, and the courts continue to be faced with a seemingly 
never-ending series of scenarios calling into question what the legislature 
intended with regard to the categorization of costs in the context of the 
proportionate profits method of valuation.  
Given our charge is to discern legislative intent, we must glean what we 
can from the sometimes meager statutory language.

 
 
[¶13]   Both PRCC and the DOR agree the 
statutory language is unambiguous.  
It provides that to determine the fair market value of coal sold away 
from the mouth of the mine, the sales value of extracted coal, minus royalties 
and taxes, must be multiplied by the ratio of direct mining costs to total 
direct costs.  Section 39-14-103; 
Powder 
River, ¶¶ 7-9, 38 P.3d  at 426-27.  To determine 
whether a particular cost is a "direct mining cost," we look first to the 
statutory list of such costs.  First 
on that list, we find "mining labor including plant foremen and supervisory 
personnel whose primary responsibility is extraction of coal."  Section 39-14-103(b)(vii)(B).  PRCC contends the word "labor" means only 
salary and wages and, if the legislature had intended it to include employee 
healthcare costs, it would have said so.  
Predictably, the DOR argues just the opposite  the plain meaning of 
labor includes healthcare costs and had the legislature intended to exclude 
those costs, it could have done so.  

 
 
[¶14]   The plain meaning of "labor" in the 
context of this statute is the work necessary to accomplish the act of 
mining.  The statute defines mining 
or production as "drilling, blasting, loading, roadwork, overburden removal, 
pre-mouth of the mine reclamation, transportation from the point of severance to 
the mouth of the mine, and maintenance of facilities and equipment directly 
relating to any of the functions stated in this paragraph."  Wyo. Stat. Ann. § 39-14-101(a)(v) 
(LexisNexis 2005).  Thus, whatever 
it costs the employer to obtain the necessary work to accomplish the mining is 
the cost of labor.  Everyone would 
agree wages are a component of the direct cost of labor.  Black's Law Dictionary 1579 
(6th ed. 1990) (citations omitted) defines wages as 
follows:

 
 

Wages. 
The 
compensation given to a hired person for his or her services. Compensation of 
employees based on time worked or output of production.

 
 
Every 
form of remuneration payable for a given period to an individual for personal 
services, including salaries, commissions, vacation pay, dismissal wages, 
bonuses and reasonable value of board, rent, housing, lodging, payments in kind, 
tips, and any other similar advantage received from the individual's employer or 
directly with respect to work for him. Term should be broadly defined and 
includes not only periodic monetary earnings but all compensation for services 
rendered without regard to manner in which such compensation is 
computed.

 
 
[¶15]   It cannot be seriously disputed 
that healthcare benefits are offered to employees to induce them into employment 
and are looked upon by both employer and employee as part of the compensation 
package for the work performed.  In 
fact, in our society today, with the pressure felt by all from ever increasing 
healthcare costs, we can fairly conclude healthcare is a very important 
component of compensation for the employee and a very costly expense to the 
employer.  A careful reading of the 
testimony of PRCC's witnesses demonstrates, as an employer, it does not dispute 
the fact that healthcare benefits are part of the cost of mining labor.  However, PRCC concludes healthcare costs 
are not a "direct" cost.  PRCC 
provides two reasons for that conclusion.

 
 
[¶16]   First, PRCC claims the term "mining 
labor" within the list of "direct mining costs" is a term of art in the field of 
accounting and means "direct labor" which includes only wages and not fringe 
benefits.  Technical terms or "terms 
of art" are given their technical meaning unless the legislature expresses a 
different intent.  Williams Prod. RMT Co. v. State Dep't of 
Revenue, 2005 WY 28, ¶ 19, 107 P.3d 179, 185-86 (Wyo. 2005); Amoco Prod. Co. v. State, 751 P.2d 379, 
382 (Wyo. 
1988).  Whether a term has such a 
technical meaning is a question of fact to be proved. 2A N. Singer Sutherland, Statutory Construction, § 48:16 
(6th ed 2000).  Mr. 
Coovert, an accountant with extensive experience in mineral taxation, testifying 
on behalf of PRCC, opined it was well known and understood in the cost 
accounting field that "direct labor" excludes fringe benefits like 
healthcare.  However, he conceded 
there are accounting authorities who would differ with his opinion of the 
definition of "direct labor."  The 
DOR cites Rebecca A. Gallun, et al., Fundamentals of Oil and Gas Accounting, 
266 (4th ed. 2001); Charlotte J. Wright, et al., International Petroleum Accounting, 229 
(2005); and the Internal Revenue Service,1  for the opposite proposition, i.e. 
direct labor costs include fringe benefits.  In addition, the DOR cites to various 
court opinions which came to the same conclusion in different contexts, 
including Frisco Employee's Hosp. Ass'n 
v. State Tax Comm'n of Mo., 381 S.W.2d 772, 776 (Mo. 1964); Publ'ers Paper Co. v. Dep't of Revenue, 
530 P.2d 88, 98 (Or. 1974); Teradyne, 
Inc. v. Teledyne Indus., Inc., 676 F.2d 865, 870 (1st Cir. 1982); Hyster Co. v. United States, 848 F. Supp. 178, 189 (Ct. Int'l Trade 1994); Cent. 
Ill. Light Co. v. Stenzel, 195 N.E.2d 207, 213 (Ill. App. Ct. 1964).     

 
 
[¶17]   In its factual findings, the SBOE 
found "mining labor" in the context of the statute was not a term of art and did 
not mean only "actual hourly wage or salary paid and nothing else," as contended 
by PRCC.  In part, it relied upon 
the fact that the authorities disagreed upon a technical meaning and PRCC 
offered only the personal opinion of its expert.  We conclude the record contains 
substantial evidence to support the SBOE's factual 
finding.

 
 
We agree 
with the SBOE that:  

 
 
            
There is no dispute that healthcare costs are part of the total 
compensation paid to mine employees. Findings, ¶ 19. At the simplest 
level, it makes more common sense to view "mining labor" as embracing employee 
healthcare costs in the manner urged by the Department. The words are certainly 
broad enough for this purpose. Also, as the Department points out, the 
legislature could have excluded fringe benefits by using more limited language 
such as "mining wages and salaries," but did not do so. 

 
 
[¶18]   PRCC also contends that even if 
healthcare costs can be considered part of "labor," they must be indirect costs 
because they do not correlate directly with wages and, therefore, cannot be 
"attributed" to mining as required by the statute.  It points to SBOE findings 60 and 91 
recognizing these costs do not vary in proportion to wages, but instead depend 
upon marital status, number of dependents, age, general health, etc. and are not 
related to whether an employee works in mining, processing or 
transportation.  PRCC maintains 
these findings and conclusions must lead to the conclusion that these costs are 
indirect.  Unless labor costs can be 
"attributed" to mining, PRCC contends, they cannot qualify as direct mining 
costs.  That contention raises the 
question of what the legislature meant by providing in § 39-14-103(b)(vii)(B) 
that direct mining costs must be "specifically attributable to  the mining operation" as opposed to § 
39-14-103(b)(vii)(D) which defines indirect costs as those that "cannot be 
specifically attributed to an operational function without allocation."  PRCC suggested, through the testimony of 
Mr. Coovert, that "attribute" means actually tracked by the taxpayer's 
accounting system as part of mining costs whereas "allocate" connotes a division 
of costs by percentage or some other appropriate method.  The SBOE rejected PRCC's interpretation 
of "attribute" because it necessarily depended on the accuracy and detail of an 
individual taxpayer's accounting system and could result in disparate and 
unequal treatment among taxpayers in the same industry.  We agree with that conclusion.  However, we do not agree that the 
legislature intended there to be no difference between "attribute" and 
"allocate."  In interpreting 
statutes, we give meaning to each word and phrase.  Powder River, ¶ 6, 38 P.3d  at 426; State Dep't of Revenue and Taxation v. 
Pacificorp, 872 P.2d 1163, 1166 (Wyo. 1994). Giving meaning to each word and 
reading all of these statutory provisions together, it appears the legislature 
intended costs directly associated with mining, as opposed to other operational 
functions, to be "attributable" to mining and, therefore, "direct mining 
costs."  However, if costs were 
necessary to the whole operation, but only indirectly associated with each 
individual operational function, a portion of those costs could only be 
considered mining costs by allocation via the direct cost 
ratio.

 
 
 [¶19]  PRCC seems to suggest that the definition 
of indirect costs, which refers to costs "which cannot be attributed to an 
operational function without allocation" means if any method of allocation is used to 
attribute the cost to mining, then the cost must be indirect.  This interpretation ignores legislative 
intent exhibited by the list of specific indirect costs.  That list suggests that indirect costs, 
such as corporate overhead, legal, secretarial, etc., are those costs that by 
their nature are not directly associated with any particular operational 
function.  That is what makes them 
"indirect" and they must then be allocated to mining by the direct cost 
ratio.  PRCC's expert, Mr. Coovert, 
contended that, if costs had to be  spread over all of the functions by some 
formula and not by direct attribution by an accounting system, they were 
indirect costs.  The SBOE disagreed 
with his approach, and so do we because it ignored the fact that many costs 
which everyone would agree were direct costs, such as warehousing, but which 
benefit more than one mining function, e.g. mining, processing and 
transportation, would somehow morph into indirect costs because of the use of a 
formula to attribute those costs to the mining function.2  Mr. Coovert addressed this anomaly by 
suggesting that, because specifically listed direct costs had to be treated as direct costs, if 
necessary, those costs could be allocated by some formula, but any costs falling 
into the "catchall" phrase of "any other direct costs" could not be so 
allocated.  If they had to be 
allocated? because of their nature and the particular taxpayer's accounting 
system, then they became indirect costs.  
We are not convinced the legislature intended the value of coal to depend 
upon the individual taxpayer's accounting system.  

 
 
[¶20]   However, even if PRCC's 
interpretation of the statutes were correct, the evidence established PRCC's 
accounting system did, in fact, allow healthcare costs to be attributed to each 
employee by social security number and, thus, those costs could be attributed to 
the relative function or functions performed by the employee.  Recognizing this approach may result in 
aberrations from year to year when individual employees incur extraordinary 
medical expenses, PRCC, with the DOR's agreement, had historically distributed 
those costs evenly over all of the mine functions in the same percentage as the 
salary and wages costs were distributed.  
The DOR has also allowed other taxpayers to distribute those costs on a 
per capita basis.  

 
 
[¶21]   We conclude, when all the 
provisions of the statute are read together, the legislature simply meant all 
costs, a portion of which are directly associated with a particular function, 
should be attributed to that function in some reasonable way.  The indirect cost catch-all phrase in 
subsection 39-14-103(b)(vii)(D), "other general and administrative costs which 
cannot be specifically attributed to an operational function without 
allocation," simply means costs similar to those specifically listed which are 
not directly related to a function and, therefore, must be allocated by the 
direct cost formula.  The words 
"without allocation" in that section were not intended to prevent costs directly 
associated with a particular function from being considered as direct costs 
simply because they had to be allocated among the functions by some agreed upon 
formula, either because of the level of detail provided by the taxpayer's 
accounting system or because of the nature of the cost.  The more reasonable interpretation of 
that language suggests the catch-all phrase means other costs similar in nature 
to the listed indirect costs and for which no reasonable formula exists to 
allocate those costs among functions except the direct cost 
ratio.

 
 
[¶22]   This interpretation is consistent 
with this Court's jurisprudence and the SBOE's prior treatment of indirect costs 
pursuant to this statute.  That 
issue has been addressed in four cases: In the Matter of the Appeal of Exxon Coal 
U.S.A., Inc., SBOE Doc. No. 93-107 (Wy. St. Bd. Eq. Oct. 6, 1994); In the Matter of the Appeal of Marigold Land 
Co., SBOE Doc. No. 2001-106 (Wy. St. Bd. Eq., Aug. 8, 2002); Powder River, 38 P.3d 423; and Wyodak Res. Dev. Corp. v. State Bd. of 
Equalization, 9 P3d. 987 (Wyo. 2000).  
In Exxon Coal, the SBOE 
concluded final reclamation costs accruals were not direct costs of mining.  Finding those costs estimated future 
costs and no basis existed to charge them to a "distinct portion of the mine 
operations," the Board concluded they were indirect costs and could only be 
attributed to mining by allocation through the direct cost ratio.  PRCC's healthcare costs are actual costs 
rather than estimates of future costs and individual employee healthcare costs 
can be attributed to the employee's operational function or distributed as they 
have been in the past by using the wage percentages.

 
 
[¶23]   This Court, in Powder River, concluded coal lease bonus 
payments were indirect costs because they were both unlike the specifically 
listed "hard mining costs" in § 39-14-103(b)(vii)(B) and  necessary and beneficial to the entire 
operation and not just the mining function.  Powder River, ¶ 20, 38 P.3d  
at 430.  Applying that precedent in 
Marigold, the Board concluded mine 
development costs incurred before construction of the mine were indirect costs 
because those costs could not be tied to a particular operational function 
without allocation and the taxpayer's choice of allocation methods was 
arbitrary.  Marigold, Docket No. 2001-106, ¶¶ 
83-87.  Healthcare costs, unlike 
coal lease bonuses or mine development costs, can be, and have been, tied to the 
function in which the individual employee responsible for those costs worked. 

 
 
[¶24]   In contrast, the SBOE and this 
Court have found costs to be direct mining costs when those costs were directly 
associated with the act of mining.  
In Wyodak, the mining company 
had to move a state highway in order to mine the coal beneath it.  We affirmed the SBOE and said the costs 
of doing so were ". . . direct costs because they were or will be incurred as a 
condition of mining the specific coal under and around the right-of-way.  Wyodak moved the highway so that it 
could mine the coal."  Wyodak, 9 P.3d  at 991.  The same can be said of healthcare costs 
for mining workers.  Those workers 
must be "compensated" in order to mine the coal.  As we stated above, healthcare benefits 
are considered by all to be a valuable piece of the compensation 
package.

 
 
[¶25]   As additional support for its 
position, PRCC argues the DOR has been inconsistent in its treatment of 
healthcare costs for other taxpayers.  
It points to an exchange of letters between DOR employee, Mr. Grenvik, 
and another mining company.  While 
it is true those letters could be read to indicate the DOR agreed with the 
position taken by PRCC with regard to the treatment of healthcare costs as 
indirect costs, the SBOE gave them little weight concluding the context in which 
they were written, e.g. negotiations with another taxpayer about which portion 
of their healthcare benefits should be included as direct costs, explained the 
apparent inconsistency.  The SBOE's 
explanation is reasonable and supported by substantial evidence.  However, in addition, this tempest in a 
teapot is of little persuasive value since PRCC concedes it had historically 
reported healthcare benefits as direct costs, and so had much of the rest of the 
industry, because the DOR had instructed them to do so.  That undisputed fact indicates the DOR 
has taken a consistent position based upon its interpretation of the 
statute.  Inconsistency in how other 
taxpayers may have treated these costs in individual tax returns does not 
control how the statute should ultimately be interpreted.

 
 
CONCLUSION

 
 
[¶26]   The proportionate profit method of 
calculating the value of coal for purposes of severance and ad valorem taxation 
provided by the statutes unavoidably lends itself to debate over whether 
individual items of cost are direct or indirect costs of mining.  On the basis of the language of the 
statute,  our precedent  interpreting that language, and our 
understanding of the intent of the legislature, we hold that healthcare benefits 
offered as part of an employee's compensation package are part of the direct 
cost of mining labor pursuant to § 39-14-103 (b)(vii)(B).  The SBOE's findings of fact, conclusions 
of law and order are affirmed.

 

FOOTNOTES

 
 

1IRS, Market Segment Specialization Program 
Guideline,  Oil and Gas 
Industry, p. 44, 1996 WL 672892 ( I.R.S. May 1996) and Internal Revenue Service General Counsel 
Memorandum, p. 4, 1971 WL 28848.

 
 

2Mr. Coovert 
confirmed that as many as fifty to one hundred other methods of allocating 
direct costs have been used by other mining companies and approved by the DOR to 
attribute indisputably direct costs to the mining function. While we recognize 
the administrative confusion that approach might generate, it seems inherent in 
the direct cost ratio chosen by the legislature as the method to value coal sold 
away from the mine because the legislature could not list every conceivable 
direct cost and did not mandate the type of  accounting system a taxpayer must use.