Case Title: Thunder Basin Coal Co. v. Wyoming State Bd. of Equalization

Citation: 

Docket Number: 94-125

State: wyoming

Court: Wyoming Supreme Court

Date: 1995-06-08T00:00:00Z

Document:
Thunder Basin Coal Co. v. Wyoming State Bd. of Equalization1995 WY 83896 P.2d 1336Case Number: 94-125Decided: 06/08/1995Supreme Court of Wyoming

THUNDER BASIN COAL COMPANY,

 Appellant 
(Petitioner),

v.

WYOMING STATE BOARD OF 
EQUALIZATION,

 Appellee 
(Respondent).

 

Appeal 
from District Court, Campbell County, Dan R. Price II, 
J.

Alan B. Minier of 
Rothgerber, Appel, Powers & Johnson, Cheyenne, for appellant.

Joseph B. Meyer, Atty. Gen., 
and Vicci M. Colgan, Sr. Asst. Atty. Gen., for appellee.

Before GOLDEN, C.J., and THOMAS, MACY, TAYLOR and 
LEHMAN, JJ.

MACY, 
Justice.

[¶1]      Appellant Thunder 
Basin Coal Company filed a petition in the district court for a review of the 
findings of fact, conclusions of law, and order which had been issued by 
Appellee Wyoming State Board of Equalization. The district court certified the 
case to this Court pursuant to W.R.A.P. 12.09(b).

[¶2]      We affirm the 
State Board of Equalization's decision.

Issues

[¶3]      Thunder Basin 
presents the following issues for our review:

Must the final agency action of the Wyoming State 
Board of Equalization be set aside as contrary to law and otherwise not in 
accordance with the standards of W.S. § 16-3-114(c), because the 
Board:

1. 
        
Refused to set aside in its entirety a reassessment arising out of an 
audit that (a) was not intended to ascertain the fair cash market value of 
[Thunder Basin's] product; (b) disregarded the appraisal judgment exercised by 
State employees who did the original valuations; (c) was conducted without 
guidelines and without reference to any recognized audit standards; and (d) was 
beyond the scope of audits permitted under Wyoming law;

2. 
        
Made findings of fact that are unsupported by substantial evidence 
because they are (1) based on matters outside the record in this case (including 
matters apparently officially noticed) whose source, if any, the Board refused 
to disclose; and (2) based on testimony that was not 
competent[;]

3. 
        
Upheld the State's disallowance of certain components of the initial 
valuations of [Thunder Basin's] coal production, including (a) the disallowance 
of "calculated profit" for 1987 and (b) the disallowance of haulage costs for 
1986;

4. 
        
Refused to hear [Thunder Basin's] claims for offset or refund; 
and

5. 
        
Made procedural and evidentiary rulings that deprived [Thunder Basin] of 
its due process right to adequately prepare and present its 
case.

Facts

[¶4]      Thunder Basin 
operated the Black Thunder and Coal Creek coal mines located in Campbell County. 
The Department of Audit began an audit in 1989 of Thunder Basin's coal 
production for the years 1984 through 1988. The 1986 and 1987 production years 
are the only years at issue in this appeal. For those years, the Department of 
Revenue employed a net-back valuation formula to value the coal which had been 
sold at points other than at the mouths of the mines. The net-back valuation 
formula is described in Amax Coal Company v. Wyoming State Board of 
Equalization, 819 P.2d 825, 827 n. 4 (Wyo. 1991).

[¶5]      The Department of 
Audit identified a number of errors which had been made in the original 
valuations of Thunder Basin's coal production. As a result of the audit, the 
Department of Revenue issued additional severance tax assessments to Thunder 
Basin and certified increases in the taxable value of Thunder Basin's coal 
production to Campbell County for ad valorem tax purposes.

[¶6]      Thunder Basin did 
not agree with the Department of Revenue's determinations and appealed to the 
State Board of Equalization. The State Board of Equalization held a contested 
case hearing on Thunder Basin's appeal. During the hearing, the State Board of 
Equalization refused to admit evidence offered by Thunder Basin with regard to 
the standard industry rate of return on and of its investment which was used in 
the net-back valuation formula in 1986 and 1987 or to its actual rate of return 
on and of its investment. Thunder Basin was allowed to submit a written offer of 
proof of its evidence on these issues. The State Board of Equalization upheld 
some of the Department of Revenue's additional assessments. Specifically, the 
State Board of Equalization affirmed the Department of Revenue's assessments 
which resulted from a disallowance of a double deduction for Thunder Basin's 
coal haulage costs for 1986 and a disallowance of a deduction for its 
"calculated profit" for 1987. Thunder Basin appealed to the district court from 
the State Board of Equalization's decision, and the district court certified the 
case to the Wyoming Supreme Court pursuant to W.R.A.P. 
12.09(b).

Discussion

[¶7]      When we are 
reviewing cases which have been certified to us pursuant to W.R.A.P. 12.09(b), 
we apply the appellate standards which are applicable to the reviewing court of 
the first instance. Hepp v. State ex rel. Wyoming Workers' Compensation 
Division, 881 P.2d 1076, 1077 (Wyo. 1994).

 

[¶8]  We review an administrative agency's 
findings of fact under the substantial evidence standard:

"Our task is to examine the entire record to 
determine if substantial evidence exists to support the hearing examiner's 
findings. We will not substitute our judgment for that of the hearing examiner 
if his decision is supported by substantial evidence. Substantial evidence is 
relevant evidence which a reasonable mind might accept in support of the 
agency's conclusions."

 

Romero v. Davy McKee Corporation, 854 P.2d 59, 61 
(Wyo. 1993) (citing Farman v. State ex rel. Wyoming Workers' Compensation 
Division, 841 P.2d 99, 102 (Wyo. 1992)).

 

Bearden v. State ex rel. 
Wyoming Workers' Compensation Division, 868 P.2d 268, 269 (Wyo. 1994). We do 
not, however, defer to an agency's conclusions of law. "Instead, if the `correct 
rule of law has not been invoked and correctly applied, . . . the agency's 
errors are to be corrected.'" Thunder Basin Coal Company v. Study, 866 P.2d 1288, 1291 (Wyo. 1994) (quoting Devous v. Wyoming State Board of Medical 
Examiners, 845 P.2d 408, 414 (Wyo. 1993)).

[¶9]      Many of the 
factual and legal issues which have been presented in this case are very similar 
to those which were presented in Amax Coal West, Inc. v. Wyoming State Board of 
Equalization, 896 P.2d 1329 (Wyo. 1995). We will, therefore, rely extensively 
upon our rulings in Amax Coal West, Inc. in deciding this 
case.

[¶10]   Thunder Basin contends that the 
State Board of Equalization erred by "refusing to set aside the [Department of 
Revenue's] reassessment in its entirety as contrary to law" because it did not 
reflect the fair cash market value of its mine product. As we explained in 
detail in Amax Coal West, Inc., Wyoming's constitution and statutes require that 
coal production must be valued for taxation purposes at its fair cash market 
value at the mouth of the mine. 896 P.2d  at 1332. Recognized appraisal 
techniques must be used to determine the fair cash market value of the coal 
which is sold away from the mouth of the mine. All factors which relate to the 
value of the product must be addressed in the valuation method. The net-back 
valuation formula is one such appraisal technique. 896 P.2d  at 
1332-33.

[¶11]   Thunder Basin seeks to challenge 
components of the net-back valuation formula, including the Department of 
Revenue's use of a standard rate of return instead of Thunder Basin's actual 
rate of return. The record reveals that Thunder Basin was aware of the 
Department of Revenue's use of a standard rate of return at the time that the 
department made its original assessment. Thunder Basin waived its right to 
challenge the components of the formula when it voluntarily elected not to 
appeal from the original assessment which was derived from the use of the 
formula. It, therefore, conceded that the net-back valuation formula was an 
appropriate appraisal method to be used in determining the fair cash market 
value of its coal production. Thunder Basin cannot, at this late date, challenge 
the basic components of the formula when the components were not changed in the 
audit or revaluation. 896 P.2d  at 1332.

[¶12]   Since Thunder Basin waived its 
right to contest the net-back valuation formula, evidence on the origins of the 
standard rate of return and evidence with regard to Thunder Basin's actual rate 
of return were irrelevant to the issues properly before the State Board of 
Equalization at the contested case hearing. The Board correctly refused to hear 
that evidence and did not err by requiring Thunder Basin to present its offer of 
proof in written form. 896 P.2d  at 1335. Similarly, the State Board of 
Equalization's findings on the origins of the standard rate of return were not 
essential to its decision, and we do not need to determine whether or not those 
findings were supported by substantial evidence. Id.

[¶13]   The audit revealed errors in the 
valuation of Thunder Basin's coal production: (1) Thunder Basin was allowed to 
deduct its haulage cost twice in 1986 - once as a transportation cost and again 
as a processing cost - and (2) Thunder Basin was allowed to take a deduction for 
its "calculated profit" as a processing cost in addition to receiving a 
deduction of the standard rate of return on and of its investment which was 
given to all coal producers in 1987. After the audit, the Department of Revenue 
disallowed the deduction for Thunder Basin's haulage as a processing cost and 
refused to give Thunder Basin a deduction for its calculated profit. The 
Department of Revenue issued additional assessments to reflect those 
determinations. The State Board of Equalization upheld the additional 
assessments.

[¶14]   Thunder Basin offers an offset 
theory, which is similar to the argument presented by Amax, to account for the 
erroneous deductions. 896 P.2d  at 1333. Thunder Basin contends that the 
Department of Revenue, in a valid exercise of its appraisal judgment, allowed 
Thunder Basin to take the double deduction for its haulage costs as a substitute 
for giving it credit for its actual profit in the original 1986 assessment. 
Thunder Basin's theory is untenable.

[¶15]   Thunder Basin does not direct us to 
any statutory or regulatory authority which supports the conclusion that it is 
entitled to have a double deduction for a single cost. Department of Revenue 
employees did not have the authority, under the guise of appraisal judgment, to 
give Thunder Basin a deduction which was not warranted by the statutes or rules 
and regulations. Fullmer v. Wyoming Employment Security Commission, 858 P.2d 1122, 1124 (Wyo. 1993).

[¶16]   Thunder Basin was allowed to have a 
deduction in 1987 for its "calculated profit"1 in addition to having the standard 
rate of return which was allowed to all coal producers under the net-back 
valuation formula for that year. The State Board of Equalization correctly found 
that the calculated profit deduction was improper. The Department of Revenue is 
required to treat all similarly situated taxpayers uniformly and equally. WYO. 
CONST. art. 15, § 11; see also Teton Valley Ranch v. State Board of 
Equalization, 735 P.2d 107 (Wyo. 1987). When the Department of Revenue allowed 
Thunder Basin to take a deduction for its calculated profit but did not give the 
same deduction to other taxpayers, it violated its legal directives. The 
Department of Revenue properly corrected that error after the audit had been 
conducted by disallowing the calculated profit deduction and by issuing the 
additional assessment.

[¶17]   Thunder Basin argues that the 
Department of Audit exceeded its authority pursuant to the State Board of 
Equalization's rules which articulated the relevant audit procedure. RULES AND 
REGULATIONS, WYOMING STATE BOARD OF EQUALIZATION ch. XXI, § 14 (1986). As we 
previously decided in Amax Coal West, Inc., the Department of Audit, the 
Department of Revenue, and the State Board of Equalization acted within the 
scope of their authorities and responsibilities by discovering and remedying 
assessment errors. See Wyoming State Tax Commission v. BHP Petroleum Company 
Inc., 856 P.2d 428, 435-39 (Wyo. 1993). The errors detected in the audit were 
mathematical and reporting errors which could be properly identified by the 
auditors without the need to consult with appraisal specialists. Amax Coal West, 
Inc., 896 P.2d  at 1335.

[¶18]   In its findings of fact, the State 
Board of Equalization stated that, in its annual reports, Thunder Basin had 
misled the Department of Revenue. Thunder Basin contends that substantial 
evidence did not support those findings. After reviewing the record, we cannot 
agree. Evidence was presented which suggested that Thunder Basin had attempted 
to manipulate the Department of Revenue in the original assessment so that it 
would reach a lower valuation determination. Although the double reporting of 
the haulage costs and the improper reporting of the calculated profit were 
easily identified in the audit as being errors, they were errors which Thunder 
Basin should not have made in its initial reports. The propriety of the 
reassessment did not depend upon whether or not Thunder Basin was at fault. We 
understand that Thunder Basin may have been insulted by the State Board of 
Equalization's findings, but, regardless of whether or not Thunder Basin had 
attempted to mislead the Department of Revenue, the department was required to 
correct the errors after the auditors discovered them.

[¶19]   Thunder Basin maintains that the 
State Board of Equalization acted arbitrarily and capriciously by relying on its 
own expertise in making its decision. In support of its argument, Thunder Basin 
asserts that the State Board of Equalization officially noticed matters from 
other proceedings without giving Thunder Basin the opportunity to respond as is 
required by WYO. STAT. § 16-3-108(d) (1990). Thunder Basin points out that some 
of the findings of fact in this case were identical to those issued by the State 
Board of Equalization in other cases. It is true that several of the State Board 
of Equalization's findings in this case were the same as the findings issued in 
other cases, but that fact alone does not establish that the board acted in an 
arbitrary fashion. The other cases were remarkably similar, both factually and 
legally, to Thunder Basin's case, and the State Board of Equalization did not 
err by treating similar cases in a consistent manner.2

[¶20]   Thunder Basin insists that the 
Board erred by not requiring the Department of Revenue to support its 
revaluation and reassessment with expert testimony at the contested case 
hearing. WYO. STAT. § 16-3-108(a) (1990) provides that agency orders must be 
supported by "the type of evidence commonly relied upon by reasonably prudent 
men in the conduct of their serious affairs." The Department of Revenue 
presented testimony from Department of Revenue employees and from Department of 
Audit employees to support the additional assessment. That evidence was 
certainly competent, and it was sufficient to support the State Board of 
Equalization's decision.

[¶21]   Thunder Basin suggests that our 
decision in Devous mandates that expert testimony is required to fulfill the 
substantial evidence requirement in administrative proceedings. 845 P.2d 408. In 
that case, we held that expert testimony was required to support the Board of 
Medical Examiner's decision. 845 P.2d  at 418. We have not, however, required 
that similar expert testimony be given in tax cases. Instead, we have found that 
substantial evidence supports agencies' findings when proper and sufficient 
testimony has been presented through qualified employees. See, e.g., Holly Sugar 
Corporation v. State Board of Equalization for State of Wyoming, 839 P.2d 959 
(Wyo. 1992).

[¶22]   Thunder Basin contends that the 
State Board of Equalization erred by not allowing it to present its claim for an 
offset or refund. The State Board of Equalization's ruling was correct. Thunder 
Basin's claims were time-barred under the provisions of WYO. STAT. § 39-6-304(g) 
(1985) (repealed 1988) because Thunder Basin failed to file its refund 
application within two years of its payment of the taxes. CIG Exploration, Inc. 
v. State Department of Revenue, 880 P.2d 601, 603 (Wyo. 1994). Thunder Basin is 
not entitled to receive an offset or refund pursuant to WYO. STAT. § 39-2-214(e) 
(1994) because the audit was commenced before the effective date of the statute. 
See Texaco, Inc. v. State Board of Equalization, 845 P.2d 398 (Wyo. 
1993).

[¶23]   Thunder Basin argues that Amoco 
Production Company v. Board of Commissioners of Carbon County, 876 P.2d 989 
(Wyo. 1994), and Kunard v. Enron Oil & Gas Company, 869 P.2d 132 (Wyo. 
1994), required the State Board of Equalization to hear its claims. Both of 
these cases involved situations where the State Board of Equalization had 
already affirmatively determined that an overassessment had occurred and had 
reduced the taxpayers' assessed valuations. The controversies in Amoco 
Production Company and Kunard arose when the relevant counties refused to refund 
ad valorem taxes which were paid because of the overvaluations and refused to 
refund penalty interest charges. Neither of the cases addressed whether or not 
the State Board of Equalization must consider a claim for refund or offset in 
the first instance, and, therefore, those cases do not apply in this case. The 
State Board of Equalization properly refused to hear Thunder Basin's claims 
because the claims were time-barred under § 39-6-304(g) and the case law which 
interpreted that section. Thunder Basin argues that, pursuant to Kunard, it is 
entitled to have equitable relief, but it does not present a persuasive argument 
on its right under the facts of this case. Thunder Basin, therefore, is not 
entitled to have equitable relief.

[¶24]   During the discovery phase of this 
case, Thunder Basin filed a motion to compel the State Board of Equalization to 
answer Thunder Basin's discovery requests in the district court. The State Board 
of Equalization's executive secretary entered his appearance in the district 
court case as the attorney of record for the board. The State Board of 
Equalization subsequently denied Thunder Basin's motion to preclude the 
executive secretary from acting as the hearing examiner in the contested case 
proceeding. Thunder Basin asserts that its due process rights were violated 
because the State Board of Equalization's ruling denied it the right to have its 
case considered by an unbiased tribunal.

[¶25]   "[T]he strictures of due process 
require a fair hearing before a forum which is free from bias and prejudice." 
State Transportation Commission of Wyoming v. Ford, 844 P.2d 496, 498 (Wyo. 
1992). Thunder Basin, however, "had the burden to prove impropriety on the part 
of the hearing body." Id. Thunder Basin contends that the executive secretary's 
repeated rulings in favor of the Department of Revenue and against Thunder Basin 
denoted bias against it. This Court has stated: "Bias and prejudice cannot be 
presumed from unfavorable past rulings." Richardson v. Richardson, 868 P.2d 259, 263 (Wyo. 1994). Thunder Basin has not satisfied its burden of proving 
impropriety on the part of the State Board of 
Equalization.

Conclusion

[¶26]   The State Board of Equalization did 
not commit any reversible error. Its findings of fact, conclusions of law, and 
order are, therefore,

[¶27]   Affirmed.

FOOTNOTES

1 The record is unclear as to what the 
term "calculated profit" meant. In some instances, Thunder Basin seemed to be 
describing a number derived from an independent calculation; in other instances, 
its seemed to be using "calculated profit" synonymously with "actual profit." 
The precise meaning of the term is immaterial since we know that calculated 
profit was an amount of profit reported by Thunder Basin which was over and 
above the return on investment accounted for by the standard rate of return 
included in the net-back valuation formula in 1987.

2 Thunder Basin seems to argue that the 
State Board of Equalization improperly officially noticed other matters. Thunder 
Basin does not, however, identify those matters to us. We cannot address the 
alleged errors in the absence of a specific and coherent argument. McNeiley v. 
Ayres Jewelry Co., 886 P.2d 595, 597 n. 2 (Wyo. 
1994).