Case Title: AIRTOUCH COMMUNICATIONS, INC. v. DEPARTMENT OF REVENUE, STATE OF WYOMING

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 2003-09-12T00:00:00Z

Document:
AIRTOUCH COMMUNICATIONS, INC. v. DEPARTMENT OF REVENUE, STATE OF WYOMING2003 WY 11476 P.3d 342Case Number: 02-129Decided: 09/12/2003
APRIL 
TERM, A.D. 2003

 

                                                                                                            

 

AIRTOUCH 
COMMUNICATIONS, INC.;

WYOMING 
RSA #3 (CELLULAR INC.,

NETWORK 
CORP.); WYOMING RSA #2

(SHERIDAN 
LIMITED PARTNERSHIP);

and 
WYOMING RSA #1 (PARK LIMITED

PARTNERSHIP),

 

Appellants(Petitioners),

 

v.

 

DEPARTMENT 
OF REVENUE, STATE

OF 
WYOMING,

 

Appellee(Respondent).

 

 

W.R.A.P. 
12.09(b) Certification  from the 
District Court of Laramie County

The 
Honorable E. James Burke, Judge

 

Representing 
Appellants:

Richard 
G. Smith of Hawley Troxell Ennis & Hawley LLP, Boise, Idaho; and W. Perry 
Dray and Gregory C. Dyekman of Dray, Thomson & Dyekman, P.C., Cheyenne, 
Wyoming  

 

Representing 
Appellee:

Hoke 
MacMillan, Attorney General; John W. Renneisen, Deputy Attorney General; Martin 
L. Hardsocg, Senior Assistant Attorney General; and Cathleen D. Parker, 
Assistant Attorney General  

 

 

Before 
HILL, C.J., and GOLDEN, LEHMAN, KITE, and VOIGT, JJ.

 

 

            
KITE, Justice.

 

[¶1]      Four cellular 
companies appealed from the Department of Revenue's (DOR) 1999 and 2000 
valuations of their property contending they were not subject to state 
assessment as "telephone companies" and, in the alternative, the valuations were 
improper because the value of intangible property, exempt from taxation by 
statute, was not deducted.  The 
State Board of Equalization (SBOE) affirmed the valuations finding cellular 
companies are "telephone companies" within the meaning of the statute and the 
companies failed to carry their burden of proving the value of their intangible 
property.  We agree the companies 
are "telephone companies" under the statute.  With respect to the valuation, we affirm 
in part, reverse in part, and remand for further consideration consistent with 
this opinion.

 

 

ISSUES

 

[¶2]      The appellants 
present the following issues:

 

            
I.  Did the state board err in concluding that each appellant 
constitutes a "telephone company" subject to state assessment pursuant to W.S. § 
39-13-102(m)(vi)?

 

            
II.  Did the board err in adopting erroneous criteria for the 
exclusion of intangible property, exempt under W.S. § 39-11-105(xxix) and § 
39-111-101(a)(vii), and in its improper interpretation of the standards for 
exclusion of intangible property set forth in RT Communications v. Board of 
Equalization, 2000 WY 183, 11 P.3d 915?

 

            
III.  Did the board err in affirming the value of the tangible 
assets subject to valuation through the cost approach used by the department, 
and in affirming the "economic enhancement" adjustment utilized by the 
department to artificially and improperly increase the value of that tangible 
property?

 

            
IV.  Did the board err in refusing to allow an increase in the 
capitalization rate to reflect the "flotation" cost adjustment granted by the 
department to other taxpayers and to these taxpayers in an amended 
valuation?

 

            
V.  Did the board err in excluding from evidence an 
independent, comprehensive valuation of taxpayers' taxable and exempt property, 
both as an operating business enterprise and the individual components thereof, 
while at the same time concluding that taxpayers did not provide sufficient 
information for the department to identify and remove the value associated with 
exempt intangible assets?

 

            
VI.  Ultimately, did the board err in affirming the unitary or 
business enterprise value for the taxpayers, as determined by the Department of 
Revenue, and by failing to exclude the value of separable and identifiable 
intangible assets exempt under W.S. § 39-11-101(a)(vii)?

 

DOR 
frames the issues in the following manner:

 

            
1.  Did the state board correctly hold that the taxpayers were 
telephone companies subject to state assessment under Wyo. Stat. 
39-13-102(m)(vi)?

 

            
2.  Did the state board correctly conclude that the intangibles 
identified by the taxpayers did not have to be removed from the valuation 
completed by the department?

 

            
3.  Did the state board properly conclude that the economic 
enhancement adjustment was appropriate in order to measure the true value of the 
taxpayers' property?

 

            
4.  Did the state board properly conclude that the issue of 
flotation costs was not properly before the state board?

 

            
5.  Did the state board properly exclude evidence supplied to 
the department over a year after the initial valuation was 
completed?

 

            
6.  Does the state board ruling result in uniform 
assessment?

 

 

 

[¶3]      The Ad Valorem 
Division of DOR certifies the values of approximately sixty telephone companies 
to the county assessors on an annual basis.  As provided by statute, all state 
assessed taxpayers are required to report the value of their property to DOR to 
facilitate the valuation and assessment process.  DOR valued and assessed the cellular 
service providers pursuant to Wyo. Stat. Ann. § 39-13-102 (LexisNexis 2001), 
using a unitary approach to valuation which values all the assets of a "going 
concern" as opposed to the summation method which values individual assets and 
then sums the total.  Four of the 
cellular companies objected to their 1999 and 2000 valuations. Those companies, 
the appellants in this case, were Airtouch Communications, Inc., which serves 
eastern and southeast Wyoming; Wyoming RSA #3 (Cellular Inc., Network Corp.) 
which serves southwest Wyoming; Wyoming RSA #2 (Sheridan Limited Partnership) 
serving the Sheridan area; and Wyoming RSA #1 (Park Limited Partnership) serving 
the Cody area (collectively referred to hereafter as 
"taxpayers").

 

[¶4]      After the 
issuance of the 1999 preliminary valuations, the taxpayers (exclusive of 
Airtouch) requested an informal conference with DOR appraisers to urge deduction 
of the value of intangible property.  
The taxpayers made this request despite the fact that they provided no 
information concerning those values either in the 1999 annual reports filed with 
DOR or during the informal conference.  
After the informal discussion and the taxpayers' submittal of limited 
additional information relating to equipment obsolescence, DOR issued revised 
final 1999 valuations which reduced the preliminary appraisals by ten percent to 
account for equipment obsolescence.  
The taxpayers (exclusive of Airtouch) appealed from the final 1999 
valuations.

 

[¶5]      In 2000, the 
taxpayers did not request an informal conference after receiving the preliminary 
valuations, and they did not provide DOR with information on the value of 
claimed exempt intangible property.  
The taxpayers (including Airtouch) appealed from the final 2000 
valuations.  The values as 
determined by DOR were as follows:

 



Taxpayer

1999

Fair 
      Market Value

2000

Fair 
      Market Value

 

 

 

Wyoming 
      RSA #1

$  4,580,000 

$  4,569,000 
  

Wyoming 
      RSA #2

$  3,119,000 

$  6,254,000 
  

Wyoming 
      RSA #3

$18,632,868 
      

$23,438,896 
      

Airtouch

n/a

$30,131,000 
      

 

[¶6]      The 1999 appeals 
were consolidated by SBOE on its own motion in March of 2000 without objection 
by the parties, and the hearing was originally scheduled for November 8, 
2000.  SBOE rescheduled the 
contested case hearing to June 25, 2001.  
Both parties then requested a continuance which SBOE granted, and the 
hearing was again rescheduled for October 8, 2001. 

 

[¶7]      In May 2001, over 
a year after the values were certified to the counties, the taxpayers provided 
independent appraisals performed by the accounting firm of Ernst and Young [EY] 
to DOR to support their arguments that the value of exempt intangible property 
was inappropriately used to enhance their taxable property valuations.  At the hearing, SBOE refused to admit 
the EY appraisals to the extent the information contained therein was not 
available to DOR at the time of the assessment, finding SBOE's role at the 
contested case hearing was not to set value but instead was limited to 
determining whether DOR's  
methodology to value the taxpayers' property was supported by substantial 
evidence.  The taxpayers' evidence 
established the following taxable values for their 
property:

 



Taxpayer

1999

2000

 

 

 

Wyoming 
      RSA #1

$  3,345,271

$  
  3,661,130

Wyoming 
      RSA #2

$  2,852,941

$  
  3,492,824

Wyoming 
      RSA #3

$15,654,412

$17,116,279

Airtouch

n/a

$20,458,472

 

 [¶8]     SBOE affirmed DOR's 
assessment and valuation of the taxpayers' property as telephone companies 
subject to § 39-13-102.  The 
taxpayers appealed, and the district court certified the case to this Court 
pursuant to W.R.A.P. 12.09(b). 

 

 

 

[¶9]      When we review 
cases certified pursuant to W.R.A.P. 12.09(b), we apply the appellate standards 
which are applicable to the court of the first instance.  Judicial review of administrative 
decisions is governed by Wyo. Stat. Ann. § 16-3-114(c) (LexisNexis 2001).1  Powder River Coal Company v. Wyoming 
State Board of Equalization, 2002 WY 5, ¶5, 38 P.3d 423, ¶5 (Wyo. 
2002).  The threshold issue we must 
consider is whether the taxpayers were treated correctly by DOR as telephone 
companies pursuant to § 39-13-102(m)(vi).  
This is a question of statutory interpretation and hence one of law which 
we review de novo.  Id. 
at ¶6.  Similarly, the question 
of whether SBOE properly applied the statutory exemption for intangible property 
consistently with this Court's decision in RT Communications, Inc. v. State 
Board of Equalization for State of Wyoming, 11 P.3d 915 (Wyo. 2000), is also 
a question of law to be reviewed de novo.

 

[¶10]   We affirm an agency's conclusions 
of law when they are in accordance with the law.  Powder River Coal Company, 2002 
WY 5, ¶6.  However, when the agency 
has failed to properly invoke and apply the correct rule of law, we correct the 
agency's error.  Id.  The rules of statutory interpretation 
also apply to the interpretation of administrative rules and regulations.  Id.  These rules are often cited and are well 
recognized:

 
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. 
Wyoming State Board 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); see also Wyodak Resources Development Corporation v. 
Wyoming Department of Revenue, 2002 WY 181, ¶9, 60 P.3d 129, ¶9 (Wyo. 
2002).

 

[¶11]   With regard to factual questions, 
this Court has clarified that "the substantial evidence test is the appropriate 
standard of review in appeals from  
WAPA contested case proceedings when factual findings are involved and 
both parties submit evidence."  
Newman v. State ex rel. 
Wyoming Workers' Safety and Compensation Division, 2002 WY 91, ¶22, 49 P.3d 163, ¶22 (Wyo. 
2002).  In matters where 
evidence is presented by only one party or procedural rulings are made, we 
review the entire record to determine whether the action was arbitrary or 
capricious.  
Id.

 

[¶12]   With regard specifically to 
valuations of property by DOR for purposes of taxation, we have recently 
noted:

 

The 
Department's valuations for state-assessed property are presumed valid, 
accurate, and correct.  This 
presumption can only be overcome by credible evidence to the contrary.  In the absence of evidence to the 
contrary, we presume that the officials charged with establishing value 
exercised honest judgment in accordance with the applicable rules, regulations, 
and other directives that have passed public scrutiny, either through 
legislative enactment or agency rule-making, or both.

 

            
The petitioner has the initial burden to present sufficient credible 
evidence to overcome the presumption, and a mere difference of opinion as to 
value is not sufficient.  If the 
petitioner successfully overcomes the presumption, then the Board is required to 
equally weigh the evidence of all parties and measure it against the appropriate 
burden of proof.  Once the 
presumption is successfully overcome, the burden of going forward shifts to the 
DOR to defend its valuation.  The 
petitioner, however, by challenging the valuation, bears the ultimate burden of 
persuasion to prove by a preponderance of the evidence that the valuation was 
not derived in accordance with the required constitutional and statutory 
requirements for valuing state-assessed property.

 

            
Moreover, in examining the propriety of the valuation method, our task is 
not to determine which of the various appraisal methods is best or most 
accurately estimates fair market value; rather, it is to determine whether 
substantial evidence exists to support usage of the chosen method of 
appraisal.

 

Colorado 
Interstate Gas Company v. Wyoming Department of Revenue, 
2001 WY 34, ¶¶9-11, 20 P.3d 528, ¶¶9-11 (Wyo. 2001) (citations 
omitted).

 

[¶13]   The taxpayers agree that DOR's 
choice of appraisal methods is subject to the substantial evidence 
standard.

 

"In 
examining the propriety of the valuation method, our task is not to determine 
which of various appraisal methods is best or most accurately estimates [fair 
market value]; rather, it is to determine whether substantial evidence exists to 
support usage of the [chosen] method of appraisal.'"  Amoco Prod.  Co. v. State Bd. of Equalization, 
899 P.2d 855, 858 (Wyo. 1995) (quoting Holly Sugar Corp. v. State Bd. of 
Equalization, 839 P.2d 959, 963 (Wyo. 1992)).

 

Basin 
Electric Power Cooperative, Inc. v. Department of Revenue, State of 
Wyoming, 
970 P.2d 841, 851 (Wyo. 1998).  
However, they also urge that, because the issues they raise in this case 
involve "the proper application of those methods to the facts, which is an issue 
of ultimate fact, . . . de novo review" is required.  Id. at n.4.  We agree in part.  To the extent SBOE's order rests 
on conclusions of law, we review it de novo.  However, SBOE's findings regarding the 
value of intangible property claimed by the taxpayers to be exempt must be 
affirmed if they are supported by substantial evidence.  Section 16-3-114(c).  Further, in part because of the complex 
nature of taxation, we have found there is a presumption the assessment was done 
correctly by DOR acting in its official capacity.  The burden is on the taxpayers to 
provide the information necessary for DOR to prepare an accurate valuation of 
the properties and to prove at the contested case hearing before SBOE that the 
methodology used and valuations reached by DOR were not supported by substantial 
evidence available in the agency record.  

 

A.        Are 
Cellular Companies "Telephone Companies" Under § 39-13-102? 

 

[¶14]   The legislature has determined 
certain kinds of property shall be valued and assessed by the state through DOR, 
including "property of telephone and telegraph companies which have more than 
two thousand dollars ($2,000.00) in assessed value."  Section 39-13-102(m)(vi) (amended 2002 
Lexis/Nexis).  These taxpayers 
assert they are not telephone companies and should, therefore, be assessed at 
the county level.  The term 
"telephone company" is not defined in the statutes.  Our analysis must begin with a 
determination of whether the statute is unambiguous.  If it is, we must give effect to the 
plain and ordinary meaning of the language of the statute.  Chevron U.S.A., Inc. v. State, 
918 P.2d 980, 984 (Wyo. 1996).  
"Construction of legislative enactments is only appropriate where the 
enactment has first been found, as a matter of law, to be ambiguous." Snake 
River Brewing Company, Inc. v. Town of Jackson, 2002 WY 11, ¶29, 39 P.3d 397, ¶29 (Wyo. 2002).  A statute is 
unambiguous if "its wording is such that reasonable persons are able to agree to 
its meaning."  Petroleum Inc. v. 
State ex rel. State Board of Equalization, 983 P.2d 1237, 1240 (Wyo. 1999); 
see also General Chemical Corporation v. Wyoming State Board of 
Equaliza­tion, 819 P.2d 418, 420 (Wyo. 1991).

 

[¶15]   We agree with SBOE's conclusion 
that the language of the statute which directs "telephone companies" to be 
assessed and valued by the state is unambiguous.  As explained by 
SBOE,

 

To 
most reasonable people, Petitioners' business is indistinguishable from that of 
a telephone company.  In fact, in 
today's society, many people use telephone services and cellular services 
interchangeably. Sometimes, cellular services are utilized in areas where 
traditional telephone service is not even available.

 

[Order, 
¶ 68]  We also observe that many 
people utilize cellular service in place of wireline service and communication 
occurs between the two types of service seamlessly. 

 

[¶16]   In addition to this practical 
approach to the meaning of "telephone" company, the dictionary definition of 
"telephone" is "an instrument for reproducing sounds at a distance."  Webster's New Collegiate Dictionary 
1207 (10th ed. 1993).  
No question exists that cellular service meets that definition.  Only when one looks beyond the language 
of the statute in question can an argument even arise concerning the meaning of 
the term "telephone."  The taxpayers 
point to an earlier decision of SBOE regarding a two-way paging service in an 
effort to create such an ambiguity.  
In In Re Appeal of Rule Radiophone Service, Inc., Wyo. St. Bd. Eq. 
No. 97-215 (1999), SBOE considered whether a pager service constituted a 
"telephone company" and concluded it did not.  That business had historically been 
considered a public utility and assessed by the state as such.  In 1995, the legislature, in the Wyoming 
Telecommunications Act of 1995, removed services using radio spectrum or 
cellular technology from regulation as public utilities for the stated purpose 
of enhancing competition in the field of telecommunications.  Wyo. Stat. Ann. § 37-15-102 (LexisNexis 
2001).  The only remaining basis for 
state assessment of the pager service was DOR's position that it also 
constituted a "telephone" company.  
SBOE disagreed and in its decision relied in part upon the fact that the 
pager system used radio spectrum technology. The taxpayers argue that 
application of the same reasoning to their cellular businesses requires the 
conclusion that cellular companies are also not  "telephone" companies.  SBOE, in its order in this case, found 
important distinctions between a pager service, which it does not consider a 
"telephone" company, and cellular service.  
Pager service involves one-way communication whereas cellular service 
provides two-way, real time communication between large numbers of unrelated 
persons or businesses.  Unlike a 
pager service, cellular service utilizes land-based wirelines to connect calls 
to traditional telephone service, and that interconnection occurs using a 
similar system of telephone numbers including area codes and crosses county and 
state lines, all unlike a pager service.  

 

[¶17]   Stacey Sprinkle, Assistant Vice 
President of Commnet Cellular, testified as follows regarding the nature of 
cellular services:

 

A.  The 
primary purpose of wireless communications is to make and receive 
communications, whether it be voice or data.

 

Q.  And 
that's essentially two-way communications?

 

A.  That 
would be two-way communications.

 

Q.  And 
they reproduce sounds at a distance, don't they?

 

A.  We 
do transmit sounds.

 

Q.  And 
would you agree with me that a cellular phone resembles a 
telephone?

 

A.  We 
would like to think that our design is a little bit more flashy and more along 
the lines of the Star Trek type technology 
. . . .

 

Q.  And 
cellular companies provide voice mail services, don't 
they?

 

A.  Yes 
they do.

 

Q.  And 
they provide Caller ID services?

 

A.  Yes 
they do.

 

Q.  And 
they provide Call waiting services?

 

A.  That 
is correct, we provide a lot of similar service.

 

. . . .

 

Q.  What 
about an area code, do they operate under the same area code telephone companies 
operate under?

 

A.  They 
operate under the same area codes.

 

 

[¶18]   Thomas R. Doutt, the manager of 
radio frequency design for Verizon, likewise testified:

 

Q.  . . . 
I want to begin with one of your initial statements was that the majority of 
cellular calls are mobile to land calls, and by land you mean your basic wire 
line services; isn't that correct?

 

A.  Yes.

 

Q.  So 
then would you agree that the majority of cellular calls, then, do encompass the 
use of wire line technology?

 

A.  Yes.

 

            
. . . .

 

Q.  And 
just so I am not using any of the technology wrong, what exactly  and I've 
heard the term wire line thrown around in the use of telephone companies.  What does that 
encompass?

 

A.  The 
term wire line refers to the local telephone company as opposed to wire 
line/wireless.  Cellular is a 
wireless type of service.  The wire 
line, they have hard-wired facilities that they use.

 

            
. . . .

 

Q.  Isn't 
it true that in just a normal land-to-land call that microwave technology is 
used . . . .

 

            
. . . .

 

A.  Yes.

 

Q.  So 
it's possible for a land to land to be wireless at some point; isn't that 
correct?

 

A.  Yes, 
but not in the same sense that our license is.

 

. . . .

 

Q.  So 
the cellular company has to pay for the use of those land lines just like a 
normal customer would have to?

            

A.  Yes.

 

 

[¶19]   The inescapable conclusion we must 
draw from this similarity in function between the service provided by wireline 
or traditional telephone companies and cellular companies is that they both 
provide "telephone" service.  The 
taxpayers attempt to stretch SBOE's decision in Rule Radiophone Service 
too far.  The focus of SBOE's 
analysis in that case was on whether a pager service was a telephone 
company.  Contained within its 
discussion of the attributes of a pager service are obvious distinctions between 
cellular and pager service sufficient to support its conclusion in this case 
that the plain meaning of "telephone" company includes cellular service 
companies.

 

[¶20]   As further support for their 
position, the taxpayers suggest that an amendment to the tax statutes adopted by 
the legislature in 2001, which specifically provided that "telecommunications" 
companies, defined as including cellular communications, are to be assessed by 
the state, constituted an expansion of the previous statute and is proof the 
prior statute did not cover those companies within the meaning of "telephone" 
companies. This Court has held that, when the legislature enacts a new law, it 
is presumed it intends to change the law.  State ex rel. Albany County Weed and Pest 
District v. Board of County Commissioners of County of Albany, 592 P.2d 1154, 1157 (Wyo. 1979).  However, 
this tool of statutory construction is appropriate only if the statutory 
language is ambiguous, and we have determined "telephone" is a clear and 
unambiguous term.  Even if we 
consider the amendment as appropriately shedding light on legislative intent in 
this situation, we do not reach the conclusion suggested by the taxpayers.  SBOE characterized this amendment as 
simply "updating" the language to reflect "the reality of technological changes 
in the industry."  We believe it is 
more than that.  The definition of 
telecommunications companies not only included cellular companies and companies 
using any other technology "for hire" to communicate "between or among points 
specified by the used, or information of the user's choosing without change in 
the content of the information as sent and received," it also specifically 
excluded "one-way paging or beeper service" such as Rule Radiophone 
Service.  When the entire amendment 
is examined, we believe it is fair to conclude the legislature was codifying the 
Rule Radiophone Service decision as well as clarifying its original 
intent that "telephone" companies included all companies providing broad based 
two-way communication.  See 
Rawlinson v. Greer, 2003 WY 28, 64 P.3d 120 (Wyo. 
2003).  The amendment also 
verifies that SBOE's conclusion that cellular companies should be assessed by 
the state is consistent with the tax policy of the state as envisioned by the 
legislature.

 

[¶21]   We acknowledge that other states 
have decided cellular companies should not be centrally assessed as "telephone 
companies."  In In re Appeal of 
Topeka SMSA Limited Partnership, 917 P.2d 827 (Kan. 1996), and MCI 
Telecommunications Corporation v. Limbach, 625 N.E.2d 597 (Ohio 1994), the 
courts compared cellular companies to pager services or resellers of services 
and concluded that, since those services were not centrally assessed by the 
state, the cellular services should not be either.  However, in those cases, the courts 
faced different statutes which raised different questions of statutory 
interpretation, specifically whether cellular companies were public utilities 
and should be regulated as such.  

 

[¶22]   We find the reasoning of the 
Kentucky courts more applicable to this case where the term "telephone company" 
is not defined.

 

The 
only thing that significantly sets cellular telephone companies apart from 
traditional telephone companies seems to be the technology involved. The means 
to the end may have changed, but the end remains the same, that is, cellular 
phone companies are designed and operated to provide telephone 
service.

 

Central 
Kentucky Cellular Telephone Company v. Commonwealth of Kentucky, 
897 S.W.2d 601, 603 (Ky. Ct. App. 1995); see also Southwestern Bell 
Mobile Systems, Inc. v. Arkansas Public Service Commission, 40 S.W.3d 838 
(Ark. Ct. App. 2001); United States Transmission Systems, Inc. v. Board of 
Assessment Appeals of State of Colorado, 715 P.2d 1249 (Colo. 1986); 
Alabama State Department of Revenue v. Telamarketing Communications of 
Montgomery, 514 So. 2d 1388 (Ala. Civ. App. 1987).

 

[¶23]   The plain meaning of the statute 
includes cellular companies within the categories of property to be assessed by 
the state.  We recognize that result 
allows DOR to assess and value the property of those companies using the unitary 
method even though they operate in an unregulated, competitive environment 
unlike the traditional telephone companies. As is evident later in this opinion, 
this results in the taxable value of these companies being enhanced by their 
unregulated income.  If this result 
is not what was intended, we assume the legislature will make its intent known 
and provide DOR, as well as this Court, with direction on this issue. 

 

B.        Was 
Exempt Intangible Property Improperly Included in the Valuation of the Cellular 
Companies?

 

[¶24]   Having concluded that the taxpayers 
are telephone companies, the statutes require DOR to annually value and assess 
them at their fair market value.  
Section 39-13-102(m).  DOR 
used the same procedure as it used for all state assessed companies and employed 
the unitary method.  This method 
determines the value of a company as a whole without reference to individual 
parts.  The unitary approach is used 
in the valuation of properties which derive their value from interdependent 
assets working together.  The market 
value is not a summation of fractional appraisals but is the value of a company 
as an operating unit.  Department of 
Revenue Rules and Regulations, ch. 7, § 4(k).  DOR obtains all the necessary 
information to perform the unitary valuation from the taxpayers' annual 
reports.

 

[¶25]   DOR applies the unitary method to 
state assessed property using one or more of three different methods of data 
analysis: sales comparison (or market), cost, and income capitalization. Id. 
at § 6.  The state appraiser may 
use one or more of these methods and then correlates the resulting value 
indicators to arrive at a final estimate of fair market value.  Id. at § 8.  The choice of the appraiser regarding 
which indicator of value is most appropriate and the final value itself are 
matters of appraisal judgment with which this Court will not interfere if they 
are supported by substantial evidence.  
Holly Sugar Corporation v. State Board of Equalization for State of 
Wyoming, 839 P.2d 959, 963 (Wyo. 1992).

 

[¶26]   DOR appraisals of all the taxpayers 
included both the income method and the cost method.  In the income method, average operating 
income for the past three or five years is capitalized to present value at a 
rate that estimates the rate of return required by investors, or the 
capitalization rate, and the resulting value represents one measure of value of 
the operating unit.  DOR develops a 
capitalization rate for the various industries to be used in the appraisal 
process.  The capitalization rate is 
the ratio between anticipated future income and present value and is used to 
convert an income stream into a present worth of future benefits.  Department of Revenue Rules and 
Regulations ch. 7, §§ 4(b), 7.  DOR 
determines the capitalization rate annually for all industries after public 
comment.  The primary components of 
the rate include capital structure and cost of capital for typical companies in 
the industry.  The same 
capitalization rate was applied to all cellular companies. 

 

[¶27] 
  The "historic cost less 
depreciation" or the "cost" method takes a different approach and considers the 
net book value of all assets reported by the taxpayer in the annual report 
considering "all forms of depreciation and appreciation."  Id. at § 6(b)(ii)(C).  The total net book value is then reduced 
to account for economic obsolescence, and one method of determining the amount 
of such obsolescence is to compare the rate of return realized by the taxpayer 
on those assets to the capitalization rate.  If the actual rate of return is less 
than the established industry rate, the value is reduced proportionately.  Id. at § 4(d). 

 

[¶28]   During the tax years in question, 
these taxpayers received a rate of return greater than the capitalization rate 
for the cellular industry.  DOR 
concluded that return represented an appreciation in the unitary value of the 
property as defined by the rules.  
Id. at § 4(f).  
Consequently, DOR made an "economic enhancement adjustment," which is not 
specifically provided for in the rules, to reflect that appreciation.  The adjustment increased the net book 
value by the same ratio by which the actual rate of return exceeded the industry 
capitalization rate.  The result of 
the enhancement adjustment was to apply all the enhancement in value caused by 
the higher income to the assets shown on the annual reports as having book 
value.  The taxpayers did not 
provide DOR with information in their annual reports regarding a claim that 
their property included intangible personal property which should have been 
exempt from taxation.  The 
taxpayers' FCC licenses were obtained without cost and, consequently, had no 
book value.  Neither did their 
customer base. 

 

[¶29]   On appeal to SBOE, the taxpayers 
claimed the enhancement adjustment, without any deduction of the value of 
intangible property, caused DOR to overvalue their property. They posed two 
objections to the manner in which DOR applied the valuation methods.  First, they contended the purpose of 
using two different methodsthe cost approach and the income approachwas to 
give the appraiser independent bases upon which to determine whether a fair 
value had been fairly determined.  
If the value indicators calculated by different and independent methods 
were similar, the appraiser could assume that the two approaches accurately 
measured the value of the property.  
However, if they varied widely, the appraiser must determine whether the 
analysis failed in some respect and reconcile the differences.  The taxpayers' argument continues that, 
in order for the two methods to serve their purpose of providing an independent 
check and balance, they must not be circular, or based upon the same fundamental 
assumptions.  Such circularity would 
occur, for example, if the same income figure were utilized in both methods.2  The taxpayers conceded that DOR utilized 
historic income in the economic obsolescence/enhancement to the cost method and 
projected future income in the income method.  However, they claimed the use of the 
obsolescence/enhancement adjustment itself resulted in the same improper 
circularity because the value arrived at by the cost method with those 
adjustments would always be virtually the same as that arrived at with the 
income method, thereby undermining the use of the two methods as independent 
indicators of value.

 

[¶30]   While we understand the taxpayers' 
argument and observe the same circularity, we fail to see how that fact alone 
justifies rejecting DOR's valuation.  
It is significant that use of two different, independent methods is not 
required by the rules.  Instead, the 
rules authorize the methods and simply require that "one or more of these 
approaches shall be used," Department of Revenue Rules and Regulations ch. 7, § 
6(b), and direct the appraiser to "consider the relative significance, 
applicability and appropriateness of the indications of value derived from the 
. . . methods outlined above" and

 

[W]ill 
place the most consideration and reliance on the value indicator which, in his 
professional judgment, best approximates the value of the subject property.  The appraiser shall evaluate all 
alternative conclusions and correlate the value indicators to arrive at a final 
estimate of fair market value.

 

Department 
of Revenue Rules and Regulations ch. 7, § 8.  The record contains voluminous evidence 
concerning the methods used and the manner in which the judgment of the 
appraiser was exercised.  

 

[¶31]   We also find it relevant that 
determining economic obsolescence by the same "income shortfall" method is, in 
fact, specifically authorized by Chapter 7, Section 4(d)(iii)(A) of the 
Department of Revenue Rules and Regulations and was not objected to by the 
taxpayers.  We assume DOR has 
applied the income shortfall method of determining economic obsolescence to 
other taxpayers and, to that extent, some circularity in the appraisal process 
has been accepted.  Further, it is 
well recognized that the indicators of value are "integrated, interrelated, and 
inseparable."  The Appraisal 
Institute, The Appraisal of Real Estate 409 (10th ed. 1992).  Therefore, we discern no legal reason 
why the adjustment itself is prohibited and find no basis to conclude SBOE's 
approval of the enhancement adjustment was not supported by substantial 
evidence. 

 

[¶32]   The taxpayers do not dispute their 
income exceeded the capitalization rate.3  Instead, they explain the large 
difference between the net book valueor the cost value indicatorand the value 
arrived at with the income method as reflecting the value of their intangible 
assetsthe FCC licenses and the customer bases.  We find that to be the taxpayers' 
fundamental complaint in this matter, and we will now turn to that 
issue.

 

[¶33]   The taxpayers claim their FCC 
licenses and customer bases constitute intangible personal property which is 
exempt from taxation pursuant to Wyo. Stat. Ann. §§ 39-11-105(a)(xxix) and 
39-11-101(a)(vii) (LexisNexis 2001) and the value of that property was 
improperly included in DOR's valuations. They argue this property is separable 
and identifiable consistent with our holding in RT Communications, Inc., 
11 P.3d 915, and contend they presented sufficient evidence of the value of that 
property.  The taxpayers did not 
dispute the valuation of the business units as a whole done by DOR using the 
income method.  In fact, their 
expert agreed that amount was a reasonable estimate of the fair market value of 
the businesses.  However, they argue 
DOR failed to deduct any value for their intangible property.  In theory, the taxpayers suggest the 
amount by which the total value arrived at using the income method exceeds the 
net book value, or the residual value, can represent enhancement in value to all 
the property resulting from the operation of the business as a going 
concern.  However, they contend that 
enhancement should be allocated between the tangible property and intangible 
property, if any exists.  The 
taxpayers contended their FCC licenses and their customer bases were intangible 
property and provided expert opinion concerning their respective values.  For two taxpayers, those values consumed 
the entire residual value, and, hence, they claim no enhancement in the value of 
the tangible assets occurred as a result of those businesses operating as a 
going concern.  In the case of the 
remaining taxpayers, their intangible asset value was less than the total 
residual.  In those cases, the 
intangible value was deducted and the remaining residual value was deemed by the 
taxpayers as representing enhancement of both tangible and intangible property 
and allocated proportionately.  The 
following table illustrates the taxpayers' argument.

 

Ernst 
& Young Alternate Valuation  12/31/1998

 



 

Wyoming 
      1

Wyoming 
      2

Wyoming 
      3

 

DOR 
      Income Indicator after 5 year Average and Flotation Cost 
      Adjustment

3,345,271

2,852,941

15,654,412

Net 
      Book Value (NBV)

2,562,123

2,301,782

6,075,294

Goodwill 
      and Intangibles

783,148

551,159

9,579,118

 

 

 

 

Less 
      Intangible Adjustments:

 

 

 

FCC 
      License

1,551,887

2,435,516

4,536,497

Customer 
      Base

875,520

956,160

2,126,880

Total 
      Unimpaired Value of Intangibles

2,427,407

3,391,676

6,663,377

 

 

 

 

Value 
      of Intangibles

783,148

551,159

6,663,377

Goodwill 
      (i.e. Enhancement)

0

0

2,915,741

Enhancement 
      Percent of Enterprise Value

0.00%

0.00%

22.89%

 

 

 

 

Allocation 
      of Enhancement to

Tangible 
      Assets

0

0

1,390,568

Allocation 
      of Enhancement to

Intangible 
      Assets

0

0

1,525,173

 

0

0

2,915,741

 

 

 

 

Total 
      Tangible Asset Value (Enhanced)

2,562,123

2,301,782

7,465,862

Total 
      Intangible Asset Value (Enhanced)

783,148

551,159

8,188,550

Enterprise 
      Value

3,345,271

2,852,941

15,654,412

 

 

Ernst 
& Young Alternate Valuation  12/31/1999

 



 

Wyoming 
      1

Wyoming 
      2

Wyoming 
      3

AirTouch

DOR 
      Income Indicator after 5 year Average and Flotation Cost 
      Adjustment

3,661,130

3,492,824

17,116,279

20,458,472

Net 
      Book Value (NBV)

2,616,513

2,152,092

7,292,314

6,741,070

Goodwill 
      and Intangibles

1,044,617

1,340,732

9,823,965

13,717,402

 

 

 

 

 

Less 
      Intangible Adjustments:

 

 

 

 

FCC 
      License

1,563,179

2,464,660

4,571,978

6,690,336

Customer 
      Base

881,891

967,602

2,143,515

3,981,282

Total 
      Unimpaired Value of Intangibles

2,445,070

3,432,262

6,715,493

10,671,618

 

 

 

 

 

Value 
      of Intangibles

1,044,617

1,340,732

6,715,493

10,671,618

Goodwill 
      (i.e. Enhancement)

0

0

3,108,472

3,045,784

Enhancement 
      Percent of Enterprise Value

0.00%

0.00%

22.19%

17.49%

 

 

 

 

 

Allocation 
      of Enhancement to

Tangible 
      Assets

0

0

1,618,237

1,179,131

Allocation 
      of Enhancement to

Intangible 
      Assets

0

0

1,490,235

1,866,653

 

0

0

3,108,472

3,045,784

 

 

 

 

 

Total 
      Tangible Asset Value (Enhanced)

2,616,513

2,152,092

8,910,551

7,920,201

Total 
      Intangible Asset Value (Enhanced)

1,044,617

1,340,732

8,205,728

12,538,271

Enterprise 
      Value

3,661,130

3,492,824

17,116,279

20,458,472

 

 

[¶34]   DOR had three objections to the 
taxpayers' position on intangible property, all of which SBOE found 
persuasive.  First, relying on its 
interpretation of language in RT Communications, DOR contended intangible 
property is not exempt if it is "necessary" or "integral" to the operation of 
the business and the FCC licenses and the customer bases were both.  Second, DOR contended the taxpayers' 
evidence supporting the values they derived for the FCC licenses and the 
customer base was insufficient.  
Finally, DOR argued the evidence was not provided to it for use during 
the valuation process and, consequently, could not support a challenge to the 
propriety of that valuation. 

 

[¶35]   Our analysis of this issue must 
begin with the statute which creates the exemption for intangible property.  Section 39-11-105(a)(xxix) provides 
intangible personal property is exempt from taxation.  Section 39-11-101(a)(vii) states 
intangible property  
"includes":

 

(A) 
Money and cash on hand including currency, gold, silver and other coin, bank 
drafts, certified checks and cashier's checks;

 

            
(B) Money on deposit;

 

            
(C) Accounts receivable and other credits;

 

            
(D) Bonds, promissory notes, debentures and other evidences of 
debt;

 

            
(E) Shares of stock or other written evidence of 
ownership;

 

            
(F) Judgments for the payment of money;

 

            
(G) Annuities and annuity contracts.

 

[¶36]   Both SBOE and this Court have found 
this statutory list of the types of property "included" within the meaning of 
"intangible" is not exclusive.  
RT Communications, Inc., 11 P.3d  at 922.  We characterized items that would fall 
within this statutory category as having "no inherent value in and of 
themselves, but instead represent value" and suggested that intangible property 
could include certificates of convenience and franchise rights.  Id. at 923.  At the same time, in RT 
Communications, we also held that the statutory exemption for intangible 
property did not prohibit DOR from valuing a telephone company using the unitary 
method which by its very nature captures the intangible value of the property 
generated by operating as a unit.  
We described this result as necessary both because the  intangible value is obvious when 
businesses operate as combined units across governmental boundaries and because 
separating the value of intangible property from that of tangible property can 
be very difficult, if not impossible. This dichotomythat intangible property is 
both exempt and yet taxable to the extent it enhances the value of taxable 
propertycreates a mind-bending exercise when one attempts to wrestle with a 
specific fact situation such as the one presented in this case.  The RT Communications decision 
upheld DOR's and SBOE's decisions to value the taxable property of the telephone 
company in question by including the value of certain intangible property 
represented by the "acquisition adjustment"4 because the evidence proved the 
intangible property enhanced the value of the tangible property and the company 
failed to present evidence that the value of the intangible property could be, 
or had been, identified or separated.  

 

[¶37]   DOR and SBOE relied in part on 
RT Communications to impose an additional prerequisite to the exemption 
of intangible propertythat it cannot be integral or necessary to the business 
in question.  We find no authority 
for that additional requirement in either the statutes or the RT 
Communications opinion.  In 
fact, several statutory examples of exempt intangible property, such as working 
capital, are arguably "integral and necessary" to the operation of the business 
as a whole.  We understand the 
policy concern of the taxing authorities that excluding the value of intangible 
property which is necessary for the business could theoretically reduce the 
value of the business to the net book value of the hard assets, and thereby 
reduce the taxes paid.  However, 
legislative intent governs the interpretation of a statute, not whether more or 
less taxes are collected.  The 
legislature establishes tax policy, and that policy often involves the creation 
of certain exemptions which, if applied as intended, result in less tax 
revenue.  We have not been provided 
with much guidance, beyond the language of the statute itself, concerning what 
the legislature intended with regard to this issue.  The statute unambiguously exempts all 
intangible property from taxation.  
DOR cannot refuse an exemption simply because it concludes the intangible 
property is "integral" to the business.  
When we stated in RT Communications that all intangible property 
which was "separable and identifiable" must be excluded, we were not imposing 
conditions on the exemption but were only stating the obvious.  If intangible property cannot be 
identified and separated from the business unit as a whole, it cannot be 
excluded from taxation.  Therefore, 
we hold DOR and SBOE exceeded their statutory authority when they imposed the 
requirement that intangible property, which is necessary and integral to the 
operation of a business, cannot be exempt from taxation.

 

[¶38]   However, our consideration of this 
issue does not end with that statutory analysis. Even if the FCC licenses and 
the customer bases were intangible property validly exempt from taxation, the 
burden falls on the taxpayers to prove the value of that property was 
identifiable and separable from the enhanced value of the business determined 
through the unitary method.  DOR 
contended the taxpayers failed to carry that burden in two ways.  First, they failed to provide DOR with 
the necessary information to support their claim at the time they filed their 
annual reports which were the basis for DOR's valuation even though the forms 
requested such information.  Most of 
the information that formed the basis of the taxpayers' claimed value for the 
intangibles was available to them at the time they filed the annual report and 
had been included in the contemporaneous reports they filed with the federal 
Securities and Exchange Commission.  
However, not until over a year after the value had been certified to the 
counties did the taxpayers provide the information to DOR in the form of an 
independent appraisal.  For the 1999 
tax year, the taxpayers (excluding Airtouch) did request an informal conference 
allowed under the rules and asked for a reduction in the valuation for the 
intangible property.  However, they 
did not identify that property or its value.  After that conference, DOR reduced the 
income portion of the valuation formula by ten percent which resulted in lower 
valuations.  In 2000, none of the 
taxpayers requested an informal conference because, as they testified, they 
considered it to be a futile effort.5  

 

[¶39]   A striking similarity exists 
between the failure of the taxpayers in this case to supply the necessary 
information to support their contentions to DOR during the valuation process and 
the failure of the taxpayers in RT 
Communications to do the 
same.  As we stated in RT 
Communications, "The Telephone Companies are ill positioned now to 
complain that DOR failed to perform an analysis when they failed to provide the 
necessary information."  11 P.3d  at 
927.  While it may be true this 
failure was due to the evolutionary process of addressing intangible property in 
the rapidly developing telecommunications business, DOR was not provided 
information on the separate value of the FCC licenses and the customer lists and 
cannot be faulted for failing to generate that information on its own especially 
given the self-reporting nature of Wyoming's tax system as it relates to state 
assessed property.  Id.; 
State Board of Equalization Rules, Ch. 2, § 20; Amoco Production Company v. 
Wyoming State Board of Equalization, 899 P.2d 855, 858 (Wyo. 1995); Gray 
v. Wyoming State Board of Equalization, 896 P.2d 1347, 1350 (Wyo. 
1995).

 

[¶40]   Finally, DOR contends that, even if 
the information had been available in a timely fashion, it did not fairly 
establish the value of the FCC licenses and the customer lists.  With regard to the FCC licenses, the 
taxpayers obtained their FCC licenses for analog and digital service through a 
lottery at no cost.  In an attempt 
to prove a separable and identifiable value for these licenses, their expert 
provided prices that were paid for a different type of FCC licenses auctioned in 
1996 to provide greater capacity for wireless communications services 
nationwide.6  None of those new "PSC" licenses were 
issued in Wyoming in the 1996 auction.  
The taxpayers' expert testified that he considered those auctions which 
occurred in areas with populations under one million to be "comparable to the 
state of Wyoming."  He  excluded larger population areas because 
higher prices were paid in those areas as a result of the value of population 
density.  He then estimated a price 
per population of $34 which he believed would be representative of the 
taxpayers' license areas.  However, 
the range of prices paid for licenses in areas with populations under 100,000, 
which is certainly more representative of the areas in question, was from $12.72 
to $19.72.7  No licenses were auctioned for areas 
with populations similar in size to the taxpayers' license areas.8  The taxpayers' expert also considered 
the prices paid for similar licenses auctioned in 2001 as a "gut check" albeit 
after the tax years in question.  In 
that year, three PSC licenses were issued for Cheyenne for prices ranging from 
$24.91 to $34.49.  No explanation 
was provided with regard to those licenses as to the purchaser or the population 
served.  This $34 price per 
customer, which was substantially higher than any price paid for PSC licenses in 
1996 for population areas under 100,000, was then applied to the taxpayers' 
customer base to determine the value of the taxpayers' licenses.  

 

[¶41]   DOR contended the type of licenses 
auctioned was different than the type of those held by the taxpayers and no 
evidence was provided that any secondary market for the taxpayers' FCC licenses 
existed.  Neither DOR nor SBOE was 
convinced the prices paid for a different type of FCC license in different 
geographical areas accurately represented the value of the taxpayers' FCC 
licenses which were acquired by lottery and without the payment of a purchase 
price.  No information in the 
taxpayers' financial statements indicated a separate value for the 
licenses.  

 

[¶42]   With regard to the value of the 
customer lists, the taxpayers based their claim of value on the after-tax costs 
incurred to acquire the customers on a per customer basis.  Again, while this information was 
available to the taxpayers and included in their federal filings, it was not 
provided to DOR in the annual reports.  
In addition, DOR argued these costs were already deducted as expenses and 
allowing the taxpayers to again deduct them as the value of intangible property 
resulted in a double deduction.  
SBOE seemed to agree with this reasoning.   

 

[¶43]   We fail to understand the logic of 
DOR's contention that a double deduction would result given the treatment of 
depreciation, which is both an expense deduction as well as a deduction in the 
Historic Cost Less Depreciation approach to valuation recognized with approval 
in the rules.  Department of Revenue 
Rules and Regulations, ch. 7, § 6(b)(ii)(C).  However, in addition to the concern 
about its treatment as an expense, SBOE stated it was not convinced these costs 
fairly represented the value of the customer lists.  Although the taxpayers suggested 
customer lists could be bought and sold, they provided no evidence concerning 
prices or methods of valuation of this asset in similar markets. 

 

[¶44]   SBOE's reasons for rejecting the 
taxpayers' value for the licenses and the customer bases were clearly stated in 
its findings.  The standard of 
review applicable to these factual findings directs that we not substitute our 
judgment for that of the agency.  No 
opposing evidence regarding the value of the licenses or the customer lists was 
presented by DOR and, consequently, according to Newman, 2002 WY 91, ¶22, we apply the 
arbitrary and capricious standard.  
The taxpayers carried a heavy burden of proof, and the agency was 
entitled to the presumption that its position was fair and reasonable.  Colorado Interstate Gas Company, 
2001 WY 34, ¶10.  DOR and SBOE 
provided a full explanation of their reasons for rejecting the taxpayers' 
evidence on this issue and were not arbitrary or capricious in doing 
so.

 

[¶45]   In a somewhat inconsistent 
argument, DOR, while claiming the intangible property was necessary and integral 
to the businesses, argued the taxpayers failed to prove the value of the 
intangible property was actually captured in the valuation of the businesses as 
a unit.  Given the income from the 
entire business is a crucial element in both the cost (with the enhancement 
adjustment) and income methods of valuation, that income necessarily is 
attributable, at least in some degree, to the FCC licenses and the customer 
lists.  Consequently, it appears 
logical to us that the value of those items was captured in the valuation.  See GTE Sprint Communications 
Corporation v. County of Alameda, 32 Cal. Rptr. 2d 882 (Cal. Ct. App. 
1994);  Michael E. Green & 
Terrence J. Benshoof, Exclusion of Intangibles From The Unit Value, 1 St. Tax 
Notes 547 (1991).  However, we need 
not resolve this factual dispute because we agree that the taxpayers cannot 
criticize DOR's failure to deduct the value of the intangibles when they 
provided no information allowing those values to be determined.  Further, the state of the record in this 
case does not support a finding that the action of SBOE or DOR was arbitrary or 
capricious in rejecting on its merits the evidence ultimately submitted by the 
taxpayers.  Newman, 2002 WY 
91.

 

[¶46]   We feel compelled to observe that, 
while claiming DOR failed to perform an analysis of the value of these 
intangible assets, the taxpayers' own expert testified he had never performed 
such an analysis for wireless companies before for purposes of property tax 
because the companies he had analyzed were locally assessed and the issues he 
had historically dealt with in the property tax context with wireless companies 
were related to depreciation and not valuation of intangibles.  He further observed, "the appraisal of 
the intangibles has evolved over the last several years primarily because it's 
becoming  a much more significant 
asset for companies."   It 
seems obvious and free from debate that the FCC licenses and the customer bases 
enhance the value of the taxpayers' tangible property, and, as we noted in RT 
Communications, that value is taxable.  
Yet, the methods of valuation of the intangibles adopted by the taxpayers 
resulted in such large values that they consumed most and, in some cases, all of 
that enhanced value and, as a result, simply seemed to lack credibility.  We do not intend to infer through this 
opinion that governmental licenses, franchises, and customer lists can never be 
considered exempt intangible property.  
Instead, the taxpayers' methods of valuation of intangible property must 
be realistic and cannot simply serve as a means of sheltering from taxation all 
enhanced value of the taxable property which is fairly attributable to the 
business operating as a going concern. 

 

C.        
Flotation Rate Adjustment

 

[¶47]   The taxpayers argued SBOE erred 
when it failed to require the capitalization rate utilized in the valuations to 
be adjusted to reflect a flotation cost adjustment.  Flotation costs are those costs 
associated with the issuance of new debt and equity securities.  In re Appeal of Wyoming Interstate 
Company, LTD, Wyo. St. Bd. Eq. No. 99-75, ¶10 ( Feb. 28, 2001).  As noted above, prior to preparing its 
final valuations for the taxpayers, DOR conducts a capitalization rate study for 
the different categories of businesses valued with the unitary method.  The rate is developed by DOR after 
consulting various sources of information concerning the industry's financial 
condition including input from the taxpayers themselves and is intended to 
reflect the rate of return that is expected within the industry.  DOR rules establish the procedures for 
the development of the capitalization rate and require a public meeting annually 
at which public comments are received.  
Department of Revenue Rules and Regulations ch. 7, § 7. 

 

[¶48]   In this process for cellular 
companies, the taxpayers presented information supporting a flotation cost 
adjustment; however, DOR issued the capitalization rate without one.  When the taxpayers filed their notice of 
appeal from their final valuation, they did not include the issue of the 
capitalization rate.  However, on 
January, 4, 2001, they filed an "Updated and Consolidated Preliminary Statement" 
in which the proper capitalization rate was specifically raised.  One month later, SBOE issued its 
decision in a separate case, In re Appeal of Wyoming Interstate Company, LTD, 
Wyo. St. Bd. Eq. No. 99-75, ¶22 (Feb. 28, 2001), in which it held DOR should 
allow flotation cost adjustments finding, "The conclusion is the buyers need for 
capital in the form of flotation costs must be included in the capitalization 
rate calculation."  Thereafter, DOR 
took the position that it would allow the adjustment for all taxpayers beginning 
with the 2001 tax year and immediately for all taxpayers who had cases on 
appeal.  In a document entitled 
"Notice of Amendment of Annual Reports" filed on June 13, 2001, five months 
before the hearing, the taxpayers stated it was "their wish to hereby confirm 
formally that they request additional changes to [DOR's] appraisals to reflect 
the flotation cost adjustment to the capitalization rate recognized in the 
recent Board of Equalization decision."9  

 

[¶49]   On September 7, 2001, almost a 
month before the SBOE hearing, DOR sent new certifications of value for the 
taxpayers for the tax years under appeal to the respective county assessors 
which certifications were based upon different capitalization rates because the 
taxpayers "should be granted additional financing costs for Flotation 
Costs."  At the same time, DOR also 
moved to dismiss this appeal contending the original valuations were moot.   The taxpayers opposed that effort 
because they wanted resolution of the other issues raised in their appeal and 
apparently assumed the flotation cost issue had been conceded.  On the basis of this record, we cannot 
determine whether the county assessors made the adjustment which would, of 
course, cause this issue to be moot.  
However, since neither party made such an argument, we must presume the 
amended valuations have not resolved the issue, and so we will resolve it 
herein.

 

[¶50]   SBOE found that, because the 
flotation rate issue was not raised in the notice of appeal and the summaries of 
updated contentions were never formally amended to raise the capitalization 
rate, the issue was not properly before SBOE.  Relying on Dan's Supermarket v. State 
ex rel. Wyoming Workers' Safety and Compensation Division, 2001 WY 104, 33 P.3d 1121 (Wyo. 2001), SBOE concluded the issues before it were limited to those 
raised in the pleadings.  However, 
that case involved an issue which was not raised in any fashion by the 
parties.  As the opinion 
noted,

 

We 
have previously ruled that "[p]leadings are used to give parties notice of the 
nature of claims and defenses, to narrow the issues, and to guide the parties 
and the court in the conduct of the case.  
If the pleadings and notice of hearing are to mean anything in a 
contested case hearing, the hearing examiner must be limited to considering only 
those issues presented in the notice and pleadings."  Ireland v. State ex. rel. Wyo. 
Workers' Comp. Div., 998 P.2d 398, 401 (Wyo. 2000) (citations 
omitted).

 

2001 
WY 104, ¶15.  The primary concern in 
both Dan's Supermarket and Ireland v. State ex rel. Wyoming Workers' 
Compensation Division, 998 P.2d 398 (Wyo. 2000), was to ensure all parties 
are on notice by way of the pleadings concerning what issues will be considered 
at contested case hearings.  This 
record demonstrates that test was met on the issue of the flotation costs.  The taxpayers raised the proper 
capitalization rate in their filings, and, in fact, the flotation cost 
adjustment was specifically raised in the taxpayers' "Notice of Amendment of 
Annual Reports" and in DOR's motion to dismiss.  Therefore, SBOE should have addressed 
the issue on the merits.

 

[¶51]   SBOE had previously ruled such an 
adjustment should be made for all other taxpayers, and DOR stated its intent to 
do so with cases on appeal.  While 
the taxpayers may well be subject to criticism for not raising it in their 
notice of appeal as well as not formally amending all their later prehearing 
pleadings, DOR's actions, first conceding the issue in its motion to dismiss and 
then, when the motion was not granted, claiming no adjustment was warranted, 
smacks of gamesmanship not appropriate in a process which seeks to fairly value 
property subject to taxation.  While 
the adjustment may not result in a substantial change in the valuation, if the 
facts warranted it, as was apparent here from the actions of both SBOE and DOR, 
it should have been made.  SBOE's 
rejection of the adjustment was arbitrary and capricious and must be 
reversed.

 

D.        
Exclusion of Taxpayers' Appraisals from 
Evidence

 

[¶52]   At the hearing, SBOE ruled certain 
evidence offered by the taxpayers concerning the value of the claimed intangible 
property, which was unavailable to DOR at the time it completed its valuation, 
was inadmissible as irrelevant to the issue of whether DOR's valuations were 
proper.  The taxpayers complain that 
ruling denied them a meaningful right to be heard.  DOR responds that SBOE has broad 
discretion concerning evidentiary matters, most of the evidence concerning the 
claimed value of intangible property was admitted, and SBOE properly excluded 
evidence that was not available to DOR since SBOE's role is not to determine 
valuations itself but only to review the actions of DOR.

 

[¶53]   SBOE rejected the taxpayers' 
proffered Exhibit Nos. 100 and 101 which were appraisals, including the value of 
intangible property, completed by their expert on the basis of information that, 
in part, was not available to DOR, either from annual reports filed by the 
taxpayers or other publicly available sources.  SBOE stated,

 

The 
primary basis for that decision is that the appraisal information 
. . . the information used in these appraisals was information 
not available to DOR for their preparation of appraisals, that because this 
additional information was used, and in fact, methodology was applied that DOR 
itself could not have applied, we find that these appraisals are not 
relevant.  It does not, however, 
limit Mr. Hoemke's discussion of his review of DOR's appraisals and the problems 
he saw with respect to those.

 

The 
hearing examiner later clarified the expert would be allowed to 
testify,

 

[H]ow 
he identified intangibles, how under appraisal methodology currently accepted he 
would have valued those intangibles, what information that he would need to 
value those intangibles and whether or not that information was readily 
available from the company at the appraisal dates.

 

[¶54]   The taxpayers concede their expert 
was allowed to testify regarding the appraisals to the extent the information 
was available to DOR. In addition, he was allowed to testify concerning the 
methodology he used in the excluded Exhibit Nos. 100 and 101 and even the values 
he derived in those exhibits.  Yet, 
the taxpayers complain he was not allowed to "show the path to reach those 
conclusions" because that path involved information not available to DOR when 
its appraisals were completed.  No 
suggestion is made that the excluded evidence would have addressed the reasons 
given by SBOE for rejecting the claim of value for the intangible property.  However, the taxpayers seek our review 
of this issue because of its potential impact in the 
future.

 

[¶55]   We start with the proposition that 
administrative agencies have broad discretion with regard to evidentiary matters 
in contested case proceedings.  
Clark v. State ex rel. Wyoming Workers' Safety and Compensation 
Division, 968 P.2d 436, 439 (Wyo. 1998); State ex rel. Wyoming Workers' 
Compensation Division v. Rivera, 796 P.2d 447, 451 (Wyo. 1990).  The issue before SBOE in this matter was 
not what the proper value of the taxpayers' property was but was to determine 
whether or not the methodology employed by DOR was correct.  Amoco Production Company v. Wyoming 
State Board of Equalization, 12 P.3d 668 (Wyo. 2000).  SBOE's evidentiary ruling did not impair 
the taxpayers' due process right to a full and fair hearing on that issue. 
See Amoco Production Company v. Wyoming State Board of Equalization, 7 P.3d 900 (Wyo. 2000). 

 

            
It is well established in Wyoming that with regard to an agency's 
decision on the admis­sion or exclusion of evidence and testimony, such is 
left within the sound discretion of the agency.  Judicial discretion is a composite of 
many things, among which are conclusions drawn from objective criteria; it means 
a sound judgment exercised with regard to what is right under the circumstances 
and without doing so arbitrarily or capriciously. An abuse of discretion has 
also been said to have occurred only when the decision shocks the conscience of 
the court and appears to be so unfair and inequitable that a reasonable person 
could not abide it.

 

Sinclair 
Oil Corporation v. Wyoming Public Service Commission, 
2003 WY 22, ¶41, 63 P.3d 887, ¶41 (Wyo. 2003) (citations 
omitted).

 

E.        Is 
Valuation of Cellular Companies Rational and Uniform?

 

[¶56]   The taxpayers suggest the valuation 
of their property arrived at by DOR may not meet the mandate of Article 15, 
Section 11 of the Wyoming Constitution which we have interpreted to mean "a 
rational method (of appraisal), equally applied to all property, which results 
in essential fairness."  Holly 
Sugar Corporation, 839 P.2d  at 963.  
The thrust of this argument is that, because other businesses such as 
cable television companies and internet service providers are locally assessed, 
they do not pay property taxes on the intangible value their property may have 
acquired from operating as a unit, as measured by the unitary method of 
valuation.  As an example, the 
taxpayers cite to a SBOE decision rejecting a local assessor's efforts to apply 
the unit valuation method to a cable television company. See In re Appeal of 
TCI Cablevision of Wyoming, Inc., Wyo. St. Bd. Eq. No. 92-264 (1993).  They also argue other franchise 
businesses do not pay tax on the intangible value of their franchise.  They point out that, even though they 
have aging analog equipment, they are earning high returns on investment 
"because they essentially have no booked investment in their licenses and 
customer-base assets."  While 
complaining that the valuation resulting from the enhancement adjustment was 
improper, they concede that some of that value may constitute enhancement of the 
tangible property, which is properly taxable.

 

[¶57]   The taxpayers do not provide a 
cogent argument or persuasive authority in support of their somewhat 
after-the-fact constitutional claim.  
Without that, we will not consider this argument.  Conner v. Board of County Commissioners, 
Natrona County, 2002 WY 148, 
¶13, 54 P.3d 1274, ¶13 (Wyo. 2002).  
We respectfully suggest these arguments are more suited to the 
legislative forum.  All those 
involved in this issue suffer from a lack of clear rules and procedures 
regarding how to treat companies with unregulated income, such as these cellular 
companies, which are valued with the unitary method.  The legislature has directed they are to 
be valued and assessed by DOR and has also required that the value of intangible 
property be excluded from taxation.  
In RT Communications, we stated the obvious that, if intangible 
property could be identified and separated, the statutes required it to be 
excluded from taxation.  How that is 
to be accomplished must be determined by the legislative and executive branches 
of government, not by the courts.  
We note that, when this issue arose in California, the legislature did 
respond with clear direction.  Cal. 
Rev. & Tax. Code § 110 (1996).

 

[¶58]   An additional comment is 
appropriate.  In both RT 
Communications and this case, we affirmed DOR's valuation while, at the same 
time, recognizing the statutes provide intangible property is exempt from 
taxation and such property is not limited to the statutory list of 
examples.  Central to our conclusion 
in both cases was the taxpayers' failure to provide sufficient evidence to DOR 
in the valuation process to allow it to determine the value of the intangible 
property.  We observe this is likely 
a result of the embryonic nature of this issue, and we predict the time will 
soon come when that reason for the rejection of an intangible property deduction 
will no longer exist.  If a taxpayer 
identifies intangible property during the valuation process and provides 
sufficient information to DOR to allow the value of that property to be 
determined using accepted valuation methods, DOR cannot lawfully refuse to give 
effect to the statutory exemption.  
The valuation methods utilized by the taxpayers' expert in this case to 
value the FCC licenses were not challenged by DOR.  Its objections were focused instead on 
timeliness and appropriate input data.  
These shortcomings can, and likely will, be addressed in the future.  

 

[¶59]   Consequently, we urge either DOR on 
its own through rulemaking or the legislature through statutory amendments to 
directly address how the intangible property of companies whose income is 
unregulated should be valued and either taxed or exempted from taxation.  Resolution of this issue is better 
suited to the legislative and executive branches of government than to 
case-by-case adjudication by the judiciary without the benefit of public 
debate.

 

[¶60]   Affirmed in part, reversed in part, 
and remanded.

 

FOOTNOTES

 

  1Section 
16-3-114(c) provides:

 

            
(c)  To the extent necessary to make a decision and when 
presented, the reviewing court shall decide all relevant questions of law, 
interpret constitutional and statutory provisions, and determine the meaning or 
applicability of the terms of an agency action.  In making the following determinations, 
the court shall review the whole record or those parts of it cited by a party 
and due account shall be taken of the rule of prejudicial error.  The reviewing court 
shall:

 

            
(i)  Compel agency action unlawfully withheld or unreasonably 
delayed; and

 

            
(ii)  Hold unlawful and set aside agency action, findings and 
conclusions found to be:

 

            
(A)  Arbitrary, capricious, an abuse of discretion or otherwise 
not in accordance with law;

 

            
(B)  Contrary to constitutional right, power, privilege or 
immunity;

 

            
(C)  In excess of statutory jurisdiction, authority or 
limitations or lacking statutory right;

 

            
(D)  Without observance of procedure required by law; 
or

 

            
(E)  Unsupported by substantial evidence in a case reviewed on 
the record of an agency hearing provided by 
statute.

 

2An 
audit was performed in 1994 by David Shank of Ad Valorem Services, Inc. and 
 referred to by this Court in 
PacifiCorp, Inc. v. Department of Revenue, 2001 WY 84, ¶15, 31 P.3d 64, 
¶15 (Wyo. 2001), which recommended that DOR use different income figures in a 
cost and income analysis to avoid such circularity.

 

3They do argue the rate should have been adjusted to reflect the flotation 
cost, but concede that adjustment would not have a significant impact on the 
values. 

 

4The 
acquisition adjustment was that portion of the purchase price which exceeded the 
book value of the tangible assets paid by the companies in question for the 
acquisition of their predecessors.

 

5Apparently, prior to the publication of our opinion in RT 
Communications, DOR maintained its position that the statutory list of 
intangible property was exclusive, and the taxpayers believed information 
submitted to support a value for other types of intangible property would be 
ignored.

 

6In 
1996, the FCC began issuing licenses for line-of-sight communications like 
cellular at slightly higher frequencies known as  personal communication services which 
are digital only.  

 

7Information regarding the auction prices used by the taxpayers' expert in 
his analysis was contained in Exhibits 100 and 101 which SBOE refused to 
admit.  However, SBOE did allow 
substantial testimony concerning the analysis and how it was utilized by the 
expert specifically including the FCC auctions, and that information was 
publicly available at the time of DOR's valuation.

 

8Of 
the fifty-one licenses auctioned in 1996 for areas under one million in 
population, only four were under 100,000.

 

9DOR 
contends that, unlike the severance tax statutes, the ad valorem statutes do not 
provide for amended annual reports.  
While the form of the pleading may be objected to, it did provide 
adequate notice concerning the issues which the taxpayers proposed to raise in 
the hearing.  We do note that DOR 
issued amended certificates of value which is also not directly authorized by 
statute but apparently has been accepted practice.