Case Title: AMOCO PRODUCTION COMPANY v. DEPARTMENT OF REVENUE

Citation: 

Docket Number: 02-171

State: wyoming

Court: Wyoming Supreme Court

Date: 2004-07-23T00:00:00Z

Document:
AMOCO PRODUCTION COMPANY v. DEPARTMENT OF REVENUE2004 WY 8994 P.3d 430Case Number: 02-171Decided: 07/23/2004
APRIL TERM, A.D. 2004

                                                                                                            

AMOCO 
PRODUCTION COMPANY,

Appellant(Petitioner),

 

v.

 

DEPARTMENT 
OF REVENUE, STATE

OF 
WYOMING and BOARD OF COUNTY

COMMISSIONERS 
OF UINTA COUNTY,

Appellees(Respondents).

 

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

Representing 
Appellant:

John 
L. Bordes, Jr., of Oreck, Bradley, Crighton, Adams & Chase, Boulder, 
Colorado; Robert A. Swiech, Associate General Tax Counsel, BP America, Inc., 
Houston, Texas.  Argument by Mr. Swiech.

 
   

Representing 
Appellee Wyoming Department of Revenue:

Patrick 
J. Crank, Wyoming Attorney General; Martin L. Hardsocg, Senior Assistant 
Attorney General; Karl D. Anderson, Senior Assistant Attorney General.  Argument by Mr. Anderson.

 
   

Representing 
Appellee Board of County Commissioners of Uinta 
County:

Bruce A. Salzburg of Freudenthal, Salzburg & Bonds, 
P.C., Cheyenne, Wyoming

 
 
         

Before GOLDEN, LEHMAN, KITE, and VOIGT, JJ., and BROOKS, 
D.J.

 
 
        

GOLDEN, Justice.

 
 

[¶1]           
This 
is an appeal by Amoco Production Company (Amoco) from a decision by the State 
Board of Equalization (Board) assessing Amoco on underpayment of severance taxes 
and increasing gross product valuation on gas produced from the Whitney Canyon 
field in Uinta County for the production years 1990 through 1992.  We will affirm in part and reverse in 
part.  

 

ISSUES

 

[¶2]           
Amoco presents the following issues for review:

 
 
     

A.  Uinta County lacks appeal rights in this 
matter.

B.  Royalties and production taxes are not 
properly included in the direct cost ratio as costs of 
producing.

C.  The decision of the Board confirming the 
Department's point of valuation was unsupported by substantial evidence and 
otherwise not in accord with Wyoming law.

D. 
The Department's disallowance of processing and transportation related expenses 
was arbitrary, capricious, an abuse of discretion and unsupported by substantial 
evidence.

E.  The imposition of penalties was 
improper.

 
     

The Wyoming Department of Revenue states the issues 
as:

 
 
       

I.  Did the State Board correctly conclude 
that the point of valuation for Amoco's Whitney Canyon production was the inlet 
to the initial transportation related compressor?

II.  Did the State Board correctly conclude 
that Amoco failed to meet its burden of proof in regard to Amoco's claim that 
certain expenses were associated with processing at the Whitney Canyon 
Plant?

III.  Did the State Board correctly conclude 
that the imposition of penalties by the Department was proper and 
justified?

IV.  Did the State Board correctly conclude that 
production taxes and royalties are direct production costs?

 
      
        

The Board of County Commissioners of Uinta County states 
the issues as:

 
 
          

Whether 
the Board of County Commissioners of Uinta County was properly permitted to 
intervene as a party in the contested case hearing before the State Board of 
Equalization?

Whether, 
if the County was properly allowed to intervene in this case, the Board of 
Equalization could consider the propriety of the Department of Revenue's 
proportionate profits calculation used to assess Appellant's production in the 
years at issue in the case?

Whether the "direct cost ratio" used in calculating the 
taxable value of oil and gas production under the proportionate profits method 
includes production taxes and royalties as "direct costs of producing" the oil 
and gas?

 

FACTS

 

[¶3]           
In 1994, the Department of Audit (DOA) engaged an audit of 
Amoco's Whitney Canyon production for the years 1989 through 1992.  In 1996, pursuant 
to the results of the audit, the Department of Revenue (the Department) issued a 
deficiency assessment against Amoco.  Amoco timely appealed the deficiency 
assessment to the Board.  

 

[¶4]           
Amoco and the Department eventually settled all issues 
involving the production year 1989.  The only issues on appeal concern production 
years 1990 though 1992.  Amoco valued its production during the years 
at issue under the proportionate profits methodology.1  Uinta County 
intervened in the administrative action and challenged the decision by the 
Department to not include production taxes and royalties as direct production 
costs within the context of the proportionate profits equation.

 

[¶5]           
Ultimately, the Board ruled in favor of Uinta County on the 
issue it raised and against Amoco on the issues Amoco initially appealed.  Amoco requested and 
was granted reconsideration by the Board, but the reconsidered opinion contained 
no substantive changes to the issues herein appealed.  Amoco timely 
appealed both the initial decision and the reconsidered opinion to district 
court.  The 
district court certified the case to this Court pursuant to W.R.A.P. 
12.09(b).  
Further details will be provided during the discussion of each issue as 
necessary.  

 

STANDARD OF REVIEW

 

[¶6]           
When reviewing administrative decisions, this Court is 
guided by Wyo. Stat. Ann. § 16-3-114(c)(ii) (LexisNexis 2003), which 
provides in pertinent part:

 

(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:

                        

* * * *

(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.

 

This Court will defer to an agency's findings of fact if 
they are supported by substantial evidence.  Whiteman v. Workers' 
Safety and Comp. Div., 984 P.2d 1079, 1081 (Wyo. 1999).  Substantial evidence is "relevant evidence 
that a reasonable mind can accept as adequate to support an agency's 
conclusion." Id. (quoting Casper Oil Co. v. Evenson, 888 P.2d 221, 224 (Wyo. 
1995)).  We 
will affirm an agency's conclusions of law only if they are in accordance with 
the law.  Snyder v. State ex rel. Workers' Comp. Div., 957 P.2d 289, 293 (Wyo. 
1998).  When an 
agency's determinations involve elements of law and fact, or ultimate facts, we 
do not give them the same deference we reserve for findings of basic fact.  Basin Electric Power Coop., Inc. v. Dep't of Revenue, 
970 P.2d 841, 850 (Wyo. 
1998).  
Instead, we separate the factual elements from the legal elements to 
determine whether the appropriate rule of law has been correctly applied to the 
facts and defer to the agency's ultimate factual finding only if there is no 
error in either stating or applying the law.  Id. at 
850-51.   
To the extent the controversy in the case at bar involves the proper 
application of appraisal methods to the facts, this is an issue of ultimate fact 
and requires de novo review.  Id. at 
851.

 

[¶7]           
The Department's valuations for state-assessed property are 
presumed valid, accurate, and correct.  Chicago, Burlington 
& Quincy R.R. Co. v. Bruch, 400 P.2d 494, 498-99 (Wyo. 1965).  This presumption can only be overcome by 
credible evidence to the contrary.  Id.  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.  Id.

 

[¶8]           
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.  Teton Valley Ranch v. 
State Board of Equalization, 735 P.2d 107, 113 (Wyo. 1987); Chicago, Burlington & 
Quincy R.R., 400 P.2d  at 499.  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.  Basin, 970 P.2d  at 851.   Once the presumption is successfully 
overcome, the burden of going forward shifts to the Department to defend its 
valuation.  Id. 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.  Id.

 

DISCUSSION

 

Standing of Uinta County to Intervene

 

[¶9]           
During the audit process, Amoco and the Department agreed 
that production taxes and royalties should not be included as direct production 
costs in the proportionate profits equation.  This decision reduced Amoco's tax 
obligation.  
After receiving the final deficiency notice from the Department, Amoco 
appealed to the Board on other issues.  In September 1997, Uinta County moved to 
intervene.  In 
May 1998, Uinta County filed its preliminary statement, which, for the first 
time, challenged the decision by the Department to not include production taxes 
and royalties as direct production costs.  

 

[¶10]      Amoco immediately filed a motion to vacate the order 
allowing intervention.  The Board denied Amoco's motion without 
discussion or analysis.  Uinta County remained a party to the 
action.  
Ultimately, the Board ruled in favor of Uinta County on the issue of its 
proffered definition of direct production costs.  In its final order, the Board reviewed its 
decision to allow Uinta County to intervene.  In essence, the Board simply determined that 
intervention by Uinta County was appropriate in the name of judicial economy.2  On appeal, Amoco argues that Uinta County 
should never have been allowed to intervene.

 

[¶11]      Amoco presents a very fundamental argument.  Amoco argues a 
county has no sovereign authority beyond that granted by the legislature.  State v. Bd. of Cty. Comm'rs of Johnson Cty., 642 P.2d 456, 457-58 (Wyo. 
1982).  Amoco 
contends the legislature has never expressly granted a right to counties to 
intervene in Board actions between a taxpayer and the Department.  Thus, Amoco argues, 
Uinta County simply lacks capacity to intervene.  

 

[¶12]      We believe this argument over-simplifies the issue.  In general, 
intervention is simply a means by which an outsider with an appropriate interest 
may come into an existing action.  The first inquiry is whether intervention in 
general is allowed in a contested case before the Board, and, assuming the 
answer is yes, our second inquiry is whether a county meets the criteria for 
intervention.

 

[¶13]      We begin by examining the jurisdiction granted to the Board 
by the legislature.  
The Board's authority to hear contested cases is found in Wyo. Stat. Ann. 
§ 39-1-304(a) (Michie 1997), recodified as § 39-11-102.1(c) (LexisNexis 
2003):

 

The state board of equalization shall perform the duties 
specified in article 15, section 10 of the Wyoming constitution and shall hear 
appeals from county boards of equalization and review final decisions of the 
department upon application of any interested person adversely affected, 
including boards of county commissioners for the purposes of this subsection, 
under the contested case procedures of the Wyoming Administrative Procedure 
Act.  

 

According to this statute, all contested cases before the 
Board are governed by the contested case procedures of the Wyoming 
Administrative Procedure Act (WAPA).  Turning then to the WAPA, we find that 
intervention is provided for within the definition of "party": "[p]arty' means 
each person or agency named or admitted as a party or properly seeking and 
entitled as of right to be admitted as a party."  Wyo. Stat. Ann. § 16-3-101(b)(vi) 
(LexisNexis 2003).  
Since a county is an agency under WAPA definitions pursuant to Wyo. Stat. 
Ann. § 16-3-101(b)(i) (LexisNexis 2003), § 16-3-101(b)(vi) allows for the 
possibility of a county intervening in a contested case if it can do so as of 
right.

 

[¶14]      Intervention as of right is a well-recognized legal 
concept.  While 
the legal requirements for intervention as of right are discussed in many cases, 
the requirements are reflected succinctly in W.R.C.P. 24(a):

 

(a) Intervention of right. -- 
Upon timely application anyone shall be permitted to intervene in an action:

            
(1) When a statute confers an unconditional right to intervene; or

(2) When the applicant claims an interest relating to the 
property or transaction which is the subject of the action and the applicant is 
so situated that the disposition of the action may as a practical matter impair 
or impede the applicant's ability to protect that interest, unless the 
applicant's interest is adequately represented by existing parties.

 

The Board has promulgated its own rule of procedure 
directly applicable to intervention in contested case proceedings before the 
Board.  The 
pertinent language of the Rule reads:

 

(a) Upon timely motion, any person, including a board of 
county commissioners, may be permitted to intervene in a case: (1) when a 
statute confers an unconditional right to intervene; or (2) when the movant 
claims an interest relating to the matter or transaction which is the subject of 
the case and is so situated that the disposition of the case may as a practical 
matter impair or impede his ability to protect that interest.  

 

Rules of Practice and Procedure for Cases Before the 
Wyoming State Board of Equalization, ch. 2, § 14 (Oct. 22, 2001).  

 

[¶15]      The Board rule roughly follows W.R.C.P. 24(a).  Significantly, 
however, the Board rule omits the condition that an applicant does not qualify 
to intervene as of right if its interests are adequately represented by existing 
parties.  This 
condition is an established requirement for intervention as of right and as such 
the Board is not at liberty to omit it.  By omitting this condition, the Board is 
attempting to expand the circumstances under which a party may intervene in a 
contested case beyond what is authorized by the legislature in the WAPA.  "Administrative 
agencies have only those powers expressly conferred by statute.  This legal 
principle applies with equal force to an agency's authority to promulgate 
rules.  Rules 
promulgated in excess of an agency's statutory authority are null and 
void."  State ex rel. Dep't of Revenue v. Buggy Bath Unlimited, 
Inc., 2001 WY 27, ¶10, 18 P.3d 1182, ¶10 (Wyo. 
2001) (citations omitted).  The Board's rule regarding intervention is 
void because it does not accurately reflect the full legal requirements of 
intervention as of right.  

 

[¶16]      Although the Board rule on intervention is not valid, the 
Board still has authority under the WAPA to allow a county to intervene if the 
county qualifies for intervention as of right.  We return to W.R.C.P. 24(a) for the 
appropriate guidance to determine if a county may intervene into a valuation 
dispute between a taxpayer and the Department as of right.  A fundamental 
requirement of being allowed to intervene as of right is a significant, legally 
protectable interest.

 

While we may agree that Rule 24(a) lends itself to liberal 
construction, it is also true that one seeking intervention must present a 
significant protectable interest in the suit, rather than one that is 
contingent.  O'Hara Group Denver, Ltd. v. Marcor Housing Systems Inc., 
Colo., 595 P.2d 679 (1979); In re Penn Central Commercial Paper Litigation, 62 F.R.D. 341 (1974), aff'd without opinion 515 F.2d 505 (2nd Cir. 1975).  Appellants were, 
therefore, obliged to demonstrate that they had a significant interest in the 
present litigation and not one that was merely contingent or similar to the 
interest of any member of the public at large.

 

Platte County School Dist. No. 1 v. Basin Elec. Power 
Co-op., 638 P.2d 1276, 1279 (Wyo. 1982).  Certainly counties have a pecuniary interest 
in the taxable value of property as determined by the Department.  Counties may levy 
and collect ad valorem taxes.  Ad valorem taxes are based upon the taxable 
value of property as established by the Department.  This pecuniary 
interest, however, does not translate necessarily into a legally protectable 
interest in the statutorily defined valuation process.  

 

[¶17]      Uinta County argues that § 39-11-102.1(c), quoted above, 
evidences a legislative intent that counties have a legally protectable interest 
in the valuation process.  This Court recently has had occasion to 
discuss the impact of W.S. § 39-11-102.1(c) on the role of counties in the 
valuation process.  
While we agree that the legislature has granted counties limited appeal 
rights from a final decision of the Department, the exact scope of the authority 
the legislature has granted to counties is not entirely clear:

 

We conclude that by amending Wyo. Stat. Ann. § 
39-11-102.1(c) in 1995, the legislature intended to grant counties the authority 
to file contested cases from final decisions of the DOR.  Unfortunately, the 
legislature left intact several statutes which specify only the taxpayer and the 
Department as having rights to appeal.  It did not indicate what decisions could be 
challenged by the county, or when.  It failed to indicate how county appeals fit 
into the amended return and audit process.  By granting counties the right to appeal, the 
legislature may have effectively eliminated any possibility of settlement of tax 
disputes under Wyo. Stat. Ann. § 39-11-103(b) (LexisNexis 2001) because, even if 
a dispute is settled, there is the risk of an appeal by a county.  We urge the 
legislature to remedy these problems by clearly indicating its intent with 
respect to county appeals of ad valorem taxes and by clearly defining the scope 
and process for such appeals.

 

Bd. of Cty. Comm'rs for Sublette Cty. v. Exxon Mobil 
Corp., 2002 WY 
151, ¶30, 55 P.3d 714, ¶30 (Wyo. 
2002).  
Unfortunately, as yet the legislature has not offered any 
clarification.3  

 

[¶18]      Guided by certain rules of statutory construction, the Exxon Court puzzled over the possible parameters of the 
appeal authority granted to the counties by the legislature:

 

"Courts may try to determine legislative intent by 
considering the type of statute being interpreted."  Basin Elec. Power Coop. v. Bowen, 979 P.2d 503, 509 (Wyo. 
1999). "Tax statutes are to be construed in favor of the taxpayer and are not to 
be extended absent clear intent of the legislature." Id. (citing Chevron, U.S.A., 
Inc. v. State, 918 P.2d 980, 985 (Wyo. 1996)).

In the interpretation of statutes levying taxes it is the 
established rule not to extend their provisions, by implication, beyond the 
clear import of the language used, or to enlarge their operations so as to 
embrace matters not specifically pointed out.  In case of doubt they are construed most 
strongly against the government and in favor of the citizen.

Chevron, U.S.A., Inc. v. State, 918 P.2d 980, 984-85 (Wyo. 1996) (citing Kelsey v. Taft, 
72 Wyo. 210, 219-20, 263 P.2d 135, 138 (1953) (quoting Gould v. Gould, 245 U.S. 151, 153, 38 S. Ct. 53, 62 L. Ed. 211 (1917))).  The same principles of strict construction 
apply to statutes which grant authority to political sub-entities.  "Since enabling 
legislation, through which all subordinate governmental instrumentalities must 
receive their authority, is a grant of sovereign power, it is subject to the 
usual rule of strict construction applicable to such grants."  Norman J. Singer, 
Statutes and Statutory Construction § 64:1 (6th ed. 
2001 rev.) (footnote omitted).  Because § 39-11-102.1(c) (LexisNexis 2001) is 
both a tax statute and one we are being asked to construe as a delegation of 
power from the State of Wyoming to the counties, we hold that it is appropriate 
to strictly construe it.

Assuming that the legislature intended to give some degree 
of authority to counties to appeal in ad valorem tax cases, principles of strict 
construction require us to conclude that it did not intend the scope of such an 
appeal to extend into areas specifically addressed in other statutes.  Specific statutes 
control over general statutes involving the same subject.  Thunderbasin Land, Livestock & Inv. Co. v. Laramie 
County, 5 P.3d 774, 782 (Wyo. 
2000). Consequently, a county's appeal may not challenge valuation methodology. 
Such appeals are governed by Wyo. Stat. Ann. § 39-14-203(b) (LexisNexis 
2001).  Such an 
appeal may not challenge an annual value certification, as that matter is 
addressed by Wyo. Stat. Ann. §§ 39-13-102(n) and 39-14-209(b)(iv) (LexisNexis 
2001).  The 
County cannot force an audit of a taxpayer through a contested case, as that 
responsibility is given to the Departments of Audit and Revenue under Wyo. Stat. 
Ann. § 39-14-208(b) (LexisNexis 2001).  It follows that the County's appeal must be 
limited in scope to specific errors allegedly committed by the DOR.  

 

Exxon, ¶¶32, 33.  

 

[¶19]      Ultimately the Exxon Court did 
not have to define the appeal powers of a county because it determined that the 
valuation notice being appealed by the county was not a final, appealable 
order.  Still, 
the statutory framework described above allows counties only a very limited role 
in the valuation process.  In Exxon, we 
excluded participation by the counties in all matters that are governed by a 
specific statute.  
Thus we specifically held that a county could not seek review of 
valuation methodology or the annual valuation certification.  

 

[¶20]      Remembering our rule of strict construction, and given that 
the legislature has made no further amendments to the relevant tax statutes, we 
find that the legislature did not intend to expand the role of the counties in 
the valuation process.  We have previously summarized the roles of 
the parties in the property valuation process:

 

There exists then, under current state taxation 
methodology, three state players and the counties:  the state 
Department of Revenue with the collection and taxation supervision 
responsibilities; the State Board of Equalization with a semi-judicial appeal 
and supervisory responsibility; and the Mineral Audit Division of the Department 
of Audit with a delinquency audit responsibility; and finally, county 
governments which have a direct pecuniary interest in the collection of the ad 
valorem tax.  
Value is established by the Department of Revenue subject to appeal to 
the State Board of Equalization with the function of the counties regarding ad 
valorem tax only limited to a quantities validation program for collection.  

 

Union Pacific Resources Co. v. State, 839 P.2d 356, 377 (Wyo. 1992).  We believe the role of the counties remains 
the same.  The 
only difference is that now a county can bring a contested case before the Board 
to challenge Department findings as to quantity or any similar alleged 
error.  A 
county cannot challenge a decision by the Department regarding valuation 
methodology or any substantive decision regarding the application of a chosen 
valuation methodology, including the definition of inputs into valuation 
equations.

 

[¶21]      Returning to the argument presented by Uinta County, we do 
not agree that § 39-11-102.1(c) expresses a legislative intent to create a 
greater role for counties in the valuation process.  The legislature has 
not expressly expanded the role of counties beyond a very limited involvement in 
the valuation process, and we decline to do so under the guise of statutory 
interpretation.  
The statute referenced by Uinta County does not confer upon counties the 
requisite interest to intervene as of right into a contested case before the 
Board brought by a taxpayer against the Department challenging substantive 
methodology decisions by the Department regarding valuation.  

 

[¶22]      Given the statutorily limited role of counties in the 
valuation process, even should we find that counties have the requisite interest 
for intervention, we are compelled to find that the interests of the counties is 
already adequately represented by the Department.  The legislature has developed a framework in 
which valuation is the unique function of the Department.  Not even the Board 
can challenge that function by changing definitions adopted by the 
Department.  
This Court previously has differentiated between the functions assigned 
to the Board and the functions assigned to the Department:

 

We begin by summarizing the statutory structure of the 
Department and the Board [of Equalization].  The Board is a constitutional body, and the 
legislature is required to establish a Board of Equalization charged with the 
duty to equalize the valuation of all property in the state.  Wyo. Const. art. 
15, §§ 9 & 10.  
In Wyo. Sess. Laws. ch. 174, §§ 39-1-101, et 
seq.  
(1991), the legislature created the Department as a separate agency from 
the Board, and assigned to it administrative functions relating to taxation and 
revenue that previously had been the responsibilities of the Board. Union Pacific Resources Co. v. State, 839 P.2d 356, 363 (Wyo. 
1992) (UPRC I).  It specifically charged the Department with 
the function of valuation of property for purposes of tax assessment, "while the 
Board became an independent quasi-judicial organization with constitutional and 
statutory duties to equalize valuation and decide disagreements regarding 
statutory provisions affecting the assessment, levy and collection of 
taxes.'  UPRC I, 839 P.2d  at 363."  Union Pacific Resources Co. v. State Bd. of Equalization 
for the State of Wyo., 895 P.2d 464, 466 (Wyo. 1995) (UPRC II).

 

Amoco Production Co. v. Wyoming State Bd. of 
Equalization, 12 P.3d 668, 672 (Wyo. 2000).  This Court determined that the functions were 
distinct:

 

The only way to harmonize the various descriptions of the 
review or appeal function of the Board is to hold that the Board is limited to 
an adjudicatory decision making its review on the record.  It is only by 
either approving the determination of the Department, or by disapproving the 
determination and remanding the matter to the Department, that the issues 
brought before the Board for review can be resolved successfully without 
invading the statutory prerogatives of the Department.  The statutory 
mandate to the Board is not to maximize revenue or to punish nettlesome 
taxpayers, but to assure the equality of taxation and fairly adjudicate disputes 
brought before it.

 

Id. at 674.  

 

[¶23]      Counties must also bow to the valuation authority of the 
Department.  
While the legislature undoubtedly is aware of the pecuniary interest of 
the counties in property valuation, the legislature has made the policy decision 
to assign to the Department the exclusive function to value property, subject 
only to review as directed by the legislature.  As explained above, the legislature has 
limited the involvement of counties in the valuation process.  This provides for a 
streamlined process wherein the Department is responsible for representing the 
interests of all state entities.

 

[¶24]      While we understand counties at times may seriously 
question the valuation decisions of the Department, counties are but political 
subdivisions of the state.  As such, when a county advances a position 
contrary to the position of the Department, theoretically the county is taking a 
position against itself.  Bringing such infighting before the courts is 
not lightly allowed:

 

            
 A 
county is a political or civil division of the state, created to aid in the 
administration of government.  

"A county is but an agency or arm of the state government, 
created, organized, and existing for civil and political purposes, particularly 
for the purpose of administering locally the general powers and policies of the 
state, and as a matter of public convenience in the administration of the 
government.  * 
* * "  20 
C.J.S. Counties § 1, pp. 754-755.  

"The County is a political subdivision of the State whose 
creation and whose powers and duties are derived from the constitution and 
statutory law.  
* * *"   
Cottonwood City Electors v. Salt Lake County 
Board of Commissioners, 28 Utah 2d 121, 499 P.2d 270, 271 
(1972).

See 56 Am.Jur.2d Municipal Corporations, Counties and Other 
Political Subdivisions, § 5, p. 74; and Bondurant v. 
Board of Trustees of Memorial Hospital of Converse County, Wyo., 354 P.2d 219, 221 
(1960).

            
Accordingly, the County cannot sue the State, its creator, in the absence 
of a specific constitutional or statutory provision authorizing such an 
action.  See Board of County Commissioners of County of Otero v. State 
Board of Social Services, 186 Colo. 435, 528 P.2d 244 (1974); Board of County Commissioners of County of Dolores v. 
Love, 172 Colo. 121, 470 P.2d 861 (1970); and Salt Lake County v. Liquor Control 
Commission, 11 Utah 2d 235, 357 P.2d 488 (1960).  

"As its mere agent, * * * a county may not sue the 
state.  * * * 
"  20 C.J.S. 
Counties § 320, p. 1283, citing Albany County v. 
Hooker, 204 N.Y. 1, 97 N.E. 403 (1912).

See Athanson v. Grasso, 411 F. Supp. 1153 (D.C.Conn.1976).  Counties are not sovereign entities.  They do not 
comprise a federation within the state.  Reynolds v. Sims, 
377 U.S. 533, 84 S. Ct. 1362, 12 L. Ed. 2d 506, reh. denied 379 U.S. 870, 85 S. Ct. 12, 13 L. Ed. 2d 76 (1964).  They are part of the state itself.  One cannot sue 
himself.  
Proceedings in our courts contemplate an adversary situation upon which 
they are based.  

* * * *

            
Since one cannot have a position adverse to his own position, one cannot 
bring an action against himself.  The County being a division of the State, it 
cannot sue the State.

 

State v. Bd. of Cty. Comm'rs of Johnson 
Cty., 642 P.2d 456, 457-58 (Wyo. 1982).  Limitations on the authority of a county to 
bring a judicial action against the state reflect an appropriate separation of 
powers.  A 
court is not necessarily the most appropriate forum for the resolution of 
intrabranch and intraagency policy disputes, and neither is the Board acting in 
its quasi-judicial function of adjudicating contested cases.  Any specific 
arguments the counties may have regarding valuation should be directly addressed 
to the Department.4  If the counties are not satisfied with their 
current level of interaction with the Department or with the representation they 
are receiving from the Department, their complaints are more appropriately 
directed to the legislature.

 

[¶25]      In sum, under the current statutory framework the 
legislature has authorized only a very limited role for counties in the 
valuation process.  
The legislature has made the policy decision that the Department is the 
state entity responsible for valuing property.  Counties, as subdivisions of the state, must 
rely upon the Department to adequately protect their interests in valuing 
property.  For 
our purposes, this means that counties do not meet the necessary criteria for 
intervention as of right in a contested case between a taxpayer and the 
Department.  In 
fact, the clear conclusion from the foregoing analysis is that counties simply 
cannot challenge, through participation in a contested case in any capacity, the 
valuation methodology or the application of that methodology, including 
definitions as determined by the Department of the components of a valuation 
equation.  
Uinta County should not have been allowed to intervene as of right and 
certainly should not have been allowed to bring the issue of the definition of 
direct costs of production.

 

[¶26]      The Department, in its brief, presents no argument as to 
the propriety of the intervention by Uinta County into the administrative 
case.  Instead, 
the Department argues that this Court should review the merits of the issue 
presented by Uinta County in the name of judicial economy.  The Department 
informs this Court that it has accepted the ruling of the Board on this issue 
and has informed all affected taxpayers to include production taxes and 
royalties as direct production costs.  The taxpayers, predictably, have appealed the 
Department's decision.  The Department argues that, since this Court 
will have to decide the issue at some point, it might as well do so now.  This argument, 
however, ignores the procedural posture of this case.  We have already 
held that Uinta County had no authority to intervene.  We have also held 
that Uinta County cannot legally challenge the initial decision by the 
Department on this issue.  Thus, this issue has no place in this 
particular proceeding at this stage.  Judicial economy cannot be invoked as a 
pretext for this Court to issue an advisory opinion.  We decline to 
review the issue on the merits.5  The contested case should have proceeded 
without the intervention of Uinta County or a review of the issue brought by 
Uinta County.  
Uinta County is dismissed from this appeal. Upon remand, Uinta County, as 
well as the issue it presented, must be dismissed from the action.  

 

[¶27]      The improper intervention of Uinta County does not taint, 
however, the entire proceedings.  Improper intervention generally does not 
affect jurisdiction. See W.R.C.P. 21.  The contested case 
hearing was conducted in distinct phases.  In the first phase, Uinta County bore the 
burden of presenting its case with regards to its proposed definition of direct 
costs under the proportionate profits method.  After evidence was presented on this issue, 
the contested case switched to the next phase in which Amoco bore the burden on 
its issues.  
Uinta County was allowed to participate in this phase.  Uinta County 
questioned the witnesses called by Amoco and the Department but did not call any 
witnesses of its own.  
Under the facts of this case we will accept the decision of the Board on 
the remaining issues and will continue with our review thereof.

 

Point of Valuation

 

[¶28]      For context, in its most simplified form, under the 
proportionate profits method of valuation, any increase in direct production 
costs increases tax liability.  Any decrease in direct processing or direct 
transportation costs increases tax liability.  The second and third issues raised by Amoco 
challenge decisions by the DOA and the Department to recategorize certain 
expenses, increasing Amoco's tax liability.

[¶29]      With regard to the point of valuation, Wyo. Stat. Ann. § 
39-2-208(b) (Michie 1997), recodified as § 39-14-203(b) (LexisNexis 2003), 
defines the point of valuation for gas:

 

(ii)  The fair market value for crude oil, lease 
condensate and natural gas shall be determined after the production process is 
completed.  
Notwithstanding paragraph (x) of this subsection, expenses incurred by 
the producer prior to the point of valuation are not deductible in determining 
the fair market value of the mineral;

* * * *

(iv)  The production process for natural gas is 
completed after extracting from the well, gathering, separating, injecting and 
any other activity which occurs before the outlet of the initial 
dehydrator.  
When no dehydration is performed, other than within a processing 
facility, the production process is completed at the inlet to the initial 
transportation related compressor, custody transfer meter or processing 
facility, whichever occurs first.

 

The parties to this case agree that no dehydration occurs 
in the field, so the point of valuation is either the inlet to the initial 
transportation related compressor, custody transfer meter or processing 
facility, whichever comes first. 

[¶30]      The physical layout of Whitney Canyon is not disputed.  In paragraph 64 of 
its decision, the Board found:

 

After extraction from the well, [Amoco's] gas passed 
through a well location meter, was heated to prevent the formation of hydrates 
and placed in the gathering system at a plant process control valve.  The gathering 
system collected the production from the wells served by the Whitney Canyon 
plant and transported the gas to a compressor station and then to the inlet to 
[Amoco's] Whitney Canyon plant.

 

The first meter, described by the Board as a well location 
meter, is a volume control meter.  It measures the volume of gas being 
produced.  
After the gas has passed through the volume control meter and is heated, 
it passes through control valves that are exclusively controlled by the plant 
operators.  The 
purpose of these valves is to control the amount of hydrogen sulfide entering 
the system.  By 
use of the control valves, the plant operator can mix the different gas streams 
in any combination that is most efficient for plant production.  Beyond the control 
valves is a transportation related compressor and then the processing 
facility.  
Title to the gas remains with Amoco until sold at the tailgate of the 
plant.

 

[¶31]      For statutory purposes, then, the compressor comes before 
the plant so the inlet to the compressor would be the point of valuation unless 
there is a "custody transfer meter" before the compressor.  This, of course, is 
where the battle is joined.  Amoco claims the volume meters at the 
wellheads legally constitute "custody transfer meters" as required by 
statute.  The 
DOA and the Department, however, determined that custody did not transfer until 
the product was sold at the tailgate of the plant and thus the volume meters at 
the wellheads were not custody transfer meters.  The Board determined that Amoco did not 
present adequate proof that the volume meters at the wellhead were custody 
transfer meters as contemplated under the statute.

 

[¶32]      Amoco's proof at hearing consisted primarily of testimony 
from its production tax audit coordinator, Mr. Bill Warren:

 

Q:  Talk to me about the gathering lines a little 
bit.  You said 
that it's Amoco's position that processing starts right at the wellhead; is that 
right?

A:  The point of valuation being the wellhead 
meter, the meter at the inlet of the inlet line  or the gas collection 
line.

Q:  What kind of meter is that at the 
wellhead?

A:  It's not a sales meter as such.

Q:  Is it a custody transfer meter?

A:  In theory, for state tax purposes, it's a 
custody transfer meter.  In theory only, for the simple reason that 
the products that's going through that meter are unprocessed.

Q:  Are the products being sold when they go 
through that meter at that point?

A:  The products are sold at the tailgate of the 
Whitney Canyon Plant, but the value of those products and the volume of those 
products are driven right back down that inlet line right to that point of 
valuation.

Q:  Would you agree with me that the meters at 
the wellhead are class A check meters?

A:  I've heard the term class A, and I'd say that 
that's probably a true statement.  It would take an engineer to confirm that, 
but based on what I know about a class A meter, I'd say that's true.

Q:  And would you agree with me that class A 
meter is not the same thing as a custody transfer meter?

A:  Again, I would say that a custody transfer 
meter in a normal sense is not that same kind of meter that  again, if you use 
the word "custody transfer meter" for this particular meter, you're talking 
about for severance purposes.  You're not talking about  you're talking 
about severance purposes, but realizing that there is a specific meter at the 
tailgate of the plant that's used for selling NGLs and gas, not the same 
meter.

Q:  They are not the same meter?

A:  No.

* * * *

Q:  Earlier you testified that a class A check 
meter is different than a custody meter, correct?

A:  I would say that it could be different.  Again, I am not a 
meter expert and it would take an engineer to be a meter expert.  But normally LACT 
meters, and I forgot the word I'm looking for, a LACT meter applies to oil, and 
a LACT meter is definitely a different meter than a so-called class A meter as 
far as I'm concerned.

And also when you're talking about gas measurement, there 
are all kinds of new-type gas measurement meters that are available now and I 
don't think that they fit into the term "class A meter."  The class A meter 
to me is a meter that's used in a field to measure volume, and that volume is 
used at a later point in time for allocation purposes.  That's what I would 
normally think of as a class A meter.

 

Mr. Paul Syring, a senior tax representative for Amoco 
based in Denver, also testified that the volume meters at the wellheads are 
custody transfer meters.  Finally, Amoco admitted into evidence a 
Processing Agreement between the producers and the processor that, on appeal, 
Amoco claims provides for the legal transfer of custody from the producer to the 
processor at the inlet to the gas transportation system.  

 

[¶33]      The Board rejected Amoco's evidence.  The Board 
specifically held:

 

            
We reject [Amoco's] contention that the volume meters located at or near 
the wellhead and prior to the inlet to the gathering system are custody transfer 
meters as that term is used in Wyoming Statute 39-2-208(b)(ii) [recodified as § 
39-14-203(b)(iv)].  
The only testimony even remotely identifying the volume meters as custody 
transfer meters came from Mr. Warren.  He said only that they were custody transfer 
meters "[i]n theory only, for purposes of 
taxation."  
We find that testimony unpersuasive.  We do not believe the legislature 
contemplated the use of a theoretical custody transfer meter as the point of 
valuation for taxation purposes.

We conclude that the custody transfer contemplated by that 
section is the transfer of custody from the producer to the purchaser.  This interpretation 
is consistent with the definition of "lease automatic custody transfer meter" 
used by the legislature for crude oil valuation requiring a transfer from a 
producer to purchaser.  Wyoming Statute 
39-2-208(m)(v) [recodified as § 39-14-203(b)(iii)].  In this case 
transfer from producer to purchaser occurs at the tailgate of the processing 
plant, not at the beginning of the gathering system.

 

(Emphasis in original).  Since Amoco did not prove that the volume 
meters at the wellhead were custody transfer meters, the Board affirmed the 
Department's decision that the point of valuation is the inlet to the 
compressor.

 

[¶34]      Amoco repeats its arguments in this appeal.  Amoco adds that the 
Board was incorrect when it determined that a custody transfer was limited to a 
transfer between a producer and a purchaser.  "Custody transfer meter" is not defined by 
either statute or rule.  Neither party suggests that a custody 
transfer meter is a term of art specific to the gas industry.  Instead, the 
parties argue that the term should be defined based upon the plain meaning of 
the words.  The 
parties are correct.  
Statutory construction involves a question of law and as such the review 
of this Court is de novo.  Our primary consideration in construing 
statutes is to determine the intent of the legislature.  We begin by 
construing the statutory language according to the ordinary and obvious meaning 
of the words at issue according to their arrangement and connection.  Loberg v. State, 2004 WY 48, ¶5, 88 P.3d 1045, ¶5 (Wyo. 
2004).

 

[¶35]      "Custody" is defined as "immediate charge and control . . . 
exercised by a person or an authority; also : 
safekeeping."  
Merriam-Webster's Collegiate Dictionary 285 (10th ed.2000). "Transfer" 
is defined as "to convey from one person, place, or situation to another : 
transport" or "to cause to pass from one to another : transmit" or "to make over 
the possession or control of : convey."  Id. at 1249.  "Meter" is defined 
as "one that measures; esp : an official measurer of 
commodities."  
Id. at 729.  Construing the words in the context of 
valuing gas, a custody transfer meter is an official measurer of gas as it 
passes from one entity to another for the other's immediate charge or 
control.

 

[¶36]      Applying this definition to the facts of this case, even 
the Department in its brief admits that the Board's conclusion that the transfer 
must be between the producer and a purchaser is incorrect.  The statute does 
not require a change in title.  Further, the Department placed a great deal 
of emphasis in its presentation on the fact that the meter selected by Amoco as 
a custody transfer meter is a volume meter and not what is normally considered a 
sales meter.  
While the physical characteristics of the meter designated as a custody 
transfer meter may have evidentiary value, the physical type of the meter is not 
definitive.  
Standing by itself, the type of meter does not determine whether custody 
is being transferred at the meter.

 

[¶37]      While the analysis of the Board may be incorrect, Amoco 
still bears the burden of presenting credible evidence supporting its position 
that the volume meters at the wellheads are custody transfer meters.  Amoco produced two 
employees who simply made a blanket statement that the volume meters at the 
wellheads were custody transfer meters for state tax purposes.  Amoco then 
generically argued that a producer agreement provided for the transfer of 
custody of the gas at the inlet to the gathering system.  Amoco does not 
provide any specific discussion regarding the agreement nor does it specify any 
particular provision in the producer agreement.6  Under these facts, 
we hold that Amoco has not met its burden of presenting credible evidence that 
the volume meters at the wellhead are custody transfer meters.  Thus, under the 
statute, the determination of the DOA and the Department that the point of 
valuation is at the inlet to the compressor is affirmed.7

 

Processing Expenses

 

[¶38]      Upon audit, the DOA disallowed several expense sub-accounts 
that Amoco had included as direct costs of producing.  Amoco personnel 
stamp invoices with account and sub-account numbers.  Account number 9272 
is the processing expense account for Amoco's Evanston District.  Amoco's Evanston 
District not only includes the Whitney Canyon fields and plant, but also the 
Painter fields, the Painter Gas plant, the Ryckman Creek fields, the Clear Creek 
fields, the East Painter fields, the Anschutz plant and the Anschutz 
fields.  The 
sub-account numbers distinguish various types of expenses.  For instance, 
sub-account number 9272-10 is a sub-account for truck and service equipment 
expenses.  
Sub-account 9272-11 includes automobile expenses.  There are also 
location identifiers on the invoices, also supplied by Amoco personnel.  The auditor for the 
DOA, Mr. Derek Weekly, testified that he understood Amoco's accounting and 
coding system.

 

[¶39]      Amoco presents several challenges to the audit 
methods.  
First, Amoco challenges the independence of the auditor.  Mr. Weekly 
consulted with Ellwood Soderlind for certain parts of the audit.  Mr. Soderlind was 
the DOA auditor who was responsible for an audit of Whitney Canyon for 
production years 1983 through 1988.  Production during those years was valued 
according to the netback method.  Production for the year 1989, a year included 
in Mr. Weekly's audit, was also valued according to the netback method.  For the sake of 
consistency, Mr. Weekly was told to deny any expenses that he found that were 
the same as expenses that Mr. Soderlind denied in his audit for the prior 
production years.  
The testimony is clear, however, that Mr. Weekly only coordinated with 
Mr. Soderlind regarding expenses for production year 1989.  Because of the 
change in valuation method to the proportionate profits method, Mr. Weekly used 
his own judgment for all expenses for production years 1990 through 1992. Since 
only production years 1990 through 1992 are at issue in this appeal, we need not 
decide if the coordination between Mr. Weekly and Mr. Soderlind for production 
year 1989 presents a problem regarding the independence of audit 
decisions.

 

[¶40]      Amoco's next complaint regards the process the auditor used 
to determine if an expense was allowable as a direct processing expense.  The auditor 
testified that he used a three-step process in analyzing receipts.  First, the auditor 
looked at the expense to see if he could relate it directly back to the Whitney 
Canyon plant.  
The auditor testified that many expenses could only be traced to the 
Evanston District and could not be related directly back to the Whitney Canyon 
plant.  These 
expenses were denied.  
The auditor also checked the nature of the expense to verify if it was 
something that could be directly utilized by Whitney Canyon.  For instance, the 
auditor found an invoice for nitrogen that was allocated to Whitney Canyon but 
delivered to Painter field.  The auditor knew that nitrogen was regularly 
used at Painter field but was unaware of any substantial use for nitrogen at 
Whitney Canyon.  
The auditor thus disallowed the expense even though the invoice was 
stamped with a Whitney Canyon plant allocation.  

 

[¶41]      The second step was to determine if the expense was 
allowable as a processing or transportation expense by statute or rule.  The third step was 
to determine if the expense was directly related to processing the gas stream at 
the Whitney Canyon plant.  Mr. Weekly provided the following example of 
how the process worked:

 

The 9272, sub-account 1 was charges from other company 
operations.  
And what we found was allocations to overhead, whether it was to the 
plant in Wyoming, the Evanston District was one part of these overhead 
breakout.  
There was also plants out of the state of Wyoming.  It was different 
areas out of the state of Wyoming. It was just basically trying to pinpoint 
where these expenses occurred.

            
What I found were expenses that were charged to the Evanston 
District.  The 
Evanston District, and I think I testified to it yesterday, can include a vast 
array of things.  
You have the Whitney Canyon Gas Plant, the Painter Gas Plant, the 
Anschutz Gas Plant, plus you have all the fields, you have the Painter fields, 
Ryckman Creek fields, the Clear Creek fields, Anschutz fields, Whitney Canyon 
fields, Carter Creek fields and then you have the offices in Evanston 
alone.  So I 
couldn't pinpoint that directly back to Whitney Canyon.

            
There were breakouts that would actually take the Evanston District, they 
numbered it like 80, 81, 83, something like that, that you can tie back to 
Whitney Canyon, but I still could not tell what that labor was doing.  Was it directly 
related to the processing of gas?

            
If you look at the definition in the Board rules under what's allowable 
under the processing, it specifically states, "Labor whose primary purpose is 
processing a gas stream."  And then it goes further on in that.  And so I had to 
look at it in my threefold system.  Number one, I felt I couldn't tie it right 
back to the Whitney Canyon Gas Plant.  I can tie it back to Whitney Canyon because 
there's a statement in there that said Whitney Canyon; however, that can mean 
field, it can mean sulfur haul road, sulfur loadout terminal, the wells 
themselves.  I 
couldn't tie it right back to the plant.  So I felt at that point really that I said no 
to my first point.

            
My second point, whether I can fit it into the statutes or rules, again, 
it was labor directly related whose primary purpose is processing that gas 
stream.  I 
couldn't tell where that labor was occurring, so I said  no on that point 
that I could not tie it into labor that was directly responsible for processing 
that gas stream.

            
On the third point, is it a direct expense, and I had to say no on that 
because that labor that is, you know, just kind of overhead labor that can be 
distinguished out elsewhere is considered an indirect overhead, in my opinion, 
so I said no to all three categories, so therefore I disallowed sub-account 
1.

 

Mr. Weekly was able to give similarly specific testimony 
with regards to each sub-account he disallowed.

 

[¶42]      Amoco takes particular issue with the third step in Mr. 
Weekly's analysis.  
Amoco contends that expenses do not have to be directly related to the 
processing of the gas stream to qualify as a production or transportation 
expense.  Amoco 
complains that the legislature could not possibly have intended expenses such as 
the land lease for the plant and environmental permits be disallowed as 
processing expenses.  
However, such expenses are not direct costs of gas processing.  The intent of the 
legislature must be determined based upon the plain language of the 
statute.  
Wyoming Statute § 39-2-208(d)(iv), recodified as § 39-14-203(b)(vi) 
(LexisNexis 2003) states: 

 

(D) Proportionate profits -- The fair market value is:

(I) The total amount received from the sale of the minerals 
minus exempt royalties, nonexempt royalties and production taxes times the 
quotient of the direct cost of producing the minerals divided by the direct cost 
of producing, processing and transporting the minerals; plus

(II) Nonexempt royalties and production taxes.

 

The statute, in very plain and direct terms, clearly 
requires the use of direct costs in the quotient.  Mr. Weekly's analysis is supported by 
statute.  

 

[¶43]      Amoco argues that its books and records are kept in 
accordance with generally accepted accounting principles.  Its business 
records are created and kept in the usual and ordinary course of business and 
must be presumed credible.  Thus, Amoco argues that the auditor acted 
arbitrarily and capriciously in attempting to independently verify the 
invoices.8  Amoco's argument inappropriately shifts the 
burden of proof.  
The valuation of the Department is presumed valid.  The officials 
charged with establishing value are presumed to have exercised honest judgment 
in accordance with applicable statutes, rules, and regulations.  It is Amoco's 
burden to present credible evidence rebutting these presumptions.  At the hearing, 
Amoco presented testimony from Mr. Warren that further documentation is and 
always has been available and had Mr. Weekly only asked, Mr. Warren would have 
produced any further documentation Mr. Weekly required to satisfy his three-step 
process.  
Unfortunately, Mr. Warren's offer came too late.  Even at the hearing 
no documentation was introduced on any disallowed expense that provided the 
specific information that Mr. Weekly testified he needed to allow the 
expense.  Amoco 
simply failed in its burden of proof.

 

[¶44]      Amoco also presents several challenges to the audit as a 
whole.  First, 
Amoco claims the audit was inconsistent because the auditor only audited 
processing accounts.  
The auditor never audited production accounts.  Any disallowance of 
a production expense would have lowered Amoco's tax liability.  Amoco argues that 
the audit was not fair because its only purpose was to increase Amoco's tax 
liability, with no attempt being made to conduct a thorough, consistent 
audit.  Amoco, 
however, cites to no authority to support its proposition that the audit was 
unfair and makes no argument that it was prejudiced by the failure of the 
auditor to audit production accounts.  This Court does not consider arguments not 
supported by cogent argument or pertinent authority.  Dobson v. Stahla, 2003 WY 6N, 63 P.3d 209 
(Wyo. 2003).

 

[¶45]      Amoco next cites to several instances in the record where 
it alleges inconsistencies in the testimony of Mr. Weekly.  This presents an 
issue of credibility.  
Credibility is properly assessed by the Board, as the body with the duty 
to weigh the evidence and determine the credibility of the witnesses. Gilmore v. Oil & Gas Conservation Comm'n, 642 P.2d 773, 776  (Wyo. 1982) ("we 
may not substitute our opinion as to the weight and credibility of the evidence 
for that of the Wyoming Oil and Gas Conservation Commission").  Ultimately this 
argument comes down to a challenge on the sufficiency of the evidence.  Without going into 
further detail, it is clear from the Board's decision that the Board found the 
testimony of Mr. Weekly to be credible and determined that substantial evidence 
existed to support his decisions.  Upon reviewing the entire record, this Court 
finds the decision by the Board on this issue to be supported by substantial 
evidence.  

 

[¶46]      Amoco also complains about the sampling method used by the 
auditor.  The 
auditor disallowed sub-accounts in full based upon a sampling of expenses within 
the sub-accounts.  
If the majority of expenses sampled in a sub-account were disallowed, the 
auditor disallowed the entire sub-account.  Amoco argues that a ratio of disallowed 
expenses to allowed expenses should have been established for each 
sub-account.  
This error ratio then should have been projected onto the total expenses 
in the sub-account to determine the amount disallowed.  In other words, if 
a sampling showed 60% of expenses sampled were not allowable, then 60% of the 
entire account should be disallowed, with the remainder of the account being 
allowed.  

 

[¶47]      Amoco bases its argument on DOA rule Chapter 11, § 
14:

Examination of Records.

(a) Auditors may use sampling methods which are approved 
under generally accepted auditing standards to test the audited entity's 
accounting system and records.  Based upon the results of the tests, the 
auditors, in consultation with the audit supervisor, shall determine whether to 
continue or terminate the audit.

(b) If the test results show that the audit should be 
continued, the auditors may conduct the audit by the use of approved sampling 
methods.  If 
the auditors elect to use a sample projection, the audited entity will be 
informed and the sampling method used will be explained.  Sampling means that 
a valid portion or percentage of accounts, invoices, purchase or sale documents, 
or other records representative of the time frame being audited, will be 
examined and the results will be projected for the total population from which 
the sample is drawn.

 

Department of Audit's General Auditing Rules and 
Procedures, ch. 11, § 14 (Nov. 30, 1992).  Amoco does not, however, provide specific 
argument as to the meaning and application of this rule.  

 

[¶48]      This rule only requires that the results of the sampling be 
projected for the total population of the sub-account being sampled.  The rule does not 
address what should happen to the sub-account once the results of the sampling 
are projected.  
Amoco argues that the sub-account should be allowed, with only a ratio of 
expenses disallowed.  
The auditor, however, determined that the results of the sampling would 
be to determine if the sub-account as a whole would be allowable or not.  Thus, if his 
sampling revealed some non-allowable expenses, but the sampling as a whole 
revealed the expenses were allowable, the auditor projected that result to the 
sub-account and allowed the entire sub-account.  If his sampling showed that the sample 
population was non-allowable, he projected that determination to the entire 
sub-account and disallowed the entire sub-account.  

 

[¶49]      Neither the result suggested by Amoco nor the result 
applied by the auditor violates the DOA rule.  The rule simply is not applicable to the 
issue.  The 
auditor specifically testified that throwing out entire sub-accounts based upon 
a finding that the sample population for that sub-account was not allowable was 
a common practice in the industry.  Amoco presents no argument to the 
contrary.  In 
general, Amoco has not met its burden of proof that any of the actions of the 
auditor were arbitrary, capricious, constituted an abuse of discretion or are 
unsupported by substantial evidence.  The decision of the Board regarding the audit 
expenses is affirmed.

 

Penalties

 

[¶50]      As an initial note, Amoco was not penalized for the extra 
taxable value associated with the addition of royalties and production taxes as 
direct costs of producing.  The Board determined that its decision on 
that issue could not have been foreseen and so penalties were not 
warranted.  
Amoco was assessed penalties for the extra taxable value associated with 
the recategorization of the gathering lines from a processing expense to a 
production expense and the disallowance of several claimed processing 
expenses.  

 

[¶51]      On appeal, Amoco contends that it should not be subject to 
penalties because it fully reported all of its volumes and the actual proceeds 
it received.  
The difference in the taxable value is a result of reasonable differences 
of opinion regarding the categorization of some of the expenses.  Amoco reported in 
good faith and had no reason to know or even guess that its categorization of 
these expenses would be rejected.  Amoco's argument continues that, since it 
voluntarily complied with all requirements of self-reporting, it should not be 
penalized.

 

[¶52]      Whatever may be the merits of Amoco's argument on appeal, 
Amoco did not present this argument to the Board.  In fact, the only argument presented by Amoco 
at the contested case hearing was in its written closing in which it claimed 
that the Department had not introduced any evidence supporting the imposition of 
penalties.  
Amoco argued that penalties are not supported absent evidence of 
non-compliance or negligence.  The Board did not accept this attempt at 
switching the burden of proof.  Amoco did not even mention penalties in its 
motion for reconsideration.  

 

[¶53]      This Court does not review issues that were not properly 
developed below.  

We have stated that "[w]e strongly adhere to the rule 
forbidding us to "consider for the first time on appeal issues that were neither 
raised in, nor argued to, the trial court," except for those issues which are 
jurisdictional or are fundamental in nature.'"  Hronek v. St. 
Joseph's Children's Home, 866 P.2d 1305, 1309 (Wyo. 1994) (quoting Bredthauer v. 
TSP, 864 P.2d 442, 446-47 (Wyo. 
1993) and Oatts v. Jorgenson, 821 P.2d 108, 111 (Wyo. 
1991)).  "We 
follow this rule because "it is unfair to reverse a ruling of a trial court for 
reasons that were not presented to it, whether it be legal theories or issues 
never formally raised in the pleadings nor argued to the trial court."'" Hronek, 866 P.2d  at 1309 (quoting Bredthauer, 864 P.2d  at 446-47 and Oatts, 821 P.2d at 111); see 
also 5 Am.Jur.2d Appellate Review § 690 
(1995).  "We of 
course must not judge the matter of abuse of discretion on the basis of showings 
made to us on appeal.  
We must judge on the basis of showings made to the trial court...."  Holly Sugar Corp. v. Perez, 508 P.2d 595, 599 (Wyo. 
1973).  We have 
articulated and followed this principle on numerous occasions.  See Rock Springs Land and Timber, Inc. v. Lore, 2003 WY 100, ¶35, 75 P.3d 614, 627 (Wyo. 
2003); State v. Campbell County School Dist., 2001 
WY 90, ¶35, 32 P.3d 325, 333 (Wyo. 
2001); Daley v. Wenzel, 2001 WY 80, ¶19, 30 P.3d 547, 552-53 (Wyo. 
2001); Robinson v. Pacificorp, 10 P.3d 1133, 1136 (Wyo. 
2000); Cooper v. Town of Pinedale, 1 P.3d 1197, 1208 (Wyo. 
2000); WW Enterprises, Inc. v. City of Cheyenne, 956 P.2d 353, 356 (Wyo. 
1998); Squaw Mountain Cattle Co. v. Bowen, 804 P.2d 1292, 1296 (Wyo. 
1991); Epple v. Clark, 804 P.2d 678, 681 (Wyo. 
1991); Esponda v. Esponda, 796 P.2d 799, 802 (Wyo. 
1990); R.O. Corp. v. John H. Bell Iron Mountain Ranch 
Co., 781 P.2d 910, 913 (Wyo. 
1989); U.S. Aviation, Inc. v. Wyoming Avionics, 
Inc., 664 P.2d 121, 125 (Wyo. 
1983); Roush v. Roush, 589 P.2d 841, 844 (Wyo. 
1979); Thickman v. Schunk, 391 P.2d 939, 943 (Wyo. 
1964); Gore v. John, 61 Wyo. 246, 157 P.2d 552, 556 (1945); 
and Ideal Bakery v. Schryver, 43 Wyo. 108, 299 P. 284, 293 
(1931).

 

Yates v. Yates, 2003 WY 
161, ¶13, 81 P.3d 184 (Wyo. 
2003).  Amoco 
does not contend that this issue is either jurisdictional or fundamental.  This Court does not 
consider the imposition of penalties under the circumstances of this case to be 
so fundamental as to require our review when Amoco failed to present its current 
argument against the imposition of such penalties before the Board.9

 

CONCLUSION

 

[¶54]      This action began as a contested case brought by Amoco 
against the Department.  Uinta County should not have been allowed to 
intervene in the contested case.  Uinta County is dismissed from this 
appeal.  Upon 
remand, the Board must dismiss Uinta County as a party and the issue it 
raised.  The 
Board's decision on the issue raised by Uinta County is vacated.  The result of this 
is to reinstate the initial determination of the Department that production 
taxes and royalties should not be included as a direct cost of production in the 
proportionate profits equation.

            

[¶55]      All audit issues are affirmed.  Valuation by the 
Department is presumed accurate.  Amoco did not present sufficient credible 
evidence to overcome this presumption.  Amoco's issue concerning the imposition of 
penalties is not properly before this Court and as such the imposition of 
penalties is summarily affirmed.  The case is remanded for further proceedings 
consistent with this opinion.

 

FOOTNOTES

 

1The proportionate profits 
methodology is defined by Wyo. Stat. Ann. § 39-2-208(d)(iv) (Michie 1997) 
recodified as § 39-14-203(b)(vi) (LexisNexis 2003):

(D) Proportionate profits 
-- The fair market value is:

(I) The total amount 
received from the sale of the minerals minus exempt royalties, nonexempt 
royalties and production taxes times the quotient of the direct cost of 
producing the minerals divided by the direct cost of producing, processing and 
transporting the minerals; plus

(II) Nonexempt royalties 
and production taxes.

 

2Because, for purposes of 
this appeal, there is no substantive difference between the Board's original 
opinion and its reconsidered opinion, all references to the opinion of the Board 
will refer solely to the reconsidered opinion.  

 

3Interestingly, one of the 
reasons given by Uinta County justifying its right to intervene was to prevent 
Amoco and the Department from settling any issues without participation by Uinta 
County.

 

4As an example of one 
method of handling interagency disputes without resort to any judicial process, 
there was testimony in the underlying contested case hearing that the DOA and 
the Department operate under a Memorandum of Understanding that provides for how 
a dispute between the two Departments will be handled.  The testimony was 
that any disagreement would work its way up through both Departments and 
ultimately go to the governor if necessary. 

 

5Uinta County also argues 
that this Court should decide the merits of the issue in the name of judicial 
economy.  It 
argues that it will bring the issue in its appeal of the final valuation notice 
in this case.  
Our holding that Uinta County cannot appeal this issue forecloses any 
further discussion on the issue.  In its final order, the Board suggested that 
judicial economy is served because Uinta County could request a review of the 
decision of the Department pursuant to § 39-11-102.1(c)(x) which requires the 
Board to "carefully examine into all cases wherein it is alleged that property 
subject to taxation" has been improperly assessed "or the law in any manner 
evaded or violated."  
This appeal presents no occasion for this Court to determine whether this 
conclusion by the Board is correct.  We only note the obvious  an examination 
under subsection (x) is a completely different proceeding than a contested case 
under subsection (a).  
The principle of judicial economy does not justify completely ignoring 
statutorily based procedural requirements.  Again, we decline to issue an advisory 
opinion.

 

6Amoco initially referred 
this Court to 324 pages of the record when it presented its argument regarding 
the producer agreement in its brief.

 

7Amoco also argued that 
the issue of when production ceases, and thus the location of the point of 
valuation, was decided in Chevron v. State, 918 P.2d 980 (Wyo. 1996), and cannot be revisited pursuant to the doctrines of collateral 
estoppel and res judicata.  We reject this argument because the analysis 
in Chevron discussing production and the point of 
valuation was grounded upon a statutory definition read in pari materia with 
other statutes.  
The legislature changed the core statute at issue in Chevron in 1990.  The 1990 version of the statute is applicable 
to the instant facts.  
Thus the Chevron discussion regarding point 
of valuation and production has been superseded by statute.  The same applies to 
any decision made by the Board regarding the point of valuation for Whitney 
Canyon for prior production years under the netback method of 
valuation.

 

8This seems perhaps an 
ironic charge given that Amoco's first complaint regarded its perceived lack of 
independence of the auditor.

 

9In its reply brief, Amoco 
raises yet another objection to the ruling of the Board regarding imposition of 
penalties.  
Amoco argues that the Department's determination of penalties violated 
the decision of this Court in Amoco Production Co. v. 
Wyoming State Bd. of Equalization, 12 P.3d 668 (Wyo. 2000), 
that requires the Department to determine the net tax deficiency of Amoco across 
the state before imposing a penalty.  Again, this issue is not properly before this 
Court and is not so fundamental as to relieve counsel of its obligation to 
present its arguments according to established procedure.