Title: SINCLAIR OIL CORPORATION V. WYOMING DEPARTMENT OF REVENUE

State: wyoming

Issuer: Wyoming Supreme Court

Document:

SINCLAIR OIL CORPORATION V. WYOMING DEPARTMENT OF REVENUE2010 WY 122238 P.3d 568Case Number: S-09-0231Decided: 08/26/2010

APRIL 
TERM, A.D. 2010

 
 
SINCLAIR 
OIL CORPORATION,

 
 
Appellant

(Petitioner),

 
 
v.

 
 
WYOMING 
DEPARTMENT OF REVENUE,

 
 
Appellee

(Respondent).

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

The 
Honorable Thomas T.C. Campbell, Judge

 
 
Representing 
Appellant:

John 
A. Sundahl, Sundahl, Powers, Kapp & Martin, LLC, Cheyenne, 
Wyoming.

 
 
Representing 
Appellee:

Bruce 
A. Salzburg, Attorney General; Michael L. Hubbard, Deputy Attorney General; Karl 
D. Anderson, Senior Assistant Attorney General; Martin L. Hardsocg, Senior 
Assistant Attorney General.  
Argument by Mr. Anderson.

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

 
 
BURKE, 
J., delivers the opinion of the Court; KITE, C.J., files a dissenting opinion, 
in which VOIGT, J., joins.

 
 
*Chief 
Justice at time of oral argument.

 
 
BURKE, 
Justice.

 
 

[¶1]        
Effective 
July 1, 2004, the Wyoming Legislature provided a sales tax exemption for 
machinery used in manufacturing in Wyoming.  It is undisputed that this tax exemption 
applies to two large pieces of machinery owned by Sinclair Oil Corporation.  Sinclair further claims, however, that 
the materials used to construct foundations for these machines also qualify for 
the tax exemption.  Sinclair applied 
to the Wyoming Department of Revenue for a refund of the sales tax it had paid 
on the foundation materials.  The 
Department denied that application.  
Sinclair appealed to the Wyoming State Board of Equalization, and the 
Board upheld the Department's determination.  Sinclair then appealed to the district 
court, which certified the case for direct review by this Court.  We will affirm the Board's 
decision.

 
 
ISSUES

 
 

[¶2]      
Sinclair 
presents two issues:

 
 

1.            
Because 
the parties have stipulated that the Hydrocracker and Number Two Reformer at 
Sinclair's Wyoming refineries are "machinery" entitled to the manufacturing 
exemption found in Wyo. Stat. Ann. § 39-15-105(a)(viii)(O), are the 
concrete related materials also considered exempt machinery because they were 
purchased by Sinclair and subsequently incorporated into the foundation[s] of 
the exempt machinery?

 
 

2.            
Assuming 
arguendo that the concrete related 
materials were not tangible personal property at the moment of "sale" as defined 
in Wyo. Stat. Ann. § 39-15-101(a)(vii), but instead were "real property" as 
defined in Wyo. Stat. Ann. § 39-15-101(a)(v), should Sinclair be entitled 
to a refund because real property is not subject to excise 
tax?

 
 
The 
Department synthesizes the dispute into a single issue:

 
 
Did 
the State Board of Equalization correctly conclude that the manufacturing 
machinery tax exemption established pursuant to Wyo. Stat. Ann. 
§ 39-15-105(a)(viii)(O) does not apply to materials purchased and used to 
construct embedded concrete foundations for machinery used to 
manufacture?

 
 
FACTS

 
 

[¶3]        
In 
2005,1 Sinclair installed a new 
hydrocracker at its petroleum refinery in Sinclair, Wyoming.  The hydrocracker is a large piece of 
equipment that "cracks" crude oil components into different saleable products 
such as diesel fuel, gasoline, and heavier products.  The hydrocracker was designed to be 
installed on a large foundation.  To 
construct the foundation, Sinclair purchased concrete, rebar, grout, and related 
components and materials.  Sinclair 
paid a total of $19,118.05 in sales or excise tax when it purchased these 
materials.  Sinclair excavated the 
site, drilled holes down to and into the bedrock, and placed fabricated concrete 
piers into the holes.  A concrete 
cap and pedestal were poured on top.  
The hydrocracker was attached to the foundation with anchor 
bolts.

 
 

[¶4]        
In 
2006, Sinclair installed a reformer at its refinery in Casper, Wyoming.  A reformer is used to process long 
petroleum molecules into shorter molecules with higher octane levels.  Like the hydrocracker, the reformer was 
designed to be installed on a large concrete foundation.  Sinclair purchased the concrete, rebar, 
grout, and related materials to construct the foundation, and paid a total of 
$6,388.68 in sales or excise tax on these materials.  This foundation was of a somewhat 
different design than the one for the hydrocracker, but the construction process 
was similar.  After the foundation 
was completed, the reformer was bolted into place.

 
 

[¶5]        
The 
Department conducted tax audits of Sinclair in 2006.  Sinclair and the Department were in 
agreement that the hydrocracker and reformer qualified for the sales tax 
exemption.  During the audit 
process, however, Sinclair also claimed that the tax exemption applied to the 
materials it had purchased to construct the foundations for the hydrocracker and 
reformer.  The Department 
disagreed.  Sinclair appealed to the 
Board, which held an evidentiary hearing on September 9 and 10, 2008.  The Board issued its decision on June 
30, 2009, affirming the Department's determination.  Sinclair appealed the Board's decision. 

 
 
STANDARD 
OF REVIEW

 
 

[¶6]        
We 
review 
an administrative agency's decision following the provisions of the Wyoming 
Administrative Procedure Act, which provides, in pertinent part, that 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.

 
 
Wyo. 
Stat. Ann. § 16-3-114(c) (LexisNexis 2009).  We affirm an agency's findings of fact 
if they are supported by substantial evidence.  Dale v. S & S Builders, LLC, 2008 WY 
84, ¶ 22, 188 P.3d 554, 561 (Wyo. 2008).  In this case, however, there is no real 
dispute over the facts.  Rather, 
Sinclair claims that the Board incorrectly applied the law to those facts, so 
that the Board's legal conclusions are not in accordance with the law.  "As always, we review an agency's 
conclusions of law de novo."  
Id., ¶ 26, 188 P.3d  at 
561.

 
 

[¶7]        
The 
basic task before us is to interpret the statute establishing the tax exemption, 
Wyo. 
Stat. Ann. § 39-15-105(a)(viii), along with related provisions, to 
determine 
whether the Board correctly applied the statute to the largely undisputed 
facts.  Statutory interpretation 
presents a question of law which we review de novo.   Qwest Corp. v. State, 2006 WY 35, 
¶ 8, 130 P.3d 507, 511 (Wyo. 2006).  

 
 
When 
interpreting statutes, we follow an established set of guidelines.  First, we determine if the statute is 
ambiguous or unambiguous.  A statute 
is unambiguous if its wording is such that reasonable persons are able to agree 
as to its meaning with consistency and predictability.  Unless another meaning is clearly 
intended, words and phrases shall be taken in their ordinary and usual 
sense.  Conversely, a statute is 
ambiguous only if it is found to be vague or uncertain and subject to varying 
interpretations.

 
 

BP 
America Production Co. v. Department of Revenue, 
2006 WY 27, ¶ 20, 130 P.3d 438, 464 (Wyo. 2006).  If a statute is clear and unambiguous, 
we give effect to the plain language of the statute.  Wyoming Dep't of Transportation v. 
Haglund, 982 P.2d 699, 701 (Wyo. 1999); State ex rel. Wyo. Dep't of 
Revenue v. Union Pacific R.R. Co., 2003 WY 54, ¶ 12, 67 P.3d 1176, 1182 
(Wyo. 2003).  Only if a statute is 
ambiguous will we resort to principles of statutory construction to determine 
the intent of the legislature.  Qwest, ¶ 8, 130 P.3d  at 
511.

 
 
DISCUSSION

 
 

[¶8]        
Wyo. 
Stat. Ann. § 39-15-105(a)(viii) provides the sales tax exemption at issue 
here:

 
 
(viii)     For the purpose of 
exempting sales of services and tangible personal property as an economic 
incentive, the following are exempt: . . .

 
 
(O)       Until 
December 31, 2010, the sale or lease of machinery to be used in this state 
directly and predominantly in manufacturing tangible personal property, if the 
sale or lease:

 
 
(I)         
Is to a manufacturer classified by the department under the NAICS code 
manufacturing sector 31-33;

 
 
(II)        Does 
not include noncapitalized machinery except machinery expensed in accordance 
with section 179 of the Internal Revenue Code; and

 
 
(III)       Is 
completed in the case of a sale, or executed in the case of a lease, on or after 
July 1, 2004.

 
 
Sinclair 
and the Department agree, and stipulated to the Board, that both the reformer at 
the Casper refinery and the hydrocracker at the refinery in Sinclair meet all of 
these statutory conditions, and qualify for the tax 
exemption.

 
 

[¶9]        
Using 
the applicable statutory definitions, Sinclair further argued to the Board that 
the concrete and related materials used to construct the foundations are also 
"machinery," and therefore also qualify for the tax exemption.  The definition of "machinery," found in 
Wyo. Stat. Ann. § 39-15-101(a)(xx), includes:

 
 
all 
tangible personal property . . . used to produce an article of tangible personal 
property.  The term includes both 
the basic unit and any adjunct or attachment necessary for the basic unit to 
accomplish its intended function, the materials for the construction or repair 
of the machinery, and machine tools.

 
 
According 
to Sinclair, the reformer and hydrocracker are the basic units, but without 
foundations, neither piece of machinery could be operated safely and 
properly.  The foundations, Sinclair 
maintains, fit the definition of an "adjunct or attachment necessary for the 
basic unit to accomplish its intended function."  Sinclair therefore contends that the 
foundations are included within the statutory definition of "machinery," and the 
materials used to construct the foundations are eligible for the tax exemption. 

 
 

[¶10]     
The 
Department did not dispute Sinclair's contention that the foundations could be 
considered attachments or adjuncts, and one Department witness agreed that the 
foundations were necessary for the machines to accomplish their intended 
functions.  The Department 
maintained, however, that whether or not the foundations were attachments or 
adjuncts to the basic units, the foundations could not be considered "machinery" 
because they did not satisfy the initial phrase of the definition:  "all tangible personal property."  The Department asserted that the 
foundations were real property to which the tax exemption did not 
apply.

 
 

[¶11]     
The 
Board was persuaded by the Department's position.  It acknowledged that the foundations 
might be considered adjuncts or attachments, and said there was "no question the 
foundations constructed at the Casper and Sinclair refineries were necessary for 
the  reformer and the hydrocracker to safely and properly function."  Nevertheless, the Board observed, the 
"first sentence of the statutory definition of machinery' establishes a 
threshold requirement to qualify for the sales tax exemption granted by Wyo. 
Stat. Ann. § 39-15-105(a)(viii)(O).  
The machinery' must be tangible personal property.'"  (Some internal citations omitted.)  In its conclusions of law, the Board 
discussed whether Sinclair's foundations were tangible personal property or real 
property:

 
 
The 
Board recently discussed in detail the factors to be considered in determining 
whether property is real or personal in the context of the Wyoming sales and use 
tax statutes.  In the Matter of the Appeal of Hanover 
Compression LP, State Board Docket No. 2006-122, August 24, 2007, 2007 WL 
2462039 (Wyo. St. Bd. Eq.); aff'd State 
ex rel. Wyoming Dept. of Revenue v. Hanover Compression, LP, 2008 WY 138, 
196 P.3d 781 (Wyo. 2008).  From the 
detailed analysis set out in Hanover, 
it is clear that the foundations for the . . . reformer and the hydrocracker are 
real property for sales and use tax purposes.  Hanover Compression, see id. at ¶¶ 69-124.  Of particular relevance to this matter, 
the Board observed "[t]he concrete foundation is clearly embedded' as that term 
is used in Wyo. Stat. Ann. § 39-15-101(a)(v)(A)."  Hanover Compression, see id. at ¶ 92.  The same conclusion must be reached for 
the foundations constructed by Sinclair.

 
 
The 
Board further concluded that the statute unambiguously provided that only 
tangible personal property is eligible for the tax credit, and ruled that the 
foundations, as real property, did not qualify.

 

[¶12]     
We 
agree with the Board's conclusions.  
The statutes plainly provide that the tax exemption applies only to 
manufacturing machinery, and unambiguously define the term "machinery" to 
include only tangible personal property.  The Board also correctly concluded that 
the foundations are real property, not tangible personal property.  In the case relied upon by the Board, Hanover Compression, ¶ 2, 196 P.3d  
at 783, the question before us was whether the Board had correctly determined 
that, for sales tax purposes, the natural gas compressor facilities maintained 
by Hanover were real property, as defined in Wyo. Stat. Ann. 
§ 39-15-101(a):  

 
 
(v)        "Real property" 
means land and appurtenances, including structures affixed thereto.  An article shall be considered real 
property if:

 
 
(A)       It is buried or 
embedded; or

 
 
(B)       It is physically or 
constructively annexed to the real property; and

 
 
(C)       It is adapted to the 
use of the real property; and 

 
 
(D)       Considering the purpose 
for which the annexation was made, one can reasonably infer that it was the 
intent of the annexing party to make the article a permanent part of the real 
property.

 
 
In 
Hanover Compression, the Board had 
determined that the compressor facilities were real property because they were 
structures affixed to the land.  In 
order to interpret the statutory definition, we considered the "plain and 
ordinary meaning of the terms structure' and affixed,'" by reference to their 
dictionary definitions.  Id., ¶ 12, 196 P.3d  at 786.  We then compared "the description of the 
compressor facilities to the plain meaning of the terms structure' and 
affixed,'" and said it was "clear that the compressor facilities fit within the 
statutory definition of real property."  
Id., ¶ 14, 196 P.3d  at 
786.  We said that "the Board's 
factual determination that the compressor facilities fit within that statutory 
definition is supported by substantial evidence."  We also concluded that the Board had 
interpreted the statutory definition "in accord with the law."  Id., ¶ 16, 196 P.3d  at 
787.

 
 

[¶13]     
The 
statutory definition of real property considered in Hanover Compression also applies in 
Sinclair's case.  In Sinclair's 
case, the Board did not determine whether the foundations were "structures" that 
were "affixed" to the land.  
Instead, pursuant to the second sentence of the statutory definition, the 
Board determined that the concrete and related foundation materials were 
"articles" that had been "buried or embedded."  As in Hanover Compression, we will first 
interpret the statutory definition by reference to the plain and ordinary 
meaning of the terms "buried" and "embedded."   One common definition of "bury" is 
to "place in the ground."  American Heritage College Dictionary 195 
(4th ed. 2004).  A common definition of "embed" is to 
"fix firmly in a surrounding mass."  
Id. at 
457.

 
 

[¶14]     
We 
next compare the descriptions of Sinclair's foundations with the plain meanings 
of the terms "buried" and "embedded."  
As noted in the Facts section above, it is undisputed that Sinclair 
excavated the sites, drilled holes to and into the bedrock, and placed concrete 
piers into the holes.  It then 
poured a concrete cap and pedestal on top.  
These facts establish that the foundation materials were placed in the 
ground  buried  and fixed firmly in a surrounding mass  embedded.  We conclude that the Board properly 
interpreted the statutory definition of real property, and that the Board's 
underlying factual determination that Sinclair's foundations fit within that 
statutory definition is supported by substantial evidence.  On these bases, we perceive no error in 
the Board's conclusions that the foundations are real property, and that the 
foundations and foundation materials are ineligible for the tax 
exemption.

 
 

[¶15]     
Sinclair 
further asserts, as its second issue, that if the foundations are real property, 
then Sinclair should not have paid sales tax on the foundation materials when it 
purchased them.  Sinclair correctly 
points out that sales tax applies only to tangible personal property, not to 
real property.  Wyo. Stat. Ann. 
§ 39-15-103(a)(i)(A).  
Sinclair's argument seems to assume that the nature of property is 
immutable.  That is not the 
case.  Personal property can be 
converted into real property, as is apparent by the statutory definition of real 
property quoted above.  

 
 

[¶16]     
In 
Hanover, ¶ 10, 196 P.3d  at 785, 
we quoted from the Board's interpretation of this statutory definition of real 
property.  The Board found "an 
important difference" between the first and second sentences of the 
definition.  The first sentence 
"refers to land and appurtenances, and structures affixed thereto, which over 
time have unquestionably been viewed as real property.  They are neither portable nor easily 
moved."  The second sentence "refers 
to an article.' . . .  An article 
is, in common understanding, an item which is portable, which is easily movable 
such as an article of clothing or an article of luggage."  The Board then noted that the statutory 
definition of real property included not only "traditional land, appurtenances, 
and structures," but also "articles' which, while generally portable and 
moveable, are to be considered real property if certain requirements are 
fulfilled."  Among the requirements 
specified in the statute is that the "article" be "buried" or "embedded."  In accordance with this statutory 
language, an article that is personal property can be converted to real property 
when it is buried or embedded.

 
 

[¶17]     
That 
is what happened in Sinclair's case.  
The Board correctly concluded that the concrete and related materials 
were personal property when Sinclair purchased them.  In Wyoming, sales or excise tax is 
levied on the retail price at the time of the sale.  Wyo. Stat. Ann. 
§ 39-15-103(a)(i)(A).  
Consequently, the concrete and related materials were subject to sales 
tax.  Later, Sinclair buried and 
embedded the foundation materials, thereby converting them into real 
property.  By the time the 
hydrocracker and reformer were bolted to the foundations, the foundations had 
become real property.  They were 
therefore ineligible for the tax exemption for manufacturing machinery, Wyo. 
Stat. Ann. § 39-15-105(a)(viii)(O), because they did not satisfy the 
definition of machinery, which includes only tangible personal property, Wyo. 
Stat. Ann. § 39-15-101(a)(xx).

 
 

[¶18]     
Both 
Sinclair and the Department supported their arguments with citations to cases 
from other jurisdictions.  We 
reviewed these cases, but found none of them persuasive, because none of them 
dealt with statutory language sufficiently similar to the language of the 
Wyoming statutes.  In particular, 
none of these cases considered language like the Wyoming definitions of the 
terms "machinery" and "real property."  
As the above discussion indicates, the Board carefully interpreted the 
language of the statutes applicable to Sinclair's situation.  We conclude that its interpretations 
were in accordance with the law, its findings of fact were supported by 
substantial evidence, and its conclusions of law were correct.  We therefore affirm the Board's 
decision.

  

KITE, 
Chief Justice, 
dissenting, in which VOIGT, Justice, 
joins.

 
 

[¶19]     
I 
believe the Board erred by denying Sinclair's request for a refund of sales tax 
paid on the purchase of materials used to construct foundations for its 
hydrocracker and reformer.  
Consequently, I dissent. 

 
 

[¶20]     
In 
Wyoming, excise taxes are levied on sales of tangible personal property.  Wyo. Stat. Ann. § 
39-15-103(a)(i)(A).  "Sale" is 
defined as the transfer of possession of personal property.  Wyo. 
Stat. Ann. § 39-15-101(a)(vii).  The 
legislature decided as an economic incentive to exempt from excise taxation the 
sale of machinery used predominately in manufacturing tangible personal 
property.  Wyo. Stat. Ann. § 
39-15-105(a)(viii)(O).  Section 
39-15-101(a)(xx) broadly defines "machinery" as including:  "both the basic unit and any adjunct or 
attachment necessary for the basic unit to accomplish its intended function" and 
"the materials for the construction or repair of machinery."  

 
 

[¶21]     
The 
parties seem to agree that the foundation materials fall within the definition 
of "machinery" and that, at the time of sale, the disputed items were tangible 
personal property.  Nevertheless, 
the majority opinion concludes the materials do not qualify for the exemption 
because they were eventually embedded and thus became real property, as defined 
in § 39-15-101(a)(v)(A).  The 
majority opinion ignores the fact that the tax (and, consequently, the 
exemption) is imposed at the time of sale under §§ 39-15-101(a)(vii) and 
39-15-103(a)(i)(A), and looks, instead, at the ultimate disposition of the 
materials.  All kinds of personal 
property can ultimately become part of a structure that meets the definition of 
real property; however, that does not mean those materials were not personal 
property at the time of purchase.  
The statute does not state that the availability of the exemption depends 
upon the eventual disposition of the materials. 

 
 

[¶22]     
By 
creating the requirement that in order to qualify for the exemption machinery 
can never be incorporated into real property, the Board and the majority opinion 
have added additional language into the statute.  The omission of language by the 
legislature is considered to be intentional and we will not read language into a 
statute when the legislature has chosen not to include it.  Morris v. CMS Oil and Gas Co., 2010 WY 
37, ¶ 28, 227 P.3d 325, 333 (Wyo. 2010).

 
 

[¶23]     
The 
legislature adopted § 39-15-105(a)(viii) "as an economic incentive" to encourage 
manufacturing.  The parties all 
agree that the hydrocracker and reformer qualified for the exemption and the 
foundations were necessary in order to operate those pieces of machinery.  The legislature specifically drafted the 
exemption broadly so that all components of manufacturing machinery would be 
exempt, thus encouraging businesses to invest in such machinery.  The purpose of the statute is not served 
by denying the exemption for materials used to complete the foundations 
necessary for the operation of the manufacturing machinery.  

 
 

[¶24]     
Wyoming 
Dep't of Revenue v. Hanover Compression, LP, 2008 
WY 138, 196 P.3d 781 (Wyo. 2008), which was relied upon by the Board and cited 
by the majority opinion, does not further the analysis of whether excise tax was 
due on the materials.  That case 
simply addressed whether compressor facilities were real property or personal 
property and, consequently, whether payments for operation and maintenance of 
the facilities were subject to sales tax.  
Id., ¶¶ 3-5, 196 P.3d  at 
783.  It had nothing to do with 
determining the nature of the materials used to construct the facility.  In fact, under the majority's reasoning, 
Hanover would require Sinclair to 
lose the exemption for the hydrocracker and reformer as well because they became 
real property when they were permanently affixed to the foundation.  Like the compressors deemed to be real 
property in Hanover, ¶¶ 13-14, 196 P.3d  at 786, the Board's findings in this case indicate that the hydrocracker 
and reformer were affixed to the foundations and, therefore, became real 
property.            

 
 

[¶25]     
In 
order to remain true to the legislative intent, the nature of the property 
should have been determined at the time of sale.  At that time, the materials were 
tangible personal property and qualified for the exemption under § 
39-15-105(a)(viii)(O).  I would hold 
that the Board erred by concluding that Sinclair was not entitled to an 
exemption from the excise tax for the foundation materials.    

 
 
FOOTNOTES

 
 

1The 
exact installation date for the hydrocracker is difficult to discern from the 
record.  The same is true for the 
reformer discussed in the next paragraph.  
It is undisputed, however, that both machines were installed within the 
period covered by the tax exemption.