Title: General Chemical Corp. v. Wyoming State Bd. of Equalization

State: wyoming

Issuer: Wyoming Supreme Court

Document:

General Chemical Corp. v. Wyoming State Bd. of Equalization1991 WY 135819 P.2d 418Case Number: 91-46Decided: 10/28/1991Supreme Court of Wyoming
GENERAL 
CHEMICAL CORPORATION,

APPELLANT 
(PETITIONER),

v.

WYOMING STATE BOARD OF 
EQUALIZATION,

APPELLEE 
(RESPONDENT).

 Appeal 
from the District Court, SweetwaterCounty, Jere Ryckman, J.

Robert 
H. Johnson, Rock 
Springs, for 
appellant. Argument presented by Mr. Johnson.

Joseph 
B. Meyer, Atty. Gen., Michael L. Hubbard, Sr. Asst. Atty. Gen., Matthew D.C.P. 
Meuli (argued), Asst. Atty. Gen., for 
appellee.

Before 
URBIGKIT, C.J., and THOMAS, CARDINE, 
MACY and GOLDEN, JJ.

 CARDINE, 
Justice.

 [¶1.]     Appellant General 
Chemical Corporation challenges an order of the State Board of Equalization 
setting the amount of exemption from 1989 ad valorem tax attributable to 
pollution control equipment at appellant's facility. Appellant filed a petition 
for review of the Board's order in the district court. The district court 
certified the case to this court for determination pursuant to W.R.A.P. 
12.09.

 [¶2.]     We affirm the order of 
the State Board of Equalization.

 [¶3.]     Appellant mounts 
several procedural and substantive challenges to the State Board's 
determination. We believe the substantive issues can be boiled down to the 
single, basic issue stated by appellee:

"Did 
the Wyoming State Board of Equalization correctly interpret W.S. 35-11-1103 by 
not considering operating costs in determining the amount of value of the 
pollution control equipment for ad valorem taxation?"

 [¶4.]     We also consider the 
procedural issue urged by appellant:

"In 
determining the tax exemption of pollution control equipment, must the State 
Board of Equalization consider the recommendation of the county assessor, as 
provided in its own rules?"

 [¶5.]     On January 13, 1989, 
General Chemical Corporation submitted an application to the Sweetwater County 
Assessor for ad valorem tax exemption. The exemption was sought for pollution 
control equipment at General Chemical's facility near Green River, Wyoming having a total installed cost of 
$38,166,770. The county assessor, by regulation, reviewed the application before 
making a recommendation to the State Board of Equalization through the Director 
of the Ad Valorem Tax Division (Division).

 [¶6.]     The county assessor 
recommended an exemption of $32,404,448. Robert E. Williams, the Supervisor of 
Local Assessments for the Division, reviewed the assessor's recommendation and 
recommended reduction, and the State Board of Equalization reduced the total 
exemption to $26,122,938. Part of this reduction was due to a difference in how 
Williams calculated the non-exempt portion of the equipment's valuation 
attributable to production of trona dust and other marketable by-products. The 
county assessor had used the net income from operation of the pollution control 
equipment to arrive at the capitalized value of the income stream from sale of 
marketable by-product. Williams used the gross income from sale of the 
by-product to make his calculation.

 [¶7.]     The difference produced 
by these methodologies is striking because, in nearly every case, the cost of 
operating the pollution control machinery far exceeds the value recovered from 
sale of by-products. For example, the 5,718 tons of trona dust collected 
annually by the "Calciner Dust Control GR-2" had a market value of $97,206. 
However, the annual operation, maintenance and power requirements of that unit 
totalled $269,001. The county assessor recommended a 100% exemption, or 
$1,304,995, for the calciner; the State Board reduced this, due to the 
capitalized gross value of the trona, to 53%, or $691,647. Other components of 
pollution control machinery were similarly re-evaluated, leading to the State 
Board's recommended exemption of $26,122,938. 

 [¶8.]     General Chemical filed 
an internal appeal from the Board's determination. The parties agreed to submit 
the matter to the Board on written briefs. On December 3, 1990, the Board issued 
findings of fact, conclusions of law and an order. It found that the Board's 
method of calculating value of the pollution control equipment as a source of 
marketable by-product was correct and that the Board acted reasonably by not 
allowing a deduction for the equipment's current operating 
expenses.

 [¶9.]     General Chemical 
appealed the Board's determination to the district court. The district court 
then certified the appeal to this court pursuant to W.R.A.P. 
12.09.

 [¶10.]  Appellant contests the Board's failure to 
consider the costs of operation of its pollution control equipment when 
determining the amount of exemption which should be allowed. We review the 
Board's action in light of the following well-established 
principles:

"We 
review the decision of an administrative agency as if we were a reviewing court 
of the first instance [which in this case we are]; petitioners have the burden 
of proving that the agency's actions are arbitrary, capricious or an abuse of 
discretion; the reviewing court must examine whether the decision made by an 
administrative agency has been reached on relevant factors and was rational; 
agency decisions are to be reversed only for errors of law; and courts will not 
substitute their judgment for that of an administrative agency." McGuire v. State, Dept. of Revenue and 
Taxation, 809 P.2d 271, 274 (Wyo. 1991).

 [¶11.]  The relevant statutory authorization in 
force at the time the State Board made its determination reads as 
follows:

"The 
following property is exempt from ad valorem taxation pursuant to the provisions 
of this act and includes facilities, installations, machinery or equipment 
attached or unattached to real property and designed, installed and utilized 
primarily for the elimination, control or prevention of air, water or land 
pollution, or in the event such facility, installation, equipment or machinery 
shall also serve other beneficial purposes and use, such portion of the assessed 
valuation thereof as may be reasonably calculated to be necessary for and 
devoted to elimination, control or prevention of air, water and land pollution. 
The state board of equalization shall determine such exempt portion, and shall not include as exempt any portion 
of any facilities which have value as the specific source of marketable 
byproducts." W.S. 35-11-1103 (June 1988 Repl.). (emphasis 
added)

 [¶12.]  The parties urge differing 
interpretations of this statute. Appellant claims that it requires consideration 
of net value of the marketable by-products, while appellee insists that we 
follow the pre-1990 agency interpretation in allowing only gross value. In Allied-Signal, Inc. v. State Board of 
Equalization, 813 P.2d 214 (Wyo. 1991), we summarized our rules for 
construction of statutes as follows:

"[T]his 
court looks only to the intent of the legislature when enforcing or construing 
statutes. * * *

"Legislative 
intent must be ascertained initially and primarily from the words used in the 
statute. * * * If the language selected by the legislature is sufficiently 
definitive, that language establishes the rule of law. Any additional 
construction can be resorted to only if the wording is ambiguous or unclear to 
the point of demonstrating obscurity with respect to the legislative purpose or 
mandate. * * *

"We 
previously have articulated the proposition that a statute is ambiguous only if 
it is found to be vague or uncertain and subject to varying interpretations. The 
converse of this proposition is that the statute is unambiguous if its wording 
is such that reasonable persons are able to agree as to its meaning with 
consistency and predictability. The question of whether an ambiguity exists in a 
statute is a matter of law to be determined by the court." Allied-Signal, 813 P.2d  at 219-20. 
(citations omitted)

 [¶13.]  The Board argues that W.S. 35-11-1103 is 
unambiguous and that its plain language supports the agency interpretation. The 
plain language of this statute, however, says nothing about whether gross or net 
value is to be used for purposes of valuation. Appellant, in arguing for 
ambiguity, notes that the Board changed its interpretation of the pertinent 
portion of the statute by published guidelines during the pendency of this 
litigation. This may certainly be additional evidence of ambiguity, but it does 
not create the ambiguity. See State Board 
of Equalization v. Tenneco Oil Co., 694 P.2d 97, 99 (Wyo. 1985) (agency's 
later different interpretation of statute as evidence of ambiguity); see also Allied-Signal, 813 P.2d 214 
(changing agency interpretation of statute alone not conclusive evidence of 
ambiguity; court retains ultimate power to determine ambiguity; agency 
interpretation cannot be used to render an unambiguous statute 
ambiguous).

 [¶14.]  Appellant argues, and we agree, that it 
is not the value of the marketable by-product itself which is denied exemption, 
but rather the value of the equipment as 
a source of the by-product. Since no by-product can be produced without 
incurring operational expenses, appellant reasons, the value of the equipment 
"as a source" of by-product cannot be properly calculated unless necessary 
operational expenses are factored into the equation. We think appellant reads 
more into the statute than is actually there. The language certainly suggests 
that the value of by-product is relevant in determining the value of the 
non-exempt portion of the facility. However, the statute itself does not give us 
a formula for arriving at the actual valuation. We think the statute is silent 
on the method of evaluation and thus ambiguous. Therefore, since we cannot 
discern the legislative intent on this question from the plain language of the 
statute, we must make additional inquiry as to its proper 
interpretation.

 [¶15.]  W.S. 39-1-304(a)(iv) (July 1990 Repl.), 
gives the State Board of Equalization the power to

"[d]ecide 
all questions that may arise with reference to the construction of any statute 
affecting the assessment, levy and collection of taxes, in accordance with the 
advice and opinion of the attorney general, whose opinion and the rules, 
regulations, orders and instructions prescribed by the board are binding until 
reversed, annulled or modified by a court of competent jurisdiction.[1]"

Appellant 
points us to Chapter XXII, § 6(g) of the Rules and Regulations of the Wyoming 
State Tax Commission dealing with ad valorem tax valuation methodology and 
assessment, which provides:

"(g) The Income or Capitalized Earnings 
Approach. The income or capitalized earnings approach is a method of 
estimating the value of property by converting anticipated benefits to be 
derived from the ownership of the property into a value estimate as is reflected 
or accomplished by yield capitalization methodology. These benefits can be reflected through the 
net operating income or cash flow of a company. * * *

"(i) 
For the purposes of this subsection, cash flow is the difference between dollars 
paid and dollars received. Dollars received include all revenues generated from 
operating assets. Dollars paid include all current expenses and capital 
expenditures, or annual allowances therefor, required to develop and maintain 
the income stream." (emphasis added)

 [¶16.]  This regulation is contained in a general 
provision dealing with valuation for purposes of ad valorem taxation. The 
appraisal method in § 6(g) uses the net operating income or cash flow of a 
company to properly calculate its appraised value. Where this method is used, 
however, to measure the value of the productive proportion of pollution control 
equipment, a distortion of value occurs because the entire cost of operating the 
pollution control machinery is offset against the incidental gains received from 
the marketable by-product. If there were no marketable by-product at all, the 
operating expenses attributable to the pollution control would be irrelevant - 
simply borne by the company. Since the legislature did not provide for 
reimbursement for the operating expenses of pollution control equipment, we 
think that use of this regulation in this way violates the statutory 
purpose.

 [¶17.]  The method Williams used to arrive at the 
result, approved by the Board, is a valuation formula established by agency 
guidelines. The 1989 guidelines state as follows:

"Those 
completed applications where the pollution control facility reflects a 
marketable by-product, the company must supply the annual volume of materials 
recovered and a unit value for the product or material at the point of recovery. 
The annual volume of product or materials recovered multiplied by the unit value 
will approximate annual income. Annual income divided by an appropriate 
capitalization rate will represent the `current income value' of the pollution 
control facility based on the product recovered. The `current income value' 
arrived at based on product recovered must then be compared to the `current cost 
replacement value' of the subject facility as determined by the `trended 
historic cost method.' The `trended historic cost method' takes the original 
installed costs multiplied by a trending factor, based on year of acquisition, 
to equal current replacement cost new or RCN. RCN less allowances for physical, 
functional or economic depreciations will give the `current cost replacement 
value.' If the `current cost replacement value' is greater than the `current 
income value' then the difference between the two values would be exempt or can 
be used to determine the percentage exempt. If the `current income value' is 
equal to or greater than the `current cost replacement value' then there is no 
exemption."

 [¶18.]  We must decide whether the Board's 
interpretation, as expressed in the guidelines, reflects the intent and purpose 
of the legislature. McGuire, 809 P.2d  
at 274. The construction placed on a statute by the agency charged with its 
execution is entitled to deference. Stratman v. Admiral Beverage Corp., 760 P.2d 974, 986 (Wyo. 1988); WYMO Fuels, Inc. v. Edwards, 723 P.2d 1230, 1237 (Wyo. 1986).

 [¶19.]  In Tenneco, 694 P.2d  at 100, we discussed 
the purpose of W.S. 35-11-1103:

"This 
exemption was obviously intended to provide a tax incentive that would encourage 
the design, installation and utilization of pollution control equipment and 
devices for the beneficial public purpose of reducing or eliminating 
environmental pollution to the extent practical."

 [¶20.]  However, the legislature reduced this 
incentive exemption by the value of the equipment attributable to recovery of 
marketable by-product. We think the legislature took this action to avoid the 
windfall which would accrue to the owners of such equipment if they were allowed 
full deduction plus the value of materials recovered by the control equipment. 
See Meijer, Inc. v. State Tax 
Commission, 66 Mich. App. 280, 238 N.W.2d 582, 585 (1975) 
(discussion of legislative intent behind a similar 
statute).

 [¶21.]  When interpreting tax statutes, there is 
a presumption against granting exceptions and in favor of taxation. Tenneco, 694 P.2d  at 100; State Board of Equalization v. Wyoming Automobile Dealers Ass'n, 395 P.2d 741, 742 
(Wyo. 1964). 
Although the legislature exempted pollution control devices under W.S. 
35-11-1103, we see no corresponding intent to also exempt the expense of 
operating pollution control equipment. The purposes of a provision designed to 
prevent a windfall should not be frustrated by requiring taxpayers to "pick up 
the tab" for expenses not within the contemplation of the legislature. 
Accordingly, we uphold the agency's interpretation of the statute as applied to 
General Chemical.

 [¶22.]  Appellant next challenges application of 
the agency's procedural regulations to its case. Appellant claims that Chapter 
XXV of the Rules and Regulations of the Wyoming State Tax Commission required 
the county assessor's recommendation to be presented to the director of the Ad 
Valorem Tax Division and the State Board of Equalization for their review at a 
regular or specially-called Board meeting. Appellant argues this procedure was 
not followed in its case.

 [¶23.]  Appellant's contention is based upon a 
memo to Chuck Gerschefske, Director, Ad Valorem Tax Division, from two of the 
Division's appraisers. The memo states, in pertinent part, as 
follows:

"The 
cluster representative and/or county representative will then present the 
application and recommendation to the Director of the Ad Valorem Tax Division 
and the State Board of Equalization for their consideration. This presentation 
will take place during a regular and/or specially called Board 
meeting."

 [¶24.]  This document was circulated to the 
county assessors as 1989 procedures for reporting pollution control equipment 
located within each county. The circulation memo stated as follows: "At this 
time the State Board of Equalization is preparing formal rules and regulations 
for implementation of the procedures." Appellant claims this document was later 
"formalized" as Chapter XXV of the Board's rules. However, an examination of 
Chapter XXV of the Rules and Regulations as adopted on January 27, 1989, shows 
that only the following requirements concerning the county assessor's 
recommendations were given effect:

"Section 
5. * * * On or before March 15th, the assessor shall make a written 
recommendation for each application to the Director, Ad Valorem Tax Division, 
Department of Revenue and Taxation accompanied by a copy of the application 
filed. A copy of the recommendation for each facility and equipment shall also 
be provided to the respective company by the assessor.

"Section 
6. * * * Annually, on or before April 1st, the State Board of Equalization shall 
certify to the respective county assessors the type and amount of exemption to 
be allowed for the current tax year for each application presented. Written 
notice of the exemption shall also be mailed to each applicant who shall have 
thirty days in which to file written objection thereto with the State Board of 
Equalization pursuant to Chapter XVII hereof."

 [¶25.]  It seems clear that when the Board 
adopted its formal rules and regulations it changed the requirements to be 
followed from those in the memo. The subsequent formal rules and regulations 
control over an informal memorandum written before their adoption. The record 
shows that the requirements contained in Chapter XXV of the Rules and 
Regulations were complied with, with the exception that the State Board did not 
rule on General Chemical's application until May 15, 1989. Under the 
circumstances, we cannot say that the agency's action was made "[w]ithout 
observance of procedure required by law." W.S. 16-3-114(c)(ii)(D) (July 1990 
Repl.)

 [¶26.]  The decision of the State Board of 
Equalization is affirmed.

1 The 1991 amendment to this statute 
deleted the references to attorney general opinions and to judicial review. 1991 
Wyo. Sess. 
Laws ch. 115, § 1.