Title: Wyoming State Tax Com'n v. BHP Petroleum Co. Inc.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Wyoming State Tax Com'n v. BHP Petroleum Co. Inc.1993 WY 89856 P.2d 428Case Number: 92-154, 92-155, 92-156Decided: 06/23/1993Supreme Court of Wyoming
WYOMING 
STATE TAX COMMISSION; and State Board of Equalization and its members Nancy 
Freudenthal, Marvin Applequist and Charles Brown, III, in their official 
capacities,

 Appellants 
(Defendants),

v.

BHP 
PETROLEUM COMPANY INC., and Monsanto Company, 

Appellees 
(Plaintiffs).

W.A. 
MONCRIEF, Jr., 

Appellant 
(Defendant),

v. 

WYOMING 
TAX COMMISSION; and State Board of Equalization and its members Nancy 
Freudenthal, Marvin Applequist and Charles Brown, III, in their official 
capacities; Lorraine Ocenas, in her official capacity as the Assessor for 
Fremont County, Wyoming; Paula Merryman, in her official capacity as the 
Treasurer for Fremont County, Wyoming; Gary Shoemaker, Jane Adamson, Ralph 
Urbigkeit, Tom Satterfield and Clayton Hull in their official capacities as the 
County Commissioners of Fremont County, Wyoming, 

Appellees 
(Defendants).

BHP 
PETROLEUM COMPANY, INC.; Monsanto Company; North Central Oil Corporation; and 
Inexco Oil Company, Appellants 

(Plaintiffs/Defendant),

v.

 WYOMING STATE TAX COMMISSION; State Board 
of Equalization and its members Nancy Freudenthal, Marvin Applequist, and 
Charles Brown, III, in their official capacities; Lorraine Ocenas in her 
official capacity as Assessor for Fremont County, Wyoming; Paula Merryman, in 
her official capacity as the Treasurer for Fremont County, Wyoming; Gary 
Shoemaker, Jane Adamson, Ralph Urbigkeit, Tom Satterfield and Clayton Hull in 
their official capacities as the County Commissioners of Fremont County, 
Wyoming,

 Appellees 
(Defendants).

Appeal 
from The District Court, Laramie County, Nicholas Kalokathis, 
J.

Joseph 
B. Meyer, Atty. Gen. and Michael L. Hubbard, Sr. Asst. Atty. Gen., argued for 
State Tax Com'n and State Bd. of Equalization and its 
members.

R. 
Garth Ferrell of Parcel, Mauro, Hultin & Spaanstra, Denver, CO, Robert T. 
McCue and William J. Thomson, II of Dray, Madison & Thomson, Cheyenne, 
for BHP Petroleum, et al. 

Morris 
R. Massey, argued, of Brown & Drew, Casper, for W.A. Moncrief, Jr., Peter A. 
Bjork, argued, Gregory R. Danielson and Alan B. Cameron of Poulson, Odell & 
Peterson, Denver, CO; and David D. Uchner, Cheyenne, for Inexco Oil 
Co.

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

CARDINE, 
Justice.

[¶1]      This appeal 
involves issues relating to payment and collection of ad valorem taxes from the 
Madden Deep oil and gas unit. Both the State and taxpayers (appellants in 
appeals number 155 and 156 and appellees in appeal number 154), appeal a summary 
judgment entered by the district court. In the first appeal, the State contends 
that the district court incorrectly ruled that the State could not collect taxes 
from the unit operator when the taxes are owed by the working interest owners. 
In the second appeal, the taxpayers contend that Wyoming's omitted property 
statute, W.S. 39-2-403(c) (1990), prohibits the State from retroactively 
revaluing and reassessing production when the original value did not include ad 
valorem tax reimbursements. The district court held that the omitted property 
statute did not prohibit reassessment for ad valorem tax reimbursements. 
Taxpayers also contend that this court's decision in Enron Oil & Gas Co. v. 
Dep't of Revenue & Taxation, 820 P.2d 977 (Wyo. 1991), should not be 
retroactively applied.

[¶2]      We affirm the 
district court's decision.

FACTS

[¶3]      The Madden Deep 
Unit (Unit) is a large federal oil and gas unit and includes leases in Fremont 
and Natrona Counties. BHP Petroleum Co., Inc. v. Wyoming Tax Comm'n, 766 P.2d 1162, 1163 (Wyo. 1989). From 1975 until October 1990, BHP (formerly Monsanto Oil 
Company) was the unit operator of the Madden Deep Unit. During 1985, all of the 
stock of Monsanto Oil Company was sold and transferred to the parent company of 
BHP Petroleum Company, Inc. (BHP). BHP managed the entire unit for parties 
owning interests in production derived from Unit leases; BHP also owned a small 
percentage of the oil and gas produced from the Unit. BHP Petroleum, 766 P.2d  at 
1163. Currently the Unit is operated by the Louisiana Land and Exploration 
Company.

[¶4]      For each of the 
years from 1976 through 1987, the Wyoming State Board of Equalization (now the 
Department of Revenue) valued the production from the Madden Deep Unit and 
certified the valuation to the Fremont County Assessor. The valuations were 
entered upon the Fremont County assessment rolls, and ad valorem taxes were 
levied and then paid.

[¶5]      In the spring of 
1988, the Department of Revenue audited the Madden Deep Unit and determined that 
the fair market value of the natural gas produced from the Unit for the years 
1976 through 1987 was greater than the amount originally certified to the county 
assessor. The increased value resulted from reimbursements of ad valorem taxes 
that were made to certain working interest owners. As a result of the audit, the 
State Board of Equalization sent two Special Directives to the Fremont County 
Assessor which directed the assessor to increase the value of the production 
from the Unit on the county's supplemental tax roll and issue ad valorem tax 
notices to BHP. The additional ad valorem tax notices for the years 1976 through 
1987 issued to BHP showed the amount due as $1,092,082.01. A portion of that 
amount, $1,002,483.79, has been paid and placed in a protest account. There 
remains due $89,598.22.

[¶6]      In February of 
1991, BHP and Monsanto brought an action against the State Tax Commission, the 
State Board of Equalization, the Fremont County Assessor and Treasurer as well 
as the Fremont County Commissioners. The suit also listed working interest 
owners in the Madden Deep Unit as defendants. Monsanto and BHP sought 
declaratory and injunctive relief.

[¶7]      The State and the 
Counties filed answers to the complaint. Inexco Oil Company and North Central 
Oil Corporation filed an answer and a cross-claim against the State and the 
County defendants. Their cross-claim alleged that the value information supplied 
to the county assessor by the Board of Equalization was incorrect and too high. 
They also requested that the State and County be enjoined from collecting 
additional ad valorem taxes for production for the years 1976 through 1987. W.A. 
Moncrief, Jr., filed an answer and also argued that the government defendants 
should be enjoined from collecting additional ad valorem taxes from the Unit. 
Tex/Con Oil & Gas Company, Chevron U.S.A. Inc., and Coastal Oil & Gas 
Corporation filed similar answers.

[¶8]      Later W.A. 
Moncrief, Jr., Inexco Oil Company and North Central Oil Corporation filed 
cross-claims against the government defendants. Their cross-claim alleged that 
the additional assessment of ad valorem taxes was illegal because there was no 
statutory authority to retroactively change values of personal property for 
prior years and because ad valorem tax reimbursements received by working 
interest owners were not a part of the fair cash market value. They also argued 
that a unit operator is not required to remit ad valorem taxes owed by the 
working interest owners. Later they filed a motion for summary judgment on their 
cross-claim.

[¶9]      Eventually 
Tex/Con Oil and Gas Company was dismissed from the action without prejudice. BHP 
and Monsanto, the plaintiffs, moved for summary judgment. They argued that, as a 
matter of law, the government defendants cannot assess additional ad valorem 
taxes for incorrect valuation that occurred in prior years. They also argued 
that the government defendants could not collect the taxes from the unit 
operator as the statute only allows for collection against the working interest 
owners. BHP and Monsanto also claimed that they were entitled to reimbursement 
from the working interest owners for their respective portions of the taxes, 
interest and penalties paid by BHP and Monsanto.

[¶10]   The district court, after hearing, 
issued a decision letter and an order. Inexco Oil Company, North Central Oil 
Corporation and W.A. Moncrief, Jr. (cross-claimants) and BHP Petroleum Company, 
Inc. and Monsanto Company (plaintiffs) filed a motion to amend the order. The 
district court entered a final amended order which granted partial summary 
judgment to the State and County defendants and partial summary judgment to 
plaintiffs. The State and County defendants and the unit operator and working 
interest owners appeal portions of the summary judgment entered by the 
court.

[¶11]   When this court reviews summary 
judgments, we have said that summary judgment is proper only when there are no 
genuine issues as to any material fact and the prevailing party is entitled to 
judgment as a matter of law. Sheridan Commercial Park, Inc. v. Briggs, 848 P.2d 811, 814 (Wyo. 1993); see W.R.C.P. 56(c). In both of these appeals, the facts 
are not seriously disputed. Therefore we review the district court's 
determinations on questions of law. This court is not bound by the trial court's 
determinations on issues of law. True Oil Co. v. Sinclair Oil Corp., 771 P.2d 781, 789 (Wyo. 1989). Using this standard of review, we consider separately the 
different issues raises by the different appellants. 

APPEAL 
NO. 92-154

The 
State of Wyoming raises this issue:

Under 
Wyoming law, may delinquent ad valorem taxes on mineral production be assessed 
and collected from the unit operator of a federal exploratory unit as opposed to 
the working interest owners?

The 
district court held that the unit operator, in that capacity, is not a 
"taxpayer" of ad valorem taxes on production under W.S. 39-3-101(d) or the 
operating agreements governing the unit. The State appeals that portion of the 
district court's ruling. We will examine the statute and the unit agreements in 
order to address the State's arguments.

[¶12]   Wyoming Statute 39-3-101(d) (1990) 
provides:

(d) 
In the case of the gross product of all mines and mining claims produced under 
lease, the lessor is liable for the payment of property taxes on the product 
removed only to the extent of the lessor's retained interest under the lease, 
whether royalty or otherwise, and the lessee or his assignee is liable for all 
other property taxes due on production under the lease.

All 
agree that the only way the unit operator can be liable under the statute is if 
the unit operator is found to be an assignee. The State emphasizes the 
"assignee" language in the statute claiming that the unit operator is an 
assignee because, under the unit agreements, he has stepped into the shoes of 
the individual working interest owners except that title has not been formally 
transferred to the unit operator. Because the unit operator has stepped into the 
shoes of the working interest owners, the argument goes, it is an assignee, and 
W.S. 39-3-101(d) holds assignees liable for property taxes due on production 
under the lease.

[¶13]   The district court held 
that:

Taxpayers 
have not, by way of the unit agreement, assigned their leases to the unit 
operator such that the unit operator is liable as taxpayer for ad valorem taxes. 
* * * No assignment has been made.

Under 
the operating agreement, the unit operator has paid the additional ad valorem 
taxes. However, this does not make the operator a taxpayer. Taxpayer status can 
only be created by legislation. See Wyo.Const.Art 15 § 13; Rocky Mountain Oil 
and Gas Assoc. v. State Board of Equalization, 749 P.2d 221, 240 (Wyo. 1987) 
wherein the court stated: "The power to tax is a legislative power. The power to 
tax includes the power to say what shall be taxed, who shall pay it and what the 
tax shall be. (Citations omitted.)"

Thus, 
the district court concluded that no assignment existed between the unit 
operator and the working interest owners.

[¶14]   We agree with the district court's 
determination. We have examined the provisions of the unit agreements relied 
upon by the State in its brief. None of these provisions accomplish an 
assignment. Instead the relationship is more properly termed an agency 
relationship. Although prospecting and producing rights are delegated to the 
unit operator, no property rights have been assigned to the unit operator. The 
Madden Deep Unit Agreement specifically notes in the section defining the rights 
and obligations of the unit operator:

Nothing 
herein, however, shall be construed to transfer title to any land or to any 
lease or operating agreement * * *.

Since 
ad valorem taxes are assessed on property, e.g., the valuable production, and 
title to the property is not transferred, the unit operator is not the assignee 
of the property and, therefore, is not liable for the tax payment. Neither the 
original Unit Operating Agreement nor the Supplemental Operating Agreement 
accomplish an assignment of the owner's economic interest in the lease to the 
unit operator. The State argues that a profit a prendre, the right to search for 
valuable minerals, can be assigned. While that is generally true, the unit 
agreements clearly demonstrate that such assignment did not accomplish a 
transfer of ownership of production.

[¶15]   Section 39-3-101(d) provides that 
the leasee is responsible for payment of the tax on production. Since nothing in 
the operating agreements makes the unit operator a lessee, or owner of the lease 
by virtue of assignment or any other arrangement, the unit operator is not 
responsible for payment of ad valorem taxes under W.S. 39-3-101(d). The 
Supplemental Unit Operating Agreement echoes this ownership-based notion of the 
tax liability:

All 
other taxes paid by Unit Operator shall be charged to and borne by the Parties 
in proportion to their ownership in the Committed Working Interests or Unitized 
Substances (as the case may be) upon which or in respect of which such taxes are 
paid.

Supplemental 
Unit Operating Agreement, Article 19.2. See also Unit Operating Agreement, 
Article 21.2.

[¶16]   The State next claims that 
unitization allows all those having a legal interest in an oil and gas field to 
join together in a common plan to gain effective production. See Trout v. 
Wyoming Oil & Gas Conservation Comm'n, 721 P.2d 1047, 1051 (Wyo. 1986) 
(quoting Parken v. State Corp. Comm'n, 234 Kan. 994, 677 P.2d 991, 1002 (1984)). 
In Trout this court was defining the relationship of parties who enter into a 
unitization plan in a general sense. Trout, 721 P.2d  at 1051. We did not define 
what legal interest a unit operator in a unitization agreement possesses. Id. 
The State claims that when unitization occurs, the unit operator becomes the 
designated lessee of the unit by assignment of rights from the other interest 
owners. While that arrangement may be possible, the specific agreements of this 
unit do not bear out that relationship.

[¶17]   Ad valorem taxes are taxes on 
production. Union Pacific Resources Co. v. State, 839 P.2d 356, 361 (Wyo. 1992). 
The unit agreements do not provide production ownership for any 
unit operator; rather, the agreements provide the unit operator with rights 
related to producing oil and gas. The delegation in the unit 
agreements here is much more limited than the State indicates. The delegation 
here is analogous to a corporation delegating to an officer the authority to 
receive tax notices and taxes from different corporate divisions and remit them 
to the tax assessor. This delegation of administrative duty does not cause the 
officer to be personally liable for the taxes and his personal assets levied 
against and sold.

[¶18]   The State next argues that our 
holding in BHP Petroleum Co., Inc. v. State, 784 P.2d 621 (Wyo. 1989), controls 
the outcome of this issue. The State contends that this case is merely the ad 
valorem tax counterpart to the severance tax question we addressed in BHP v. 
State. In BHP v. State, we held that the unit operator was the "person 
extracting" within the meaning of severance tax section 39-6-307(e), and 
therefore the unit operator could be assessed the delinquent severance tax. BHP 
v. State, 784 P.2d  at 625. Thus, it is said that ad valorem taxes should be 
assessed and paid in the same fashion as severance taxes and that the 
legislature did not intend for the collection of ad valorem taxes to be more 
burdensome than the collection of severance taxes. The State asserts finally 
that it has been assessing ad valorem taxes to the unit operator even longer 
than it has been assessing severance taxes to the unit operator, citing Miller 
v. Buck Creek Oil Co., 38 Wyo. 505, 269 P. 43 (1928).

[¶19]   Our holding in BHP v. State does 
not apply to the situation we address here. The statute we were required to 
interpret in BHP v. State is very different from the statute at issue here. The 
statute we examined in BHP v. State was W.S. 39-6-307(e) 
(1990):

Any 
person extracting valuable products subject to this article, and any person 
owning an interest in the valuable products to the extent of their interest 
ownership are liable for the payment of the taxes imposed by this article 
together with any penalties and interest.

See 
BHP v. State, 784 P.2d  at 622. This statute expressly refers to the person 
extracting (unit operator) in the first clause and distinguishes the unit 
operator from the working interest owners mentioned in the next clause. No 
counterpart to this severance tax statute exists in the ad valorem tax statutes. 
The statute we examine here only refers to "lessees or assignees" and does not 
mention a person who is physically extracting the valuable mineral product. W.S. 
39-3-101(d).

[¶20]   The authority to create a taxpayer 
belongs exclusively to the legislature, and we cannot expand taxpayer status. 
See Wyo.Const.Art. 15 § 13; Rocky Mountain Oil & Gas Ass'n. v. State Bd. of 
Equalization, 749 P.2d 221, 240 (Wyo. 1987). Here the statute is clear that the 
unit operator does not have ownership or taxpayer status. The statutory language 
that required the holding we reached in BHP v. State is not found in the ad 
valorem tax statutes. The rationale of BHP v. State was that severance taxes 
were for the privilege of extracting minerals. That same rationale cannot be 
applied in the ad valorem tax context because of the different nature of the 
taxes. In Wyoming, the severance tax

is 
an excise tax upon the current and continuing privilege of extracting minerals. 
"The tax is not levied upon the preceding year's production, and that production 
is not called upon to bear the burden of the tax. The tax is not an ad valorem 
tax. The statute is very plain in stating that it is an excise tax laid upon the 
present and continuing privilege of extracting 
minerals."

BHP 
v. State, 784 P.2d  at 626 (quoting, in part, Belco Petroleum Corp. v. State Bd. 
of Equalization, 587 P.2d 204, 210 (Wyo. 1978)). See Union Pacific Resources, 
839 P.2d  at 361. With a severance tax, the important question for tax liability 
purposes is the extraction of valuable mineral.

[¶21]   An ad valorem tax is a property tax 
which taxes the value of the mineral produced. Ownership is the important 
question for ad valorem tax liability purposes. See e.g., W.S. 39-3-101(c) & 
(d) (1990) and 39-3-102(d) (1990); Union Pacific Resources, 839 P.2d  at 361; 
Board of Comm'rs v. Bernardin, 74 F.2d 809 (10th Cir. 1934) (minerals when 
severed from realty become personalty; gross product tax is a tax on personal 
property). As we have noted, the ownership arrangement under this unitization 
agreement does not conglomerate ownership. "Right, title and interest to the 
mineral estate is not conglomerated, but rather each working interest owner 
retains ownership in the proportionate share and is entitled to make 
arrangements for sale of the product in any fashion desired." BHP v. State, 784 P.2d  at 623.

[¶22]   The State next contends that the 
administrative practice of assessing the ad valorem taxes against the unit 
operator should guide this court in construing the statute. While we may look to 
an existing administrative interpretation of a statute as we did in BHP v. 
State, we do so only if the statute is ambiguous. The statute and the term 
"assignee" within the statute do not create an ambiguity that would necessitate 
application of a rule of construction. This statute is plain and unambiguous, 
and we give the words their plain and ordinary meaning without resorting to 
rules of construction. Vandehei Developers v. Public Service Comm'n, 790 P.2d 1282, 1285 (Wyo. 1990).

[¶23]   The State contends that not 
accepting its interpretation of assignee, so as to allow collecting of ad 
valorem taxes from the unit operator, will make it difficult to collect these 
taxes. It is said that difficulty will result because the unit operator is 
responsible for reporting the volume of production and if then each working 
interest owner is to report their individual volume and the State must assess 
them pro rata, it will be an administrative nightmare. This might be possible if 
our holding were different. We limit the County and State's ability to 
collect taxes through sale of property, not their ability to 
assess taxes. We think the hypothetical difficulty is not borne out. Appellees 
point out in their brief:

Appellees 
do not seek to impose an administrative nightmare on the taxing authorities. The 
operator will continue to provide assessment data. Tax notices may be sent to 
the operator, as in the past. The operator will continue to discharge its 
contractual duty to pay taxes on behalf of other owners (subject, of course, to 
adequate provisions for reimbursement by them). The operator and other owners 
who have paid their taxes should not, however, have their property placed in 
jeopardy because of the failure of a delinquent owner to pay the taxes on 
production owned and sold by that owner.

[¶24]   We conclude that W.S. 39-3-101(d) 
was intended to relieve a mineral owner lessor from a tax lien that arises when 
the lessee of the land has failed to pay the ad valorem taxes on the production 
from the land. The language of the statute protects lessors of mineral 
production land from tax liens when their lessees do not properly pay the taxes 
assessed to the lessees. The statute does not create a new category of 
taxpayers.

[¶25]   Thus, we hold that this unit 
operating agreement is not an assignment but instead a contract of agency, and 
the unit operator is the agent of the working interest owners for limited and 
specified purposes; that while the State may send the unit operator notice of 
the tax assessment and the unit operator may continue to pay taxes for other 
owners voluntarily or pursuant to contract, the State may not collect taxes due 
from others by forcing payment by the unit operator.

APPEALS 
NO. 92-155 & 156

[¶26]   Appellants BHP and Monsanto raise 
these issues for our consideration:

(1) 
Whether an assessment of ad valorem taxes, once certified to the assessor, can 
be retroactively modified.

(2) 
Whether there exists statutory authority to allow the revaluation of previously 
taxed property (i.e., natural gas production) and the retroactive reassessment, 
levy and collection of additional ad valorem tax on such property and, if so, 
whether the authority of the government appellees to retroactively reassess such 
property for ad valorem tax purposes is limited by the provisions of W.S. § 
39-2-403(c).

Appellees 
ask:

Is 
there any applicable limitation upon the Board of Equalization's authority to 
examine cases wherein property subject to taxation has been improperly and 
unequally assessed and thereafter remedy such improper administration of the tax 
laws?

Should 
this court address the issue regarding the retroactive application of Enron Oil 
and Gas Company v. Department of Revenue and Taxation, when such issue was never 
presented nor raised in the district court?

[¶27]   As stated earlier, the State 
conducted an audit which revealed that the taxes appellants had originally paid 
did not reflect an accurate valuation of the Unit's production. The district 
court found that the State has authority to reopen prior certifications and 
assess additional ad valorem taxes. Appellants claim that there is no statutory 
authority for retroactive reassessment of ad valorem 
taxes.

[¶28]   As support for its ability to make 
the retroactive ad valorem assessments, the State cites W.S. 39-1-304(a)(xiv) 
(Cum. Supp. 1992), which states:

     (a) 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, 
review final decisions of the department on state excise taxes and review 
department assessments of property and tax determinations. In addition, the 
board shall:

* 
* * * * *

(xiv) 
Carefully examine into all cases wherein it is alleged that property subject to 
taxation has not been assessed or has been fraudulently, improperly, or 
unequally assessed, or the law in any manner evaded or violated, and cause to be 
instituted proceedings which will remedy improper or negligent administration of 
the tax laws of the state[.]

Appellants 
contend that this section does not contain legislative authority for retroactive 
assessment. We disagree. This section provides for revaluation when it directs 
the State Board of Equalization to discover errors or unequally assessed taxes 
and remedy those errors. W.S. 39-1-304(a)(xiv). As the State points out, errors 
are usually discovered by looking back, therefore retroactive action is explicit 
in the statute. Thus the process that occurs is prospective correction of 
improper self-assessment. It is not retroactive revaluation. This court has held 
that statutes must be interpreted in a fashion which permits an agency to carry 
out its legislative mandate. Amoco Production Co. v. State Bd. of Equalization, 
797 P.2d 552, 554-55 (Wyo. 1990) (citing Pathfinder Mines Corp. v. State Bd. of 
Equalization, 766 P.2d 531, 536-37 (Wyo. 1988)). We therefore, hold that W.S. 
39-1-304(a)(xiv) specifically authorizes the Board to remedy improper 
assessments.

[¶29]   We are cognizant of appellant's 
argument that tax legislation must be construed prospectively. Belco Petroleum 
Corp. v. State Bd. of Equalization, 587 P.2d 204, 210 (Wyo. 1978). This statute, 
however, expresses clear direction that the Board must remedy past assessment 
errors which necessarily requires retrospective action. Still appellants 
maintain that the Board cannot retroactively reassess. For support, appellants 
point to W.S. 39-2-403(c), the omitted property statute, and argue that the 
omitted property statute limits the Board's authority to retroactively reassess 
ad valorem taxes. Section 39-2-403(c) (1990) provides:

(a) 
On or before the first Monday of August, the board of county commissioners shall 
by order entered of record levy the requisite taxes for the year. On or before 
the third Monday in August the county assessor shall compute the taxes from the 
corrected valuations as corrected by the state board and entered by the county 
assessor in the column of corrected valuations. The county assessor shall 
deliver the tax list and his warrant for the collection of the taxes to the 
county treasurer * * *.

* 
* * * * *

(c) 
The county assessor may authorize changes in the assessment roll or tax list at 
any time to correct errors in the name of a person taxed or to enter omitted 
property and its assessed value. Property omitted from prior year tax lists 
discovered by the county assessor shall be added to the assessment roll and 
taxes computed and collected for the period the property was omitted not 
exceeding five (5) prior years or since the last change in ownership, whichever 
is less.

[¶30]   Appellants argue that the statute 
only allows revaluation if the property was altogether omitted from the 
tax rolls and that the State's ability to revaluate is limited because of the 
need for finality in tax assessments. An ad valorem tax is a tax upon particular 
real or personal property. If reassessment is allowed, the argument goes, then 
there is confusion concerning the title to the property when the property has 
been transferred on the basis that the taxes have already been 
paid.

[¶31]   In addressing the innocent 
purchasers' argument appellants raise, the district court specifically found 
that "[t]here is no evidence that any of the parties fall within the 
hypothetical case involving an innocent purchaser." The district court also 
found that tax liens under W.S. 39-3-102(a) do not extend to past deficiencies 
which arise because of reassessment. Therefore, innocent purchasers are not 
harmed. We need not address the applicability of tax liens to reassessments 
because the question is not before us. We note, however, that the district 
court's alternative basis for its decision is persuasive.

[¶32]   The omitted property statute simply 
does not apply to assessments which originate from the Board of Equalization. In 
Title 39 of the Wyoming Statutes, the legislature has provided for both 
state-assessed and county-assessed property. See W.S. 39, chap. 2, articles 2 
& 3 (1990). Article 2 of the Assessment Chapter covers state assessments, 
and Article 3 covers county assessments. Id. With mineral assessments, the Board 
is required to calculate and set the assessment. W.S. 39-2-201(e) (Cum.Supp. 
1992). With other types of property, the task of calculating and setting the 
assessment belongs to the county assessor. Under the mineral assessment 
procedure, although the County does enter the assessment on the tax rolls, the 
certification of the assessment is done by the State. The omitted 
property statute, which limits the ability to reassess to five years, must be 
interpreted along with W.S. 39-1-304(a)(xiv), which does not contain a 
limitation on the State's ability to reassess. The legislature in § 
39-1-304(a)(xiv) gave the Board unlimited authority to examine all cases where 
it is alleged that property has not been assessed. The district court resolved 
the tension between the statutes as follows:

To 
resolve this aspect of the dispute the court has reviewed the legislation in its 
entirety and notes a legislative intent to treat "omitted property" in different 
ways. In W.S. § 39-1-304(a)(xiv), the legislature granted to the Board of 
Equalization the power to deal with property which had not been assessed. It 
granted to the Board, without any time limitation, the right to remedy the 
problem. In contrast, W.S. § 39-2-403(c) deals with the very same problem, and 
it uses the term "omitted property." However, it imposes a five year period of 
limitation to remedy the problem. * * * Limiting W.S. § 39-2-403(c) to county 
originated assessments removes the discrepancy. Hence, the legislation itself 
compels the conclusion that W.S. 39-2-403(c) does not extend to state originated 
assessments.

We 
agree with the district court's analysis. The omitted property statute does not 
limit the Board's power under § 39-1-304(a)(xiv) to reassess property that was 
undervalued.

[¶33]   Appellants argue that we should 
construe Wyoming's omitted property statute in the same fashion as the Colorado 
Court of Appeals did in Cabot Petroleum Corp. v. Yuma County Bd. of 
Equalization, 847 P.2d 152 (Colo. App. 1992) cert. granted 2/22/93. In Cabot, 
the court of appeals ruled that Colorado's omitted property statute allows 
retroactive assessment on omitted property but not on omitted 
value. Cabot, 847 P.2d  at 155. We decline to follow the Cabot 
decision. In Cabot, the State relied on the omitted property statute as its 
authority for retroactive reassessment. In Wyoming, unlike in Cabot, the 
legislature has given express authority for the Board of Equalization to 
reassess undervalued property under W.S. 39-1-304(a)(xiv). Cabot is thus 
distinguishable. We therefore hold that the omitted property statute does not 
limit the State's power under W.S. 39-1-304(a)(xiv) to reassess property that 
was undervalued.

Retroactive 
Application of Enron

[¶34]   The State next contends that we 
should not consider whether our decision in Enron Oil & Gas Co. v. Dep't of 
Revenue & Taxation, 820 P.2d 977 (Wyo. 1991), should be applied 
retroactively because this issue was not raised in the district court. The 
district court's order stated:

[T]he 
issue regarding the taxability of ad valorem tax reimbursements was not pursued 
and is dismissed in accordance with Enron Oil & Gas Company v. Department of 
Revenue & Taxation, 820 P.2d 977 (Wyo. 1991)[.]

According 
to the State, the plaintiffs in this action never raised the retroactivity 
issue. The State argues that this court should not consider the retroactivity of 
Enron because the court does not consider matters raised for the first time on 
appeal, nor can parties advance new theories which are not apparent or readily 
discernible from the pleadings. Minnehoma Financial Co. v. Pauli, 565 P.2d 835, 
838 (Wyo. 1977).

[¶35]   Throughout the litigation, 
appellants continued to argue that the State could not retroactively revalue 
production. Our decision in Enron authorized the State to include ad valorem tax 
reimbursements as a component of value, and appellants' argument questioned the 
retroactive affect of Enron. After a review of the record, and the portions that 
appellants refer to us, we conclude that the retroactivity issue was raised 
below and that it is reasonably discernible from the 
pleadings.

[¶36]   Even were we to conclude that the 
retroactivity issue were not raised adequately below, we would still address 
that issue. This court will consider issues not raised below when the issues are 
jurisdictional, or of such a fundamental nature that the court must take 
cognizance of them. Scherling v. Kilgore, 599 P.2d 1352, 1358 (Wyo. 1979). See 
also Oatts v. Jorgenson, 821 P.2d 108, 111 (Wyo. 1991); White v. Fisher, 689 P.2d 102, 105 (Wyo. 1984). Thus, we address the issue of whether this court's 
decision in Enron should be applied retroactively.

[¶37]   Appellants contend that the court's 
ruling in Enron was not anticipated by the industry. In addition, Enron was 
announced while this case was pending in the lower court and was a question of 
first impression. Since Enron was the first time the court had held that the 
Department of Revenue and Taxation can include ad valorem tax reimbursements as 
a component in the assessment process for determining fair cash market value of 
minerals including natural gas, appellants argue that it should be applied 
prospectively only.

[¶38]   Both sides agree that the method 
this court should use to determine the retroactivity question is the test for 
retroactivity set out by the United States Supreme Court in Chevron Oil Co. v. 
Huson, 404 U.S. 97, 92 S. Ct. 349, 30 L. Ed. 2d 296 (1971). We have utilized the 
Chevron analysis in other cases. Hanesworth v. Johnke, 783 P.2d 173, 177 (Wyo. 
1989); Adkins v. Sky Blue, Inc., 701 P.2d 549, 552 (Wyo. 1985); Witzenburger v. 
State ex rel. Wyoming Community Dev. Auth., 577 P.2d 1386, 1387 (Wyo. 1978). 
Chevron is also the current test used by other courts. See e.g., Martin Marietta 
Corp. v. Lorenz, 823 P.2d 100, 111-12 (Colo. 1992). Under Chevron, we must 
consider three factors:

First, 
the decision to be applied nonretroactively must establish a new principle of 
law, either by overruling clear past precedent on which litigants may have 
relied, or by deciding an issue of first impression whose resolution was not 
clearly foreshadowed[.] Second, it has been stressed that "we must * * * weigh 
the merits and demerits in each case by looking to the prior history of the rule 
in question, its purpose and effect, and whether retrospective operation will 
further or retard its operation." Finally, we have weighed the inequity imposed 
by retroactive application, for "[w]here a decision of this Court could produce 
substantial inequitable results if applied retroactively, there is ample basis 
in our cases for avoiding the `injustice or hardship' by a holding of 
nonretroactivity."

Chevron, 
404 U.S.  at 106-07, 92 S. Ct.  at 355 (citations omitted).

[¶39]   Appellants argue that Enron was a 
decision of first impression. While appellants are correct that this court had 
not previously ruled the way it did in Enron, it was not a case of first 
impression with respect to that portion of the Chevron test. Under Chevron, the 
case must establish a new principle of law. Chevron, 404 U.S.  at 106, 92 S. Ct. 
at 355. It can do so by either overruling clear past precedent or deciding an 
issue of first impression "whose resolution was not clearly foreshadowed." Id. 
Enron did not overrule past precedent. Enron, 820 P.2d  at 982. See also 
Witzenburger, 577 P.2d  at 1387-88. But the resolution of the question announced 
by the court in Enron was clearly foreshadowed by past practice and fair and 
reasonable statutory construction. Enron, 820 P.2d  at 980, 982. The State 
indicates that fair cash market value for ad valorem tax purposes has always 
included ad valorem tax reimbursements, and many producers reported and paid 
their tax on ad valorem tax reimbursements before Enron.

[¶40]   Under the second prong of Chevron 
we must balance the advantages and disadvantages in each case and examine the 
purpose and effect of the rule in Enron and decide whether retrospective 
application will further or retard its operation. Chevron, 404 U.S.  at 106-07, 
92 S. Ct.  at 355. It is said that the hardships that will be created by 
retroactive application of Enron outweigh the benefits to the rule and that 
taxpayers will be exposed to millions of dollars in retroactive assessments when 
they already face an uncertain and volatile market. There are important 
principles of equity and uniformity, however, that will be circumvented if the 
rule articulated in Enron is not applied retrospectively. Under the Wyoming 
Constitution, minerals are a class of property and, as such, they must be 
uniformly given full value. Wyo.Const. Art. 15 § 11(a) & (d). See also Union 
Pacific Resources, 839 P.2d  at 370. Thus, limiting Enron to prospective 
application would have the effect of taxing mineral producers who reported 
reimbursements as part of value at a higher rate than those who failed to 
report. Those who fail to report reimbursements would gain a substantial benefit 
over those who did report.

[¶41]   Under the third prong of Chevron, 
if substantial inequitable results would occur by retroactive application of the 
rule, then the rule should be held not retroactive. Chevron, 404 U.S.  at 107, 92 S. Ct.  at 355. Appellants argue that hardship might indeed result by retroactive 
application of Enron if property rights would be disturbed. They also state that 
they paid taxes and should be protected from having to pay additional taxes on 
previously taxed property.

[¶42]   We agree that hardship will result 
to these appellants. However, that hardship is outweighed by the benefits that 
come from the rule we established in Enron. The necessity for equal and uniform 
taxation is compelling and overriding. In general, "statutes operate 
prospectively, while judicial decisions are applied retroactively." Martin 
Marietta, 823 P.2d  at 111 (citing United States v. Sec. Indus. Bank, 459 U.S. 70, 79, 103 S. Ct. 407, 413, 74 L. Ed. 2d 235 (1982)). Therefore, our decisions are 
applied retroactively unless the factors under the Chevron test demonstrate that 
a decision should have prospective effect only. After considering each of these 
factors, we conclude that Enron should be applied 
retroactively.

[¶43]   Appellants also argue that the 
district court's construction of the omitted property statute is a construction 
of first impression and should be applied prospectively only. Appellants cite no 
case in which this court has held that the district court's decision does not 
apply to nor affect the parties to the case, but only affects future cases. 
Thus, we conclude that this argument, although novel, is without merit. As 
discussed above, the district court's construction of the two statutes was the 
correct construction under the clear statutory language.

[¶44]   In their last argument, appellants 
claim that the district court's decision constitutes impermissible judicial 
legislation in the area of taxation. Appellants are certainly correct that the 
enactment of tax measures is exclusively within the providence of the 
legislature. Wyo.Const.Art. 3 § 35. See e.g., Board of Equalization v. Jackson 
Hole Ski Corp., 737 P.2d 350, 356 (Wyo. 1987). However, contrary to appellants' 
contention, the district court did not enact additional taxes or additional 
state powers, rather it merely applied statutes the legislature had enacted. It 
was the legislature that gave the State the power in the statute. The district 
court merely construed and applied the statute and, therefore, acted well within 
its constitutional scope. See also Davidson v. Sherman, 848 P.2d 1341, 1348-49 
(Wyo. 1993).

CONCLUSION

[¶45]   We hold that the unit operator is 
not the "taxpayer" of ad valorem taxes on production under either W.S. 
39-3-101(d) or the Unit Operating Agreement. We hold, therefore, that each 
working interest owner is liable for the increased ad valorem taxes due to the 
increased value of production by virtue of the ad valorem tax 
reimbursements.

[¶46]   We also hold that the omitted 
property statute, W.S. 39-2-403(c) does not preclude the State from the 
revaluation and reassessment of ad valorem taxes in this case. We hold that the 
State is both allowed and required to make such reassessments under W.S. 
39-1-304(a)(xiv). Finally, we hold that our decision in Enron is to be applied 
retroactively.

[¶47]   The decision of the district court 
is, therefore, affirmed.