Title: Amax Coal West, Inc. v. Wyoming State Bd. of Equalization

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Amax Coal West, Inc. v. Wyoming State Bd. of Equalization1995 WY 84896 P.2d 1329Case Number: 94-126Decided: 06/08/1995Supreme Court of Wyoming

AMAX 
COAL WEST, INC.,

 Appellant 
(Petitioner),

v.

The WYOMING STATE BOARD OF EQUALIZATION; and Wyoming 
Department of Revenue,

 Appellees 
(Respondents).

 

Appeal 
from District Court, Campbell County, Dan R. Price II, 
J.

Lawrence J. Wolfe and Susan 
E. Laser-Bair of Holland & Hart, Cheyenne, for appellant.

Joseph B. Meyer, Atty. Gen., 
and Michael D. Basom, Asst. Atty. Gen., for appellee Wyoming State Bd. of 
Equalization.

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

MACY, 
Justice.

[¶1]      Appellant Amax 
Coal West, Inc. appealed to the district court from the findings of fact, 
conclusions of law, and order which had been issued by Appellee Wyoming State 
Board of Equalization. The district court certified the case to the Wyoming 
Supreme Court pursuant to W.R.A.P. 12.09(b).

[¶2]      We affirm the 
State Board of Equalization's decision.

Issues

[¶3]      Amax presents 
several issues in its appeal:

A.        Whether the 
Order of the Board must be set aside because it is contrary to the standards in 
the Wyoming Administrative Procedure Act, Wyo.Stat[.] § 16-3-114(c) and 
otherwise not in accordance with law.

B.        Whether the 
State Board denied Amax due process and the right to a full and fair contested 
case hearing by excluding key documents and testimony on the rate of return 
issues.

C.        Whether 
critical findings of fact and conclusions o[f] law on the rate of return issues 
must be set aside because they are unsupported by substantial evidence in the 
record of this proceeding.

D.        Whether the 
entire audit should be set aside because there was no attempt on the part of the 
Department of Revenue or the Board to determine fair cash market 
value.

E.        Whether the 
auditors acted contrary to law by exceeding their authority under Section 14 of 
the Board's Rules.

F.         
Whether the auditors and the Department failed to collect necessary facts 
and acted arbitrarily by limiting their review of the valuation formula and the 
rate of return issues.

G.        Whether the 
original assessment for 1986 production constituted fair cash market value and 
should be affirmed.

H.        Whether the 
fixed rate of return approved by the Board is a hypothetical cost that is 
improper in a valuation methodology and must be set aside.

I.          
Whether the Board erred when it denied Amax a credit for return on 
post-mine mouth transportation equipment investment.

J.         
Whether Amax was denied due process in the presentation of its offer of 
proof when the Hearing Officer precluded Amax's witnesses from 
testifying.

Facts

[¶4]      Amax operated the 
Belle Ayr and Eagle Butte surface coal mines located in Campbell County. The 
Department of Audit commenced an audit in 1990 of the valuation of Amax's coal 
production from the two mines for the years 1985 through 1989. Only the audit 
results for the 1986 and 1987 production years are at issue in this appeal. 
Appellee Wyoming Department of Revenue used a net-back valuation formula to 
determine the value of Wyoming coal which had been sold away from the mouths of 
the mines for the 1986 and 1987 production years. Amax Coal Company v. Wyoming 
State Board of Equalization, 819 P.2d 825 (Wyo. 1991), contains a description of 
the net-back valuation formula. 819 P.2d  at 827 n. 4. After the audit had been 
completed, the Department of Revenue issued a notice to Amax in which it 
assessed additional severance taxes and increased the taxable value of Amax's 
coal production for ad valorem tax purposes.

[¶5]      Amax disagreed 
with the Department of Revenue's conclusions and appealed to the State Board of 
Equalization. During the contested case hearing, Amax sought to introduce 
evidence to prove (1) that the standard industry rate of return on and of its 
investment which was used by the Department of Revenue in the net-back valuation 
formula should have been examined by the auditors and (2) that Amax's actual 
rate of return on and of its investment should have been used instead of the 
standard rate of return. The State Board of Equalization ruled that the evidence 
was irrelevant to the issues which were being presented at the hearing and 
refused to allow its admission; however, the Board allowed Amax to present a 
written offer of proof with regard to the excluded 
evidence.

[¶6]      Following the 
hearing, the State Board of Equalization issued its findings of fact, 
conclusions of law, and order in which it affirmed some of the Department of 
Revenue's assessments and increases in the taxable value. The State Board of 
Equalization specifically found that the Department of Revenue had erroneously 
allowed in-pit transportation costs to be deducted in Amax's original 1986 
valuation. The State Board of Equalization also denied Amax's request for a 
deduction for its post-mine-mouth-transportation-equipment 
investment.

[¶7]      Amax appealed to 
the district court, and that court certified the case to this Court pursuant to 
W.R.A.P. 12.09(b).

Discussion

[¶8]      When we are 
reviewing cases which have been certified to us pursuant to W.R.A.P. 12.09(b), 
we apply the appellate standards which are applicable to the reviewing court of 
the first instance. Hepp v. State ex rel. Wyoming Workers' Compensation 
Division, 881 P.2d 1076, 1077 (Wyo. 1994).

[¶9]      We review an 
administrative agency's findings of fact under the substantial evidence 
standard:

"Our task is to examine the entire record to 
determine if substantial evidence exists to support the hearing examiner's 
findings. We will not substitute our judgment for that of the hearing examiner 
if his decision is supported by substantial evidence. Substantial evidence is 
relevant evidence which a reasonable mind might accept in support of the 
agency's conclusions."

Romero v. Davy McKee Corporation, 854 P.2d 59, 61 
(Wyo. 1993) (citing Farman v. State ex rel. Wyoming Workers' Compensation 
Division, 841 P.2d 99, 102 (Wyo. 1992)).

Bearden v. State ex rel. 
Wyoming Workers' Compensation Division, 868 P.2d 268, 269 (Wyo. 1994). We do 
not, however, defer to an agency's conclusions of law. "Instead, if the `correct 
rule of law has not been invoked and correctly applied, . . . the agency's 
errors are to be corrected.'" Thunder Basin Coal Company v. Study, 866 P.2d 1288, 1291 (Wyo. 1994) (quoting Devous v. Wyoming State Board of Medical 
Examiners, 845 P.2d 408, 414 (Wyo. 1993)).

[¶10]   Amax maintains that the original 
valuation represented the fair cash market value of its production and that the 
Department of Revenue "abandoned the concept of [fair cash market value]" when, 
as a result of the audit, it determined the adjusted 
valuation.

[¶11]   The Wyoming Constitution mandates 
that all coal mines shall be taxed uniformly on the value of their gross 
product. WYO. CONST. art. 15, §§ 3 & 11. Article 15, Section 10 of the 
Wyoming Constitution vests the State Board of Equalization with authority to 
perform taxation functions for the state. See Amax Coal Company, 819 P.2d  at 826 
n. 1. At the time that the coal production was originally valued, WYO. STAT. § 
39-2-202(a) (1985) required the State Board of Equalization to value the gross 
product of all mines at the fair cash market value of the product where produced 
after the mining process had been completed.1 See Enron Oil & Gas Company v. 
Department of Revenue and Taxation, State of Wyoming, 820 P.2d 977, 980 (Wyo. 
1991).

The Wyoming Constitution's valuation requirement when 
emplaced by relevant statutes requires that mineral production be valued at the 
"mouth of the mine" for purposes of calculating ad valorem and severance 
taxes.

Amax Coal Company, 819 P.2d  
at 827.

[¶12]   The State Board of Equalization's 
rules provided that recognized appraisal techniques must be used to determine 
the fair cash market value of a mineral when the mineral is sold away from the 
mouth of the mine. RULES AND REGULATIONS, WYOMING STATE BOARD OF EQUALIZATION 
ch. XXI, § 9(c) (1986). All factors which pertain to value must be taken into 
account in determining whether the valuation represents the fair cash market 
value of the product. Hillard v. Big Horn Coal Company, 549 P.2d 293, 298-99 
(Wyo. 1976); see also RULES AND REGULATIONS, supra at § 10(d). In valuing mineral 
production,

[t]he Board has general statutory authority to 
prescribe a system or systems for establishing the uniform valuation of all 
properties. In performing its constitutional and statutory functions the Board 
may arrive at different valuations for different properties, but the method or 
system used by the Board must lead to a fair value, and the properties must be 
assessed at a uniform rate.

549 P.2d  at 294 (citations 
omitted).

[¶13]   The Department of Revenue used the 
net-back valuation formula as the appraisal technique when it determined the 
fair cash market value of the coal which had been sold away from the mouths of 
the mines for the 1986 and 1987 production years. Neither the Department of 
Revenue nor the Department of Audit changed the net-back valuation formula 
during the audit. Amax seeks to challenge two components of the net-back 
valuation formula: (1) the use of a standard rate of return instead of Amax's 
actual rate of return and (2) the denial of a deduction on its 
post-mine-mouth-transportation-equipment investment.2

[¶14]   Amax had the right to dispute the 
components of the net-back valuation formula; however, it waived that right when 
it elected not to challenge the original assessments. See Amax Coal Company v. 
Wyoming State Board of Equalization, 819 P.2d 834, 836-37 (Wyo. 1991); Hillard, 
549 P.2d  at 296-97. In 1986 and 1987, WYO. STAT. § 39-2-201(d) (1985) 
provided:

(d) Following determination of the taxable value of 
property subject to subsection (a) of this section, the board shall notify the 
taxpayer of the value assessed by mail. The person assessed may file written 
objections to the assessment within fifteen (15) days following receipt of 
notice and appear before the board at a time specified by the 
board.

The Board's rules reiterated 
the fifteen-day deadline. RULES AND REGULATIONS, supra at § 12(a). Additionally, Amax 
could have applied for a refund of any excess taxes it had paid pursuant to WYO. 
STAT. § 39-6-304(g) (1985) (repealed 1988):

(g) Any excess tax found to have been paid, whether 
as the result of overpayment, an appeal or an erroneous assessment shall be 
refunded to the person paying the tax. All applications for refunds shall be 
made within two (2) years from the payment of the erroneous 
tax.

[¶15]   A party waives any future objection 
to a ruling on an issue when that party fails to contest that issue on appeal. 
See Triton Coal Company v. Husman, Inc., 846 P.2d 664, 668 (Wyo. 1993). Waiver 
is "`the intentional relinquishment of a known right and must be manifest in 
some unequivocal manner.'" Jackson State Bank v. Homar, 837 P.2d 1081, 1086 
(Wyo. 1992) (quoting Baldwin v. Dube, 751 P.2d 388, 392 (Wyo. 
1988)).

[¶16]   Amax knowingly and voluntarily 
waived its right to contest the components of the net-back valuation formula 
when it failed to appeal from the original assessments. At the contested case 
hearing, witnesses for Amax testified that the net-back valuation formula is a 
recognized appraisal technique, and they admitted that Amax had voluntarily 
elected not to appeal from the original assessments. Amax's intention to 
relinquish its right to contest the components of the valuation formula is also 
illustrated by its failure to apply for a refund under the provisions of § 
39-6-304(g). Amax acquiesced to the net-back valuation formula by failing to 
appeal from the original assessments and, thereby, conceded that the net-back 
valuation formula resulted in a fair-cash-market-value determination.3

[¶17]   The audit revealed a mathematical 
error which resulted in the additional assessments being made. Amax reported two 
different numbers for its transportation costs for 1986: (1) its transportation 
costs from the face of the coal to the point of first crushing and (2) its 
transportation costs from the top of the ramp to the point of first crushing. 
The Department of Revenue allowed Amax to have a deduction for its total 
transportation costs from the coal face to the point of first crushing in the 
original assessments. Following the audit, the Department of Revenue concluded 
that the deduction for in-pit transportation costs was improper and issued an 
assessment notice to correct the error.

[¶18]   Amax argues that the Department of 
Revenue exercised its "appraisal judgment" to reach a fair-cash-market-value 
determination in the original assessments. Amax submits that the Department of 
Revenue allowed it to deduct its in-pit transportation costs in exchange for (1) 
the department using the standard rate of return instead of Amax's actual rate 
of return and (2) the department's failure to grant any return to Amax on its 
post-mine-mouth-transportation-equipment investment. The State Board of 
Equalization rejected Amax's "offset" argument, and so do 
we.

[¶19]   The Department of Revenue did not 
have authority to allow Amax to have a deduction for its in-pit transportation 
costs. The Department of Revenue is required to apply the applicable statutes 
and regulations. Fullmer v. Wyoming Employment Security Commission, 858 P.2d 1122, 1124 (Wyo. 1993) (citing Jackson v. State ex rel. Wyoming Workers' 
Compensation Division, 786 P.2d 874, 878 (Wyo. 1990)). In the words of the State 
Board of Equalization's order, the Department of Revenue did not have the 
"`flexibility' to ignore the law and rules on authorized 
deductions."

[¶20]   The mouth of the mine was the 
proper point of valuation for Amax's coal production. The State Board of 
Equalization's rules defined "mouth of the mine" as being "the place or point at 
which a mineral, except oil or gas, is brought to the surface of the ground 
after the mining is completed." RULES AND REGULATIONS, supra at § 4(h). The parties agree that 
the "top of the ramp" is considered to be the mouth of a surface coal mine. 

[¶21]   Concerning transportation and 
processing costs, the State Board of Equalization's rules 
provided:

(b) The Division shall consider whether the sales 
price includes the value of processing or transportation to market or both added 
after the mineral has passed beyond the mouth of the mine or 
wellhead.

(i) If the selling price includes such value, the 
Division shall deduct such value from the selling price to determine the fair 
cash market value of the mineral. . . .

. 
. . .

(e) The fair cash market value of a mineral shall not 
include direct and indirect costs attributable to processing or transportation 
to market.

RULES AND REGULATIONS, supra at § 10.

[¶22]   Under the relevant constitutional, 
statutory, and regulatory provisions, a taxpayer was entitled to have a 
deduction for post-mine mouth transportation costs, but in-pit transportation 
costs were part of the value of the mineral which was subject to assessment. The 
Department of Revenue erred when it originally allowed Amax to have a deduction 
for its in-pit transportation costs, and it properly corrected that error by 
issuing the additional assessment after the audit had been completed. See 
Wyoming State Tax Commission v. BHP Petroleum Company Inc., 856 P.2d 428, 435-39 
(Wyo. 1993). The adjusted assessment, therefore, reflected the fair cash market 
value of Amax's coal.

[¶23]   Amax contends that the Department 
of Audit exceeded the scope of its authority as "granted by Section 14 of the 
Rules which limited the auditors' role to verification of filed data." The State 
Board of Equalization ruled that the Department of Audit properly exercised its 
audit authority "as provided by law to examine returns, verify reported 
information, and determine whether taxable value for the years under audit was 
correctly calculated." We agree with the State Board of Equalization's 
determination.

[¶24]   WYO. STAT. § 39-1-304(a)(xiv) 
(1994) directs the State Board of Equalization to:

(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[.]

This Court construed § 
39-1-304(a)(xiv) in BHP Petroleum Company Inc. In that case, we stated: "This 
section provides for revaluation when it directs the State Board of Equalization 
to discover errors or unequally assessed taxes and remedy those errors." 856 P.2d  at 435-36.

[¶25]   The State Board of Equalization's 
rules and regulations set forth an audit procedure which helps the Board fulfill 
the directive contained in § 39-1-304(a)(xiv). RULES AND REGULATIONS, supra at § 14. The State Board of 
Equalization's rules provided in pertinent part:

(a) Financial data and other information prescribed 
by these rules and contained in reporting forms required to be filed with the 
Division is subject to audit examination by the Department. The purpose of such 
audit is to:

(i) Verify the accuracy of the financial data 
submitted by the taxpayer or operator as well as to determine whether such 
financial data is in accordance with generally accepted accounting principles; 
and

(ii) Verify the accuracy of all other data or 
information contained in the required reporting forms.

RULES AND REGULATIONS, supra at § 14(a). The rules also 
provided that, after the auditing process had been completed, the Department of 
Revenue was required to "determine whether the taxable value of mineral 
production for the year or years under audit [was] correct and make any 
appropriate adjustments to the taxable value." RULES AND REGULATIONS, supra at § 14(f)(ii). The Department of 
Revenue was then required to compute the taxpayer's severance tax liability and 
give notice to the taxpayer of any deficiency or overpayment. RULES AND 
REGULATIONS, supra at § 14(f)(iii). 
When we construe the relevant statutory and regulatory provisions together, it 
is apparent that the Department of Audit had the authority to conduct the audit 
and that the Department of Revenue and the State Board of Equalization had the 
responsibility to correct any errors which were encountered during that 
audit.

[¶26]   Amax also argues that the 
Department of Audit violated generally accepted audit standards when it failed 
to contact an "appraisal specialist" in the course of the audit. With regard to 
this issue, the State Board of Equalization stated:

We disagree with [Amax] concerning the significance 
of the role of "specialists." There is no evidence indicating the employees 
involved with the initial valuation of [Amax's] production were "specialists" 
when compared with the individuals involved in the audit and 
redetermination.

We agree with the State 
Board of Equalization. The mistakes which were discovered and corrected as a 
result of the audit were simple mathematical errors which could be and, indeed, 
were found by the auditors without them having to exercise any appraisal 
judgment in the process. It was not necessary for the auditors to contact 
appraisal specialists in this audit.

[¶27]   Amax argues that the State Board of 
Equalization denied Amax due process of law when the board excluded evidence of 
the standard and actual rates of return. We disagree. Since Amax had waived its 
right to object to the Department of Revenue's use of a standard rate of return 
instead of Amax's actual rate of return, any evidence on that issue was 
irrelevant to the issues properly before the State Board of Equalization at the 
contested case proceeding. WYO. STAT. § 16-3-108 (1990) directs administrative 
agencies to exclude irrelevant evidence from contested case hearings. The 
evidence offered by Amax was irrelevant because it did not have "any tendency to 
make the existence of any fact that [was] 
of consequence to the determination of the action more probable or less 
probable than it would be without the evidence." W.R.E. 401 (emphasis 
added).

[¶28]   As a related issue, Amax contends 
that the State Board of Equalization erred by requiring it to present its 
excluded evidence in a written offer of proof instead of allowing it to present 
its excluded evidence in an offer of proof through oral testimony. A party has 
the right to make an offer of proof about evidence which is excluded from a 
proceeding. See Contreras By and Through Contreras v. Carbon County School 
District # 1, 843 P.2d 589, 595 (Wyo. 1992); Vanover v. Vanover, 77 Wyo. 55, 67, 
307 P.2d 117 (1957). Section 16-3-108(a) provides in pertinent part: "[I]f the 
interests of the parties will not be prejudiced substantially[,] testimony may 
be received in written form subject to the right of cross-examination." Amax has 
failed to show how it was substantially prejudiced by the State Board of 
Equalization requiring it to present its offer of proof in writing instead of 
through oral testimony.

[¶29]   Amax argues that the record did not 
contain any evidence which would support the State Board of Equalization's 
findings of fact and conclusions of law with regard to the origins of the 
standard industry rate of return used in the net-back valuation formula. Since 
Amax waived its right to challenge the standard rate of return by failing to 
appeal from the original assessments, those findings and conclusions were 
gratuitous and were not essential to the State Board of Equalization's decision. 
"[A]n agency's action is arbitrary and capricious and must be reversed if any 
essential finding is not supported by substantial evidence." Majority of Working 
Interest Owners in Buck Draw Field Area v. Wyoming Oil and Gas Conservation 
Commission, 721 P.2d 1070, 1079 (Wyo. 1986) (emphasis added). The fact that Amax 
waived its right to challenge the standard rate of return is dispositive; 
therefore, we do not need to address whether the State Board of Equalization's 
alternative findings on the origins of the standard rate of return were 
supported by substantial evidence. 721 P.2d  at 1079 n. 7.

Conclusion

[¶30]   The State Board of Equalization did 
not commit any reversible error. Its findings of fact, conclusions of law, and 
order are, therefore,

[¶31]   Affirmed.

FOOTNOTES

1 Section 39-2-202(a) has since been 
amended to specify that the mineral product shall be valued at the mouth of the 
mine. 1990 WYO. SESS. LAWS ch. 53, § 2.

2 Amax argues that a 1991 settlement 
agreement between it and the Department of Revenue applies in this case. The 
settlement agreement provided: "Value added post mine mouth is not subject to ad 
valorem or severance taxation." Under the clear language of the settlement 
agreement, the agreement applies only to the 1988 and 1989 production years and, 
therefore, does not apply in this case.

3 Amax contends that it could not have 
appealed from the original assessments because, even though it did not agree 
with the method employed by the Department of Revenue to reach the final 
valuation, it agreed with the final value determination. This argument has no 
merit. Taxpayers have previously challenged valuation formulas on appeal. See, 
e.g., Amoco Production Company v. Wyoming State Board of Equalization, 882 P.2d 866 (Wyo. 1994); Amax, 819 P.2d 834; Hillard, 549 P.2d 293.