Title: Texaco, Inc. v. State Bd. of Equalization

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Texaco, Inc. v. State Bd. of Equalization1993 WY 8845 P.2d 398Case Number: 92-138Decided: 01/14/1993Supreme Court of Wyoming
 
 
TEXACO, 
INC.,

Petitioner,

v.

STATE BOARD OF 
EQUALIZATION for the State of Wyoming,

Respondent.

 
 

Appeal from 
District 
Court 
of 
Laramie 
County, Nicholas G. Kalokathis, 
J.

Richard E. Day, 
Stephenson D. Emery, and Richard L. Williams of Williams, Porter, Day & 
Neville, P.C., Casper, and John T. McKenna of Texaco Inc., Universal City, CA, 
for petitioner.

Joseph B. Meyer, 
Atty. Gen., and Michael L. Hubbard, Sr. Asst. Atty. Gen., for respondent.

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

MACY, Chief 
Justice.

[¶1]      This is an appeal 
from the State Board of Equalization's order denying Texaco, Inc.'s request to 
offset its tax overpayments against its severance tax assessments.

[¶2]      We 
affirm.

[¶3]      Texaco describes 
these issues:

1. Did the Board Of 
Equalization Err In Finding That Texaco's Claim For Credit By Virtue Of 
Overpayment Of Severance Taxes Was Barred By § 39-6-304(g) Of The Wyoming 
Statutes (1977)?

2. Did The Board Of 
Equalization Err In Finding That § 39-2-214(e) Of The 
Wyoming Statutes (1977) Was Not 
To Be Applied Retroactively?

[¶4]      The Board 
condenses its summary of the argument into this query:

Does 
Wyoming law permit an offsetting 
credit for severance tax purposes discovered as part of a comparison of records 
filed by the taxpayer with two separate state agencies?

Facts

[¶5]      The issues raised 
in this appeal originated when the Department of Revenue and Taxation sent tax 
notices to Texaco indicating that it had underpaid its taxes for the years 1981, 
1982, 1984, 1985, and 1987 (the notices required Texaco to pay taxes, penalties, 
and interest of $10,050.58, $22,241.68, $15,444.70, $9,585.94, and $1,391.98 for 
those years, respectively). The Department of Revenue based these notices on 
information generated by a contract auditor's reviews of Texaco's mineral 
production in Fremont and 
Washakie 
Counties. See Union Pacific 
Resources Company v. State, 839 P.2d 356 (Wyo. 1992), for a complete 
discussion of such contract audits. Texaco filed objections to these 
assessments, and a hearing was scheduled.

[¶6]      At the time of 
the hearing, Texaco refined its contentions into this summary:

As a result of various 
contract audits, the Department of Revenue and Taxation assessed additional 
taxable value to Texaco for various tax years. Texaco does not challenge the 
methods by which the increased assessments were obtained, or the amounts 
themselves. Texaco contends, however, that it is not liable for payment of 
additional severance taxes insofar as Texaco is entitled to credits from the 
Department of Revenue and Taxation that should offset any additional severance 
tax liability.

The Board 
concluded that Texaco was not entitled to the contested credits. Texaco filed a 
petition for review in the district court, and the district court certified the 
matter to this Court.

Standard of 
Review

[¶7]      The Board is an 
administrative agency whose actions are governed by the Wyoming Administrative 
Procedure Act. Wyo. Stat. § 16-3-101(b)(i) 
(1990). The scope of review of an agency action is established in Wyo. Stat. § 
16-3-114(c) (1990):

(c) To the extent 
necessary to make a decision and when presented, the reviewing court shall 
decide all relevant questions of law, interpret constitutional and statutory 
provisions, and determine the meaning or applicability of the terms of an agency 
action. In making the following determinations, the court shall review the whole 
record or those parts of it cited by a party and due account shall be taken of 
the rule of prejudicial error. The reviewing court shall:

(i) Compel agency action 
unlawfully withheld or unreasonably delayed; and

(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.

Further, our 
standard of review encompasses these principles:

When an administrative 
agency case is certified to this court under W.R.A.P. 12.09, we must review the 
decision "under the appellate standards applicable to a reviewing court of the 
first instance." Application of Campbell 
County, 731 P.2d 1174, 1175 
(Wyo. 1987).

Our review of an 
administrative agency decision is a two step process. First, we review the 
record taken as a whole to determine whether the agency's findings of fact are 
supported by substantial evidence. Substantial evidence is relevant evidence 
which a reasonable mind might accept in support of the conclusions of the 
agency. In reviewing an agency decision, we allow room for the agency to 
implement and administer its statutory responsibilities. The burden is on the 
appellant to demonstrate that the agency findings are not supported by 
substantial evidence.

Second, we ask if the 
conclusions of law made by the agency are in accordance with law. We summarized 
our standard for reviewing agency conclusions of law in Employment Sec. Com'n of 
Wyoming v. Western Gas Processors, Ltd., 786 P.2d 866, 871 (Wyo. 
1990):

"When we review agency 
conclusions of law, we are alert to three possibilities. The agency may 
correctly apply [its] findings of fact to the correct rule of law. In such case, 
the agency's conclusions are affirmed. But the agency could apply [its] findings 
of fact to the wrong rule of law or [it] could incorrectly apply [its] findings 
of fact to a correct rule of law. In either case, we correct an agency 
conclusion to ensure accordance with law. Our standard of review for any 
conclusion of law is straightforward. If the conclusion of law is in accordance 
with law, it is affirmed; if it is not, it is to be corrected."

Amax Coal 
Company v. Wyoming State Board of Equalization, 819 P.2d 825, 828-29 
(Wyo. 1991) (some citations 
omitted). 

Discussion

[¶8]      During the years 
1981 through 1987, Wyo. Stat. § 39-6-304(g) (1985) was continuously in force. It 
provided:

(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.

Texaco did not seek a 
refund of its overpayment of taxes pursuant to this statute. Section 39-6-304(g) 
was repealed effective January 1, 
1989. The Legislature made 
the following provisions, which are pertinent to our decision in this 
case:

Section 
2. W.S. 
39-6-304(a)(i) through (iv), (b), (d), (e) and (g) is repealed.

Section 3. W.S. 39-6-301 through 
39-6-307 as they were in effect prior to January 
1, 1989 apply to production 
during the calendar year of 1988.

Section 4. To implement the self 
assessment provisions of this article, and to provide taxpayers with clear 
reporting guidelines, prior to January 
1, 1989 the department shall 
convert administrative valuation procedures into rules consistent with the 
Wyoming Administrative Procedure Act.

Section 
5. This 
act is effective January 1, 
1989.

1988 
Wyo. Sess. Laws ch. 90. In 
the same bill which repealed § 39-6-304(g), the Legislature created subsection 
(n) of § 39-6-304:

(n) If a taxpayer has 
reason to believe that taxes imposed by this article have been overpaid, a 
request for refund shall be filed with the department on forms it prescribes 
prior to the end of the fifth calendar year following the calendar year which 
included the month for which overpayment was made. Refunds of two thousand 
dollars ($2,000.00), or less may be applied to subsequent payments for taxes 
imposed by this article. Requests for refunds exceeding two thousand dollars 
($2,000.00) shall be approved in writing by the department prior to the taxpayer 
receiving credit. All refunds granted are subject to modification or revocation 
upon audit.

Texaco made no 
application for a refund under this statute.

[¶9]      Texaco asserts 
that these statutes are no longer applicable. It claims that the Legislature 
enacted Wyo. Stat. § 39-2-214 (Supp. 1992) in 1991 and intended for subsection 
(e) of that statute to have a retroactive effect. Section 39-2-214 provides in 
pertinent part:

§ 39-2-214. Valuation 
amendments and limitation period.

(a) Effective until March 
1, 1994, the department is authorized to rely on final audit findings under W.S. 
9-2-2003, taxpayer amended returns or department review, and to certify mine 
product valuation amendments for production in calendar year 1985 and 
thereafter, to the county assessor of the county in which the property is 
located, to be entered upon the assessment rolls of the county and taxes 
computed and collected thereon subject to appeal under subsection (g) of this 
section.

(b) Commencing March 1, 
1994, the department is authorized to rely on final audit findings, taxpayer 
amended returns or department review, and to certify mine product valuation 
amendments to the county assessor of the county in which the property is 
located, to be entered upon the assessment rolls of the county and taxes 
computed and collected thereon subject to appeal under subsection (g) of this 
section, provided that the audit or review commences or return is filed within 
five (5) years from the date the production should have been or was reported 
pursuant to W.S. 39-2-201(b)(i), whichever is later.

(c) The department is 
authorized to rely on final audit findings, taxpayer amended returns or 
department review, and to assess deficient severance tax payments, interest and 
penalty, if any, for the same periods governing mine product valuation 
amendments pursuant to subsections (a) and (b) of this section. 

(d) All audits or 
department reviews, as applicable, pursuant to subsections (a), (b) and (c) of 
this section are subject to the following conditions:

(i) Audits are commenced 
when the taxpayer receives written notice of the intended action;

(ii) Prior to entering 
the premises of a taxpayer or third party, the taxpayer or third party shall be 
provided at least fourteen (14) days written notice;

(iii) Audits are 
completed when the final findings are issued to the taxpayer by the department 
of audit;

(iv) Unless otherwise 
agreed to in writing, audits shall be completed and the final audit findings 
issued to the taxpayer not later than the end of the month two (2) years after 
the audit is commenced;

(v) Any assessment or 
levy, including the assessment of a penalty and interest, if any, resulting from 
final audit findings or department review shall be issued within one (1) year 
following the completion of the audit or review;

(vi) Upon receipt of 
department review findings, the taxpayer shall have sixty (60) days in which to 
submit a response.

(e) The taxpayer is 
entitled to receive an offsetting credit for any overpaid gross product or 
severance tax identified by an audit that is within the scope of the audit 
period, without regard to the limitation period for requesting refunds. In 
calculating interest and penalty, the department or board of county 
commissioners shall first compute a net deficiency amount after subtracting any 
offsetting credit and then calculate any interest and penalty due.

(Emphasis 
added.) This statute became effective on March 
11, 1991. 1991 
Wyo. Sess. Laws ch. 257, § 3. 
Section 2 contains this language:

Section 2. W.S. 39-2-214(a) 
through (d) as created by this act does not limit or affect audits that have 
been commenced, audit findings that have been issued, or mine product valuation 
amendments which have been filed with or approved by the state board of 
equalization or the department prior to the effective date of this act. This act 
does not prohibit any county from conducting or contracting for future audits or 
examinations regarding mine product valuation. This act is not intended to be a 
grant of any additional powers to counties regarding mine product valuations. 
Any audit or examination which has not commenced as of the effective date of 
this act, conducted by or contracted for by a county, shall be subject to the 
provisions of this act.

1991 
Wyo. Sess. Laws ch. 257, § 2. 
Because section 2 does not include subsection (e) in its terms, Texaco contends 
that the Legislature intended for it to apply retrospectively. The Board, on the 
other hand, asks that we treat the so-called "desk-reviews" conducted by the 
contract auditors as being something other than an audit and, thus, avoid the 
concern with the retroactivity of § 39-2-214 altogether. We choose to decide 
this case on the basis of retrospective application of the statute, without 
avoiding that issue as the Board suggests. We conclude that it is unmistakably 
clear that the Legislature intended for § 39-2-214(e) to apply prospectively 
only. Reading the statute as a whole, we perceive that the Legislature used 
language which is unambiguous; it created a more level playing field for 
taxpayers in only those matters which are clearly within its ambit. See Meridian 
Aggregates Company v. Wyoming State Board of Equalization, 827 P.2d 375 
(Wyo. 1992) (citing Belco 
Petroleum Corporation v. State Board of Equalization, 587 P.2d 204 
(Wyo. 1978)). Not entirely 
unlike the situation in Meridian Aggregates Company, if we were to adopt the 
retroactive application contended for by Texaco, we would create an inequity for 
the Department and the Board, as well as the treasury of this state, which the 
Legislature could not have intended absent a forthright statement to that 
effect. Texaco has not applied for any refunds, so we do not need to address 
what effect the statutes pertaining to refunds might have, other than to 
recognize that those statutes are applicable except to the extent that future 
proceedings under § 39-2-214 might obviate their applicability. See Amoco 
Production Company v. Wyoming 
State Board of Equalization, 
797 P.2d 552 (Wyo. 1990).

[¶10]   Texaco takes a stab at making an 
argument sounding in equity; i.e., that, as a matter of equity or fairness, 
Texaco ought to be able to offset such past overpayments, even though the 
applicable statutes do not otherwise permit it. Texaco may still have an 
adequate remedy at law pursuant to § 39-2-214 because an audit of its tax 
liabilities is presently in process which could reach tax years 1981 and 
forward. Under such circumstances, this Court will not invoke equity. Colorado 
Interstate Gas Company v. Natural Gas Pipeline Company of 
America, 842 P.2d 1067, 1072 
(Wyo. 1992). Texaco also 
asserts that the root of the problem is the Board's refusal to recognize the 
difference between a refund and a "credit (recoupment)." Before the enactment of 
§ 39-2-214(e), the statutes provided Texaco with a remedy in the form of a 
refund. That statute now provides the opportunity for Texaco to receive 
"offsetting credits" if they arise in proceedings within the ambit of that 
statute. No need exists in this case for this Court to refine the distinctions 
between "refund," "credit," and "offset."

[¶11]   Because Texaco has an opportunity 
to obtain an offsetting credit in an audit which is now ongoing, the cases of 
Bull v. United States, 295 U.S. 247, 55 S. Ct. 695, 79 L. Ed. 1421 (1935), and 
National Cash Register Co. v. Joseph, 299 N.Y. 200, 86 N.E.2d 561 (N.Y.Ct.App. 
1949), are not applicable to the resolution of this case. See also 20 AM.JUR.2D 
Counterclaim, Recoupment, and Setoff § 113 (1965). In brief, the Bull case held 
that withholding a taxpayer's refund amounted to fraud in a suit where the 
United States sought to impose additional taxes outside the limitations period 
for applying for a refund and that, where those additional taxes arose out of 
the same "transaction," not permitting an offset offended "natural justice and 
equity." Bull, 295 U.S.  at 261, 55 S. Ct.  at 700. 
The taxpayer in Bull was entitled to recoupment even though the limitations 
period for a refund expired. The Bull case has been distinguished, explained, 
and questioned just short of death. See, e.g., 
United 
States v. Dalm, 494 U.S. 596, 110 S. Ct. 1361, 108 L. Ed. 2d 548 (1990); and Harman's of Idaho, Inc. v. Idaho State Tax Commission, 
760 P.2d 1156 (Idaho 1988). Bull and its 
progeny may have some residual viability, particularly in federal tax 
litigation, but we decline to consider it further in this matter. If the 
"inequity" which Texaco conjured up for this Court's consideration comes to 
pass, we will give the Bull theory more attention at that time.

[¶12]   Affirmed.