Title: Moncrief v. Wyoming State Bd. of Equalization

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Moncrief v. Wyoming State Bd. of Equalization1993 WY 95856 P.2d 440Case Number: 92-228Decided: 07/07/1993Supreme Court of Wyoming
W.A. 
MONCRIEF, Jr.; and BHP Petroleum Company, Inc., a Delaware 
corporation,

 Petitioners 
(Petitioners),

v.

WYOMING 
STATE BOARD OF EQUALIZATION and its members Nancy Freudenthal, 

Marvin 
Applequist and Terry Rubald,

 in their official capacities in the 
Wyoming Department of Revenue and Taxation, 

Respondents 
(Respondents).

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

Algirdas 
M. Liepas of Wiederspahn, Lummis & Liepas, P.C., Cheyenne, for M.A. 
Moncrief, Jr.

Robert 
T. McCue and William J. Thomson of Dray, Madison & Thomson, P.C., Cheyenne, 
for BHP Petroleum Co., Inc.

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

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

TAYLOR, 
Justice.

[¶1]      W.A. Moncrief, 
Jr. and BHP Petroleum Company, Inc. (Taxpayers) seek judicial review of an 
administrative determination rendered by the Wyoming State Board of Equalization 
(Board). Through an audit, the Wyoming Department of Revenue (Department) 
determined that the Taxpayers failed to include ad valorem tax reimbursements 
when valuing natural gas production for the years 1975 through 1986 for purposes 
of the state severance tax.1 The Department notified the 
Taxpayers of the additional severance tax and demanded payment, as well as 
interest, from the date the unpaid tax would have been due. The Taxpayers 
objected to the amount of interest, claiming that interest should not have 
accrued until after notice and demand were issued. On appeal, the Board affirmed 
the Department's interest calculations. The Taxpayers now seek review of the 
Board's decision. We affirm.

[¶2]      The Taxpayers 
present the issue as:

Did 
the Board of Equalization's decision that preassessment interest accrues on 
severance tax deficiencies constitute a reversible error of law?

[¶3]      The Department 
and the Board frame the issue as: 

For 
severance tax purposes, where the taxpayer has failed to report elements of 
value in a self-assessment system, should interest be assessed from the date the 
taxes should have been paid in the first instance or from the date the taxpayer 
was notified of a deficiency?

BACKGROUND 
AND PROCEEDINGS

[¶4]      The Department 
conducted an audit of the sales of natural gas produced from the Madden Deep 
Unit, located in Fremont and Natrona Counties, Wyoming.2 Through the audit, the Department 
discovered that the Taxpayers, when valuing their natural gas production for 
purposes of the state's severance tax during the years 1975 to 1986, neglected 
to include the value of ad valorem tax reimbursements.3 Based on the audit information, the 
Department assessed both Taxpayers additional severance tax on the value of the 
reimbursements and charged interest from the date the tax was originally due.4 Both Taxpayers objected to the 
additional assessment and filed an appeal before the Board.

[¶5]      On appeal to the 
Board, the Taxpayers solely objected to the imposition of interest from the date 
the tax would have been due, arguing that interest should have accrued only from 
the date of notice of the additional tax. On May 19, 1992, the Board issued an 
order, including findings of fact and conclusions of law, which affirmed the 
Department's interest calculation. On June 18, 1992, the Taxpayers filed 
petitions for judicial review in the district court. Their individual appeals to 
the Board were later consolidated by stipulation and order. On October 21, 1992, 
the district court entered an order certifying the cases to this 
court.

DISCUSSION

STANDARD 
OF REVIEW

[¶6]      Since the Board's 
decision was certified to this court through W.R.A.P. 12.09, "we review the 
decision `under the appellate standards applicable to a reviewing court of the 
first instance.' Amax Coal v. State Bd. of Equalization, 819 P.2d 825, 828 (Wyo. 
1991) (quoting Application of Campbell County, 731 P.2d 1174, 1175 (Wyo. 
1987))." Schulthess v. Carollo, 832 P.2d 552, 556 (Wyo. 1992). The Taxpayers and 
the Department agree that this appeal is concerned only with a review of the 
Board's conclusions of law. Therefore, we must determine if the Board's 
conclusions are in accordance with law. Union Pacific R. Co. v. Wyoming State 
Bd. of Equalization, 802 P.2d 856, 860-61 (Wyo. 1990).

STATUTORY 
INTERPRETATION

[¶7]      The Taxpayers' 
position is that the Board's interpretation of Wyo. Stat. § 39-6-307(c) (1985), 
and its predecessors, is not in accordance with law. Wyo. Stat. § 39-6-307(c), 
which was in effect during the production years of 1981 to 1986, provided that 
"[i]nterest at the rate of eighteen percent (18%) per annum shall be added to 
all delinquent taxes."5 (Emphasis added.) The thrust of the 
Taxpayers' argument is that the additional unpaid tax discovered by the 
Department's audit did not become delinquent until after the Taxpayers were 
notified in 1988 and 1990 that they owed additional tax. The Taxpayers maintain 
that the additional tax was unassessed until the Department's audit and that 
their original valuations, which neglected the ad valorem reimbursements, were 
simply deficient. Thus, because the unpaid additional tax was merely deficient 
and not delinquent, then Wyo. Stat. § 39-6-307(c), and its predecessors, did not 
permit interest charges until after notice of the additional tax.

[¶8]      The Department, 
on the other hand, fully supports the conclusions of the Board as set out in the 
Board's order of May 19, 1992:

7. 
By statute, each mineral severance taxpayer has at least three obligations: (a) 
to fully and accurately report all production volumes; (b) to fully and 
accurately report all value (price) received for the mineral product at the 
completion of mining consistent with statutes, rules, instructions and 
recognized appraisal principles; and (c) to pay no less than the tax computed by 
the Department based upon its initial assessment. The State as well has at least 
three obligations: (a) to reasonably review taxpayer information received, and 
notify the taxpayer of any apparent errors; (b) to follow the laws, rules, 
instructions and recognized appraisal principles in the valuation of the 
product; and (c) to notify the taxpayer of the value and the tax 
due.

8. 
If there are unauthorized acts, errors or omissions by the taxpayer in 
fulfilling its obligation to report production volumes and price (value), the 
discovery of which by the Department may lead to a severance tax assessment, 
said assessment is properly characterized as a delinquent tax. * * * Any 
undervaluation in this situation results in delinquent tax, thus interest 
accrues from the date the taxes were originally due.

[¶9]      When interpreting 
statutes, we follow an established set of guidelines. First, we determine if the 
statute is ambiguous or unambiguous. "A `statute is unambiguous if its wording 
is such that reasonable persons are able to agree to its meaning with 
consistence and predictability.'" Parker Land and Cattle Co. v. Wyoming Game and 
Fish Com'n, 845 P.2d 1040, 1043 (Wyo. 1993) (quoting Allied-Signal, Inc. v. 
Wyoming State Bd. of Equalization, 813 P.2d 214, 220 (Wyo. 1991)). "A statute is 
ambiguous if its meaning is uncertain, doubtful, or if a single term can fairly 
be said to mean different things." Amoco Production Co. v. State, 751 P.2d 379, 
381 (Wyo. 1988). We determine whether a statute is ambiguous or not by "`inquiry 
respecting the ordinary and obvious meaning of the words employed according to 
their arrangement and connection.'" Parker Land and Cattle Co., 845 P.2d  at 1042 
(quoting Rasmussen v. Baker, 7 Wyo. 117, 133, 50 P. 819, 823 
(1897)).

[¶10]   Although the initial fourteen words 
of Wyo. Stat. § 39-6-307(c) are concise and clear in their purpose, that clarity 
is clouded by the final two words, "delinquent taxes." Neither the terms 
delinquent nor delinquent tax are defined within the Wyoming tax 
statutes; therefore, we look for their plain and ordinary meaning. 
Delinquent, when used as an adjective, has primarily two meanings. First, 
it is said to mean "due and unpaid at the time appointed * * *." Black's Law 
Dictionary 428 (6th ed. 1990). See also Webster's Third New International 
Dictionary 597 (1971). Second, the term also refers to "failing in duty * * * 
offending by neglect or violation of duty or of law." Webster's, supra, at 
597.

[¶11]   Upon careful review of the language 
of the severance tax statutes, which existed at the time the Taxpayers neglected 
to include the value of reimbursements, it is unclear whether delinquent 
was intended to encompass only one of these meanings or both. Since the original 
Wyoming severance tax was enacted, delinquent has been used in several 
sections.

[¶12]   In 1975, the statutes 
stated:

The 
tax levy provided for by W.S. 39-227.1 through 39-227.11 [Severance Tax Act], is 
payable to the department of revenue and taxation of Wyoming annually, on July 
1, and is delinquent if unpaid by September 1. The amount of the tax shall be 
computed upon the gross production for the preceding calendar year, as described 
in W.S. 39-227.1:1.

Wyo. 
Stat. § 39-227.2 (1975 Cum.Supp.) (emphasis added).

[¶13]   Wyo. Stat. § 39-6-304 (1985) 
provided, in part:

(a) 
Except as provided in subsection (c) of this section, each taxpayer liable for a 
tax under W.S. 39-6-302 or 39-6-303 shall remit quarterly tax payments to the 
department. The payment shall be determined by the taxpayer based on actual 
production during the quarter, values computed in accordance with subsection (b) 
of this section and the tax rates prescribed in this article. The quarterly tax 
payments are due and delinquent if not paid:

(i) 
On or before May 15 for production during the first quarter of the current 
calendar year;

(ii) 
On or before August 15 for production during the second quarter of the current 
calendar year;

(iii) 
On or before November 15 for production during the third quarter of the current 
calendar year; and

(iv) 
On or before March 1 for production during the fourth quarter of the preceding 
calendar year.

* 
* * * * *

(e) 
The balance is due and delinquent if not paid to the department thirty 
(30) days after the taxpayer receives the notice under subsection (d) of this 
section.

(Emphasis 
added.)

[¶14]   Based on these statutes, it is 
unclear whether a tax was delinquent only when unpaid at the due date or also 
when the taxpayer failed in its duty to properly value gross production. Thus, 
we find that Wyo. Stat. § 39-6-307(c), and its predecessors, are ambiguous 
concerning what constituted a delinquent tax because the term could 
"fairly be said to mean different things." Amoco Production Co., 751 P.2d  at 
381.

[¶15]   When a statute is subject to 
different meanings, we "`will resort to general principles of statutory 
construction in the effort to ascertain legislative intent.'" Parker Land and 
Cattle Co., 845 P.2d  at 1044 (quoting Story v. State, 755 P.2d 228, 231 (Wyo. 
1988), cert. denied, 498 U.S. 836, 111 S. Ct. 106, 112 L. Ed. 2d 76 (1990)). In 
addition, "[w]hen construing an ambiguous term in a statute, it is helpful to 
consider the historical setting at the time of enactment, public policy of the 
State, the purpose of the statute, and the mischief to be cured." Amoco 
Production Co., 751 P.2d  at 384.

[¶16]   Using the foregoing principles, we 
conclude, as did the Board, that the legislature intended delinquent tax 
to include the tax which went unpaid at the statutorily designated date for 
payment because the taxpayer simply neglected to pay or because the taxpayer 
failed in its duties as directed by the statute. Therefore, the proper 
construction of Wyo. Stat. § 39-6-307(c) permits the Department to charge 
interest on severance tax which was not paid due to a taxpayer's violation or 
neglect of duty.

[¶17]   Several firmly rooted rules of 
construction lend support to this interpretation. First, and foremost, we afford 
"great deference" to the Board, as the agency which administers the severance 
tax statutes, in the construction of these statutes. Wyoming Min. Ass'n v. 
State, 748 P.2d 718, 722 (Wyo. 1988). Therefore, the agency's interpretation 
will control unless it is clearly erroneous. Parker Land and Cattle Co., 845 P.2d  at 1045. The Board's interpretation here was not clearly 
erroneous.

[¶18]   Second, where the legislature, by 
subsequent amendment or legislation in the same act or on the same subject, 
enacts language which clarifies previously ambiguous language, the subsequent 
language gives meaning to the previously ambiguous expression. State Bd. of 
Equalization v. Stanolind Oil & Gas Co., 54 Wyo. 521, 540, 94 P.2d 147, 153 
(1939). See also Osborne v. Consolidated Judicial Retirement System of North 
Carolina, 333 N.C. 246, 424 S.E.2d 115, 117 (1993) (subsequent legislation 
clarifying previous legislation is an aid to statutory construction). In 1991, 
the Wyoming Legislature enacted Wyo. Stat. § 39-2-214(f) (1992 Cum.Supp.), which 
provides as follows:

Taxes 
are delinquent pursuant to W.S. 39-3-101(b) and 39-6-307(c) when a taxpayer or 
his agent knew or reasonably should have known that the total tax liability was 
not paid when due.

In 
light of this rule of construction, the subsequent enactment, defining a 
delinquent tax, clearly supports the Board's interpretation.

[¶19]   Additional support for the Board's 
interpretation can be found when considering the mischief the statute was 
intended to cure and public policy. The general nature of interest is "as 
compensation for the use of money, or as a penalty, or it may constitute a part 
of the tax." 85 C.J.S. Taxation § 1054(c) at 638 (1954). In this instance, the 
interest was intended as compensation for the use of money and not as a penalty 
because penalties were already provided for in Wyo. Stat. § 39-6-307(a) and 
(b).6 The Taxpayers' interpretation would 
be contrary to the purpose of this interest statute because a taxpayer who 
neglects to report the full value of his or her taxable product would obtain the 
free use of the unpaid tax money which should have been transmitted to the 
Department on the due date.

[¶20]   Public policy also supports the 
Board's interpretation. In its brief to this court, the Department succinctly 
described the most persuasive argument:

If, 
as suggested by [Taxpayers], all taxpayers could intentionally undervalue the 
mineral and make an inaccurate payment on the undervaluation for severance tax 
purposes without fear of paying interest upon discovery, there would be no 
reason for the taxpayer to make the correct payment. In fact, from an economic 
standpoint, taxpayers would be foolish to make an accurate payment when they 
could make the correct payment in the future without any adjustment for the time 
value of the money. It is clearly a bonus to the taxpayers to be allowed to pay 
1981 taxes with 1990 dollars.

[¶21]   Next, we must determine whether the 
Taxpayers neglected or failed in some statutory duty when they undervalued 
production for the tax years of 1975 through 1986. To accomplish this task, we 
must again look to the various statutes which controlled payment of severance 
tax during those years.

[¶22]   Since the severance tax was enacted 
in 1969, it has been a self-assessment system. The taxpayer has always been 
required to value and then report gross production, whether yearly or quarterly, 
for purposes of the severance tax. See Wyo. Sess. Laws ch. 193 § 3 (1969); Wyo. 
Stat. § 39-227.3 (1975 Cum.Supp.); and Wyo. Stat. § 39-6-304(a). Until 1981, the 
statutes required essentially:

Every 
person, partnership, corporation, company, firm or association of whatever 
nature, extracting any of the products hereinabove described shall be required 
to report the gross production for the preceding calendar year, together with 
such information as shall be requested to determine the value thereof, to the 
department of revenue and taxation not later than the second Monday in February 
in each and every year, and shall be liable for the payment of the tax assessed 
thereon.

Wyo. 
Stat. § 39-227.3.

[¶23]   Beginning in 1981 and running 
through 1986, the statutes provided, in part:

     (a) Except as provided 
in subsection (c) of this section, each taxpayer liable for a tax under W.S. 
39-6-302 or 39-6-303 shall remit quarterly tax payments to the department. The 
payment shall be determined by the taxpayer based on actual production during 
the quarter, values computed in accordance with subsection (b) of this section 
and the tax rates prescribed in this article. * * *

* 
* * * * *

(b) 
On or before April 1 of each year the board shall furnish each known taxpayer 
under this article a basis for computing the value of his product as prescribed 
in W.S 39-2-202 and 39-6-301. The department may revise a basis as necessary and 
shall furnish the revised basis to each known taxpayer. A taxpayer shall not use 
less than the most recent basis furnished under this subsection in computing his 
quarterly payments.

Wyo. 
Stat. § 39-6-304.

[¶24]   We agree with the Board's 
conclusion that the Taxpayers' failure to include the value of ad valorem tax 
reimbursements in their required quarterly or yearly computations caused the tax 
to be delinquent as contemplated by Wyo. Stat. § 39-6-307(c), and its 
predecessors. As we said in Enron Oil & Gas Co. v. Department of Revenue and 
Taxation, State of Wyo., 820 P.2d 977, 982 (Wyo. 1991):

[I]t 
is evident that the value of the gas to purchasers is not just the price of the 
gas itself. Purchasers, at least in the instances that are at issue here, are 
clearly willing to pay not only the maximum price permitted by the NGPA [Natural 
Gas Policy Act7], but also a price enhanced by the 
reimbursements of both the severance and ad valorem taxes assessed by the State 
of Wyoming.

We 
reaffirm this statement and specifically conclude that the Taxpayers' neglect of 
ad valorem tax reimbursements in computing the value of gross production was a 
failure to perform their duty under the law. Therefore, the unpaid tax was 
delinquent.

[¶25]   In reaching this conclusion, we are 
mindful of the exhibits presented by the Department which demonstrate that, over 
the years, documents were provided to the Taxpayers which instructed the 
Taxpayers to include tax reimbursements as part of value. In fact, from 1981 
forward, the Department furnished each Taxpayer with the Wyo. Stat. § 
39-6-304(b) basis explaining what to include for quarterly tax payment 
calculation. Those documents clearly expressed that "tax reimbursements" were to 
be included. In addition, on forms used by the Department and provided to the 
Taxpayers before 1981, it was clearly printed that: (1) the value of gross 
production included "100% of proceeds" received by the producers, and (2) gross 
sales included tax reimbursements. If a purchaser paid a producer a price which 
exceeded the federal maximum due to ad valorem tax reimbursements, then the 
value of the reimbursements represents a portion of "100% of 
proceeds."

[¶26]   The Taxpayers make several 
additional arguments in support of their position that the Board's decision was 
not in accordance with law. Each of these additional arguments rely on a single 
key premise - that the additional tax was not assessed until after the 
Department's discovery. Because we find this premise to be incorrect, each of 
these arguments fail.

[¶27]   The Taxpayers correctly assert the 
proposition that assessment is an essential step in the taxing process. 3 Thomas 
M. Cooley, The Law of Taxation, § 1045 at 2116 (1924). The Taxpayers, however, 
fail to recognize that "no assessment is necessary where the statute itself 
prescribes the amount to be paid * * *." Id. at 2118. See also Morrison-Knudson 
Co. v. State Board of Equalization, 58 Wyo. 500, 528-29, 135 P.2d 927, 938 
(1943) (with certain taxes, the statute itself makes the assessment and the 
taxing authority need not make any further assessment).

[¶28]   In this case, the severance tax 
statutes and the actions of the Department accomplished the necessary assessment 
and left the Taxpayers without discretion. The Taxpayers were apprised that tax 
was due on the tax reimbursements and the amount due because: (1) the statutes 
required the Taxpayers to value and report gross production and expressly 
provided the percent to be paid on that value, and (2) the Department explained 
to each Taxpayer the proper method of valuing gross production. The following 
words of Justice Blume describe our position:

Presumably, 
the taxpayer knows as well as, or better than, the State Board of Equalization, 
what taxes are due. The statute itself makes the assessment, and none is made or 
required to be made by the Board except in cases in which the taxpayer is 
delinquent in his duties.

Morrison-Knudson 
Co., 58 Wyo. at 528-29, 135 P.2d  at 938. Hence, because tax on the value of ad 
valorem tax reimbursements was expressly assessed through the severance tax 
statutes, all of the Taxpayers' arguments, which rely on the premise that the 
additional tax was unassessed until after the audit, must fail.

DISPOSITION

[¶29]   To conclude, we affirm the Board's 
order because: (1) its interpretation of the meaning of delinquent taxes was in 
accordance with law; (2) the Taxpayers' undervaluation of their gross product 
was a neglect of their duty and resulted in a delinquent tax; and (3) the 
Department acted within the law when it imposed interest under Wyo. Stat. § 
39-6-307(c) and predecessor statutes.

FOOTNOTES

1 
Moncrief was assessed additional taxes and interest for the years 1979-1986, 
while BHP was assessed taxes and interest for the years of 
1975-1986.

2 
Over the past several years, this large federal oil and gas unit has not only 
produced significant amounts of natural resources but it also has contributed 
generously to this court's case load. For an explanation of the unit agreement, 
the interested parties and the geography of this unit, see BHP Petroleum Co., 
Inc. v. State, 784 P.2d 621, 623 n. 3 (Wyo. 1989). Other cases evolving from 
this oil and gas unit include: Wyoming State Tax Com'n v. BHP Petroleum Co., 
Inc., 856 P.2d 428 (Wyo. 1993); Moncrief v. Louisiana Land and Exploration Co., 
___ P.2d ___ (Wyo. 1993) (

Nos. 
92-23 & 92-24, decided 2/23/93) (reh'g granted 3/16/93); BHP Petroleum Co., 
Inc. v. Okie, 836 P.2d 873 (Wyo. 1992); Enron Oil & Gas Co. v. Department of 
Revenue and Taxation, State of Wyo., 820 P.2d 977 (Wyo. 1991); Moncrief v. Sohio 
Petroleum Co., 775 P.2d 1021 (Wyo. 1989); and BHP Petroleum Co., Inc. v. State, 
Wyoming Tax Com'n, 766 P.2d 1162 (Wyo. 1989).

3 
Tax reimbursements are paid by oil and gas purchasers who purchase the product 
directly from the oil and gas producer. The federal government sets a maximum 
price for the first sale of natural gas. The producer, however, may sell at a 
price above the federal maximum to cover the cost of state oil and gas taxation. 
Thus, a natural gas producer receives a tax reimbursement when he or she sells 
natural gas at a price over the federal maximum in order to recover the cost of 
state tax liability. See Enron Oil & Gas Co., 820 P.2d  at 
979-80.

4 
Moncrief's additional severance tax, as assessed on January 26, 1990, totaled 
$1,166,444.00 with $909,092.00 in interest. BHP's additional severance tax, as 
assessed on July 22, 1988, totaled $879,057.00 with $662,049.00 in 
interest.

5 
For production years 1975-1981, Wyo. Stat. § 39-6-307(c) (1977), and its 
predecessor, Wyo. Stat. § 39-227.8 (1975 Cum.Supp.), provided for eleven percent 
interest per year.

6 
Wyo. Stat. § 39-227.8 also provided for penalties.

7 
15 U.S.C. § 3301 et seq. (1982) (federal statutes regulating the natural gas 
industry).