Title: AMOCO PRODUCTION COMPANY v. WYOMING STATE BOARD OF EQUALIZATION

State: wyoming

Issuer: Wyoming Supreme Court

Document:

AMOCO PRODUCTION COMPANY v. WYOMING STATE BOARD OF EQUALIZATION2001 WY 115 P.3d 728Case Number: 00-17Decided: 01/05/2001
OCTOBER TERM, A.D. 2000

January 5, 2001

AMOCO PRODUCTION 
COMPANY, Appellant (Petitioner)v.WYOMING STATE BOARD OF EQUALIZATION; EDMUND 
SCHMIDT, in his official capacity as Chairman, Board of Equalization; ROBERTA A. 
COATES, in her official capacity as Vice Chairman, Board of Equalization; RONALD 
ARNOLD, in his official capacity as a member of the Board of Equalization; and 
DARRELL STUBBS, in his official capacity as Carbon County 
Assessor, Appellees (Respondents)

W.R.A.P. 12.09 
Certification
from the District Court of Laramie 
County      

The Honorable Nicholas Kalokathis, 
Judge    

Representing Appellant: 

John L. Bordes Jr. of Oreck, Bradley, 
Crighton, Adams & Chase, LLC, Boulder, CO. Argument by Mr. 
Bordes.

Representing 
Appellee:
Thomas A. Thompson, Carbon County 
Deputy Civil Attorney, Rawlins, WY. Argument by Mr. Thompson.

Before LEHMAN, C.J., and THOMAS, 
GOLDEN, HILL, and KITE, JJ.

[¶1] Amoco Production Company (Amoco) 
challenges the assessment and taxation of underground oil flow lines as personal 
property. We find that the Carbon County Assessor properly categorized the flow 
lines as personal property and, therefore, we affirm the decision of the State 
Board of Equalization (State Board) confirming that decision.

ISSUES
[¶2] Amoco presents the following 
issues:
Was the Decision of the State Board of 
Equalization Supported by Substantial Evidence?
Was the decision of the State 
Board of Equalization contrary to the weight of the evidence in the 
record?
Was it arbitrary, capricious and an 
abuse of discretion when the State Board of Equalization failed to provide 
cogent reasons and supporting citation to the record for Conclusion of Law No. 
32?
Did the State Board of 
Equalization commit reversible error when it made findings of ultimate fact 
contrary to the basic facts in the record?
Is the decision of the State 
Board of Equalization concluding that Amoco failed to show adaptation or 
objective intent under the three-part test for fixtures contrary to the weight 
of the evidence?
Was it arbitrary, capricious and an 
abuse of discretion when the State Board of Equalization failed to apply the 
definition of "real property" in WYO. STAT. § 
39-1-101(a)(xiv)?
Did the State Board of 
Equalization commit reversible error when it determined underground flow lines 
remained personal property based on historical filings?
Did the State Board of 
Equalization commit reversible error when it held at Conclusion of Law No. 17 
that the Department of Revenue was required to assess as part of the mining 
claim all real property pursuant to WYO. STAT. § 
39-1-303(a)(xxi)?
Does the decision of the State Board of 
Equalization result in an "illegal["] tax under WYO. STAT. § 
39-4-101(b)?
Is the decision of the State 
Board of Equalization contrary to Wyoming Case Law Addressing 
fixtures?
Does the decision of the State Board of 
Equalization violate Section 3, Article 15, Wyo. Const? [sic]
Does the decision of the State 
Board of Equalization result in double taxation in 
violation of the equal protection clause guaranteed by the United States 
Constitution and the Wyoming Constitution?

The Carbon County Assessor condenses 
the matter into a single issue:
Whether the Wyoming State Board 
of Equalization's decision and 
order that flow lines are not fixtures is supported by substantial evidence and 
not contrary to law.

FACTS
[¶3] The facts are undisputed. 
Amoco owns interests in oil-producing wells in Carbon County that underlie 
federal lands. Amoco laid flow lines underground to collect the oil produced by 
its wells. Historically, Amoco and all other producers have included buried flow 
lines in their reporting of taxable personal property. In 1998, Amoco filed its 
report of personal property located within Carbon County with the county 
assessor omitting its flow lines. The county assessor rejected Amoco's treatment of the flow lines and included 
them in his assessment as taxable personal property. Amoco objected to the 
assessment and filed a protest with the Carbon County Board of 
Equalization.

[¶4] A contested case hearing was held 
before the Carbon County Board of Equalization on July 20, 1998. Amoco contended 
that the flow lines were permanent improvements to the land and should be exempt 
from local assessment. Amoco presented evidence at the hearing before the County 
Board demonstrating that the burying of the flow lines was necessitated by 
technical reasons. Amoco noted that the flow lines were necessary for continued 
production from the field. Flow lines are generally left in the ground after 
well production has concluded due to the costs associated with removing the pipe 
and repairing the environment. Nevertheless, the County Board concluded that the 
flow lines were personal property and subject to local assessment. Amoco 
appealed that determination to the State Board of Equalization, which concluded 
that the flow lines did not improve the value of the real property and, 
therefore, were not fixtures or part of the land but were personal property. 
Amoco appealed that decision to the district court, which, in turn, certified 
the matter to this Court pursuant to W.R.A.P. 12.09.

 
STANDARD OF REVIEW
[¶5] We review agency decisions 
pursuant to the dictates of Wyo. Stat. Ann. § 16-3-114(c) (LEXIS 
1999):
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:

Compel agency action unlawfully 
    withheld or unreasonably delayed; andHold unlawful and set aside agency action, findings and conclusions 
    found to be:Arbitrary, capricious, 
    an abuse of discretion or otherwise not in accordance with 
    law;Contrary to constitutional right, 
    power, privilege or immunity;In 
    excess of statutory jurisdiction, authority or limitations or lacking 
    statutory right;Without observance 
    of procedure required by law; orUnsupported by substantial evidence in a case reviewed on the record 
    of an agency hearing provided by statute.

We recently summarized our standards 
for reviewing the factual and legal conclusions of an agency:

When faced with contested issues 
of fact, we examine the entire record to determine if the agency's findings are supported by substantial evidence. Laramie County 
Board of Equalization v. Wyoming State Board of Equalization, 915 P.2d 1184, 1189 (Wyo. 
1996). If they are, we do not substitute our judgment for that of the agency and 
will uphold the factual findings on appeal. Id. Substantial evidence is 
more than a scintilla of evidence; it is evidence that a reasonable mind might 
accept in support of the conclusions of the agency. Id. Borrowing from 
the Third Circuit Court of Appeals, we have articulated the difference between 
findings of basic fact and ultimate fact as follows:
"Basic 
facts are the historical and narrative events elicited from the evidence 
presented at trial, admitted by stipulation, or not denied, where required, in 
responsive pleadings. Inferred factual conclusions are drawn from basic facts 
and are permitted only when, and to the extent that, logic and human experience 
indicate a probability that certain consequences can and do follow from the 
basic facts. No legal precept is implicated in drawing permissible factual 
inferences. But an inferred fact must be distinguished from a concept described 
in a term of art as an ultimate fact.' So conceived, an ultimate fact is a 
mixture of fact and legal precept . . . ."
Union Pacific Railroad Company v. 
Wyoming State Board of Equalization
If a conclusion of law is in 
accord with the law, it is affirmed. Id. We consider three distinct 
possibilities when reviewing agency determinations on questions of law. 
Id. If the agency correctly applied its findings of fact to the correct 
rule of law, the agency's 
conclusions are affirmed. Id. However, if the agency applied its findings 
of fact to the wrong rule of law or if the agency incorrectly applied its 
findings of fact to the correct rule of law, we correct the error. 
Id.
When an agency's determinations contain elements of law and fact, we do not treat 
them with the deference we reserve for findings of basic fact. Id. When 
reviewing an "ultimate fact," we separate the factual and legal aspects of the 
finding to determine whether the correct rule of law was properly applied to the 
facts. 802 P.2d 860-61. We do not defer to the agency's ultimate 
factual finding if there was an error in either stating or applying the law. 802 P.2d  at 861.

RT Communications, Inc. v. State Board 
of Equalization

Our rules relating to the 
interpretation of statutes demand that we abide by the plain meaning of the 
statute if its language is clear and unambiguous. The statute will be construed 
as a whole with the ordinary and obvious meaning applied to words as they are 
arranged in paragraphs, sentences, clauses and phrases to express the intent of 
the legislature. In analyzing the clarity or ambiguity of the statute, we turn 
to the guidance of grammarians.

11 P.3d  at 922 (quoting Peterson v. 
Wyoming Game and Fish Commission, 989 P.2d 113, 117 (Wyo. 
1999) (internal citations omitted)).

DISCUSSION 
1
[¶6] While Amoco has chosen to frame 
its arguments in the context of several issues, each of its positions are, in 
reality, predicated on the same basic contention: The flow lines are fixtures 
making them a part of the real estate on which they are located. Amoco contends 
that the flow lines are fixtures or appurtenances to the real estate by virtue 
of their permanent internment in the soil. Amoco claims that the flow lines 
clearly benefit the real estate on which they are located through the 
production of the oil underlying the property, which would not be possible 
without the lines. Thus, Amoco argues that since the flow lines are part of the 
real estate, the county cannot assess and tax them as personal 
property.

[¶7] Under Wyoming's tax laws, there are three types of property: intangible personal 
property, real property, and tangible personal property. The flow lines are 
clearly not intangible personal property, see RT Communications, 
11 P.3d  at 922, so that only the latter two types are relevant to this 
discussion. Real property' is statutorily defined as "land and appurtenances, 
including structures, affixed thereto[.]" Wyo. Stat. Ann. § 39-1-101(a)(xiv) 
(Michie 1997) (Repealed 1998). Tangible personal property' is a catchall 
category that includes "property which is neither intangible personal property 
nor real property." Wyo. Stat. Ann. § 39-1-101(a)(xv) (Michie 1997) (Repealed 
1998). Thus, if the flow lines are not intangible personal property or real 
property, then they are, by default, tangible personal 
property.2

[¶8] The term appurtenances' is not defined within the 
statutes. In its ordinary sense, the term means:

That which belongs to something else; 
an adjunct; an appendage. Something annexed to another thing more worthy as 
principal, and which passes as incident to it, as a right of way or other 
easement to land; an outhouse, barn, garden, or orchard, to a house or messuage. 
(Citation omitted.) An article adapted to the use of the property to which 
it is connected, and which was intended to be a permanent accession to the 
freehold. A thing is deemed to be incidental or appurtenant to land when 
it is by right used with the land for its benefit, as in the case of a way, or watercourse, or of a passage for 
light, air, or heat from or across the land of another.

Black's Law Dictionary, Sixth Ed. 103 (1990) 
(emphasis added). For the flow lines to be considered appurtenant to the land, 
then, they must be connected to the land in a manner intended to be permanent, 
and they must benefit the land.

[¶9] In our decision in Wyoming 
State Farm Loan Board v. FCSCC, 759 P.2d 1230 (Wyo. 1988), 
we set forth a test for determining whether an article is a fixture to real 
property:

This court has not had occasion to 
discuss this aspect of the law of fixtures for nearly forty-eight years. See 
School District No. II, Laramie County v. Donahue, 55 Wyo. 220, 97 P.2d 663, 664 (1940). 
When presented with this issue, however, we still rely on the three-part test 
first set forth in the landmark case of Teaf v. Hewitt, 1 Ohio St. 511, 
525 (1853):
"It has 
been said upon abundant authority that, generally speaking, the proper criterion 
of an irremovable fixture consists in the united application of three tests, 
viz:
" 1st. 
Real or constructive annexation of the article in question to the 
realty.
" 2d. 
Appropriation or adaptation to the use or purpose of that part of the realty 
with which it is connected.
" 3d. 
The intention of the party making the annexation to make the article a permanent 
accession to the freehold, this intention being inferred from the nature of the 
article affixed, the relation and situation of the party making the annexation 
and policy of the law in relation thereto, the structure and mode of the 
annexation and the purpose or use of which the annexation has been made.' 
[Citations.] * * *." Holland Furnace Co. v. Bird, 
45 Wyo. 471, 21 P.2d 825, 827-828 
(1933).
Although all three parts of this 
test bear upon classification of chattels as fixtures in any given case, we 
follow a majority of jurisdictions in placing the most emphasis on the intention 
of the person making the annexation. Holland Furnace Co. v. Bird , supra 
at 828; Squillante, The Law of Fixtures: Common Law and the Uniform 
Commercial Code, Part I: Common Law of Fixtures, 15 Hofstra L.Rev. 191, 195, 
201 n. 69 (1987). This intention does not refer to the annexor's subjective state of mind; rather, it is the objective intention 
the law can infer an ordinary reasonable person to have based on the facts and 
circumstances in the record. Holland Furnace Co. v. Bird, supra, at 
827-828; and Boothbay Harbors Condominiums, Inc. v. Department of 
Transportation, Me., 382 A.2d 848, 854 (1978). Circumstances bearing on a 
determination of objective intent include the nature of the article affixed, the 
way it was affixed, the purpose it serves on the land and the 
annexor's relationship to the article and to the land. 
Liberty Lake Sewer District No. 1 v. Liberty Lake Utilities Company, 
Inc., 37 Wash. App. 809, 683 P.2d 1117, 1120 (1984).

759 P.2d  at 1234-35. We conclude 
that this test is adaptable for use to determine whether an article is 
appurtenant to the real estate for purposes of determining if that article is 
taxable as land or personal property under sections 39-1-101(a)(xiv) and (xv). 
While fixtures and appurtenances may not necessarily be interchangeable terms, 
the test devised to determine if an article is a fixture essentially 
incorporates the same elements constituting an appurtenance. For example, the 
requirement that an appurtenance benefit the land to which it is attached is 
implied in the second and third parts of the fixture test. Therefore, to 
determine if the flow lines are appurtenant to the real estate, we look to 
determine whether: (1) the object is connected or attached to the realty; (2) 
the appropriation or adaptation of the object is related to the use or purpose 
of that part of the realty to which it is connected or attached; and, (3) the 
party making the attachment or connection objectively intended a permanent 
accession to the freehold with that intention being inferred from the nature of 
the object affixed, the purpose it serves on the land, and the party's relationship to the object and the 
land.

[¶10] In applying this test to 
the present case, we conclude that the State Board was correct in upholding the 
assessment of the flow lines as tangible personal property. The problem with 
Amoco's position arises in the context of the final two 
prongs of the test and rests with the nature of the flow lines. The flow lines 
were put into place for the sole purpose of transporting oil from the wells 
underlying the land. Without the presence of that oil, it is extremely unlikely 
that the flow lines would have been placed under the land. The flow lines bear 
only an incidental relationship to the land itself. This fact is highlighted by 
Amoco's own admission that when the wells are no longer productive, the flow 
lines will be sealed and left in the ground. As Amoco's 
own witnesses testified, in the absence of the oil, the flow lines are not even 
worth anything as salvage scrap. In fact, it is arguable that the flow lines 
have a negative impact on the land itself given their potential environmental 
impacts.

[¶11] If not with the land, where 
then do the benefits of the flow lines lie? By their very nature, the flow lines 
benefit, if anything, the mineral estate. Furthermore, it benefits the mineral estate only 
after the minerals have been 
extracted from the land as transport to a collection point. The State Board 
implicitly recognized this concept in its order:

There is more than substantial evidence 
in the record demonstrating that flow lines do not improve the value of the real 
property and in fact are useless once production ceases. Clearly, [Amoco] did 
not intend to enhance the value of the real property by installing flow lines 
nor did [Amoco] intend to enhance the beauty or utility of the real property. 
The flow lines were mere items of personal property intended for the use for 
which they were installed, i.e., increasing the ability of [Amoco] to 
economically produce minerals.

We agree with the State Board. 
The flow lines provide no benefit to the land itself. Instead, they benefit the 
mineral estate. We think the very fact that Amoco intends to leave the flow 
lines in the ground permanently actually weighs against its argument since the 
presence of those lines could only have a negative impact on land use. 
Therefore, we conclude that the latter two prongs of the test outlined above 
counsel in favor of the State Board's position that the flow lines are not appurtenant to the land and, 
accordingly, are tangible personal property. If the flow lines are appurtenant 
to anything, it is the mineral estate. However, Amoco did not raise that 
subject, and there is no statutory exemption from taxation for tangible personal 
property appurtenant to a mineral estate.

CONCLUSION
[¶12] Amoco's flow 
lines do not provide any benefit, nor does their intended purp ose even relate, 
to the land. The State Board correctly held that the lines were tangible 
personal property. Affirmed.