Source: http://taxappeals.state.wy.us/images/docket_no_9970.htm
Timestamp: 2019-02-16 23:59:57
Document Index: 605535497

Matched Legal Cases: ['Art. 15', 'Art. 15', 'Art. 15', 'Art. 15', 'Art. 15', 'Art. 15', 'Art. 15']

WYODAK RESOURCES DEVELOPMENT )
CORP. FROM A VALUATION DECISION ) Docket No. 99-70
(1999 VALUATION OF 1998 PRODUCTION) )
CORP. FROM AN AUDIT DECISION ) Docket No. 99-90
BY THE WYOMING DEPARTMENT OF )
REVENUE (1993-1995) )
CORP. FROM A DECISION BY THE ) Docket No. 99-158
DEPARTMENT OF REVENUE (REFUSAL )
TO PROCESS AMENDED RETURNS, )
PRODUCTION YEARS 1992-1995) )
CORP. FROM A DECISION BY THE ) Docket No. 2000-99
DEPARTMENT OF REVENUE (2000 )
VALUATION OF 1999 PRODUCTION) )
Timothy Thomas, Morrill, Thomas, Nooney & Braun, Rapid City, South Dakota, representing Wyodak Resources Corporation (Wyodak).
Karl D. Anderson and Martin Hardsocg, Assistant Attorneys General, representing the Wyoming Department of Revenue (DOR).
The appeal on Docket No. 99-70 arises from a Notice of Appeal dated June 30, 1999, appealing the DOR's 1999 "Notice of Valuation" for 1998 production year, dated June 6, 1999. The appeal on Docket No. 99-90 arises from a Notice of Appeal dated July 20, 1999, appealing the DOR's audit assessment for production years 1993-1995, dated June 28, 1999. The appeal on Docket No. 99-158 arises from a Notice of Appeal dated November 4, 1999, appealing the DOR's decision of October 8, 1999, refusing to process amended returns for production years 1992-1995. The appeal on Docket No. 2000-99 arises from a Notice of Appeal dated June 6, 2000, appealing the DOR's 2000 Notice of Valuation for 1999 production year dated May 23, 2000. All four appeals were consolidated by the Board on June 30, 1999. This matter was heard in a contested case hearing commencing on January 9, 2001, and continuing through January 12, 2001, by the State Board of Equalization (SBOE). Gayle R. Stewart, SBOE staff attorney, acted as hearing officer. SBOE members at the time of the hearing were Edmund J. Schmidt, Chairman, Roberta A. Coates, Vice-Chairman, and Sylvia Hackl, Member. Sylvia Hackl did not participate in the hearing as she had just been appointed to the SBOE and had not yet moved from her prior position to the SBOE. She did, however, review the transcripts of the hearing and all exhibits and briefs filed in this case and has participated in the decision of the SBOE. Although there are a host of collateral issues, the SBOE views the primary issues as follows: (1)
1. How should non-arm's-length sales of coal between the Wyodak Mine and its parent, Black Hills Corporation, be valued under Wyoming statutes?
2. Are sales of coal from the Wyodak Mine to the Wyodak Power Plant mine mouth sales under the Wyoming statutes?
3. Can the DOR use an alternative valuation method to value Wyodak's coal rather than Wyoming Statute 39-2-209 (e)?
4. Did the DOR properly "add-on" fees of $ .31 per ton of coal to Wyodak's value for production years 1993-1995 and 1998 and 1999?
Upon application of any person adversely affected, the SBOE is mandated to review final decisions of the DOR and "[h]old hearings after due notice in the manner and form provided in the Wyoming Administrative Procedure Act, Wyo. Stat. 16-3-101 through 16-3-115, and its own rules and regulations of practice and procedure." Wyo. Stat. 39-11-102.1 (c)(viii).
The Notices of Appeal were timely filed and the SBOE has jurisdiction to hear the case. The SBOE is required to decide all issues relating to this appeal and give a written decision, citing findings of fact and conclusions of law following a hearing before the SBOE. Rules, Wyoming State Board of Equalization, Chapter 2, 32.
Wyodak's appeals addressed coal valuation disputes arising from the annual certification of value for production year 1998 (Docket No. 99-70), a mineral tax audit for production years 1992-1995 (Docket No. 99-90), the refusal by the DOR to grant refunds to Wyodak of overpaid severance and ad valorem taxes for production years 1992 through 1995 (Docket No. 99-158), and the annual certification of value for production year 1999 (Docket No. 2000-99). Production years 1996 and 1997 are not at issue as a result of a settlement between the parties and are not relevant to these proceedings.
Petitioner's primary arguments are summarized as follows:
A. The DOR improperly valued Wyodak's 1998 coal production by, among other things, failing to value the coal sold by Wyodak to its parent corporation, Black Hills Corporation, under Wyo. Stat. 39-14-103(b)(viii), and erred in determining the taxable value of coal shipped to the Wyodak power plant in accordance with Wyo. Stat. 39-14-103(b)(v), as coal sold at the mouth of the mine without further movement or processing.
B. The final audit findings adopted by the DOR are not in accordance with applicable laws, rules and regulations, because of, among other things, the improper valuation of coal sales from Wyodak coal mine's north pit in 1995 as mine mouth sales; the failure to revalue coal sold by Wyodak to Black Hills Corporation as non-arms-length sales under then-applicable Wyo. Stat. 39-2-209(e); the addition of processing add-on fees for coal sales for years 1993-1995; and the failure to provide Wyodak with an offsetting credit for overpaid gross product or severance tax under then-applicable Wyo. Stat. 39-2-214(e).
C. The DOR erred in refusing to grant Wyodak's amended returns for 1992-1995 requesting refunds under then-applicable Wyo. Stat. 39-6-304(n).
D. The DOR improperly valued Wyodak's coal production for 1992-1995 by, among other things, failing to value the coal sold by Wyodak to its parent corporation, Black Hills Corporation, under Wyo. Stat. 39-14-103(b)(viii) and erred in determining the taxable value of coal shipped to the Wyodak power plant in accordance with Wyo. Stat. 39-14-103(b)(v), as coal sold at the mouth of the mine without further movement or processing.
The DOR's primary arguments and alternative valuation argument are summarized as follows:
A. Because Wyodak's previous contested case-appeal for its 1992 production did not include issues it now raises concerning the 1992 production year, it is precluded from litigating valuation issues concerning its 1992 production under the doctrines of res judicata and claim preclusion.
B. Wyodak's failure to timely appeal the 1992-95 Notice of Valuations (NOVs) and to timely raise valuation issues, results in a bar and waiver of Wyodak's valuation claims for its 1992-95 production. Wyodak failed to timely appeal NOVs issued for 1992-95 as required by Wyo. Stat. 39-2-201(d) and is not permitted to rely upon the refund statutes to raise appeals which should or could have been raised within the 30 day NOV statutory objection period. Further, Wyodak's continued reporting of values, with which it did not agree, constitutes a waiver of the right to now claim that the values are erroneous.
C. The DOR properly refused the application of Wyo. Stat. 39-2-209(e) and its recodification because no adequate comparable sale, negotiated within the previous twelve months, existed or exists to value Wyodak's inter-company sales to parent Black Hills. Further, Wyodak's attempt to use a spot market average price to value its inter-company sales is contrary to the clear and plain language of the statute and renders absurd and unreasonable the construction of Wyo. Stat. 39-2-209(e).
D. Because purchasers Black Hills and PacifiCorp assume responsibility for crushing and transporting coal purchased for use at the Wyodak Power Plant, and because Wyodak does not bear any responsibility for movement or processing of the coal beyond the mouth-of-the-mine, the DOR properly classified these coal sales as mine mouth sales pursuant to Wyo. Stat. 39-2-209(v).
E. Assuming the Board finds that Wyodak is not barred from asserting its claims, and has not waived its appeals for 1992-95, and assuming the Board determines that the 1995, 1998 & 1999 coal sales are not mine-mouth sales, the Board should remand the case to the Department so that Wyodak's inter-company coal production may be valued using a recognized appraisal technique (comparable and proportionate profits) pursuant to Wyo. Stat. 39-2-202(d) and its recodification. In the event that no specific subsection of Wyo. Stat. 39-2-209(e), or its recodification, is applicable to Wyodak's inter-company sales to Black Hills, the Department is authorized to use other recognized appraisal techniques to ensure that a fair market value is obtained and that taxes are paid accordingly.
This is a complex set of cases, with multiple issues, a lengthy record and detailed analysis. This outline of the Findings of Fact and Conclusions of Law is presented to assist in identifying the individual issues and locating the facts, law and conclusions relevant to each. The subsections are presented in parallel fashion; for example, the second section in the Findings of Fact, dealing with the res judicata and related issues, is also the second section in the Conclusions of Law. The numbers in parentheses following each subsection heading refer to the numbered paragraphs within the opinion which reference that issue.
I. General Information (1-6)
II. Res judicata and claim preclusion with respect to 1992 production year -- Docket No. 99-158 (7-12)
III. Filing of original and amended gross products reports -- Docket Nos. 99-158 & 99-90 (13-25)
A. Proper filing procedure (26-39)
Waiver of right to request refund if no appeal filed from original Notice of Valuation (40-49)
IV. Use of a spot market average to value long-term, inter-company coal sales -- Docket Nos. 99-70, 99-90, 99-158 & 2000-99. (50-61)
V. Valuation of inter-company sales using the mine mouth price -- Docket Nos. 99-70, 99-90 & 2000-99. (62-77)
VI. Alternative valuation method -- Docket Nos. 99-70, 99-90, 99-158, 2000-99 (78-82)
VII. Assessment of processing "add-on" fees -- Docket No. 99-90 (83-89)
General Information: Jurisdiction, Burden of Proof (1-2)
II. Res judicata and claim preclusion: Wyodak is barred from raising any issues concerning its 1992 production year -- Docket No. 99-158. (3-6)
III. Filing of original and amended gross products reports -- Docket Nos. 99-158 & 99-90 (7-8)
A. Wyodak followed the proper procedures in filing its requests for refunds. (9-10)
B. Wyodak waived its right to request refunds by failing to appeal from the original Notices of Valuation and is also barred by the doctrine of laches from challenging the valuation method used in issuing the NOVs for production years 1992-1995 (11-23)
IV. Use of a spot market average to value long-term, inter-company coal sales: Wyodak cannot use spot market sales as a comparable to value long-term, non-arms'-length sales to its parent company -- Docket Nos. 99-70, 99-90, 99-158 & 2000-99. (24-43)
Valuation of sales using the mine mouth price: the DOR properly valued Wyodak's 1995, 1998 and 1999 sales to both Black Hills and PacifiCorp as mine mouth sales, using PacifiCorp's mine mouth price -- Docket Nos. 99-70, 99-90 and 2000-99. (44-48)
VI. The DOR may use an alternative valuation method for production years 1993-1995, 1998 & 1999 -- Docket Nos. 99-70, 99-90, 99-158 & 2000-99. (48-62)
VII. The DOR improperly included processing "add-on"fees in the value of Wyodak's 1993-1995 production. -- Docket No. 99-90 (63-66)
1. The Petitioner, Wyodak Resources Development Corp. ("Wyodak"), operates the Wyodak coal mine in the Powder River Basin. [Trans. pp. 669-670].
2. The Wyodak coal mine is located approximately five miles east of Gillette, Wyoming, off of Interstate 90. Wyodak is a wholly-owned subsidiary of Black Hills Corporation, an electric utility. [Exhibit 121, p. 408].
3. Part of the Wyodak mine production is used at three power plants located at the mine site. The three power plants are the Wyodak Power Plant, Neil Simpson No. 1, and Neil Simpson No. 2. [Exhibit 121, p. 408].
4. The Wyodak Power Plant is owned by Pacific Power & Light, now PacifiCorp, an 80 percent owner, and Black Hills Power and Light, the assumed name of Black Hills Corporation, a 20 percent owner. The Neil Simpson No. 1 and No. 2 plants are owned entirely by Black Hills Corporation. [Exhibit 121, p. 408].
5. PacifiCorp is not related to either Wyodak or Black Hills Corporation. [Trans. p. 247, lines 21-25; 248, lines 1-8].
6. Wyodak has coal sales to purchasers other than the on-site power plants. [Exhibit 101, p. 12]. These include sales to Black Hills' other power plants not located at the mine site. [Exhibit 101, p. 12].
II. Res judicata and claim preclusion with respect to 1992 production year -- Docket No. 99-158
7. Wyodak did not appeal its Notice of Valuation (NOV) issued by the DOR for the 1992 coal production year, however it did appeal an audit that included the 1992 coal production year. [Trans. Vol. I, p. 153; DOR Exhibit 571 and Vol. I., p. 192-193].
8. Wyodak raised a number of issues on appeal of the audit findings for Wyodak's 1990-92 production, SBOE Appeal Docket 95-138, but did not assert coal valuation claims which it raises in the present appeal. [Trans. Vol. I, pp. 192-93].
9. The SBOE in In the Matter of the Appeal of Wyodak Resources Development Corporation from a Decision of the Department of Revenue, Docket 95-138 (May 10, 1999), ruled generally in favor of the DOR and, consequently, Wyodak appealed the SBOE's ruling to the Wyoming Supreme Court. The Wyoming Supreme Court affirmed the SBOE's decision. Wyodak Development Resources Corp. v. State Board of Equalization, 9 P.3d 987 (Wyo. 2000).
10. Wyodak attempted to file an amended gross product return for its 1992 coal production on December 30, 1997, after it had appealed the audit but prior to the Supreme Court decision. [DOR Exhibit 580].
11. In its amended gross product return, Wyodak attempted to apply a different valuation method pursuant to Wyo. Stat. 39-2-209(e), changing the taxable per ton value of its inter-company sales to Black Hills Power & Light (Black Hills) from $9.57 to $3.23. [Trans. Vol. III, pp. 582-89; DOR Exhibits 569, p. 476, 580, p. 522].
12. By letter dated October 8, 1999, the DOR refused to process Wyodak's 1992 amended gross product return. [Trans. Vol. I, pp. 228-29; DOR Exhibit 504].
III. Filing of original and amended gross products reports
13. As required, Wyodak filed annual gross products report for coal production years 1992, 1993, 1994, and 1995. [DOR Exhibits 569, 520, 521, 522].
14. The instructions to the current annual gross products form state that: "Coal is assessed for mineral taxation purposes in accordance with Wyo. Stat. 39-14-103." [Trans. Vol. 1, p. 74, Exhibit 127, p. 446]. Wyo. Stat. 39-14-103 is the 1998 recodification of Wyo. Stat. 39-2-209. [Trans. Vol. 1, p. 74].
15. Lines 1(a)-1(e) of the annual gross products report for coal require the taxpayer to enter on that report the number of tons and the sales value of those tons in certain categories. [Wyodak Exhibit 122, p. 416]. For example, line 1(a) requires the taxpayer to enter the number of tons and the value of those tons sold under long-term sales contracts. Line 1(b) requires the entry of the number of tons and the value of those tons for spot sales. Line 1(c) requires the taxpayer to enter the number of tons sold in inter-company sales and the value of those tons. [Wyodak Exhibit 122, p. 416; Exhibit 127, p. 446].
16. The instructions for line 1(c) on an annual gross products report provide that: "Enter the amount in tons and sales value of coal sold in transactions that do not meet the 'bona fide arm's-length sale' definition in Chapter 6, Section 4 of the Rules & Regulations of the Wyoming Department of Revenue." [Wyodak Exhibit 127, p. 446].
17. "Bona fide arm's-length sale" is defined in Chapter 6, Section 4(l) of the DOR's Rules as "a transaction in cash or terms equivalent to cash for specified property rights after reasonable exposure in a competitive market between a willing, well-informed and prudent buyer and seller with adverse economic interests and assuming neither party is acting under undue compulsion or duress."
18. Wyodak and the DOR stipulated that all sales of coal between Wyodak and Black Hills Corporation were non-arms-length sales. [Trans. Vol. 1, p. 62].
19. Wyo. Stat. 39-2-209(e), recodified as 39-14-103(b)(viii) provides that: "For coal used without sale, or coal not sold pursuant to a bona fide arm's-length agreement, the sales value for purposes of subsection (d) of this section shall be the fair cash market value which is comparable in the quality, quantity, terms and conditions under which the coal is being used or sold, both in the spot market and through long-term agreements negotiated within the previous twelve (12) months, multiplied by the respective number of tons used or sold for each reporting period." Wyo. Stat. 39-2-209(e).
20. Taxpayers who sell coal pursuant to a non-arm's-length agreement which is to be valued under Wyo. Stat. 39-2-209(e), report those sales under line 1(c) of the annual gross products report, which is the functional equivalent of Wyo. Stat. 39-2-209(e). [Trans. Vol. 1, p. 80-81].
21. For production years 1992-1995, Wyodak's reported value for inter-company sales on line 1(c) was based on the actual sales price Wyodak charged Black Hills Corporation and PacifiCorp for the coal. [Trans. Volume III, p. 493; 496-497; 545-548].
22. Wyodak's reporting of the sales price for the coal sold by Wyodak to Black Hills Corporation was based on Wyodak's reading of the instructions of the forms provided by the DOR. [Trans. Vol. III, p. 493]. Wyodak believed that the goal of the instructions and forms was to come up with total sales broken down by different categories. [Trans. Vol. III, p. 493].
23. Wyodak reported the value of inter-company sales on line 1(c) in this same manner for production years 1993, 1994, and 1995. [Trans. Vol. III, p. 496-497].
24. According to Wyodak, the reason it did not value inter-company sales under line 1(c) pursuant to Wyo. Stat. 39-2-209(e) is that Wyodak was led to believe that what the DOR referred to as "captive mine valuation methods" did not apply to Wyodak and that Wyodak believed it was reporting the values as requested by the DOR's forms. [Trans. Vol. III, p. 551].
25. Wyodak's understanding that so-called "captive mine" valuation did not apply to Wyodak's coal sales was based upon Wyodak's tax manager's conversations with an employee of the DOR sometime in the 1991 time period as well as a newspaper article in the Casper Star Tribune. [Trans. Vol. III, p. 485-487; Wyodak Exhibit 117].
III. A. Proper filing procedure
26. Wyodak's tax manager, Greg Koenig, testified that he became aware in 1997 that Wyo. Stat. 39-2-209(e) may apply to the sales of coal between Wyodak and Black Hills Corporation. [Trans. Vol. III, p. 484]. As a result of this belief, on December 30, 1997, Mr. Koenig filed an amended gross products return for coal production year 1992 on behalf of Wyodak. [Trans. Vol. III, p. 485; Wyodak Exhibit 111].
27. The amended annual gross products report for coal for production year 1992 was filed pursuant to Wyo. Stat. 39-6-304(n) which states that: "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." [Wyodak Exhibit 111].
28. According to Mr. Koenig, the reason for filing the amended return was that sales revenue rather than sales value was reported on line 1(c) of the original annual gross products report. The change made on the amended return was from reporting the sales revenue from inter-company sales on line 1(c) to reporting the taxable sales value based on market value. [Wyodak Exhibit 111, p. 241].
29. In reporting the amended taxable sales value, Wyodak used a spot market price for coal of $3.23 as reported in Resource Data International Inc.'s (RDI) 1994 Powder River Basin study. [Wyodak Exhibit 111, p. 242].
30. According to Mr. Koenig, the spot market price in the RDI study was the best available indicator of market value. Wyodak did not have access to any long-term contracts negotiated within the last 12 months, so Wyodak used the other statutory indicator available, sales in the spot market, which is readily available through different sources. [Trans. Vol. III, p. 496].
31. On December 7, 1998, Wyodak filed amended annual gross products reports for coal for production years 1993, 1994 and 1995. [Wyodak Exhibit 112]. Again, according to Mr. Koenig, the basis for filing the amended reports for coal production years 1993, 1994 and 1995 was to correct the amount originally reported on line 1(c) for inter-company sales from the sales price to a market value price in accordance with Wyo. Stat. 39-2-209(e). [Trans. Vol. III, p. 496; Wyodak Exhibit 112].
32. In determining the value of inter-company sales on the amended annual gross products reports for production years 1993, 1994 and 1995, Wyodak used Southern Powder River Basin open market coal prices as published by Resource Data International, Inc. [Wyodak Exhibit 112, p. 252].
33. The DOR admitted that the amended annual gross products reports for coal for production years 1992 through 1995 were filed within the time limitations set forth in the refund statute, Wyo. Stat. 39-6-304(n). [Trans. Vol. I, p. 146,].
34. The forms used by Wyodak to request refunds for production years 1992 through 1995 were the forms sent to Wyodak by the DOR upon Wyodak's request. [Trans. Vol. I, p. 98].
35. The DOR received Wyodak's request for refunds for production years 1992 through 1995. [Trans. Vol. I, p. 130-131].
36. The DOR did not complain to Wyodak that DOR didn't have enough information to determine the basis for the refund requests for production years 1992 through 1995. [Trans. Vol. I, p. 131]. The DOR understood the basis for the refund requests by Wyodak for production years 1992 through 1995. [Trans. Vol. I, p. 96].
37. On February 22, 1999, Wyodak filed its annual gross products report for coal production year 1998. [Wyodak Exhibit 101, p. 5].
38. In valuing inter-company sales for the 1998 gross products report, Wyodak used an average spot market price for coal from the publication, Coal Week, adjusted to the Btu content of Wyodak's coal. [Wyodak Exhibit 101, p. 12; Trans. Vol. III, p. 507]. Wyodak used spot market prices because Wyodak did not have access to information regarding long-term contracts negotiated within the previous twelve months. [Trans. Vol. III, p. 507]. The DOR had access to that information but could not reveal it because it is confidential under Wyoming statutes. [Trans. Vol. III, p. 507].
39. On March 27, 2000, Wyodak filed its annual gross products report for coal for production year 1999. [Wyodak Exhibit 122]. In that report, Wyodak valued inter-company sales on line 1(c) at $3 a ton based upon a coal market analysis done by Jerry Eyster, Wyodak's coal value consultant. [Trans. Vol. III, p. 509].
III. B. Waiver of right to request refund if no appeal filed from original Notice of Valuation (Docket No. 99-90)
40. For its inter-company sales to parent Black Hills, Wyodak reported a "transfer price" value of between $6.00-$10.33 dating back to at least 1985 and continuing through the 1997 production year. [Trans. Vol. I, pp. 71-73, 188, 215-216; Trans. Vol. II, pp. 254-255, 259-260, 305-306; Trans. Vol. III, pp. 548-550, 646-647, 672; DOR Exhibits 564-69, 519-522].
41. Wyodak initially reported in its annual gross products return the following values for its inter-company sales to Black Hills for production years 1992-95 and did not rely upon spot market prices to value its production:
1992: $9.57/per ton
1993: $9.96/per ton
1994: $10.33/per ton
1995: $9.67/per ton
[Trans. Vol. III, pp. 545-548; DOR Exhibits 569 p. 476, 520 p. 119, 521 p. 128, 522 p. 137; Hearing Demonstrative "Comparison of Wyodak's Reported Prices per ton" attached as Attachment B].
42. In reliance upon the numbers submitted, the DOR issued Wyodak NOVs for production years 1992-95, reflecting the values attributed to Wyodak's coal production based upon information provided in Wyodak's gross product returns for each year. [Trans. Vol. II, pp. 259- 260; Trans. Vol. III, pp. 561, 563; DOR Exhibits 507, 571, 572 & 509].
43. Each NOV issued by the DOR for production years 1992-95 contained clear language, consistent with Wyo. Stat. 39-2-201 (d), notifying and warning that Wyodak had 30 days to object and appeal to the SBOE the value represented on each NOV. [Trans. Vol. I, pp. 202-205; Trans. Vol. III, pp. 567-69; DOR Exhibits 507, p. 0056, 571, 572 & 509].
44. Wyodak did not appeal the NOV issued for any of the production years 1992-95. [Trans. Vol. III, pp. 561, 565, 573]. Wyodak's Tax Manager, Mr. Greg Koenig, admitted that the express language of Wyo. Stat. 39-2-201(d) requires a taxpayer to appeal NOVs within 30 days. [Trans. Vol. III, pp. 567-69]. Mr. Koenig admitted that he may not necessarily have agreed with the NOVs issued for production years 1992-95 but decided not to appeal those NOVs. [Trans. Vol. III, pp. 571-72].
45. While Wyodak decided against appealing the 1992-95 NOVs, Wyodak did in fact appeal NOVs issued for production years 1998-99. [Trans. Vol. III, p. 573; SBOE Dockets 99-70 & 00-99].
46. Mr. Koenig testified that he first believed "or became aware" that Wyodak could use a spot market average price to value Wyodak's inter-company coal sales [sales by Wyodak to parent company Black Hills] in 1997. [Trans. Vol. III, p. 550]. However, Mr. Richard Marble, Administrator of the Mineral Tax Division of the DOR between 1989 and 1995, testified that at some point early in his tenure, around 1990-91, Mr. Koenig made inquiries and suggested several times to Mr. Marble that Wyodak could use a spot market index price to value its inter-company coal sales to Black Hills. [Trans. Vol. III, p. 646-647]. Wyodak never availed itself of its statutory right to seek a statutory interpretation or valuation determination from the DOR concerning the valuation of coal as permitted pursuant to Wyo. Stat. 39-6-304(j) & 39-2-201(g). [Trans. Vol. III, pp. 574-78].
47. Mr. Koenig, on behalf of Wyodak, reported the transfer price, as opposed to a spot market average price, on its mineral gross product returns for the 1992-95 production years. [Trans. Vol. I, pp. 72-73, 215-216; Trans. Vol. II, pp. 254-255, 259-260, 305-306; Trans. Vol. III, pp. 548-550, 646-647, 663-666; DOR Exhibits 519-522].
48. Mr. Koenig completed and executed gross product returns for 1992-95 under "penalty of perjury," swearing that the information provided on the returns was correct to the best of his knowledge. [Trans. Vol. III, pp. 554-555; DOR Exhibits 569, 520, 521 at 0128, 522 at 0137]. Mr. Koenig testified that he made a mistake when he initially prepared the original tax returns for 1992-95. [Trans. Vol. III, pp. 493, 551].
49. Mr. Koenig attempted to amend the coal valuations for inter-company sales by filing amended gross product returns, first in 1997 for the 1992 production year, and in 1998 for the 1993-95 production years. [Trans. Vol. III, p. 550. DOR Exhibits 580, 561]. The amended values were as follows:
1992: $3.23/per ton [DOR Exhibit 580, p. 522]
1993: $3.05/per ton [DOR Exhibit 561, p. 429]
1994: $3.23/per ton [DOR Exhibit 561, p. 440]
1995: $3.11/per ton [DOR Exhibit 561, p. 451]
IV. Use of a spot market average to value long-term, inter-company coal sales
50. For its inter-company sales to Black Hills, Wyodak reported a "transfer price" value of between $6.00-$10.33 per ton dating back to at least 1985 and continuing through the 1997 production year. [Trans. Vol. I, pp. 71-73, 188, 215-216; Trans. Vol. II, pp. 254-255, 259-260, 305-306; Trans. Vol. III, pp. 548-550, 646-647, 672; DOR Exhibits 564-69, 519-522].
51. In 1997 and 1998 Wyodak attempted to use a spot market average price to value its inter-company sales to Black Hills on its 1992-95 annual gross product reports. Wyodak also used a spot market average price to value its 1998 and 1999 inter-company sales to Black Hills, which it reported on its original gross product reports. [Trans. Vol. III, pp. 508-10, 600-601, 582-85; DOR Exhibits 550, 554, 561, 580].
52. In its amended returns for 1992-95 and for its original returns in 1998 and 1999, Wyodak reported these spot market average values pursuant to its interpretation that Wyo. Stat. 39-2-209(e) recodified at Wyo. Stat. 39-14-103(b)(viii) permitted long-term, inter-company coal sales to be valued at spot market average rates. [Trans. Vol. III, pp. 512, 582-89; Petitioner Exhibits 108, 115; DOR Exhibits 550, 554, 561, 580].
53. Wyodak admitted that its non-arm's-length values were based in large part upon numbers generated by Mr. Jerry Eyster pursuant to two reports he prepared for Wyodak ("the Eyster Reports"). These reports purportedly reflect average spot market prices for Powder River coal adjusted to Wyodak's BTU content. [Petitioner Exhibits 108, 115; DOR Exhibits 550, 554, 561, 580; Trans. Vol. II, pp. 407-478; Trans. Vol. III, pp. 508-510, 600-601]. The Eyster Report represented that the "fair cash market value" for Wyodak's coal was between $2.00 and $3.47 per ton, based on spot market sales. [Wyodak Exhibit 115, p. 386] However, Eyster admitted that he never examined the Wyodak facility, that his reports contained numerous estimates and that some of the information contained in his reports was clearly erroneous. [Petitioner Exhibit 108, pp. 33, 35, 115; Trans. Vol. II, p. 432, pp. 449-455].
54. Wyodak initially reported the following values for its inter-company sales to parent corporation Black Hills for production years 1992-95, not relying upon spot market prices:
1992: $9.57/per ton [DOR Exhibit 569, p. 476]
1993: $9.96/per ton [DOR Exhibit 520, p. 119]
1994: $10.33/per ton [DOR Exhibit 521, p. 128]
1995: $9.67/per ton [DOR Exhibit 522, p. 137]
[Trans. Vol. III, pp. 545-548, 563-65].
55. Wyodak amended its 1992-95 gross product returns and represented in its 1998 and 1999 original returns the following prices as all inter-company sales:
1998: $3.15/per ton [DOR Exhibit 554, p. 407]
1999: $3.01/per ton [DOR Exhibit 550, p. 387]
[Trans. Vol. III, pp. 563-65].
56. Wyodak reported its own spot market sale prices between 1992-99 on its returns as follows:
1992: $ 7.22/per ton [DOR Exhibit 580, p. 522]
1993: $14.35/per ton [DOR Exhibit 561, p. 429]
1994: $13.16/per ton [DOR Exhibit 561, p. 440]
1995: $10.28/per ton [DOR Exhibit 561, p. 451]
1998: No sales reported [DOR Exhibit 554, p. 407]
1999: $ 7.00/per ton [DOR Exhibit 550, p. 387]
57. Wyodak booked on its General Ledger prices ranging from $6.55 to $15.00 per ton for other arm's-length sales for the years in question. Wyodak was able to sell its coal for significantly higher prices than what the Eyster Reports identified as a fair market value for spot market prices. [DOR Exhibit 579, p. 520, Petitioner Exhibit 108, p. 27; Trans. Vol. III, pp. 686-690].
58. The DOR rejected Wyodak's amended 1992-95 returns and its 1998 and 1999 original returns in part because DOR determined that the reported spot market average-derived coal values did not reflect the fair market value for coal sold by Wyodak to its parent company Black Hills under their long-term Further Restated & Amended Coal Supply Agreement (Coal Supply Agreement). [DOR Exhibit 544; Trans. Vol. I, pp. 159-171; Trans. Vol. II, p. 271, lines 22-25, p. 272, lines 1-15]. The Coal Supply Agreement is essentially a three-party agreement between Wyodak, Black Hills (Wyodak's parent company) and PacifiCorp (arms-length) for the sale and delivery of coal from the Wyodak mine to the Wyodak Power Plant, owned jointly by Black Hills and PacifiCorp. The amended Agreement was dated May 5, 1987. [DOR Exhibit 544]. The coal under the agreement comes from the same mine, is transported on the same conveyance facilities and is used in the same power production. [Trans. Vol. I, pp. 213-14; Trans. Vol. II, pp. 246-48, 251-54; DOR Exhibit 544].
59. Wyo. Stat. 39-2-209(e) recodified at Wyo. Stat. 39-14-103(b)(viii) requires that there exist comparable transactions in terms of similar quality, quantity, terms and conditions to value non-arm's-length coal sales. The statute provides that such comparable contracts must have been negotiated within the last twelve months in order to be used to value non-arm's-length (inter-company) coal sales. The DOR concluded that no comparable contracts, as defined by Wyo. Stat. 39-2-209(e), could be used as comparables to value Wyodak's inter-company coal sales to parent Black Hills. [Trans. Vol I, pp. 112-113, 160; Trans. Vol. II, pp. 241-242, 272-275; Trans. Vol. III, pp. 681-82].
60. The DOR witnesses testified they felt they could not use Wyo. Stat. 39-2-209(e) to value the sales between Wyodak and Black Hills. The DOR's explanation for why subsection 209(e) would not work was based on the differences between short duration "spot market" transactions and long-term contracts. The DOR believes "spot contracts" have inherently different terms and conditions from long-term contracts. The duration of a supply contract is an essential "term" and "condition" and therefore short-term transactions have inherently different terms than long-term obligations. Long-term contracts frequently contain a price premium to secure a guaranteed supply of coal. In long-term contracts, the buyer is trying to insulate himself from risk factors by negotiating a set (or an adjustable) long-term price. This is why the DOR believed the long-term, arm's-length contract between Wyodak and PacifiCorp was the best available comparable contract to value Wyodak's inter-company sales to its parent corporation Black Hills. [Trans. Vol. II, pp. 242-243; Trans. Vol. III, pp. 681-683].
61. Wyodak's Koenig admitted that in comparing the duration of Wyodak's contract to the duration of the spot market average contracts, that the length of the contracts are not comparable. [Trans. Vol. III, p. 587, lines 7 -24].
V. Valuation of inter-company sales using the mine mouth price
62. Mr. Greg Koenig, the individual who prepared Wyodak's tax returns for all the years in question, used Research Data Institute's study of spot sales as the best indicator of the value of Wyodak's inter-company sales when amending the 1992-1995 tax returns. [Trans. Volume III, p. 496, lines 4-13]. For 1998 he used the Coal Week publication's average 1998 spot market price for 8400 BTU coal. [Trans. Volume III, p. 506, lines 18-25, p. 507, lines 1-2]. For 1999 he used the Eyster report.
63. Mr. Eyster never examined the physical facilities at the Wyodak mine, nor did he consider the individual costs incurred by Wyodak to produce the coal in question. [Petitioner Exhibit 108, 115; Trans. Vol. II, pp.432-433, 440]. Furthermore, Mr. Eyster based his report on the assumption that Wyo. Stat. 39-2-209(e) applied, although he was not familiar with the Wyoming mineral taxation code. [Petitioner Exhibits 108, 115; Trans. Vol. II, pp. 424-425].
64. Mr. Eyster was not aware that Wyodak's operation does not have any rail load-out facilities with which it can ship coal to out-of-state markets. [Trans. Volume II, pp. 432-436, 462-464]. Thus the report is flawed in that it used contracts of other producers in the Powder River Basin selling to utilities hundreds of miles away when Wyodak was unable to do so. The sales transactions used in the Eyster report were not comparable contracts because those contracts had a much more expensive transportation component and thus they were not similar in terms and conditions to Wyodak's contract with PacifiCorp and Black Hills. [Trans. Volume III, pp. 690-696].
65. Wyodak mines coal in the Powder River Basin at the Wyodak mine. A large portion of the coal extracted from that mine is sold and delivered to the Wyodak Power Plant which is owned by both PacifiCorp (unrelated to Wyodak) and Black Hills (the parent corporation of Wyodak). PacifiCorp's ownership interest in the power plant is approximately 80%, while Black Hills' interest is approximately 20%. [DOR Exhibit 544; Petitioner Exhibit 114; Trans. Vol. II, p. 252; Trans. Vol. III, pp. 608, 669-671].
66. During the production years in question, the coal delivered to the Wyodak Power Plant was mined by Wyodak from two different pits, the "South Pit" (during production years 1992-94 and for a portion of 1995) and the "North Pit" which is also known as the "Peerless Pit" (for most of 1995 and for 1998 and 1999). [Trans. Vol. I, pp. 210-211; Trans. Vol. IV, p. 749].
67. Wyodak, Black Hills and PacifiCorp on April 1st, 1992, entered into a Coal Handling Facilities Agreement ("the Facilities Agreement") concerning the ownership and operation of certain coal conveyance facilities which transported the coal sold by Wyodak to both Black Hills and PacifiCorp for use in the Wyodak Power Plant. [DOR Exhibit 548A; Petitioner Exhibit 113].
68. The Facilities Agreement addressed the feeder breakers, primary crusher and other in-pit and out-of-pit transportation systems located in the "North Pit/Peerless Pit." These systems processed and delivered the coal directly from the North Pit to the Wyodak Power Plant ("the conveyance system"). [Trans. Vol I, pp. 210-211; Trans. Vol. II, p. 363; Trans. Vol. IV, p.749; DOR Exhibit 548A; Petitioner Exhibit 113].
69. The Facilities Agreement identified the joint ownership of the conveyance system at approximately 80% ownership interest for PacifiCorp and the remaining 20% interest for Black Hills. [Trans. Vol. II, pp. 249-250; DOR Exhibit 548A, pp. 340-341; Petitioner Exhibit 113]. Under the Facilities Agreement for the conveyance system, both Black Hills and PacifiCorp jointly assumed full financial responsibility for all the costs and expenses associated with the crushing and transportation of the coal from the North Pit to the Wyodak Power Plant along the conveyance system. [Trans. Vol. I, pp. 69-70, 168-169; DOR Exhibit 548A; Petitioner Exhibit 113].
70. During a portion of the 1995 production year and for the entire 1998 and 1999 production years, Wyodak's coal production was mined from the North Pit itself and placed directly into the conveyance system located in the North Pit for transportation to the Wyodak Power Plant. [Trans. Vol. III, pp. 522-532, 669-671; Trans. Vol. IV, p. 749]. The coal was delivered to the purchasers at the primary feeder breakers/in pit crusher in the North Pit. Because Black Hills and PacifiCorp had assumed full financial responsibility for all the expenses, no costs were incurred by Wyodak to move or process the coal from the time it was loaded into the feeder breakers from within the North Pit. [Trans. Vol. I, pp. 182-183; Trans. Vol. II, pp. 264-267; Trans. Vol. III. Pp. 674-676; DOR Exhibit 502].
71. Wyodak and its parent company Black Hills, through an Agreement for Sale of Coal Handling Facilities ("Facilities Sales Agreement") purportedly arranged for Wyodak to purchase Black Hills' ownership interest of the in-pit conveyance system in the North Pit. [Trans. Vol. II, pp. 248-250; DOR Exhibit 557].
72. The Facilities Sales Agreement dated December 31, 1993, was between two related parties and was a non-arm's-length transfer of assets. [Trans. Vol. I, pp. 184-185; Trans. Vol. II, pp. 264-267, 354-355, 357]. The Facilities Sales Agreement itself was never signed by the parties. [Trans. Vol. II, pp. 366, 372-373; DOR Exhibit 557]. The board meetings of both Wyodak and Black Hills, during which the asset transfer was authorized, occurred a month after the Facilities Sales Agreement purportedly took effect. [DOR Exhibit 555, 556]. The board members of Wyodak and Black Hills were the same people, meeting on the same day. [Trans. Vol. II, p. 377; DOR Exhibit 555, 556].
73. Despite the transfer of funds for the sale of the in-pit conveyance system, the financial bottom line of Black Hills was unaffected by the Facilities Sales Agreement. [Trans. Vol. I, p. 183; Trans. Vol. II, pp. 380-381; Trans. Vol. III, p. 679; DOR Exhibit 559]. The unsigned agreement failed to specifically identify what consideration or price was paid for transfer of the assets. [Trans. Vol. II, pp. 373-376; DOR Exhibit 559]. The contract indicated the purchase price was to be an amount equal to Black Hills' book value of the facilities being sold to Wyodak. Mr. Perry Krush, accounting manager for Wyodak and Black Hills Corporation, testified however, that a definitive amount remained on the Black Hills' books for the construction costs that had been incurred to date. [Trans. Vol. II, pp. 373-379].
74. Mr. Krush testified the basic reason Black Hills transferred the equipment to Wyodak was because the utility did not want to own mine assets. Another reason was that "this contract was under default by the general contractor." [Trans. Vol. II, p. 379, lines 23-24]. "What we just always wanted to do is take them out (Black Hills), get another party out of being involved in whatever dispute was going to come out of this as far as the remainder of the project." [Trans. Vol. II, p. 380, lines 8-11;].
75. The coal Wyodak sold to both PacifiCorp and Black Hills for use in the Wyodak Power Plant came from the same mine, was transported on the same conveyance facilities to the same power plant and was used in the same power production process. [Trans. Vol. I, pp. 213-214; Trans. Vol. II, pp. 246-248, 251-254]. There is no physical separation of the coal between the coal sold to PacifiCorp and Black Hills for delivery to the Wyodak Power Plant. It is impossible at any point to distinguish between the coal belonging to PacifiCorp and coal owned by Black Hills. It is the very same coal with only an undivided percentage ownership interest between purchasers PacifiCorp and Black Hills, for consumption at the Wyodak Power Plant. [Trans. Vol. II, pp. 252-254, Trans. Vol III, p. 671; DOR Exhibit 544].
76. Wyodak claimed its sale of coal to both Black Hills and PacifiCorp could not be classified as mine mouth sales pursuant to Wyo. Stat. 39-2-209(b), recodified at Wyo. Stat. 39-14-103(b)(v), because the Coal Supply Agreement purportedly provided that the "point of transfer" or "sale" occurred beyond the mouth of the mine at the secondary crusher. [Trans. Vol. III, pp. 616-617].
77. The DOR determined that, regardless of the contractual "point of transfer" agreed to by Wyodak and Black Hills, the point of valuation for taxation purposes would be established after consideration of all of the facts and circumstances of how the coal was actually mined, purchased, delivered and how the expenses associated with those activities were allocated by and to the parties. For a portion of production year 1995, and production years 1998 and 1999, the parties' contractual responsibilities established that the coal in question was effectively transferred from Wyodak to both PacifiCorp and Black Hills "in-pit." The purchasers, Black Hills and PacifiCorp, assumed responsibility for crushing and transporting the coal purchased from Wyodak within the North Pit. [Trans. Vol. I, pp. 66-67, 168-169; Trans. Vol. II, p. 369, 617; Trans. Vol. III, pp. 677-678; DOR Exhibit 544, 548A].
VI. Alternative valuation method -- Dockets Nos. 99-70, 99-90, 99-158 & 2000-99
78. In valuing Wyodak's coal production for the 1993-95 and 1998-99 production years, the DOR attempted to determine the fair market value of the coal produced from the Wyodak mine. [Trans. Vol. II, pp. 237-238].
79. According to the DOR's witnesses, Wyodak's particular mining production situation at the Wyodak mine is unique and is dissimilar to any other coal producer in Wyoming. [Trans. Vol. II, pp. 244-245, 273; Trans. Vol. III, pp. 669-671].
80. Wyodak mines coal in the Powder River Basin at the Wyodak mine. A large portion of the coal extracted from that mine is delivered to the adjacent Wyodak Power Plant which is jointly owned by PacifiCorp (unrelated to Wyodak) and Black Hills (the parent corporation of Wyodak). This power plant is jointly owned by both PacifiCorp (approximately 80%) and Black Hills (approximately 20%). [Trans. Vol. II, p. 252; Trans. Vol. III, pp. 608, 669-671; DOR Exhibit 544; Petitioner's Exhibit 114].
81. Wyodak sells coal to the owners of the Wyodak Power Plant (PacifiCorp and Black Hills) through the Coal Supply Agreement between Wyodak (as seller) and PacifiCorp and Black Hills (as buyers). [DOR Exhibit 544; Petitioner's Exhibit 114].
82. The coal Wyodak sold (and currently sells) to PacifiCorp and Black Hills comes from the same mine, is transported on the same conveyance system to the same power plant and is indistinguishable. [Trans. Vol. I, pp. 213-213; Trans. Vol. III, pp. 246-248, 251-254].
VII. Add-on fee for production years 1993-1995 -- Docket No. 99-90
83. During the course of the DOA audit of Wyodak for 1993-1995, the auditor made an audit finding that a $ .31 per ton "add-on" fee should be added to the sales value from the South Pit. The DOR assessed this finding, relying on Wyo. Stat. 39-2-209(d)(i) which provides:
The sales value of extracted coal shall be the selling price pursuant to an arms-length contract. To the extent not included in the selling price pursuant to an arms-length contract, and to the extent that the following represent partial consideration for the value of the coal, sales value shall include the value per ton attributable to the extracted coal for any consideration provided to the seller in the form of heat content adjustments, price escalations or de-escalations, expense reimbursements, capital, facilities or equipment, services for mining, handling, processing or transporting the coal at or near the mine site, or any payment value per ton shall include consideration provided for the deferral of extraction and sale in the taxable period in which the purchaser receives the credit for the payment as a result of subsequent extraction and sale of the deferred production. (Emphasis added)
[Petitioner's Exhibit 109, Trans. Vol. IV, p. 747, lines 9-16]
84. The DOR affirmed the audit which included a $.31 per ton add-on fee for partial consideration received due to the ownership of the coal handling facilities by PacifiCorp and Black Hills. [Trans. Vol. IV, p. 748; DOR Exhibits 502, 503].
85. The $.31 per ton add-on fee was based upon a number voluntarily reported by Wyodak to the Mineral Management Service for purposes of determining the same valuation calculation for federal royalty purposes. [Trans. Vol. IV, pp. 749-750].
86. During the period of time covered by the audit, i.e., 1993-1995, Wyodak moved its mining operations from what was known as the "South Pit" to the North or Peerless Pit. [Trans. Vol. III, p. 670]. During 1993 and 1994, Wyodak mined out of the South Pit. During 1995, Wyodak mined out of both the South Pit and the Peerless Pit. [Trans. Vol. III, p. 674]. After 1995, coal mining was done out of the Peerless Pit. [Trans. Vol. III, p. 674].
87. Wyodak's mining method in the South Pit was to haul coal from the face of the mine in belly dump coal hauling trucks to a truck dump which had a primary crusher. From the primary crusher a conveyor took the coal up to a secondary crusher and from there up to other facilities. [Trans. Vol. III, pp. 515, 522]. The "mouth of the mine" in the South Pit was within the mine itself near where the coal face would have been at the time of mining. [Trans. Vol. III, p. 530, Petitioner's Exhibit 140]. The truck dump and primary crusher used in the South Pit mining operations were well beyond the mouth of the mine. [Trans. Vol. III, p. 516].
88. Although, initially, Black Hills Corporation had an ownership interest in the coal conveying equipment in the Peerless Pit and the South Pit, Black Hills sold its interest in the coal conveying system located to Wyodak. The effective date of the sale was December 31, 1993. [Trans. Vol. II, pp. 363-367, Petitioner's Exhibits 102-107].
89. The equipment which the DOR contends is provided by the buyer is the truck dump, primary crusher and conveyor located in the South pit. [Trans., Vol. III, p. 515, lines 19-25].
I. General Information: Jurisdiction, Burden of Proof
1. Wyodak has the burden of going forward and the ultimate burden of persuasion, to be met by the preponderance of the evidence, that the DOR's assessment was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. Rules, Wyoming State Board of Equalization, Chapter 2 19; Wyo. Stat. 16-3-114(c).
2. An administrative agency's interpretation of statutory language which the agency normally implements is entitled to deference, unless clearly erroneous. Mowry v. State ex rel. Wyoming Retirement Board, 866 P.2d 729, 731 (Wyo. 1993); Laramie County Bd. of Equalization v. Wyoming State Board of Equalization, 915 P.2d 1184 (Wyo. 1996).
II. Res judicata and claim preclusion: Wyodak is barred from raising any issues concerning its 1992 production year.
3. The doctrines of res judicata, collateral estoppel and related preclusive principles are applicable in Wyoming administrative proceedings. University of Wyoming v. Gressley, 978 P.2d 1146, 1153 (Wyo. 1999); Wilkinson v. State ex rel. Wyoming Workers' Safety and Compensation Division, 991 P.2d 1228, 1233 (Wyo. 1999); "Claim preclusion principles of res judicata bar the relitigation of issues that were or could have been raised in the first action." Cermak v. Great West Casualty Company, 2 P.3d 1047, 1054 (Wyo. 2000)(citation omitted).
The law does not permit the owner of a single or entire cause of action, or an entire or indivisible demand, to divide or split that cause or demand so as to make it the subject of several actions, without the consent of the person against whom the cause or demand exists, and if a litigant attempts to split a cause of action, res judicata bars a second suit when the matter could have been decided in the first. 46 Am.Jur.2d Judgments 528 (2000).
A final, valid determination on the merits is conclusive on the parties and those privy with them as to the matters adjudged, or which should have been litigated, in another action or proceeding involving the same cause of action. Roush v. Roush, 589 P.2d 841, 843 (Wyo. 1979)
4. The Wyoming Supreme Court applied res judicata and claim preclusion in Cermak v. Great West Casualty Company, supra, and held that plaintiffs were barred under the doctrine of claim preclusion from raising claims in state court which differed from claims previously raised in federal court, arising from the same course of events. Id. at 1053-54. The Court explained:
Just so that the path ahead will be apparent, our ultimate conclusion will be that the federal district court's order of June 23, 1998, granting summary judgment to Great West acts as a bar to any issues arising out of that claim, whether or not the federal district court actually resolved all issues on their merits and, indeed, despite the fact the federal district court actually referred the parties to state court to pursue some issues. Cermak and BHM could have raised those issues but failed to do so. In addition, Cermak's and BHM's remedy, if they felt aggrieved by the federal district court's decision, was to appeal that judgment. Id.
The Court concluded that plaintiffs were sophisticated parties and were represented by competent, experienced counsel and, consequently, their failure to raise claims which they could have initially raised acted as a bar to bringing those claims in a later action. Id. at 1054. (Emphasis added)
5. Wyodak's present appeal (and all assertions and allegations contained therein), as it relates to valuation of Wyodak's 1992 coal production, is barred by the doctrines of res judicata and claim preclusion. Wyodak is attempting to assert claims it could and should have asserted in its initial appeal of the audit assessment for 1992 production.
6. Because Wyodak is barred from asserting claims concerning its 1992 production year, the DOR correctly rejected Wyodak's amended 1992 return. [DOR Exhibits 504, 580]. See also SBOE Docket 95-138; Wyodak Development Resources Corp. v. State Board of Equalization, 9 P.3d 987 (Wyo. 2000).
III. Filing of original and amended gross products reports:
7. Before we consider whether or not Wyodak has waived its right to a refund for production years 1993 - 1995 by failing to challenge the NOV's issued by the DOR within the thirty (30) days provided for in Wyo. Stat. 39-2-201(d), we must first point out that there is a clear distinction drawn in the Wyoming statutes between a refund request for ad valorem taxes under Wyo. Stat. 39-4-101(b), and a refund request for severance taxes under Wyo. Stat. 39-6-304(n). The SBOE has previously gone to great pains to distinguish between refund requests for ad valorem taxes and refund requests for severance taxes. (See In the Matter of the Appeal of Uinta County to the Notice of Valuation Change 97-305 Issued by the Wyoming Dep't of Revenue, SBOE Docket No. 97-170, Nov. 12, 1999.
8. The primary distinction is that there is no showing required for refund requests of severance taxes other than that the taxes were overpaid.
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. Wyo. Stat. 39-6-304(n).
On the other hand, a taxpayer must request a refund of ad valorem taxes from the county treasurer under the following requirements:
If a person pays any tax, or portion thereof, found to have been erroneous or illegal, the board of county commissioners shall direct the county treasurer to refund the erroneous or illegal payment to the taxpayer. . . . Within one (1) year following the final determination of value, any person who has paid any such excess tax may apply for a refund, and the board of county commissioners shall refund the amount of excess tax paid. Wyo. Stat. 39-4-101(b) (emphasis added)
The SBOE concluded that Amoco v. Board of County Commissioners of Carbon County, 876 P.2d 989 (Wyo. 1990), stands for the proposition that while mineral taxpayers are not precluded from filing ad valorem tax amendments, counties need not automatically refund or credit excess ad valorem taxes paid. Rather, the Supreme Court decision clearly mandates a refund of ad valorem taxes if, and only if, there has been a finding of "erroneous or illegal" by the entity charged with the responsibility of making that determination, in this case, the DOR. In the Matter of the Appeal of Uinta County to the Notice of Valuation Change 97-305 Issued by the Wyoming Dep't of Revenue, supra. Thus the statutes allowed Wyodak three options: (1) Appeal the DOR's notice of valuation 30 days after it was issued; (2) File a refund request for overpaid severance taxes and/or; (3) File a refund request of ad valorem taxes with the DOR stating that the taxes paid were "erroneous or illegal."
III. A. Wyodak followed the proper procedures in filing its request for a refund.
9. The DOR contends that Wyodak waived the right to request a refund based on a change in valuation by failing to appeal within 30 days of the notice of valuation. Wyodak's request for refunds were filed under Wyo. Stat. 39-6-304(n), which provides:
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), or less may be applied to subsequent payments for taxes imposed by this article. Requests for refunds exceeding two thousand dollars ($2,000) shall be approved in writing by the Department prior to the taxpayer receiving a credit. All refunds granted are subject to modification or revocation upon audit.
Wyodak filed the request for refund for production year 1992 in December of 1997. [Petitioner's Exhibit 111]. Wyodak filed its request for refunds for production years 1993 through 1995 in December of 1998. [Petitioner's Exhibit 112]. The requests for refunds were timely filed within the limitations imposed by Wyo. Stat. 39-6-304(n). [Trans. Vol. I, p. 146, lines 23-24].
10. Wyo. Stat. 39-6-304(n) required the request for refund be filed on "forms prescribed by the Department." Wyodak requested forms from the DOR for filing refunds. [Trans. Vol. I, p. 98]. The DOR sent Wyodak the forms which Wyodak filled out and returned. [Trans. Vol. I, p. 98]. The forms were amended annual gross products returns. [Petitioner's Exhibits 111, 112]. The DOR contended that Wyodak failed to file the proper forms because it did not also file amended severance tax forms, [Trans. Vol. I, pp. 231, 232]. The DOR relied upon instructions on MTD form 2021 [DOR Exhibit 570, p. 487], which provide that: "Amendments to production years 1993 or thereafter must be reported on an amended gross products report and amended form 2021 MTD." However, the gross products report does not mention that an amended severance tax return must also be filed in order to obtain a refund. [Trans. Vol. II, p. 304, lines 3-11; p. 129, lines 17-25, p. 130, lines 1-15]. Furthermore, severance tax and ad valorem tax are determined using the same valuation. [Trans. Vol. II p. 292]. The DOR admitted that failure to file an amended severance tax return would not be a "fatal flaw" in determining whether a refund was due. [Trans. Vol. II, p. 294, lines 9-18]. In addition, the DOR's decision letter denying Wyodak's requests for refunds makes no mention that Wyodak failed to request the refunds on forms prescribed by the DOR. [Petitioner's Exhibit 110]. The sole reason articulated for the DOR's refusal to grant the refunds was, as to 1992, res judicata, and as to 1993 through 1995, that Wyodak had waived its right. Nevertheless, the record clearly reflects that the DOR was aware that Wyodak was requesting a refund and the reasons for the refund. [Trans. Vol. I, p. 96]. The SBOE concludes that while Wyodak did not use the proper form to file for a severance tax refund, the evidence clearly demonstrates that its intention was to request a refund for both ad valorem and severance tax and the DOR was aware of Wyodak's intent. Moreover, the Mineral Tax Division annually reconciles a taxpayer's gross products returns to its severance tax returns and requires the taxpayer to file amendments for either gross products return or severance tax returns in order to balance these accounts. Therefore the SBOE finds that Wyodak's error was not fatal and that it properly filed refund requests with the DOR by Wyodak, both for severance and ad valorem tax purposes.
III. B. Wyodak waived its right to request refunds by failing to appeal from the original Notices of Valuation (NOVs) for production years 1993-1995 and is also barred by the doctrine of laches from challenging the valuation method used in issuing the NOVs for production years 1992-1995.
11. The right to appeal from a notice of valuation and the right to request a refund are different and separate remedies. Amax Coal v. State. Board of Equalization, 896 P.2d 1329 (Wyo. 1995); Amoco v. Board of Commissioners of Carbon County, supra, (Wyo. 1994).
12. While there are two separate remedies afforded mineral taxpayers by Wyo. Stat. 39-2-201(d) and Wyo. Stat. 39-6-304(n), there are also different requirements imposed by each statute. In Amoco v. Board of Commissioners of Carbon County, supra, (Wyo. 1994), the Supreme Court pointed out that there is no requirement for a protest to be presented within thirty days of the assessment because it is impossible for a taxpayer to protest a tax at a time when it has no or could have no knowledge that the amount of the tax is erroneous. "Such a requirement would demand every taxpayer protest every tax assessment even though there was no reason at the time of the assessment to assume the tax was either illegal or erroneous." Id. at 994. However, quoting from Atlantic Richfield Company v. Board of Commissioners of Sweetwater County, 569 P.2d 1267, 1273 (Wyo. 1977), the Court distinguished between a situation where a taxpayer must file its appeal under Wyo. Stat. 39-2-201(d) within 30 days of the issuance of an NOV because the taxpayer has information at its disposal to demonstrate error, and a situation where the taxpayer could legitimately file for a refund because it was not chargeable with knowledge of the payment of an erroneous tax.
Section 39-113 [Wyo. Stat. 39-4-101(b)], supra, is intended to remedy a different malady. The word "thereafter" is significant. The statute provides in part that the refund will be made when a tax has been paid which "thereafter" is found to be illegal or erroneous. This connotes timely payment and a later discovery of an illegal or erroneous tax. The further meaning of this language is that the legislature has determined it would be unreasonable to expect a taxpayer to protest a tax at a time when it is without knowledge, and is not chargeable with knowledge, of the illegal or erroneous nature thereof. Id. at 994.
13. Wyodak did have adequate information and knowledge of the erroneous nature of the tax. Wyodak's tax representative was aware of the valuation issue which he subsequently chose to formally raise when he filed for a refund in 1997, some four to five years after he first raised the issue with the Mineral Tax Division's Administrator. [Trans. Vol. III, pp. 646-647].
14. Wyodak had available to it all information and resources with which an objection and appeal could have been timely raised immediately following receipt of the NOVs. Wyodak was required to timely file such objection and appeal. Wyo. Stat. 39-2-201(d); Amoco Production Co. v. Board of Commissioners of Carbon County,; [Trans. Vol. III, pp 493, 551].supra, Wyodak's assertion that it made a mistake in preparing its 1992-95 returns [Trans. Vol. III, pp. 493, 551] does not justify or absolve it of its failure to timely object to and appeal the 1992-95 NOVs. Wyo. Stat. 39-2-201(d); Amoco Production Co. v. Board of Commissioners of Carbon County, supra.
15. Because Wyodak failed to timely appeal, Wyodak is barred from raising these issues in later proceedings. Wyo. Stat. 39-2-201(d); Amoco Production Co. v. Board of Commissioners of Carbon County, supra. Wyodak may not bypass or circumvent the objection/appeal process simply by raising claims at the audit stage by filing amended returns.
16. Although Wyodak did properly file a refund for overpaid severance taxes, pursuant to Wyo. Stat. 39-6-304(n) and overpaid ad valorem taxes pursuant to Wyo. Stat. 39-4-101(b), the refund requests must have been based on information, events, circumstances or determinations which were not initially present or available at the NOV stage, and for claims which Wyodak could not have raised at the NOV stage due to lack of knowledge. Amoco Production Co. v. Board of Commissioners of Carbon County, supra.
17. Permitting Wyodak to challenge the valuation method established by the 1992-95 NOVs, through amended returns filed years later, renders the language of Wyo. Stat. 39-2-201(d) and the thirty-day objection/appeal requirement meaningless and inoperative. Statutes dealing with the same subject must not be construed so as to render either one meaningless. "When two sections of legislation contradict each other, a court should give them a reading that gives them both effect." Flores v. Flores, 979 P.2d 944, 947 (Wyo. 1999). "All statutes must be construed in pari materia; and in ascertaining the meaning of a given law, all statutes relating to the same subject or having the same general purpose must be considered and construed in harmony." Peterson v. Wyoming Game and Fish Commission, 989 P.2d 113, 118 (Wyo. 1999) quoting Motor Vehicle Div. v. Holtz, 674 P.2d 732, 735 (Wyo.1983). "[S]tatutes must be construed to further the intent of the legislature as evidenced by the entire statutory scheme; a statutory subsection may not be considered in a vacuum, but must be considered in reference to the statute as a whole and in reference to statutes dealing with the same general subject matter" 2A Norman J. Singer, Statutes and Statutory Construction, 46.05 at p. 162-65 (6th Ed. 2000).
18. In accordance with rules of statutory construction, Wyo. Stat. 39-2-201(d) must be interpreted to require Wyodak to object and appeal NOVs issued within thirty days when Wyodak possesses adequate information and knowledge to timely raise such issues, or be barred from doing so in the future under any refund statute such as Wyo. Stat. 39-6-304(n).
19. The SBOE must also point out that Wyodak had every opportunity and could have sought a statutory interpretation or valuation determination from the DOR concerning the valuation of coal as permitted pursuant to Wyo. Stat. 39-6-304(j) and 39-2-201(g). [Trans. Vol. III, pp. 574-78].
20. Furthermore, through its deliberate actions, Wyodak has waived its right to challenge the valuation method. Waiver is the intentional relinquishment of a known right manifested in some unequivocal manner. Campbell County School District v. Catchpole, 6 P.3d 1275, 1284 (Wyo. 2000). "The constituents of waiver are identified as (1) an existing right; (2) knowledge of that right; and (3) an intent to relinquish it." Jackson State Bank v. Homar, 837 P.2d 1081, 1086 (Wyo. 1992).
21. "Before there can be a waiver, it must be shown that the party against whom the waiver is asserted had at that time knowledge, actual or constructive, of the existence of its rights or of the material facts upon which they depend." Hoiness-LaBar Ins. v. Julien Construction, 743 P.2d 1262, 1274 (Wyo. 1987) (quoting 28 Am.Jur.2d Estoppel and Waiver 158). Wyodak's voluntary and purposeful decision to continue reporting its transfer price for inter-company coal sales and its decision to not appeal the DOR's 1992-95 NOVs, issued in reliance upon Wyodak's gross products returns, constitutes waiver of the right to challenge the valuation methodology used in the NOVs. [Trans. Vol. III, pp. 567-69, 571-73, 646-47; DOR Exhs. 571, 507, 572 & 509]. Further evidence of Wyodak's knowing waiver is its action in contemplating the use of a spot market average, in accordance with Wyo. Stat. 39-2-209(e), as early as 1990 to 1993, yet in fact using the transfer price. Jackson State Bank v. Homar, supra. [Trans. Vol. III, p. 646-647].
22. Because Wyodak specifically contemplated using a spot market average price to value its inter-company sales, pursuant to Wyo. Stat. 39-2-209(e), as early as 1990-93, yet continued to report its transfer price and never appealed NOVs issued for 1992-95, Wyodak waived the statutory right to challenge the valuation method established by the 1992-95 NOVs. Jackson State Bank v. Homar, 837 P.2d 1081, 1086 (Wyo. 1992). [Trans. Vol. III, p. 646-647].
23. The SBOE holds that because Wyodak failed to timely object to and appeal NOVs issued by the DOR for the 1992-95 production years when it had the requisite information and ability to do so, results in a bar of any attempt to later raise valuation issues which could have been timely raised. Therefore the DOR properly denied Wyodak's attempts to amend its 1992-95 gross product returns.
IV. Use of a spot market average to value long-term, inter-company coal sales: Wyodak cannot use spot market sales as a comparable to value long-term, non-arm's length sales to its parent company.
24. Although we have already determined in this opinion that Wyodak has waived its right to amend its reported value when it failed to appeal the NOVs, we will also now consider the other arguments made by the parties because of the importance of the issues to taxpayers and the DOR. Wyodak argues that the DOR is limited to using Wyo. Stat. 39-2-209 (e), recodified as Wyo. Stat. 39-14-103(b)(viii), in valuing the non- arm's-length sales from Wyodak to Black Hills. That statute states that the sales value to be used in applying the proportionate profits methodology must be the fair cash market value of coal which is comparable in the quality, quantity, terms and conditions under which the coal is being used or sold, both in the spot market and through long-term agreements negotiated within the previous 12 months. However, since the most recent amendment to the agreement between Wyodak and Black Hills was dated May 5, 1987 [Finding of Fact # 76], the agreement is long-term but was not negotiated within the previous twelve months. Wyodak would have the SBOE conclude that the DOR has no choice except to value the coal using current spot market prices. The SBOE rejects this argument because spot market prices were $5 to $6 per ton lower than the transfer price which Wyodak actually booked in its records, reported to its stockholders and reported to the DOR. Moreover, 80% of the coal sold under the Wyodak-Black Hills contract was sold to PacifiCorp at the higher price, which was definitely an arm's-length transaction.
25. Conversely, the DOR argues that Wyo. Stat. 39-2-209 (e) simply does not work in this instance because it isn't logical to use average spot market sales to determine the value of a long-term contract. The DOR argues the statutes give it the discretion to use appraiser judgment in determining the fair cash market value of the product sold. Therefore the DOR believes that it can value Wyodak's sales as a "mine-mouth" sale using Wyo. Stat. 39-2-209 (b) or alternatively, value the sales as a comparable sale using the sale from Wyodak to PacifiCorp under Wyo. Stat. 39-2-202 (d).
26. To decide between these disparate positions, the SBOE must weigh the apparent inconsistency between the coal valuation statute Wyo. Stat. 39-2-209 (e), recodified as Wyo. Stat. 39-14-103(b)(viii), and Wyo. Stat. 39-2-202 (d), recodified as Wyo. Stat. 39-14-103 (b)(iv).
27. The Wyoming Constitution provides:
[a]ll mines and mining claims from which. . . . coal . . . is or may be produced shall be taxed in addition to the surface improvements, and in lieu of taxes on the lands, on the gross product thereof, as may be prescribed by law; provided, that the product of all mines shall be taxed in proportion to the value thereof. Art. 15, Sec. 3, Wyo. Constitution. (Emphasis added).
"The Wyoming Constitution mandates that all coal mines shall be taxed uniformly on the value of their gross product." Amax Coal West, Inc. v. Wyoming State Board of Equalization, 896 P.2d 1329, 1332 (Wyo. 1995).
28. Furthermore, state statutes provide "[T]he department shall annually value the gross product for the preceding calendar year, in appropriate unit measures of all mines and mining claims from which valuable deposits are produced, at the fair cash market value of the product at the mouth of the mine where produced, after the mining or production process is completed." Wyo. Stat. 39-2-202(a), also see Wyo. Stat. 39-14-102(a) (emphasis added).
29. Wyo. Stat. 39-2-209 (e) states:
For coal used without sale, or coal not sold pursuant to a bona fide arms-length agreement, the sales value for the purposes of subsection (d) [subsection (vii) of the recodified statute] of this section shall be the fair cash market value of coal which is comparable in the quality, quantity, terms and conditions under which the coal is being used or sold, both in the spot market and through long-term agreements negotiated within the previous twelve (12) months, multiplied by the respective number of tons used or sold for each reporting period. Wyo. Stat. 39-2-209 (e) recodified at Wyo. Stat. 39-14-103(b)(viii) (emphasis added).
30. The DOR's ultimate mandate and responsibility, in regard to mineral taxation, is to determine the fair market value of mineral production and to ensure taxation based upon a fair market value. Art. 15, Sec. 3, Wyo. Constitution; Wyo. Stat. 39-2-201 et seq.; also see Wyo. Stat. 39-14-101 et seq.; [Trans. Vol. II. pp. 237-238].
31. "The intent of the Wyoming legislature . . . must be ascertained from the language of the statute which is viewed in light of its object and purpose." Wyo. Ins. Guar. Assn. v. Woods, 888 P.2d 192, 196-97 (Wyo. 1994). A statute is construed as a whole with the ordinary and obvious meaning applied to the words as they are arranged in paragraphs, sentences, clauses and phrases to express intent. Id. at 197. A statute should not be interpreted in such a manner that it produces unreasonable or absurd results. Corkill v. Knowles, 955 P.2d 438 (Wyo. 1998). "The omission of words from a statute is considered to be an intentional act by the Legislature, and the Supreme Court will not supply words in the process of interpretation." Fullmer v. Employment Security Commission, 858 P.2d 1122, 1124 (Wyo. 1993).
32. The language of Wyo. Stat. 39-2-209(e) and Wyo. Stat. 39-14-103(b)(viii) requires that agreements which are "comparable in the quality, quantity, terms and conditions" and which have been negotiated within the last 12 months, be used to value those coal sales. An essential and significant term or condition of any contract is the duration of the agreement. With respect to contracts for the sale or supply of coal, short duration contracts, such as "spot sales," have fundamentally different "terms and conditions" from long duration contracts. Construing Wyo. Stat. 39-2-209(e) as a whole, with the ordinary and obvious meaning applied to the words as they are arranged in paragraphs, sentences, clauses and phrases to express intent leads the SBOE to the conclusion that only spot market prices are to be used as a comparable to value short-term, non-arm's-length spot market coal sales negotiated within the previous twelve months. Conversely, the statute requires that only long-term agreements be used to value long-term, non-arm's-length contracts. Therefore spot market average prices may not be used as comparables to value long-term agreements and visa-versa. Wyo. Stat. 39-2-209 (e) recodified at Wyo. Stat. 39-14-103(b)(viii); Wyo. Ins. Guar. Assn. v. Woods, 888 P.2d 192, 197 (Wyo. 1994). [Trans. Vol. I, pp. 113, 133, 242-243, 272-274].
33. Wyo. Stat. 39-2-209(e) and its recodification do not permit the use of a spot market average to value long-term, non-arm's-length coal sales without demonstrating that those individual coal sales are of similar quantities, quality, terms and conditions and negotiated within the previous twelve months. If the legislature had intended that coal producers, such as Wyodak in the present case, be permitted to value inter-company sales with a spot market average price, the legislature could have easily expressed this intent. The Court has often stated that it will not construe a statue to enlarge or extend its application or read into the statutory provisions language that is not present. Phillips v. Duro-Last Roofing, Inc., 806 P.2d 834, 836 (Wyo. 1991).
34. Contrary to Wyo. Stat. 39-2-209(e) which requires use of comparable sales to value individual non-arm's length transactions, use of a spot market average price to value Wyodak's inter-company sales allows for no individual or specific comparison between coal sales and results in valuation of coal by indifferent reference to an average price received by an undefined number of coal producers, without regard to the specific terms and conditions of the particular coal sales. In addition to being absolutely contrary to the clear and plain meaning of Section 209(e), this interpretation produces an unreasonable and absurd result, as well as rendering the statutory terms "comparable," "quality," "quantity," "terms," and "conditions" inoperative and meaningless. A statute should not be interpreted in such a manner that it produces unreasonable or absurd results. Corkill v. Knowles, 955 P.2d 438 (Wyo. 1998). "The interpretation sought by defendant in the instant case would bring about an absurd and unreasonable result and limit the application of the act to a very narrow field not at all consistent with the objectives to be attained." State ex rel. Fawcett v. Board of County Commissioners of Albany County, 273 P.2d 188, 196 (Wyo. 1954) (citation omitted). The Court has often stated that it will not construe a statue to enlarge or extend its application or read into the statutory provisions language that is not present. Phillips v. Duro-Last Roofing, Inc., 806 P.2d 834, 836 (Wyo. 1991).
35. The use of a spot market average price to value coal production sold under long-term contracts would also lead to an absurd result under circumstances in which spot markets average prices are significantly higher than a coal producer's long-term, non-arm's-length contract price. The SBOE can certainly imagine how a coal producer would react if the DOR attempted to value non-arm's-length coal using spot market average prices significantly higher than the price actually received.
36. Wyodak produced no evidence that the coal sold in spot market transactions was comparable in terms of quantities, quality, terms and conditions to those quantities, quality, terms and conditions contained in the 1987 Coal Supply Agreement between Wyodak, Black Hills and unrelated PacifiCorp. [DOR Exhibit 544].
37. Spot market sales cannot be used as a comparable to value a long- term (22 year) contract between Wyodak and its parent Black Hills. [Trans. Vol. II, pp. 241-242, 272-275; Trans. Vol. III, pp. 681-82]. Wyodak's long term, arm's-length contract with PacifiCorp, the same Coal Supply Agreement discussed herein, is the best comparable contract to value Wyodak's inter-company coal sales.
38. Finally, spot market sales cannot be used to value the coal because to do so would result in the DOR assigning a value to the mine product which is less than the costs of mining. The DOR's witness, Mr. Grenvik, testified that for the years in question, Wyodak's average cost to mine a ton of coal were higher than the values set forth in Mr. Eyster's estimate of the value of Wyodak's coal. [Trans. Vol. III, p. 698, pp. 740-742; Petitioner's Exhibit 108, pp. 26-27].
39. The application of Wyo. Stat. 39-2-209(e), or any other mineral valuation statute, should not produce a taxable value which is less than the Wyodak's cost to mine the coal. The Wyoming Supreme Court has clearly stated that "[t]he value of the product at the mine must be enough to cover those expenses which must be paid to mine it and also the taxes imposed upon the product in addition to the royalty." Hillard v. Big Horn Coal Co., 549 P.2d 293, 302 (Wyo. 1976). As the Court explained, "the value of the coal at the mouth of the mine must equal the costs of mining plus royalty or there could exist no incentive to produce it." Id. at 301. Therefore in using any valuation method, the DOR must take into consideration all factors which relate to value and, accordingly, value cannot be less than the cost to mine the mineral. Id. [DOR Exhibit 544, p. 407; Trans. Vol. III, pp. 696-699, 740-742].
40. When the application of Wyo. Stat. 39-2-209(e) and Wyo. Stat. 39-14-103(b)(viii) renders values which are less than a producer's costs to mine, an absurd result occurs. This is especially true when that producer actually receives far more (2 or 3 times more) for the coal than a spot market average price. Spot market average prices afford no reasonable relationship to the value of Wyodak's non-arm's-length coal sales to Black Hills. The DOR is not required to use any valuation system which does not afford a reasonable relationship to value. Pathfinder Mines v. State Board of Equalization, 766 P.2d 531, 534 (Wyo. 1988); [Trans. Vol. III, pp. 696-699; Trans. Vol. IV, 740-744].
41. Contrary to Wyodak's assertions, the DOR may not apply a spot market average price of approximately $3.00 per ton for inter-company sales to Black Hills when the same coal sold to PacifiCorp, under the same contract and operational circumstances, is valued at approximately $10 - $12 per ton, because such a valuation is contrary to the constitutional requirement that mineral valuations be uniform and equal. Amax Coal West, Inc. v. Wyoming State Board of Equalization, 896 P.2d 1329, 1332 (Wyo. 1995); Art. 15, Sec. 3, Wyo. Constitution; Wyo. Stat. 39-2-201 et seq.
42. "Fair market value" is defined at Wyo. Stat. 39-1-101(a)(vi), recodified at Wyo. Stat. 39-11-101(a)(vi) as:
[T]he amount of cash, or terms reasonably equivalent to cash, a well informed buyer is justified in paying for a property and a well informed seller is justified in accepting, assuming neither party to the transaction is acting under undue compulsion..." [emphasis added]
43. If, in fact, the spot market average price were used to value all non-arm's-length transactions, then all coal producers would have the ability to manipulate their corporate structures to take advantage of this system. A coal producer would simply need to create a related marketing entity. This related entity would in turn purchase the producer's coal and in turn sell the coal to other unrelated third parties. Pursuant to such corporate manipulation, all sales from the coal producer to its related entity would be deemed a non-arm's-length transaction and would be subject to the conditions of Wyo. Stat. 39-2-209(e) and Wyo. Stat. 39-14-103(b)(viii). The coal producer would then be able to use spot market average values for taxation purposes regardless of the price which the producer ultimately receives. This would produce an absurd result in which taxable value has little or no relationship with actual market value or the value actually received. The Supreme Court in Pathfinder Mines v. State Board of Equalization, supra, stated the DOR is not required to use a valuation system which "[affords] no reasonable relationship to market value as illegal and contrary to the constitutional mandates of equal and uniform; . . ." Art. 15, Sec. 3, Wyo. Constitution; Wyo. Stat. 39-2-201 et seq. The DOR's interpretation of the statutory language in the coal valuation statutes is reasonable and entitled to deference. Mowry v. State ex rel. Wyoming Retirement Board, 866 P.2d 729, 731 (Wyo. 1993); Laramie County Board of Equalization v. Wyoming State Board of Equalization, 915 P.2d 1184 (Wyo. 1996).
V. Valuation of sales using the mine mouth price; the DOR properly valued Wyodak's 1995, 1998 and 1999 sales to both Black Hills and PacifiCorp as mine mouth sales, using PacifiCorp's mine mouth price.
44. Wyo. Stat. 39-2-209(b),recodified at Wyo. Stat. 39-14-103(b)(v) states:
In the event the product as defined in W.S. 39-2-202(b) [paragraph (iii) of W.S. 39-14-103 in the recodification] is sold at the mouth of the mine without further movement or processing, the fair cash market value shall be the price established by bona fide arms-length sale less exempt royalties (emphasis added).
45. Under Wyodak's mining and transportation configuration from the North Pit during 1995, 1998 and 1999, Wyodak's sale of coal to PacifiCorp for use in the Wyodak Power Plant was properly deemed a sale which occurred at or before the "mouth of the mine." PacifiCorp assumed full responsibility for the coal in the pit, crushing and transporting the coal to the Wyodak Power Plant. This coal represented approximately 80% of the coal mined from the North Pit and delivered to the Wyodak Power Plant. [Trans. Vol. I, pp. 66-67, 168-169; Trans. Vol. II, pp. 264-269; Trans. Vol. III, pp. 522-532, 669-671, 678; DOR Exhibit 548A; Petitioner Exhibit 113; Petitioner Exhibit 140]. The remaining 20% of the undivided coal (for most of production year 1995 and for the entire 1998 and 1999 production years) was sold to Black Hills as a non-arm's-length sale. [Transcript Vol. II, p. 252; Transcript Vol. III, pp. 608, 669-671].
46. The language of Wyo. Stat. 39-2-209(b) [recodified at Wyo. Stat. 39-14-103(b)(v)] and Wyo. Stat. 39-2-202(b) [recodified at Wyo. Stat. 39-14-103(b)(v)(iii)] refers to both "the product" and "the mineral." The DOR determined this language required that where a substantial portion of Wyodak's coal production was a mine mouth sale without further movement or processing, then the remaining undivided quantity of the product, or the mineral must also be deemed a mine mouth sale as well. The SBOE holds the DOR properly valued Wyodak's coal sales to both PacifiCorp and Black Hills as mine mouth sales under Wyo. Stat. 39-2-209(b) and the recodified version of that statute at Wyo. Stat. 39-14-103(b)(v). [Transcript Vol. I, pp. 212-15; Transcript Vol. II, pp. 265-68; Transcript Vol. III, pp. 674-78; DOR Exhibits 500, 502, 503, 549].
47. Contractual title transfer points are not necessarily determinative of where a mineral is valued for valuation purposes. Valuation determinations are made by considering all of the facts and circumstances regarding how the mineral is actually purchased and delivered. While the parties' contract provides for different rights and contractual responsibilities, for taxation purposes, the parties' actions determine how a mineral shall be valued. State. v. Davis Oil Co., 728 P.2d 1107, 1109 (Wyo. 1986).
VI. The DOR may use an alternative valuation method for production years 1993, 1994, 1995, 1998 and 1999.
48. The DOR also presented an alternative theory of valuation which basically says the DOR can use Wyo. Stat. 39-2-202(d) to value coal when it determines that there is not an appropriate valuation method under Wyo. Stat. 39-2-209. The DOR argues that it can use PacifiCorp's contract price under the Coal Supply Agreement as a comparable and insert that price into the proportionate profits calculation because this is considered a recognized appraisal technique.
49. The Wyoming Constitution provides that "[a]ll mines and mining claims from which...coal...is or may be produced shall be taxed in addition to the surface improvements, and in lieu of taxes on the lands, on the gross product thereof, as may be prescribed by law; provided, that the product of all mines shall be taxed in proportion to the value thereof." Art. 15, Sec. 3, Wyo. Constitution.
50. "The Wyoming Constitution mandates that all coal mines shall be taxed uniformly on the value of their gross product." Amax Coal West, Inc. v. Wyoming State Board of Equalization, 896 P.2d 1329, 1332 (Wyo. 1995). "[T]he department shall annually value the gross product for the preceding calendar year, in appropriate unit measures of all mines and mining claims from which valuable deposits are produced, at the fair cash market value of the product at the mouth of the mine where produced, after the mining or production process is completed." Wyo. Stat. 39-2-202(a), also see Wyo. Stat. 39-14-102(a) (2000).
51. The Wyoming legislature enacted Wyo. Stat. 39-2-209 [applicable for production years 1993-1995], and its recodified counterpart, Wyo. Stat. 39-14-103 [applicable for production years 1998 and 1999] to provide the DOR with authority and flexibility to apply different valuation methods for determining the fair market value of coal. Wyo. Stat. 39-2-209, Wyo. Stat. 39-14-103.
52. The ultimate goal for the DOR, in regard to mineral taxation, is to determine the fair market value of the mineral production. Art. 15, Sec. 3, Wyo. Constitution; Wyo. Stat. 39-2-201 et seq., also see Wyo. Stat. 39-14-101 et seq.; [Trans. Vol. II, pp. 237-238].
53. The valuation provisions of Wyo. Stat. 39-2-209 and Wyo. Stat. 39-14-103 do not always provide an absolute clear-cut solution to the determination of fair market value in every possible coal production operation and coal sale transaction. [Trans. Vol. II, pp. 244-245, 273]; Wyo. Stat. 39-2-209 recodified at Wyo. Stat. 39-14-103].
54. When a taxpayer's operation, as in this case, does not fall within the scope of any of the individual provisions of Wyo. Stat. 39-2-209 and Wyo. Stat. 39-14-103, the DOR has statutory flexibility to otherwise determine the fair market value of that coal production, consistent with its statutory mandate. [Trans. Vol. I, p. 174; Trans. Volume. II, p. 239]; Wyo. Stat. 39-2-202(d) recodified at Wyo. Stat. 39-14-102(c)].
55.Wyo. Stat. 39-2-202(d) (1997) states:
Except as otherwise provided, in the event the product as defined in subsection (b) [W.S. 39-14-103(b)(iii) of the recodification] of this section is not sold at the mouth of the mine by bona fide arms-length sale, or if the product of the mine is used without sale, the department shall determine the fair cash market value by the application of recognized appraisal techniques." Wyo. Stat. 39-2-202(d) recodified at Wyo. Stat. 39-14-102(c) (emphasis added).
56. The above-cited statutes afford the DOR authority to use additional "recognized appraisal techniques" and methods to value coal production under circumstances in which the specified coal valuation provisions under Wyo. Stat. 39-2-209 and its recodification do not provide the framework to otherwise reasonably determine fair market value of Wyodak's coal.
57. Coal production in Wyoming must be valued at its fair market value. If the use of recognized appraisal techniques were not permitted, then a fair market value of zero (0), or other value inconsistent with the fair market value, could be returned for a particular coal production. Such a result is absurd and directly against the dictates of Wyoming's Constitution and the mineral valuation/taxation statutes.
58. The elimination of the use of recognized appraisal techniques in the coal valuation setting is inconsistent with the language and intent of Wyo. Stat. 39-2-202(a), recodified at Wyo. Stat. 39-14-102(a), and Art. 15, Sec. 3, Wyo. Constitution. Without the availability of other appraisal techniques in situations where none of the specific coal valuation statutes apply, potentially a market value of zero (0) or an otherwise unreasonably low value (inconsistent with the fair market value) would be returned. In any event, no fair market value would be returned. Any result which does not return fair market value, as defined under Wyoming statute, is contrary to the dictates of Wyoming's Constitution and its statutes. When an agency's rules are inconsistent with its constitutional and statutory mandate, the Constitution and the legislature's enacted statutes take precedence. State Department of Revenue and Taxation v. PacifiCorp, 875 P.2d 1163, 166 (Wyo. 1994); State Board of Equalization v. Jackson Hole Ski Corporation, 737 P.2d 350, 356 (Wyo. 1987).
59. Wyo. Stat. 39-2-202(d), recodified at Wyo. Stat. 39-14-102(c), permits the DOR to use recognized appraisal techniques, including comparable values and proportionate profits. Both of these techniques (the use of comparables and the proportionate profits calculation) have been statutorily recognized by the Wyoming legislature as methods to return fair market value and are therefore "recognized appraisal techniques" under Wyoming law. Wyo. Stat. 39-2-209, recodified at Wyo. Stat. 39-14-103; Wyo. Stat. 39-2-202(d), recodified at Wyo. Stat. 39-14-102(c);
60. "Fair market value" is defined at Wyo. Stat. 39-1-101(a)(vi) (1997), recodified at Wyo. Stat. 39-11-101(a)(vi) (2000) as:
[T]he amount of cash, or terms reasonably equivalent to cash, a well informed buyer is justified in paying for a property and a well informed seller is justified in accepting, assuming neither party to the transaction is acting under undue compulsion..." (emphasis added).
61. The arms-length PacifiCorp relationship established in the Coal Supply Agreement provides a reasonable comparable coal price to use in order to obtain a fair market value for the inter-company, non-arms-length sale to Black Hills under the very same Coal Supply Agreement. [Trans. Vol. II, pp. 393-97; DOR Exhibit 544; Petitioner Exhibit 114].
62. The SBOE holds that the DOR may use the arms-length PacifiCorp coal price as a comparable, to derive the revenue number, for performing the proportionate profits calculation to arrive at a fair market taxable value for Wyodak's non-arm's-length sales to Black Hills. Wyo. Stat. 39-2-202(d), recodified at Wyo. Stat. 39-14-102(c); Wyo. Stat. 39-1-101(a)(vi), recodified at Wyo. Stat. 39-11-101(a)(vi).
VII. The DOR improperly included "add-on" fees in the value of Wyodak's 1993-95 production.
63. Wyo. Stat. 39-2-209(d)(i) provides:
The sales value of extracted coal shall be the selling price pursuant to an arms-length contract. To the extent not included in the selling price pursuant to an arms-length contract, and to the extent that the following represent partial consideration for the value of the coal, sales value shall include the value per ton attributable to the extracted coal for any consideration provided to the seller in the form of heat content adjustments, price escalations or de-escalations, expense reimbursements, capital, facilities or equipment, services for mining, handling, processing or transporting the coal at or near the mine site, or any payment value per ton shall include consideration provided for the deferral of extraction and sale in the taxable period in which the purchaser receives the credit for the payment as a result of subsequent extraction and sale of the deferred production (emphasis added).
64. The DOR assessed Wyodak an add-on fees of $.31 per ton as additional consideration received for coal sales from the South Pit for 1995-1995. This was due to the fact that PacifiCorp and Black Hills owned the coal handling facilities. [Trans. Vol. IV, p. 747, 748; DOR Exhibits 502, 503]. The buyers, PacifiCorp and Black Hills, were responsible for transporting the coal to the Wyodak Power Plant, pursuant to the terms of the Restated and Amended Coal Supply Agreement dated May 5, 1987. The contract price for coal was "f.o.b. receiving hopper in the South Pit." [Wyodak Exhibit 114]. This meant that the buyer was responsible for transporting the coal to the Wyodak Power Plant and thus the seller, Wyodak, did not incur that expense.
65. The buyer provided the truck dump, primary crusher and conveyor located in the South Pit. [Trans. Vol. III, p.515, lines 19-25]. The DOA auditor testified this equipment was performing a processing function. [Trans. Vol. IV, p. 764-765, lines 25, lines 1-5]. Coal is valued for state taxation purposes at the mouth of the mine. This equipment was well beyond the mouth of the mine. Therefore the SBOE concludes that adding on these processing expenses would violate the provisions of Wyo. Stat. 39-2-202(b), which provides in part that, "In no event shall the value of the mineral product include any processing functions or operations regardless of where the processing is performed" (emphasis provided).
66. The SBOE holds that the DOR cannot include "add-on" fees for sales out of the South Pit for production years 1993 through 1995.
1. The decision of the DOR valuing Wyodak's non-arm's-length sales of coal for production years 1993 thru 1995 and 1998 and 1999 as mine-mouth sales and refusing to process amended returns for 1993 thru 1995 is affirmed.
2. The decision of the DOR refusing to process Wyodak's amended returns for production year 1992 is affirmed.
3. The decision of the DOR to add-on fees of $ .31 per ton to Wyodak's value for 1993 thru 1995 production is reversed and remanded to recalculate the value.
1. The dockets in this case span production years 1992 thru 1995 and 1998 thru 1999. Title 39 was recodified effective March 6, 1998. When discussing issues, this opinion attempts to cite the statute that was in effect at the time of production rather than continuously citing both the old statutory citation and its replacement.