Opinion ID: 2509156
Heading Depth: 1
Heading Rank: 20

Heading: The Final Issue Letter and the Department of Revenue's Determination

Text: 43. On July 25, 2002, Simmons wrote a memo to the file to reflect that the auditors had modified the allowable transportation deduction. The auditors added a deduction value for the transport of gas from the outlet of the initial dehydrator to the inlet of the MIGC pipleline. [Exhibit 518]. We note that the auditors could have disallowed any Western expense because Williams did not come forward with information. [Transcript Vol. V, p. 898]. Instead, the auditors determined that the total allowable transportation deduction would be $0.224, or $.084 more than the original allowance of $0.14. [Exhibit 518]. This number was reached by subtracting $0.21/MCF from the Western Gas Resource Fee of $0.294. [Exhibit 518]. The $0.21/MCF was inspired by the rebate Western gave to Barrett on gas shipped on the MIGC pipeline. [Exhibit 518]. The auditors intended to allow transportation costs after the initial dehydrator, and broadly reasoned that all of Western's most expensive equipment was located before the outlet of the initial dehydrator. [Transcript Vol. IV, pp. 866-867]. They allocated approximately 70% of the fees charged by Western to service between the custody transfer meter and the outlet of the glycol dehydrator. The auditors made no effort to account for fuel costs because fuel would be associated with the same equipment. [Transcript Vol. IV, p. 863]. We find that this was a reasonable exercise of auditor judgment to reach a fair valuation for a taxpayer that refused to be cooperative. 44. On August 23, 2002, the Department sent Williams a final determination assessment notice. [Exhibit 500]. This notice stated the amount of severance tax underpayments including interest, and notified Williams of additional taxable value for ad valorem tax purposes. [Exhibit 500]. The Department determination was accompanied by a final issue letter to Williams from the DOA. [Exhibit 501]. The DOA's final issue letter adopted the rationale expressed by Simmons in her July 25 memorandum, with this explanation: ...[W]e consider the Western Gas Resource Fee of $.294/MCF less the $.21/MCF rebate, or $.084/MCF, as the allowable transportation deduction from the outlet of the dehydrator to the inlet of the main transmission line, and any charges prior to the outlet of the dehydrator are considered gathering and therefore deemed unallowable. The MIGC Fee of $.14/MCF to transport gas from the inlet of the main transmission line to market has been deemed an allowable transportation deduction. Therefore, the total allowable transportation deduction is the $.084/MCF charge plus the $.14/MCF charge, or $.224/MCF. (Emphasis supplied). [Exhibit 501]. 45. Randy Bolles, Administrator of the Mineral Tax Division of the Department of Revenue, testified that the Department embraced this logic, despite being aware of the limits of the information available. [Transcript Vol. III, pp. 736-744]. For Bolles, the key points were the total cost of $0.434/MCF, and the unavailability of information that would allow anyone to precisely allocate the cost of Western's services [Transcript Vol. III, pp. 736-744]. Bolles stated that, we did, I think, the best we could do with the information we had to determine this piece....of that fee. [Transcript Vol. III, p. 741]. 46. Williams paid the severance taxes under protest [Exhibit 104], and filed a timely appeal on September 23, 2002. [Board Record].