Opinion ID: 2509156
Heading Depth: 1
Heading Rank: 6

Heading: Deduction of Expenses

Text: [ถ24] Intertwined with Williams' point of valuation argument is a separate argument that the Department incorrectly determined allowable expense deductions. In consonance with its theory that the point of valuation was at the custody transfer meter, Barrett had deducted all costs associated with Western's services. The Department's determination that the correct point of valuation was the outlet of the TEG dehydrator required a recalculation of allowable expenses. [ถ25] Barrett paid Western $0.43 per mcf (one thousand cubic feet) of CBM for gathering and transportation to the point of sale. [3] Of that fee, $0.294 was paid pursuant to a gas gathering agreement, and $0.14 was paid for transportation and other services on the MIGC pipeline, which was owned by Western. Barrett's reported taxable values reflected a transportation deduction for the expenses incurred between the custody transfer meters and the point of sale. In attempting to adjust these figures based on a point of valuation at the TEG dehydrator, the DOA several times requested from Williams a breakdown of the $0.294 per mcf fee but, without attempting to obtain the information from Western, Williams indicated that it could not provide such information. [ถ26] Eventually, the DOA decided that, of the $0.294 fee paid to Western under the gas gathering agreement, $0.084 would be allowed as a deduction for transportation from the outlet of the TEG dehydrator to the inlet of the MIGC pipeline. That figure was determined by reducing the $0.294 by the contractual rebate of $0.21 given by Western to match the lower rate charged by the parallel Fort Union pipeline. In addition, the DOA also allowed $0.14 per mcf for the fee to transport the CBM on the MIGC pipeline to the point of sale in Glenrock. [ถ27] Williams contends that these conclusions were not supported by substantial evidence and that the Board acted arbitrarily and capriciously. Williams argues that Barrett was statutorily entitled to deduct all transportation fees downstream of the Department's selected point of valuation, including fuel charges on the MIGC and Fort Union pipelines and all transportation fees incurred downstream of those pipelines. Further, Williams contends that the DOA's audit worksheets showed that the DOA acknowledged these fees and that the Department presented no evidence as to why such fees were not legitimate transportation deductions. [ถ28] The Board's refutation of Williams' position is partly based upon evidence supporting the position of the DOA and the Department, and partly based upon Williams' failure to meet its burden of proof. As with the point of valuation issue, we will not reiterate the Board's complete thought process, which is revealed in the attached Appendix A, particularly in paragraphs 16-17, 26, 32-33, 35, 37, 42-45, 73-79, and 148-162. We will, however, discuss some of the pertinent reasoning. [ถ29] After examining the record concerning the various charges previously deducted by Barrett, the Board made a specific finding noting the DOA's conclusion that Barrett had deducted both a gathering charge, paid to Western, and a transportation charge, paid to MIGC, and that the former cannot be deducted under Wyo. Stat. Ann. ง 39-14-203(b)(iv) and (vi). In its findings, the Board then narrated the DOA's attempt to obtain from Williams information to allow a deduction for that portion of the Western charges that represented transportation costs from the outlet of the TEG dehydrator to the MIGC or Fort Union pipelines. The Board found that Williams has offered no evidence in this proceeding that would enable the Department of Revenue or Department of Audit to disaggregate the Western fee. Despite noting further that the auditors could have disallowed any deduction for the Western expenses because Williams failed to provide information for that purpose, the Board nevertheless found that the DOA's decision to allow the $0.084 per mcf deduction was a reasonable exercise of auditor judgment to reach a fair valuation for a taxpayer that refused to be cooperative. The DOA's rationale, approved by the Board, was as follows: Instead, the auditors determined that the total allowable transportation deduction would be $0.224, or $.084 more than the original allowance of $0.14. . . . This number was reached by subtracting $0.21/MCF from the Western Gas Resource Fee of $0.294. . . . The $0.21/MCF was inspired by the rebate Western gave to Barrett on gas shipped on the MIGC pipeline. . . . 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. . . . 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. The Board also found that the administrator of the Department's mineral tax division embraced this logic given the unavailability of further information. And finally, the Board found inconsequential the Department's use of a $0.21/MMBTU rebate as inspiration for a deduction against a $0.294/mcf fee, given that the ultimate allowance of $0.084 was an estimate, not a precise calculation. As with earlier issues, we find that substantial record evidence supports these findings of the Board. [4] [ถ30] Williams' next major issue is the alleged failure of the DOA and the Department to allow deductions for transportation charges to points of sale downstream from Glenrock. The Board found that the evidence supporting this conclusion is negligible. Specifically, the Board noted that Williams had not called any witnesses who could speak to possible sales beyond Glenrock, and also noted that this issue was not raised until after the final letters were sent by the DOA and the Department. Further, the Board found that the inferences of such sales contained in the testimony of Williams' representative were entitled to little weight because they were not supported by the evidence. Instead, the Board's findings relied upon the fact that the DOA had tied invoices to sales summaries in accepting Barrett's own representation that Glenrock was the point of sale. [ถ31] Not surprisingly, the Board's conclusions mirrored its findings as to these issues. The Board concluded that Williams had failed in its burden of going forward and in its burden of persuasion, meaning the burden never shifted to the Department to prove its determinations were correct. We affirm the conclusions of the Board in respect to this issue. The record evidence showing Glenrock to be the point of sale included Barrett's own representations, as well as the auditors' findings based upon review of invoices and sales summaries. Evidence to the contrary consisted only of a Williams' witness's suggestion that the records showed inferences that such sales took place.