Court Opinion

ID: 9756205
Source: CourtListenerOpinion
Date Created: 2023-08-28 21:15:13.307+00
Date Added: 2024-06-11T07:28:14.587680
License: Public Domain

HILL, Justice,
dissenting with whom, GOLDEN, Justice, joins.
[121] I respectfully dissent from the majority opinion. In September of 1988 the Sutherlands executed a mining lease with Granite Canyon Quarry, a joint venture, by Meridian Aggregates Company, "the managing joint venturer." The mining lease involves two separate parcels identified as Parcel 1 and Parcel 2. As to Parcel 1 the Sutherlands own both the surface estate and mineral estate. Parcel 2 is a split estate where the Sutherlands own the surface estate and the BLM at the time of the execution of the lease owned the mineral estate. Exhibit A contains the legal descriptions and identifies the parcels as follows: "PARCEL 1 (Lessor owns surface and mineral estate)" and "PARCEL 2 (Lessor owns surface estate only)."
[122] Article XIII of the lease, entitled "BLM EXCHANGE" at Section 18.1 provides:
Lessors and Lessee understand that Lessee is attempting to acquire from the Bureau of Land Management ("BLM") the minerals owned by BLM in certain of the lands comprising the Premises.
This provision clearly provides that at the time of the lease Meridian was seeking the right to take and produce the minerals from the BLM. The only interest owned by the Sutherlands and transferred to Meridian at the time of the lease with regard to Parcel 2 was the surface rights. At the time of the mining of the minerals acquired by Meridian from the BLM as to Parcel 2, the surface would be exempt from Wyoming mineral taxation as stated in Wyo. Const., art. 15, § 8, which provides:
All mines and mining claims from which gold, silver and other precious metals, soda, saline, coal, mineral oil or other valuable deposit, is or may be produced shall be taxed in addition to the surface improvements and in liew 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. [Emphasis added.]
[123] As we explained in Oregon Basin Oil & Gas Co. v. Ohio Oil Co., 70 Wyo. 263, 248 P.2d 198, 203 (1952):
Here in section 3 of Article 15, we have a restriction with respect to the taxation of lands. In the law of taxation this inhibi*1098tion is unusual yet it is found in constitutions of the western states. It is a wise provision. The early settlers and pioneers who developed the West were aware of the necessity for such a provision. Many an early day mining prospector held on to his claim, with a pick and shovel and a sack of grub, because he was sure that his claim would not be lost through a tax sale. It was found through practical experience that it was time enough to levy a tax when the prospector had produced something with which to pay.
[124] In Board of Comm'rs v. Bernar-din, 74 F.2d 809, 812-13 (10th Cir.1984) the Tenth Cireuit Court of Appeals noted,
The phrase 'in lieu of taxes on the land," indicates that the tax is to be imposed on the product instead of the land, and that the latter is to be exempted during such time as it is being worked or operated for the production of minerals.
Id. at 812-18.
[T 25] With regard to the payment of taxes, the lease at Article VII provides:
[Llessor shall pay when due all general and ad valorem taxes levied and assessed against the Premises and any taxes imposed upon or measured by advance royalties or Production Royalties paid to Lessor. Lessee shall pay when due all taxes lawfully assessed and levied against improvements and equipment placed upon the Premises by Lessee, upon production from the Premises except such portions thereof as are payable for Production Royalty paid to Lessor and upon other rights, property and operations of Lessee. Provided, however, that nothing contained herein shall impose upon either party any obligation to pay any taxes levied or assessed against the other party in the nature of an income tax. [Emphasis added.]
[126] The Wyoming gross products tax is a property tax which taxes the value of the mineral produced. The gross product tax is an ad valorem tax on personal property. Ashland Oil Co. v. Jaeger, 650 P.2d 265, 268 (Wyo.1982). The Sutherlands have never owned or claimed any ownership in the minerals produced from Parcel 2.
[127] The Sutherlands assert that as owners of only the surface of Parcel 2, they have no responsibility or liability under Wyoming law for the payment of taxes imposed upon minerals produced from Parcel 2. I agree. The surface estate becomes tax exempt under the Wyoming Constitution when minerals are produced on this estate.
[T28] Although the Sutherlands can agree to pay taxes for Meridian by contract, it is not equally true that Meridian can impose taxes on an otherwise exempt interest and thereafter deduct the taxes on the exempt interest from their own tax liability. In other words, only the State, more specifically the legislature, can impose taxes. In addition, even the legislature could not impose a tax where the constitution exempts the surface interest as to Parcel 2. Wyo. Const., art. 15, § 14 provides "The power of taxation shall never be surrendered or suspended by any grant or contract to which the state or any county or municipal corporation shall be a party." Section 18 states, "[nlo tax shall be levied, except in pursuance of law, and every law imposing a tax shall state distinctly the object of the same, to which only it shall be applied."
[429] The law as it related to the imposition of Wyoming production taxes in 1988 becomes part of the contract. Century Ready-Mix Co. v. Lower & Co., TIO P.2d 692, 696 (Wyo.1989). From statehood to the present time, ad valorem or property tax on minerals has been and is imposed upon the minerals produced from the land in lieu of the taxes on the lands.
[T30] Ownership of the minerals is the important question for ad valorem tax liability purposes. See eg., Wyo. Stat. Ann. §§ 89-3-10l(c)(d) and 89-3-102(d) (Michie 1990); Union Pac. Resources Co. v. State, 839 P.2d 356, 361 (Wyo.1992); Bernardin, 74 F.2d 809. The ad valorem tax on mineral production is a tax on the value of the minerals as produced. Union Pac. Resources Co., 839 P.2d at 361. Wyoming State Tax Comm'n v. BHP Petroleum Co., 856 P.2d 428, 439 (Wyo.1993). Here, the Sutherlands would only be "taxpayers" for ad valorem taxes with regard to Parcel 2 production if *1099they owned, or had an interest in, the minerals at the time of production.
[131] The authority to create a taxpayer belongs exclusively to the Wyoming legislature and we have no power or authority to expand taxpayer status. Wyo. Const., art. 15, § 3; Rocky Mountain Oil & Gas Ass'n v. State Bd. of Equalization, 749 P.2d 221, 240 (Wyo.1987). Under Wyoming law Meridian cannot cause the Sutherlands to become "taxpayers" when the Sutherlands would not otherwise be subject to the taxes under Wyoming law. Meridian cannot by virtue of Wyoming law subject the surface estate to Wyoming mineral taxes by simply defining the terms of the payment for the surface estate as a royalty. The surface, regardless of how the parties to a contract define the compensation for the surface, remains exempt under Wyoming law during the mining of the minerals. With regard to minerals produced under lease, the
lessor [was] lable for the [payment] of [property] ad valorem taxes on the product removed only to the extent of the lessor's retained interest under the lease, whether royalty or otherwise, and the lessee or his assignee [was] liable for all other property taxes [ad valorem] due on production under the lease[.]
Wyo. Stat. Ann. § 39-3-101(d) (Michie 1985). See same language in current statutes at Wyo. Stat. Ann. § 39-14-603(c)(i) (LexisNex-is 2011).
[132] The relevant contract as to Parcel 2 is the contract between the BLM and Meridian. The minerals on parcel 2 are produced pursuant to a lease, a sale, or an exchange with the BLM, not the Suther-lands. Admittedly, the Sutherlands do have a retained interest in the surface, but that interest is not subject to tax, or more accurately, it is exempt under the Wyoming Constitution as explained above.
[1433] The fact that the Sutherlands are compensated on a flat rate per ton for the surface rights (which is the only thing they own as to Parcel 2) does not make them the owners of the mineral production for ad valo-rem tax purposes. Under Wyoming constitutional and statutory law, the surface of Parcel 2 is exempt during the time the minerals are produced from the mine or mining claim. Wyo. Const., art. 15, § 3; Wyo. Stat. Ann. § 39-11-105(a)(xxvili) (LexisNexis 2011). The statute cited provides: "The following property is exempt from property taxation: ... (xxviii) Lands for mines or mining claims as prescribed by section 3, article 15, Wyoming constitution and defined by W.S. 39-11-102(c)(viiD[.]1" The owners of the minerals produced from Parcel 2 would be either Meridian or the BLM, or both.
[« 34] Meridian received their interest in the minerals from the federal government, after they executed a contract with the Suth-erlands for the surface estate of parcel 2. Upon production of the minerals from Parcel 2 the surface became exempt. The retained interest of the federal government, if any, plus the interest of Meridian became subject to the taxes due on the production of minerals.
[135] The only Wyoming taxes imposed are on the production of the minerals, which are not measured by or computed on the royalties paid to the Sutherlands as the lessor of the surface estate. The 6 cents per ton is irrelevant to the computation, measurement, or calculation of the taxes on the minerals being produced from parcel 2. The taxable estate is the mineral estate.
[136] The Wyoming Constitution controls this matter, and the Sutherlands surface estate in Parcel 2 is exempt by Wyoming law. Meridian has no power or authority to make the Sutherlands' surface interest in Parcel 2 subject to taxes. Under the lease the lessor of the surface agreed to pay when due all general and ad valorem taxes levied and assessed against the premises. The minerals under Parcel 2 are not included in the premises nor are any taxes imposed upon or measured by advance royalties or production royalties paid to the lessor. The lessor of the minerals under Parcel 2 is the BLM, not the Sutherlands. Furthermore, while Meridian pays advance or production royalties to the Sutherlands as the lessor, there are no Wyoming taxes imposed upon or measured by the Sutherlands' surface interest. The Sutherlands' surface interest *1100in Parcel 2 is exempt by virtue of the mining of the minerals by Meridian acquired from the BLM.
[4137] Under Parcel 1 the Sutherlands were paid a royalty on the production of the minerals of 10 cents per ton for the mining of the minerals from Parcel 1. Under Parcel 2 the Sutherlands were paid a rental of the surface, which is the only thing they owned with regard to Parcel 2, of 6 cents per ton for the surface rights. The difference is that under Wyoming law, more specifically, the Wyoming Constitution, the royalty paid for the minerals is subject to tax, while the surface is exempt. This has been the case since statehood. For these reasons I respectfully dissent.