Summary 2006 WY 137

Summary of Decision issued October 31, 2006

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Case Name: Powder River Coal Company v. Wyoming Department of Revenue

Citation: 2006 WY 137

Docket Number: 05-296

Rule 12.09(b) Certification from the District Court of Campbell County, the Honorable John Perry, Judge

Representing Appellant (Petitioner): Lawrence J. Wolfe of Holland & Hart, LLP, Cheyenne, Wyoming.

Representing Appellee (Respondent): Patrick J. Crank, Attorney General; Michael L. Hubbard, Deputy Attorney General; Martin L. Hardsocg, Senior Assistant Attorney General; Karl D. Anderson, Senior Assistant Attorney General; Ryan T. Schelhaas, Senior Assistant Attorney General. Argument by Mr. Schelhaas.

Issue: Whether the State Board of Equalization properly concluded that Powder River Coal Company’s (PRCC) employee healthcare costs were direct costs pursuant to the proportionate profits statute, Wyo. Stat. § 39-14-103(b)(vii).

Holding: PRCC is a subsidiary of Peabody Investments Corporation and owns three coal mines in Campbell County, Wyoming. Peabody offers a healthcare plan to all employees funded by the company through a program of self-insurance. The plan is funded by the company and administered through a third party administrator under a service contract. No accruals or reserves exist; the claims are paid as incurred. Monthly reports to Peabody identify claims made by each individual social security number to allow Peabody to attribute healthcare costs to individual employees at each mine. From 1990 to 1997, PRCC treated healthcare costs as direct costs and attributed those costs to the three operational functions of mining, transportation and processing. The DOR agreed with and accepted PRCC’s method of attributing its healthcare costs to the various mine functions. In the course of the audit of PRCC’s tax returns for the years 1997-2000, the company took the position that healthcare costs should no longer be treated as direct costs because they did not directly track with employee wages and PRCC could not attribute healthcare costs to a particular function where the employee worked. A PRCC consultant explained his understanding of the legislative history of the statutes establishing the proportionate profit method and concluded that healthcare costs fit the statutory definition of indirect costs because they are not specifically listed as a direct cost in the statute and could not be attributed to an operation function without allocation. PRCC agrees its healthcare benefits are part of its compensation package.
Standard of Review: When the Court reviews a case certified to them, they apply the appellate standards applicable to the court of the first instance. Wyo. Stat. Ann. § 16-3-114 governs judicial review of administrative decisions. The Court examined the entire record to determine if the agency’s findings were supported by substantial evidence. The Court reviews an agency’s conclusions of law, de novo.
The Court discussed the proportionate profits method and its statutory and constitutional underpinnings in Powder River. The Court stated the fundamental question to answer in the instant case is what the legislature intended by the phrase “direct mining costs include mining labor” as used in § 39-14-103(b)(vii)(B). PRCC and the DOR agree the statutory language is unambiguous. It provides that to determine the fair market value of coal sold away from the mouth of the mine, the sales value of extracted coal, minus royalties and taxes, must be multiplied by the ratio of direct mining costs to total direct costs. The Court looked at the statutory list of direct mining costs. PRCC contended the word “labor” meant only salary and wages and DOR argued just the opposite. Looking at the plain meaning of “labor”, the Court stated that whatever it costs the employer to obtain the necessary work to accomplish the mining is the cost of labor. The Court stated that everyone would agree wages are a component of the direct cost of labor. A careful reading of the testimony of PRCC’s witnesses demonstrates that as an employer, it does not dispute the fact that healthcare benefits are part of the cost of mining labor however, PRCC concluded healthcare costs are not a “direct” cost. PRCC claimed “mining labor” to be a term of art. SBOE’s factual findings found “mining labor” was not a term of art and did not mean only “actual hourly wage or salary paid and nothing else”. The Court reviewed the record and found it contained substantial evidence to support the SBOE’s factual finding. The Court concluded when all the provisions of the statute are read together, the legislature simply meant all costs, a portion of which are directly associated with a particular function, should be attributed to that function in a reasonable way. The indirect cost catch-all phrase in subsection 39-14-103(b)(vii)(D) means costs similar to those specifically listed which are not directly related to a function and therefore must be allowed by the direct cost formula. In Powder River the court concluded that coal lease bonus payments were indirect costs because they were unlike the specifically listed “hard mining costs” and necessary and beneficial to the entire operation and not just the mining function. Workers must be compensated in order to mine coal and healthcare benefits are considered by all to be a valuable piece of the compensation package.

Affirmed.

J. Kite delivered the order for the court.

Link to the case: http://tinyurl.com/yzkmsn .