Summary 2007 WY 21

Summary of Decision issued February 1, 2007

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Case Name: Wyoming Department of Revenue v. Exxon

Citation: 2007 WY 21

Docket Number: 05-220

Appeal from the District Court of Laramie County, Honorable Dan Spangler, Retired, Judge.

Representing Appellant (Defendant): ): Patrick J. Crank, Attorney General; Michael L. Hubbard, Deputy Attorney General; Martin L. Hardsocg, Senior Assistant Attorney General; William Russell, Assistant Attorney General.

Representing Appellee (Plaintiff): Lawrence J. Wolfe, Patrick R. Day and Walter F. Eggers, III, of Holland & Hart, Cheyenne, Wyoming; Brent R. Kunz of Hathaway & Kunz, PC, Cheyenne, Wyoming.

Date of Decision: February 1, 2007

Issues: Whether the district court abused its discretion when it denied the Department’s Motion to Dismiss on the grounds of failure to exhaust administrative remedies or primary jurisdiction. Whether the district court correctly concluded that neither production taxes nor royalties are “direct costs of producing” in the proportionate profits formula set forth in § 39-14-203(b)(vi)(D) of the Wyoming Statutes.

Facts: The Department of Revenue appeals a declaratory judgment in favor of Exxon Mobil Corporation. Exxon owns and operates deep natural gas wells in Sublette County as part of its LaBarge project. Exxon and the Department agreed upon a valuation methodology that was incorporated into a judicial decree as a result of litigation. The “TSA method” was binding through August 1991 and continued in use in subsequent years. In 1997, Sublette County challenged the use of the TSA method. In 2004, the Board of Equalization determined the use of the TSA was authorized by Wyoming law. The Department then sent a letter to Exxon directing it to file amended tax returns and pay taxes according to the proportionate profits methodology for the 2003 production year. In 2004, the Department sent another letter stating it would require reporting utilizing the proportionate profits method for the 2004 production year and beyond. Within that letter, the Department specified that royalties and production taxes should be included as direct costs of producing in the proportionate profits formula.
Standard of Review: The decision to dismiss a declaratory judgment action on the basis of non-exhaustion of remedies is committed to the sound discretion of the district court. Determination of the proper treatment of royalties and production taxes under the oil and gas proportionate profits formula involves statutory interpretation and presents a question of law which the Court reviews de novo.
Discussion: Motion to Dismiss: The existence of another remedy, including an administrative appeal, does not preclude declaratory judgment relief. A district court retains discretion to withhold relief and may refuse to render a declaratory judgment where the judgment would not terminate the uncertainty or controversy giving rise to the proceeding. The desire to avoid usurping the role of an administrative agency is manifested in two doctrines relied upon by the Department: the exhaustion requirement and the primary jurisdiction doctrine. The Court did not find the primary jurisdiction doctrine applicable in the instant case because no genuine issues of material fact existed and no threshold determinations would have been better made by an agency with expertise.
In tax appeals, the Court has recognized the potential applicability of the exhaustion requirement because the judiciary is not the taxing authority. The Court did not find the application of Union Pacific required exhaustion in the instant case. The declination of jurisdiction in Union Pacific was not intended to be a broad refusal to entertain any future declaratory judgment action concerning a tax dispute. Rather, discretion would allow future determinations to be made on a case by case basis. Exxon challenged the Department’s authority to retroactively select a valuation methodology contrary to statutory requirements which posed a discrete and narrowly defined question of statutory construction. The Court saw those issues as appropriate subjects for declaratory relief. Dismissal was not warranted because the district court did not intrude on the agency’s fact-finding or administrative prerogative.
Proportionate Profits Formula: In RME, the Court reached the same conclusion as the district court and held that production taxes and royalties were not “direct costs of production” under Wyo. Stat. Ann. § 39-14-203(b)(vi)(D).
Holding: The district court did not abuse its discretion in denying the Department’s Motion to Dismiss Exxon’s action for declaratory judgment because the district court did not intrude on the agency’s fact-finding or administrative prerogative. The Court’s holding in RME was dispositive of the Department’s challenge and further discussion of the proportionate profits formula was not necessary to resolve the instant appeal.

Affirmed.

J. Burke delivered the decision of the Court.

Link: http://tinyurl.com/2wx725 .