Summary 2008 WY 154

Summary of Decision issued December 31, 2008

Summaries are prepared by Law Librarians and are not official statements of the Wyoming Supreme Court.

Case Name: Kennedy Oil v. Department of Revenue

Citation: 2008 WY 154

Docket Number: S-07-0287

Rule 12.09(b) Certification from the District Court of Campbell County, the Honorable Michael N. Deegan, Judge.

Representing Appellant Kennedy Oil: Morris R. Massey of Brown, Drew & Massey, LLP, Casper, Wyoming.

Representing Appellee Department of Revenue: Bruce A. Salzburg, Attorney General; Michael L. Hubbard, Deputy Attorney General; Martin L. Hardsocg, Senior Assistant Attorney General; Karl D. Anderson, Senior Assistant Attorney General.

Facts/Discussion: After the Wyoming Board of Equalization (Board) affirmed the Department of Revenue’s (DOR) valuations of Kennedy Oil’s (Kennedy) coal bed methane (CBM) production for production years 2000-2002, Kennedy sought review in district court. The DOR moved for, the district court ordered and the Court accepted certification pursuant to W.R.A.P. 12.09(b). The primary issue for the Court’s determination concerned the point at which CBM is valued for taxation purposes.

Point of Valuation: Kennedy contended the uncontested evidence established that it sold the CBM at or near the wellhead. Citing § 39-14-203(b)(v), Kennedy maintains that the point of sale is the point of valuation for tax purposes. The DOR responded that the Board correctly found that the point of valuation was the outlet of the initial dehydrator downstream from the wellhead. Section 39-14-203(b)(i) provides that natural gas is to be valued for taxation purposes as provided in the subsection and that § 39-14-203(b)(ii) provides the fair market value for natural gas is to be determined after the production process is completed. Paragraph (b)(ii) also clearly provides that expenses incurred prior to the point of valuation are not deductible in determining the fair market value. Giving the language its plain and ordinary meaning, Kennedy’s CBM production was to be valued for taxation purposes at the point when the production process was completed. Any expenses incurred up to that point were not deductible in determining fair market value. Section 39-14-203(b)(iv) defines the production process for natural gas is completed after it is extracted from the well, gathered, separated, injected and any other activity which occurs before the outlet of the initial dehydrator. The Court stated that § 39-14-203(b)(iv) established the point of valuation while § 39-14-203(b)(v) established only the method of valuation.

Conclusion: Section 39-14-203(b)(iii) clearly and unambiguously provides that the fair market value for gas is determined after the production process is complete. Paragraph (b)(iv) further provides that the production process for gas is completed after it is extracted from the well, gathered, separated, injected and any other activity which occurs before the outlet of the initial dehydrator. Under the clear language of paragraph (b)(iii), producer expenses incurred prior to the point of valuation, i.e. the outlet of the initial dehydrator, are not deductible. The DOR properly determined the fair market value of Kennedy’s CBM production after the production process was complete and disallowed expenses Kennedy incurred before the production process was complete and disallowed expenses Kennedy incurred before the outlet of the initial dehydrator.

Affirmed.

J. Kite delivered the decision.

Link: http://tinyurl.com/8qytvy .

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