Summary 2008 WY 155

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: Williams Production RMT Co. v. Wyo. Dep’t of Revenue

Citation: 2008 WY 155

Docket Number: S-08-0018

Rule 12.09(b) Certification from the District Court of Campbell County, the Honorable Dan R. Price III, Judge.

Representing Appellant Williams Production RMT Co.: Patrick R. Day and Delissa L. Hayano of Holland & Hart LLP, Cheyenne, 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 Williams Production RMT Co’s (Williams) coal bed methane (CBM) production for production years 2000-2002, Williams 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 was whether the point of valuation of Williams’ 2000-2002 CBM production was at the outlet of the initial dehydrator pursuant to Wyo. Stat. Ann. § 39-14-203(b)(iv) or as Williams maintains was upstream from the initial dehydrator where Williams transferred the CBM to a third party for transportation.

Point of Valuation: The Court relied on its decision in Kennedy Oil holding that the DOR properly determined that the fair market value for Williams’ CBM included the third-party transportation fees incurred before the outlet of the initial dehydrator. The fair market value of the production was the value established by the arms-length sales price plus the fee Williams paid to Western for getting the gas to the initial dehydrator minus the transportation fees incurred downstream of the point of valuation. The Court discussed their decision in RME and stated that it was of limited significance to the instant case. RME involved the question of how royalties and production taxes were considered in the proportionate profits method for determining the fair market value of minerals sold downstream of the point of valuation, an entirely different scenario than when minerals are sold to or transported by a third-party upstream of the point of valuation.
The line for taxation purposes between mineral production and transportation or processing has been the subject of dispute for many years which the Court stated the legislature intended to end by drawing a clear line at the outlet of the initial dehydrator where production would be considered complete. If this conclusion is wrong, the Court is confident the legislature will act.
Disallowance of Downstream Transportation Fee Deduction and On-Lease Fuel Exemption: The DOR calculated a deduction for the part of Western’s fee downstream from the dehydrator, something it was not required to do when Williams provided no supporting information. The DOR also points out that the Court previously upheld the same method for calculating allowable deductions in Williams I. The Court concluded the Board’s findings were supported by substantial evidence.
The record is clear that both parties agreed Williams was entitled to a fuel use exemption; their figures differed by only $307.00. Given the parties’ agreement, the Court held that the Board could not reasonably conclude that Williams failed to meet its burden of showing that it was entitled to a fuel use exemption. Williams failed to present evidence substantiating its assertion that the taxable value was $2,998,620 therefore the Court held that the specific adjustment is to be based upon the DOR’s figure of $2,998,927.

Conclusion: Section 39-14-203(b) clearly provides that CBM is to be valued after completion of the production process which occurs after it is extracted, gathered, separated, injected and any other activity which occurs before the outlet of the initial dehydrator. Pursuant to that provision, the point of valuation of Williams’ 2000-2002 CBM production was at the outlet of the initial dehydrator. The statutory language clearly provides that expenses incurred by the producer prior to the point of valuation are not deductible in determining fair market value.
The Board’s ruling upholding the DOR’s calculation of the allowable deductions was supported by substantial evidence. The Board’s ruling disallowing an on-lease fuel exemption was not supported by substantial evidence. Williams is entitled to the exemption based upon the DOR’s calculation of the taxable value of the fuel used on-lease.

Affirmed in part, reversed in part.

J. Kite delivered the decision.

Link: http://tinyurl.com/9gkbdr .

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