Rule 12.09(b) Certification from the District Court of
Campbell County The Honorable Michael N. Deegan, Judge
Representing Appellant: Lawrence J. Wolfe, P.C. and Jenifer
E. Scoggin, P.C. of Holland & Hart, LLP, Cheyenne,
Wyoming. Argument by Mr. Wolfe.
Representing Appellee: Peter K. Michael, Wyoming Attorney
General; Ryan Schelhaas, Deputy Attorney General; Karl D.
Anderson, Senior Assistant Attorney General. Argument by Mr.
BURKE, C.J., and HILL, DAVIS, FOX, and KAUTZ, JJ.
Appellant Wyodak Resources Development Corp. (Wyodak) is a
coal producer in Campbell County, Wyoming and reports the
taxable value of its coal to Appellee Department of Revenue
(Department) using the proportionate profits valuation
method. Wyodak claims the Department improperly applied
Wyoming law when it set the point of valuation for its coal
for production years 2009 through 2011. It also challenges
the Department's categorization of certain
government-imposed and environmental expenses in the tax
valuation formula. The Board of Equalization (Board) upheld
the Department's determinations, and Wyodak petitioned
for judicial review. We conclude the Board's decision on
the point of valuation was correct and affirm that ruling.
The environmental and government-imposed expenses were under
audit at the time of the hearing before the Board. Given the
audit will result in a more complete factual record and the
results are subject to further administrative and, if
necessary, judicial review, the Board's decision on the
categorization of the costs was not final and the issue is
not ripe for judicial review.
The issues which must be resolved in this
1. Did the Board err by upholding the Department's
determination that the mouth of the mine and, consequently,
the point of valuation for Wyodak's coal, was located
where the coal actually reached the surface of the ground
rather than where Wyodak calculated it to be?
2. Was Wyodak's right to equal and uniform taxation under
the Wyoming Constitution violated by the Board's decision
on the point of valuation?
3. Did the Board issue a final decision on whether the
Department's classification of Wyodak's environmental
and government-imposed costs was correct and is that issue
ripe for review?
Wyodak owns a surface coal mine approximately five miles east
of Gillette in Campbell County, Wyoming. During the years in
question, Wyodak mined out of the Clovis Pit which is located
north of I-90. The Gillette Energy Complex is a group of
several power plants located south of I-90 and is the primary
customer for Wyodak's coal.
During the mining process, the topsoil and overburden are
removed to expose the coal seam. The removed material is used
to backfill mined areas. The Clovis Pit coal seam is divided
into two benches -- the top bench is approximately fifty feet
deep and the bottom bench is approximately thirty feet deep.
The bottom bench contains higher quality coal than the top
bench. Wyodak severs the coal from the vertical coal face of
each bench by blasting explosives. As the coal is extracted,
the coal face moves in a northerly direction, away from I-90.
For the Wyodak coal destined for the energy complex, front
end loaders take the severed coal to a primary crusher
located near the coal face of each bench. The primary
crushers break it into uniform pieces about eight inches in
diameter and dump it onto mobile conveyors. The mobile
conveyors transport the coal to a permanent conveyor, where
coal from the two benches is blended to the customer's
The permanent conveyor is located in a "transportation
corridor, " which was formed when the top bench of coal
was mined and not backfilled. The transportation corridor is
50 to 250 feet lower than the surrounding topography. The
permanent conveyor carries the coal south, crosses under I-90
via a tunnel and delivers the coal to the energy complex.
The coal that is not transported on the permanent conveyor is
hauled out of the pit in trucks via a haul road. The road
begins in the pit and climbs until it reaches the surface of
the surrounding land. The trucks carry the coal along the
haul road to a train load-out facility north of the mine,
where it is transported by train to the Dave Johnston power
plant in Glenrock, Wyoming.
Wyodak annually reports its coal production, expenses and
resulting taxable value to the Department. Wyoming statutes
establish that the point of valuation for coal, when
reporting its value for tax purposes, is the mouth of the
mine. Wyo. Stat. Ann. § 39-14-103(b)(ii) (LexisNexis
2015); DOR Rules, ch. 6, § 4(b)(i) (2006). The
Department and Wyodak historically recognized the mouth of
the mine for coal sent to the energy complex at the point
where the permanent conveyor entered the I-90
Wyodak initially reported its 2009, 2010 and 2011 taxable
values for the coal sent to the energy complex using the
entry to the I-90 tunnel as the mouth of the mine. We will
explain the tax structure in more detail later, but in
general, costs incurred before the mouth of the mine are
considered direct mining costs and increase the taxable value
of the mineral. Because the I-90 tunnel was the mouth of the
mine, most of the permanent conveyor costs were considered
direct mining costs. Wyodak subsequently reevaluated the
location of the mouth of its mine because each year the coal
face had moved farther north, away from I-90, increasing the
direct mining costs associated with the conveyor system, and
thereby increasing the taxable value of the coal. By 2011,
the transportation corridor was 8, 080 feet, or approximately
one and one-half miles, long.
Wyodak used a 1999 Wyoming Mining Association memorandum
prepared by Donald Coovert to "relocate" its mine
mouth for tax purposes by assuming that the conveyor system
did not exist. Mr. Coovert is a coal tax consultant who
testified for Wyodak at the hearing before the Board. The
memo provided a method to calculate where the mouth of the
mine would be if Wyodak used a truck haul road, instead of
the permanent conveyor, to transport its coal to the energy
complex. Wyodak's calculations artificially moved the
mouth of the mine significantly closer to the coal face,
thereby reducing its direct mining costs and, accordingly,
the taxable value of its coal.
In 2013, Wyodak filed amended returns for production years
2009, 2010 and 2011. The amended returns reflected the
calculated locations of hypothetical mouths of the mine for
each year assuming no permanent conveyor system existed and
re-categorized various environmental and government-imposed
expenses as indirect instead of direct costs, resulting in a
reduction of Wyodak's taxes. The Department did not agree
with Wyodak's new calculated mouth of the mine locations
or its re-categorization of expenses and rejected the amended
Wyodak appealed the Department's decision to the Board,
and the Board held a contested case hearing on November 12
through 14, 2013. It issued its findings of fact, conclusions
of law and order on December 18, 2015, ruling that the
Department's determinations on Wyodak's mouth of the
mine and categorization of mining expenses were correct.
Wyodak filed a petition with the district court for review of
the Board's decision. The parties and the district court
agreed that the case should be certified to this Court
pursuant to W.R.A.P. 12.09, and we accepted the
When an administrative agency case is certified to this Court
under W.R.A.P. 12.09(b), we apply the standards for judicial
review set forth in Wyo. Stat. Ann. § 16-3-114(c)
(LexisNexis 2015). Wyodak Resources Dev. Corp. v.
Dep't of Revenue, 2002 WY 181 ¶ 9, 60 P.3d 129,
134 (Wyo. 2002). The Board's findings of fact are
reviewed under the substantial evidence standard. Dale v.
S & S Builders, LLC, 2008 WY 84, ¶ 22, 188 P.3d
554, 561 (Wyo. 2008); Section 16-3-114(c). Substantial
evidence means "such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion."
Bush v. State ex rel. Wyo. Workers' Comp. Div.,
2005 WY 120, ¶ 5, 120 P.3d 176, 179 (Wyo. 2005)
(citation omitted). Findings of fact are supported by
substantial evidence when we can discern a rational premise
for those findings from the evidence preserved in the record.
We review an agency's conclusions of law de novo
and affirm when they are in accordance with the law. However,
when the agency has failed to properly invoke and apply the
correct rule of law, we correct the agency's error.
Dale, ¶ 26, 188 P.3d at 561-62. This case
requires interpretation of the relevant statutes, which is a
matter of law subject to de novo review. DB v.
State (In re CRA), 2016 WY 24, ¶ 15, 368 P.3d 294,
298 (Wyo. 2016).
Resolution of this case requires interpretation and
application of Wyoming mineral taxation statutes. In order to
provide proper context for the specific issues presented by
Wyodak, we will begin by describing the statutory framework
used to value its coal.
General Law on Coal Taxation/Direct Cost Ratio
Wyo. Const. art. 15, § 3 provides that all coal mines
"shall be taxed ... in lieu of taxes on the lands[ ] on
the gross product thereof ...; provided, that the product of
all mines shall be taxed in proportion to the value
thereof." "The legislature is directed to define
full value for the classes of property and to enact laws
securing "'a just valuation for taxation of all
property ....'" RME Petroleum Co. v. Dep't
of Revenue, 2007 WY 16, ¶ 14, 150 P.3d 673, 679
(Wyo. 2007), quoting Wyo. Const. art. 15, § 11.
Exercising that power, the legislature has imposed ad valorem
and severance taxes on the value of gross mineral production.
Wyo. Stat. Ann. § 39-13-103 (LexisNexis 2015) (ad
valorem tax), § 39-14-103 (severance tax). Coal is
valued for purposes of taxation at "the fair market
value of the product at the mouth of the mine where produced,
after the mining or production process is completed."
Pursuant to Wyo. Stat. Ann. § 39-14-101(a)(vi), the
mouth of the mine is defined as:
[t]he point at which a mineral is brought to the surface of
the ground and is taken out of the pit, shaft or portal. For
a surface mine, this point shall be the top of the ramp where
the road or conveying system leaves the pit. For an in situ
mine, the point shall be the wellhead.
Section 37-14-101(a)(v) defines mining or production as:
drilling, blasting, loading, roadwork, overburden removal,
pre-mouth of the mine reclamation, transportation from the
point of severance to the mouth of the mine, and maintenance
of facilities and equipment directly relating to any of the
functions stated in this paragraph.
Like most Wyoming producers, Wyodak sells its coal away from
the mouth of the mine. For coal sold away from the mouth of
the mine pursuant to a bona fide arms-length sale, §
39-14-103(b)(vii) establishes a formula, commonly known as
the proportionate profits valuation method, to determine what
portion of the sales value is attributable to the value of
the gross product at the mouth of the mine. Powder River
Coal Co. v. Wyo. State Bd. of Equalization, 2002 WY 5,
¶ 8, 38 P.3d 423, 427 (Wyo. 2002). Section
39-14-103(b)(vii) states in part:
(vii) For coal sold away from the mouth of the mine pursuant
to a bona fide arms-length sale, the department shall
calculate the fair market value of coal by multiplying the
sales value of extracted coal, less transportation to market
provided by a third party to the extent included in sales
value, all royalties, ad valorem production taxes, severance
taxes, black lung excise taxes and abandoned mine lands fees,
by the ratio of direct mining costs to total direct costs.
Nonexempt royalties, ad valorem production taxes, severance
taxes, black lung excise taxes and abandoned mine lands fees
shall then be added to determine fair market value.
This Court expressed the proportionate profits method as a
mathematical formula in RME, ¶17, 150P.3d at
Wyoming's proportionate profits formula uses a ratio of
direct mining costs to total direct costs (the direct cost
ratio). Section 39-14-103(b)(vii). More direct mining costs
result in a higher direct cost ratio. The taxable value of
the mineral increases or decreases as the direct cost ratio
does, so the higher the direct cost ratio, the higher the
taxable value. To determine the correct direct cost ratio
and, thereby, the proper taxable value, costs have to be
correctly categorized as direct mining costs, total direct
costs or indirect costs. Direct mining costs are defined as:
mining labor including mine foremen and supervisory personnel
whose primary responsibility is extraction of coal, supplies
used for mining, mining equipment depreciation, fuel, power
and other utilities used for mining, maintenance of mining
equipment, coal transportation from the point of severance to
the mouth of the mine, and any other direct costs incurred