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Murray Energy Corp. v. Steager

Supreme Court of West Virginia

April 29, 2019

MURRAY ENERGY CORPORATION and CONSOLIDATION COAL COMPANY, Plaintiffs Below/Petitioners
v.
DALE W. STEAGER, STATE TAX COMMISSIONER OF WEST VIRGINIA; THE COUNTY COMMISSION OF MARSHALL COUNTY; and CHRISTOPHER J. KESSLER, Assessor of Marshall County, Respondents Below/Respondents

          Submitted: February 13, 2019

          Appeal from the Circuit Court of Marshall County The Honorable Jeffrey D. Cramer, Judge Civil Action No. 16-P-16

          Mark Gaydos, Esq. Buddy Turner, Esq. McNeer, Highland, McMunn, and Varner, L. C. Kingwood, WV Counsel for Petitioners

          Patrick Morrisey, Esq. Attorney General Katherine A. Schultz, Esq. Senior Deputy Attorney General Cassandra L. Means, Esq. Assistant Attorney General Charleston, WV Counsel for Respondents Dale W. Steager, State Tax Commissioner of West Virginia, and Christopher J. Kessler, Assessor of Marshall County

          Joseph R. Canestraro, Esq. Rhonda L. Wade, Esq. Office of the Marshall County Prosecuting Attorney Moundsville, WV Counsel for Respondent County Commission of Marshall County

          Kelli D. Talbott, Esq. Senior Deputy Attorney General Charleston, WV Counsel for Amicus Curiae Steven L. Paine, West Virginia State Superintendent of Schools

         SYLLABUS BY THE COURT

         1. "As a general rule, there is a presumption that valuations for taxation purposes fixed by an assessor are correct. Thus, a tax assessment of coal property will be presumed to be correct when the assessor, in assessing the coal property: (1) relies upon the legislative rules prescribing the methods by which property is to be assessed; and (2) uses, as a guide, information furnished by the tax department, such as a list of comparable sales of similar property. The burden is on the taxpayer challenging the assessment to demonstrate by clear and convincing evidence that the tax assessment is erroneous." Syl. Pt. 2, W. Pocahontas Properties, Ltd. v. Cty. Comm'n of Wetzel Cty., 189 W.Va. 322');">189 W.Va. 322, 431 S.E.2d 661 (1993).

         2. "In a case involving the assessment of property for taxation purposes, which does not involve the violation of a statute governing the assessment of property, or a violation of a constitutional provision, or in which a question of the constitutionality of a statute is not involved, this Court will not set aside or disturb an assessment made by an assessor or the county court, acting as a board of equalization and review, where the assessment is supported by substantial evidence." Syl. Pt. 2, In re Tax Assessments Against the South Land Co., 143 W.Va. 152, 100 S.E.2d 555 (1957), overruled in part by In re Kanawha Val. Bank, 144 W.Va. 346, 109 S.E.2d 649 (1959).

         3. "Interpreting a statute or an administrative rule or regulation presents a purely legal question subject to de novo review." Syl. Pt. 1, Appalachian Power Co. v. State Tax Dep't of W.Va., 195 W.Va. 573, 466 S.E.2d 424 (1995).

         4. "It is fundamental law that the Legislature may delegate to an administrative agency the power to make rules and regulations to implement the statute under which the agency functions. In exercising that power, however, an administrative agency may not issue a regulation which is inconsistent with, or which alters or limits its statutory authority." Syl. Pt. 3, Rowe v. W.Va. Dep't of Corr., 170 W.Va. 230, 292 S.E.2d 650 (1982).

         5. "Judicial review of an agency's legislative rule and the construction of a statute that it administers involves two separate but interrelated questions, only the second of which furnishes an occasion for deference. In deciding whether an administrative agency's position should be sustained, a reviewing court applies the standards set out by the United States Supreme Court in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). The court first must ask whether the Legislature has directly spoken to the precise question at issue. If the intention of the Legislature is clear, that is the end of the matter, and the agency's position only can be upheld if it conforms to the Legislature's intent. No deference is due the agency's interpretation at this stage." Syl. Pt. 3, Appalachian Power Co. v. State Tax Dep't of W. Virginia, 195 W.Va. 573, 466 S.E.2d 424 (1995).

         6. "If legislative intent is not clear, a reviewing court may not simply impose its own construction of the statute in reviewing a legislative rule. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute. A valid legislative rule is entitled to substantial deference by the reviewing court. As a properly promulgated legislative rule, the rule can be ignored only if the agency has exceeded its constitutional or statutory authority or is arbitrary or capricious. W.Va. Code, 29A-4-2 (1982)." Syl. Pt. 4, Appalachian Power Co. v. State Tax Dep't of W.Va., 195 W.Va. 573, 466 S.E.2d 424 (1995).

         7. The methodology of calculating and use of the annual average Steam Coal Price Per Ton and coal seam thickness averages for ad valorem tax valuation purposes, as set forth in West Virginia Code of State Rules § 110-1I-1 et seq. (2006), does not violate the requirement contained in West Virginia Code § 11-6K-1(a) (2010) that natural resources property be assessed based upon its "true and actual value."

         8. "West Virginia's constitutional equal protection principle is a part of the Due Process Clause found in Article III, Section 10 of the West Virginia Constitution." Syl. Pt. 4, Israel by Israel v. W.Va. Secondary Sch. Activities Comm'n, 182 W.Va. 454, 388 S.E.2d 480 (1989).

         9. "'"Where economic rights are concerned, we look to see whether the classification is a rational one based on social, economic, historic or geographic factors, whether it bears a reasonable relationship to a proper governmental purpose, and whether all persons within the class are treated equally. Where such classification is rational and bears the requisite reasonable relationship, the statute does not violate Section 10 of Article III of the West Virginia Constitution, which is our equal protection clause." Syllabus Point 7, [as modified, ] Atchinson v. Erwin, [172] W.Va. [8], 302 S.E.2d 78 (1983).' Syllabus Point 4, as modified, Hartsock-Flesher Candy Co. v. Wheeling Wholesale Grocery Co., 174 W.Va. 538, 328 S.E.2d 144 (1984)." Syl. Pt. 4, Gibson v. W. Virginia Dep't of Highways, 185 W.Va. 214, 406 S.E.2d 440 (1991), holding modified by Neal v. Marion, 222 W.Va. 380, 664 S.E.2d 721 (2008).

         10. The valuation methodology contained in West Virginia Code of State Rules § 110-1I-1 et seq. (2006) for the calculation and use of an average Steam Coal Price Per Ton and average coal seam thickness does not violate the equality provision of West Virginia Constitution Article X, Section 1 or the equal protection provisions of the West Virginia and United States Constitutions.

          WORKMAN, JUSTICE

         This is an appeal from the Circuit Court of Marshall County's order affirming the Board of Equalization and Review's determination that petitioners Murray Energy Corporation and Consolidation Coal Company's coal interests were properly valued and assessed by respondents Dale W. Steager, State Tax Commissioner of West Virginia, the County Commission of Marshall County, and Christopher J. Kessler, Assessor of Marshall County. The circuit court concluded that the method of valuing coal properties as prescribed in the Code of State of Rules violated neither the statutory requirement of assessment at "true and actual value" nor the constitutional equality requirements of Article X, Section 1 of the West Virginia Constitution and the Equal Protection provisions of the United States and West Virginia Constitutions.

         Upon careful review of the briefs of the parties and amicus curiae, [1] the appendix record, the arguments of the parties, and the applicable legal authority, we agree with the circuit court's legal conclusions and therefore affirm the December 7, 2017, order of the Circuit Court of Marshall County, West Virginia.

          I. FACTS AND PROCEDURAL HISTORY

         Petitioners Murray Energy Corporation and Consolidation Coal Company (hereinafter "petitioners") are owners of coal interests in Marshall County. These coal interests are appraised for ad valorem tax purposes by respondent Dale Steager, State Tax Commissioner of West Virginia (hereinafter "Tax Department") and assessed by the respondents County Commission of Marshall County through its Assessor, Christopher J. Kessler. The Tax Department utilizes a "statewide mass appraisal system" for valuation of active and reserve coal properties, as described in West Virginia Code of State Rules § 110-1I-1 et seq. (2006).[2] This case involves the Tax Department's use of certain averages for purposes of valuing petitioners' coal interests through the mass appraisal system.

         The Mass. Appraisal System and Legislative Rules

         The mass appraisal system utilized by the Tax Department for valuation of coal property values the coal inside the mine, rather than the mine itself; it uses the income approach to value, which assumes that property is worth its future income, discounted to present value. The Tax Department similarly uses mass appraisal systems for the valuation of oil and gas, timber, and residential properties. The Tax Department explains that a mass appraisal system is utilized because the Tax Department does not have the resources to annually reassess each individual property inasmuch as there are more than 240, 000 coal parcels requiring appraisal. The methodology for valuation of coal interests, as outlined in the Code of State Rules, was developed through the legislative rule-making process.

         As indicated, the appraisal system uses averages for certain values necessary to calculate the value of the minerals, rather than individualized data. The two averages being challenged herein-the statewide Steam Coal Price Per Ton average ("SCPPT") and the seam thickness average-are calculated by using the sources and formulas prescribed by regulation. These averages are then filed with the West Virginia Secretary of State as "natural resource valuation variables" and made available for public comment annually.

         According to the Tax Department, the SCPPT average for any particular year is calculated by using 1) confidential data[3] concerning purchases of coal obtained from the West Virginia Public Service Commission and reports of fuel purchases from the Federal Energy Regulatory Commission/the U.S. Energy Information Administration; 2) published information from major coal companies; 3) royalty information derived from county courthouses; and 4) industry publications.[4] Only West Virginia-sourced coal information is utilized from these databases. The SCPPT average for any particular tax year is derived by averaging the price per ton for the three years preceding the tax year, i.e., a "three-year rolling average."[5]

         In this case, the 2016 tax year SCPPT is being challenged, which was calculated by using the variables provided in tax years 2012 through 2014-the three years preceding the assessment date of July 1, 2015-for the 2016 tax year. On June 30, 2015, the Tax Department filed the variables for the 2016 tax year and declared the SCPPT to be $60.35/ton. This figure was left open for public comment until August 15, 2015. Petitioners did not provide comment.

         As for the coal seam thickness average, seams of coal vary in thickness and density, which obviously determines the amount of coal at any particular location. The Legislature determined that use of an average to estimate the seam thickness at any given location based on acreage was appropriate; the formula provided by legislative rule calculates the average seam thickness to be approximately 1, 800 tons per acre foot, which figure is published by the United States Geologic Survey.[6] This coal seam thickness average is expressly set forth in the regulation and does not vary from year to year. Other neighboring states' geological surveys (Kentucky, Ohio, and Pennsylvania) likewise use this figure.

         On January 22, 2016, petitioners protested the Tax Department's valuation of their Marshall County coal interests for the 2016 tax year to the Marshall County Commission sitting as the Board of Equalization and Review (the "Board"). Petitioners challenged the Tax Department's use of the coal seam thickness average and rolling three-year average to determine the average steam coal price per ton rather than the "spot price" of coal as of the July 1, 2015, assessment date. Petitioners argued that these methodologies and averages did not reflect the "true and actual" value of their coal properties, causing them to be over-valued for ad valorem taxation purposes.

         Before the Board, John L. Weiss, a mineral extraction consultant, testified on behalf of petitioners. He stated that the average price per ton for petitioners' coal reserves as of the assessment date of July 1, 2015 was actually $41.08/ton, which figure was derived from well-recognized industry publications. He further testified that this amount was consistent with his industry knowledge and experience and that the $60.35/ton price set by the Tax Commissioner for the 2016 tax year was inflated. Even utilizing the three-year rolling average, but including only publicly-available rather than confidential data, Mr. Weiss testified that the average price per ton was $51.50, rather than $60.35/ton.

         Jeffrey Kern, a mineral appraisal expert who helped design the State's mass appraisal system during its legislative development, testified on behalf of the Tax Department. Mr. Kern explained that the coal property mass appraisal system was designed to eliminate "peaks and valleys" in the price of coal and allow for greater predictability of tax burdens and revenues by the taxpayer and the State, respectively. Mr. Kern further explained that this method was carefully constructed through the legislative rule-making process and extensively involved stakeholders like petitioners' predecessor in interest, Consolidation Coal Company. He testified that this averaging system-utilizing the rolling three-year historical average-resulted in the $60.35/ton price upon which petitioners were taxed for the 2016 tax year. He explained that use of a mass appraisal system is necessary because the State "can't, on an annual basis, have assessors go out and reassess every individual property as though you were hiring a real estate agent[.]"

         Mr. Kern further testified that the average seam thickness figure-calculated pursuant to regulation to equate to precisely 1, 793.97 tons per foot per acre-is "rounded up" to 1, 800 by legislative rule because it is a "published piece of information . . . [and] [t]here was no sense in reinventing the wheel there."[7] He testified that taxpayers may supply specific data regarding their seam thicknesses and mineability for inclusion in the state database, but that petitioners had historically failed to do so. Further, Mr. Kern noted that taxpayers are also permitted to provide an appendix ("Table F") with their return which states how much coal they sold and at what price, but petitioners had not historically provided this information either.[8]

         Critically, Mr. Kern admitted that the $60.35/ton is in fact higher than what the average price per ton was as of the assessment date of July 1, 2015, by design and was the result of using the three-year rolling average. He explained that using an historical rolling average serves to even out highs and lows in the price of coal and that the "inflated" $60.35/ton price was an effort to even out the "valley" currently occupied by coal prices. Mr. Kern explained, "[W]e're doing a mass appraisal system. Some places are getting less tax than they could, and some places are getting a little more tax than they could." (emphasis added). Mr. Kern conceded that the information provided by the PSC, FERC, and published data by Platts, Coal Week, and S & L[9] placed the average coal price per ton "substantially lower" than $60.35/ton for the specific assessment year of 2015, but that the difference in the SCPPT was occasioned by use of the three-year rolling average as required by legislative rule.

         Upon consideration of the foregoing testimony, [10] the Board denied the protest. Petitioners appealed to the circuit court and, after briefing by the parties, the circuit court likewise denied the appeal, affirming the Board's rejection of petitioners' protest. Adopting the Tax Department's position wholesale, the circuit court concluded that because the Constitution provides that "value" is "to be ascertained as directed by law," the legislative rules are the Legislature's manner of directing the determination of value. It found that petitioners failed to establish that the Tax Department's calculations were inaccurate, but rather proposed new methodologies to displace the one prescribed by legislative rule. As to petitioners' equal protection argument, the circuit court concluded that petitioners failed to prove that the methodology was misapplied or that they were being treated differently than other taxpayers. This appeal followed.

         II. STANDARD OF REVIEW

         Generally, "there is a presumption that valuations for taxation purposes fixed by an assessor are correct. . . . The burden is on the taxpayer challenging the assessment to demonstrate by clear and convincing evidence that the tax assessment is erroneous." Syl. Pt. 2, in part, Western Pocahontas Props., Ltd. v. County Comm'n of Wetzel Cty, 189 W.Va. 322, 431 S.E.2d 661 (1993). However,

[i]n a case involving the assessment of property for taxation purposes, which does not involve the violation of a statute governing the assessment of property, or a violation of a constitutional provision, or in which a question of the constitutionality of a statute is not involved, this Court will not set aside or disturb an assessment made by an assessor or the county court, acting as a board of equalization and review, where the assessment is supported by substantial evidence.

Syl. Pt. 2, In re Tax Assessments Against the South Land Co., 143 W.Va. 152, 100 S.E.2d 555 (1957), overruled on other grounds by In re Kanawha Val. Bank, 144 W.Va. 346, 109 S.E.2d 649 (1959) (emphasis added). As statutory and constitutional issues are squarely implicated in the instant case, any suggested deference or other reduced level of scrutiny is inapplicable.

         Rather, "[i]nterpreting a statute or an administrative rule or regulation presents a purely legal question subject to de novo review." Syl. Pt. 1, Appalachian Power Co. v. State Tax Dep't, 195 W.Va. 573, 466 S.E.2d 424 (1995). Further, "[c]onstitutional challenges . . . are reviewed pursuant to a de novo standard of review." Morris v. Crown Equip. Corp., 219 W.Va. 347, 352, 633 S.E.2d 292, 297 (2006). However, we are mindful that "[a]n inquiring court-even a court empowered to conduct de novo review-must examine a regulatory interpretation of a statute by standards that include appropriate deference to agency expertise and discretion." Id. at 582, 466 S.E.2d at 433.

         III. DISCUSSION

         Petitioners make three arguments in support of their position that the Tax Department's valuation must be set aside: 1) that the mass appraisal methodology utilized by the Tax Department as prescribed by regulation violates statutory authority requiring tax assessments to be based on "true and actual" value; 2) that the methodology violates the West Virginia Constitution's "equal and uniform" taxation requirement; and 3) that the methodology is similarly violative of the Equal Protection provisions of the United States and West Virginia Constitutions. Petitioners emphasize that the monetary significance of the purported over-valuation rendered by use of the methodology is substantial. Petitioners assert that as a result of the "rounded up" 1, 800 seam thickness average, they are taxed on approximately 1.1 million tons of coal they do not actually own. Combined with the allegedly inflated figure of $60.35/ton, petitioners assert this results in a $65 million overvaluation of their coal properties.

         The Tax Department responds primarily that the Constitution expressly delegates development of the valuation methodology to the Legislature and that it has no authority to deviate from the methodology delineated in the legislatively-approved regulations. The Tax Department stresses that petitioners do not suggest that it failed to properly apply the regulations; rather, they take issue with the legislatively-developed methodology mandated therein. In that regard, the Tax Department does little to argue in support of the validity of the regulations; rather, it largely defaults to its obligation to faithfully apply the regulations as written. Insofar as the alleged constitutional violations, the Tax Department ...


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