Wyoming ~ Property, Severance Taxes: Mining Agreement Required Taxpayers to Pay Taxes on Royalties

Taxpayers that entered into a mining lease that granted a mining company the right to conduct mining operations on the taxpayers’ two separate parcels of property were obligated to pay Wyoming ad valorem property taxes and severance taxes related to the mineral production because the plain language of the mining lease reflected the parties’ intent that the taxpayers pay their share of the taxes on both parcels of property. Throughout the term of the mining lease, the mining company made royalty payments to the taxpayers, but withheld amounts asserted by the mining company to reflect the taxpayers’ share of ad valorem and severance taxes. The amounts withheld by the mining company were used to pay a portion of the taxes paid by the company.

The taxpayers focused on the mining lease’s requirement that they were required to pay all general and ad valorem taxes levied and assessed against the premises. The taxpayers asserted that the mining lease defined the term “premises” to refer to the surface and mineral estates of one of the parcels, but only to the surface estate of the second parcel. Severance and ad valorem taxes on the second parcel were, therefore, not levied against the premises. On this basis, the taxpayers contended that they were not required to pay these taxes.

Although the Wyoming Supreme Court agreed with the taxpayers that the taxes at issue were not levied or assessed against the premises, the court held that the taxpayers overlooked the fact that the unambiguous language of the mining lease required the taxpayers to pay taxes levied against the premises as well as any taxes imposed on or measured by advance royalties or production royalties paid to the lessor. Therefore, the taxpayers were obligated to pay not only taxes levied against the premises, but also taxes imposed or measured by royalties. Furthermore, the Wyoming Department of Revenue’s Form 8301, the “Annual Gross Products Report for Miscellaneous Minerals,” required taxpayers to report all royalties. Of particular importance to this case, Form 8301 specifically required taxpayers to include the value of the private royalties as part of the taxable value of the minerals.

Sutherland v. Meridian Granite Co., Wyoming Supreme Court, Nos. S-11-0091 and S-11-0092, April 10, 2012, ¶201-149

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