Cloud Peak Energy Resources, LLC v. Dept. of Revenue

Cloud Peak Energy Resources, LLC v. Dept. of Revenue, 2015 MT 10 (Jan. 13, 2015) (Rice, J.) (7-0, aff’d & rev’d) 

Issue: (1) Whether the Department of Revenue incorrectly imputed revenue from non-arm’s length coal sales under § 15-35-107, MCA; and (2) whether coal additives used from 2005-2007 are subject to the coal tax.

Short Answer: (1) Yes. The “time of sale” was when coal contracts were negotiated, not when coal was shipped. (2) Yes. The plain language of § 15-35-102(5) was broad enough to include these costs.

Affirmed in part and reversed in part

Facts: Cloud Peak owns and operates Spring Creek coal mine. In 2008 the Department audited Cloud Peak’s coal tax payments for 2005-2007. In 2012 the Department levied a deficiency assessment for taxes owing from sales involving non-arm’s length agreements with Cloud Peak’s affiliates.

Procedural Posture & Holding: Cloud Peak sought declaratory relief, alleging the Department’s methodology for determining market value was illegal, and that the Department had illegally assessed taxes on coal additives for 2005-2007. The parties filed cross-motions for summary judgment. The district court ruled in Cloud Peak’s favor on the imputation of revenue issue and in the Department’s favor on the additives issue. Both parties appealed. The Supreme Court affirms the lower court’s holding that market value is properly based upon similarly negotiated contracts, but reverses the “sidebars” it imposed on the Departments discretion, and affirms the lower court’s holding that coal additives were taxable.

Reasoning: (1) Section 15-35-107 authorizes the Department to impute a value for coal sold under non-arm’s length agreements. The parties dispute whether imputation should be based on prices at the time of shipment (Department) or when contract was negotiated (Cloud Peak). The Court previously held that market value is “the price that a willing buyer would pay to a willing seller under market and economic conditions at the time of sale.” Decker, ¶ 31. The Department’s imputation approach must take into account “the economic forces in play at the time the basic price was set.” ¶ 11. Here, that was when the contracts were negotiated, not when the coal was shipped. However, the lower court lacked authority to impose specific criteria on the Department, and its statements to the contrary are reversed.

(2) The Department taxed freeze-proofing agents and dust suppressants applied to the coal. Cloud Peak argues the Department lacked authority to do so prior to the 2009 amendment of § 15-35-102(7). The Court affirms that the plain language of the statute was broad enough prior to the amendment to authorize the assessment of taxes on costs associated with preparing coal for shipment.