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Exxon Mobil Corp. v. State

ELR Citation: 39 ELR 20262
Nos. No. 2009 WY 139, (Wyo., 11/12/2009)

The Wyoming Supreme Court reversed the state's calculation of severance taxes owed by a company that operates a large natural gas well facility in the Bridger-Teton National Forest. State law provides that the fair market value of natural gas for severance tax purposes is determined after the production process is completed. Because the company doesn't sell the gas at the end of the production process but instead sells it after it has been processed and separated into methane, carbon dioxide, and sulfur, the amount the company receives when it sells those products is higher than their value after initial processing. The accounting method must therefore reflect the lower value of the gas at the point where the production process is actually completed. The parties' dispute centered on how post-processing transportation costs should be factored into the calculation. State law provides that "direct cost[s] of producing, processing and transporting" minerals must be included in the denominator of the direct cost ratio under the proportionate profits method. Here, the court agreed with the company that its post-processing transportation costs were direct costs. As a result, the company will be taxed at a much lower rate.