   IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA

                          January 2019 Term                          FILED
                                                                  June 5, 2019
                                                                    released at 3:00 p.m.
                             No. 18-0121                        EDYTHE NASH GAISER, CLERK
                                                                SUPREME COURT OF APPEALS
                                                                     OF WEST VIRGINIA


DALE W. STEAGER, WEST VIRGINIA STATE TAX COMMISSIONER,

                      Respondent Below/Petitioner

                                   v.

     CONSOL ENERGY, INC., d/b/a CNX GAS COMPANY LLC,

                      Petitioner Below/Respondent


 Appeal from the Circuit Court of Lewis County, Business Court Division
              The Honorable Christopher C. Wilkes, Judge
                        Civil Action No. 17-C-11

   AFFIRMED IN PART, REVERSED IN PART AND REMANDED


                                 AND


                             No. 18-0122


DALE W. STEAGER, WEST VIRGINIA STATE TAX COMMISSIONER,

                      Respondent Below/Petitioner

                                   v.

     CONSOL ENERGY, INC., d/b/a CNX GAS COMPANY LLC,

                      Petitioner Below/Respondent
Appeal from the Circuit Court of McDowell County, Business Court Division
               The Honorable Christopher C. Wilkes, Judge
                         Civil Action No. 16-C-135

    AFFIRMED IN PART, REVERSED IN PART AND REMANDED


                                  AND


                               No. 18-0123


 DALE W. STEAGER, WEST VIRGINIA STATE TAX COMMISSIONER
 and DAVID E. SPONAUGLE, ASSESSOR OF DODDRIDGE COUNTY,

                      Respondents Below/Petitioners

                                    v.

      CONSOL ENERGY, INC., d/b/a CNX GAS COMPANY LLC,

                       Petitioner Below/Respondent


Appeal from the Circuit Court of Doddridge County, Business Court Division
               The Honorable Christopher C. Wilkes, Judge
                         Civil Action No. 17-AA-2

    AFFIRMED IN PART, REVERSED IN PART AND REMANDED


                                  AND


                               No. 18-0124


DALE W. STEAGER, WEST VIRGINIA STATE TAX COMMISSIONER and
       ARLENE MOSSOR, ASSESSOR OF RITCHIE COUNTY,

                      Respondents Below/Petitioners
                                     v.

                ANTERO RESOURCES CORPORATION,

                       Petitioner Below/Respondent


  Appeal from the Circuit Court of Ritchie County, Business Court Division
                The Honorable Christopher C. Wilkes, Judge
                         Civil Action No. 17-AA-1

     AFFIRMED IN PART, REVERSED IN PART AND REMANDED


                                   AND


                               No. 18-0125


DALE W. STEAGER, WEST VIRGINIA STATE TAX COMMISSIONER and
   DAVID E. SPONAUGLE, ASSESSOR OF DODDRIDGE COUNTY,

                      Respondents Below/Petitioners

                                     v.

                ANTERO RESOURCES CORPORATION,

                       Petitioner Below/Respondent


Appeal from the Circuit Court of Doddridge County, Business Court Division
               The Honorable Christopher C. Wilkes, Judge
                 Civil Action No. 17-AA-1 and 17-AA-3

     AFFIRMED IN PART, REVERSED IN PART AND REMANDED


                                   AND
                                  No. 18-0227


THE COUNTY COMMISSION OF DODDRIDGE COUNTY, Sitting as the Board of
             Assessment Appeals and Board of Equalization,

                          Respondent Below/Petitioner

                                       v.

         CONSOL ENERGY, INC., d/b/a CNX GAS COMPANY LLC,

                          Petitioner Below/Respondent


   Appeal from the Circuit Court of Doddridge County, Business Court Division
                  The Honorable Christopher C. Wilkes, Judge
                            Civil Action No. 17-AA-2

       AFFIRMED IN PART, REVERSED IN PART AND REMANDED


                                     AND


                                  No. 18-0228


THE COUNTY COMMISSION OF DODDRIDGE COUNTY, Sitting as the Board of
             Assessment Appeals and Board of Equalization,

                          Respondent Below/Petitioner

                                       v.

                   ANTERO RESOURCES CORPORATION,

                          Petitioner Below/Respondent


   Appeal from the Circuit Court of Doddridge County, Business Court Division
                  The Honorable Christopher C. Wilkes, Judge
                    Civil Action No. 17-AA-1 and 17-AA-3
          AFFIRMED IN PART, REVERSED IN PART AND REMANDED


                              Submitted: March 12, 2019
                                 Filed: June 5, 2019

Patrick Morrisey                                Ancil G. Ramey, Esq.
Attorney General                                Steptoe & Johnson PLLC
L. Wayne Williams, Esq.                         Huntington, WV
Assistant Attorney General                      Craig A. Griffith, Esq
Charleston, WV                                  John J. Meadows, Esq.
Counsel for Petitioner Dale W. Steager,         Steptoe & Johnson PLLC
West Virginia State Tax Commissioner            Charleston, WV
                                                Counsel for Respondents
                                                Consol Energy Inc. d/b/a CNX Gas
Jonathan Nicol, Esq.                            Company LLC and Antero
Brandy D. Bell, Esq.                            Resources Corporation
Lindsay M. Gainer, Esq.
Kay Casto & Chaney PLLC
Charleston, WV
Counsel for Respondent the County Commission
of Doddridge County

James Brian Shockley, Esq.
Assistant Prosecuting Attorney
Harrison County Prosecutor’s Office
Clarksburg, WV
Counsel for Amicus Curiae the Harrison
County Commission and Joseph R. Romano,
Assessor of Harrison County

Jack C. McClung, Esq.
Charleston, WV
Counsel for Amicus Curiae West Virginia
Association of County Officials, Inc.

Kelli D. Talbott, Esq.
Senior Deputy Attorney General
Charleston, WV
Counsel for Amicus Curiae Steven L. Paine,
West Virginia State Superintendent of Schools
Timothy E. Haught, Esq.
Wetzel County Prosecuting Attorney
New Martinsville, WV
Counsel for Amicus Curiae the County
Commission of Wetzel County, West Virginia


JUSTICE WORKMAN delivered the Opinion of the Court.
                              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, 431

S.E.2d 661 (1993).



              2.     “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).



              3.     “Where the issue on an appeal from the circuit court is clearly a

question of law or involving an interpretation of a statute, we apply a de novo standard of

review.” Syl. Pt. 1, Chrystal R. M. v. Charlie A. L., 194 W. Va. 138, 459 S.E.2d 415 (1995).



              4.     “A regulation that is proposed by an agency and approved by the

Legislature is a ‘legislative rule’ as defined by the State Administrative Procedures Act, W.

Va. Code, 29A–1–2(d) [1982], and such a legislative rule has the force and effect of law.”


                                              i
Syl. Pt. 5, Smith v. W. Va. Human Rights Comm’n, 216 W. Va. 2, 4, 602 S.E.2d 445, 447

(2004).



              5.      “A statute, or an administrative rule, may not, under the guise of

‘interpretation,’ be modified, revised, amended or rewritten.” Syl. Pt. 1, Consumer

Advocate Div. of Pub. Serv. Comm’n of W. Va. v. Pub. Serv. Comm’n of W. Va., 182 W.

Va. 152, 154, 386 S.E.2d 650, 652 (1989).



              6.      “If the language of an enactment is clear and within the constitutional

authority of the law-making body which passed it, courts must read the relevant law

according to its unvarnished meaning, without any judicial embroidery. Even when there

is conflict between the legislative rule and the initial statute, that conflict will be resolved

using ordinary canons of interpretation.” Syl. Pt. 3, in part, W. Va. Health Care Cost

Review Auth. v. Boone Mem’l Hosp., 196 W. Va. 326, 472 S.E.2d 411 (1996).



              7.      “‘“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


                                               ii
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).



              8.     West Virginia Code of State Rules § 110-1J-4.3 (2005) does not

permit the imposition of a “not to exceed” limitation on the operating expense deduction

authorized thereunder and use of such limitation along with a percentage deduction violates

the “equal and uniform” requirement of West Virginia Constitution Article X, Section 1,

as well as the equal protection provisions of the West Virginia and United States

Constitutions.



              9.     “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




                                             iii
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).



              10.    “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).



              11.    “Generally the words of a statute are to be given their ordinary and

familiar significance and meaning, and regard is to be had for their general and proper use.”

Syl. Pt. 4, State v. Gen. Daniel Morgan Post No. 548, Veterans of Foreign Wars, 144 W.

Va. 137, 107 S.E.2d 353 (1959).



              12.    The provisions contained in West Virginia Code of State Rules §§

110-1J-4.1 and 110-1J-4.3 (2005) for a deduction of the average annual industry operating

expense requires the use of a singular monetary average deduction.




                                             iv
WORKMAN, Justice:


              These are seven consolidated appeals from the business court’s January 17,

2018 and February 7, 2018, orders reversing various Boards of Assessment Appeals and

rejecting the West Virginia State Tax Department’s valuation of respondents’ gas wells for

ad valorem tax purposes.      The business court concluded that the Tax Department’s

valuation violated the applicable regulation by improperly imposing a “cap” on the amount

of operating expenses which may be deducted and was likewise in violation of West

Virginia Constitution Article X, Section 1’s “equal and uniform” provision and the equal

protection provisions of the United States and West Virginia Constitutions. The business

court further concluded that a survey utilized to ascertain the average industry operating

expenses for Marcellus shale wells failed to properly permit itemization of “post-

production” expenses for inclusion in the calculation of the operating expense average.

Following entry of these orders, the business court subsequently declined to alter or amend

its judgment upon motion of the Doddridge County Commission.



              Upon careful review of the briefs of the parties and amici curiae, 1 the

appendix record, the arguments of the parties, and the applicable legal authority, we agree



       1
         Amici curiae Harrison County Commission, Joseph R. Romano, Assessor of
Harrison County, The West Virginia Association of County Officials, Inc., Steven L. Paine,
West Virginia State Superintendent of Schools, and the County Commission of Wetzel
County, West Virginia, likewise submitted briefs in support of the Tax Department’s
position. The Court acknowledges and expresses its appreciation for the amici curiae’s
submissions.
                                          1
with the business court’s conclusion that the Tax Department acted in violation of the

applicable regulations by improperly imposing a cap on respondents’ operating expense

deductions and therefore affirm its decision to that extent. However, we find that the

business court erred in rejecting the Tax Department’s interpretation of the applicable

regulations concerning the inclusion of post-production expenses in the calculation of the

annual industry average operating expenses. We likewise find that the business court erred

in crafting relief which permitted an unlimited percentage deduction for operating expenses

in lieu of a monetary average, and therefore reverse that aspect of the business court’s

decision and remand for further proceedings consistent with this opinion.


                     I. FACTS AND PROCEDURAL HISTORY

              Respondents Consol Energy, Inc. d/b/a CNX Gas Company, LLC (“CNX”)

and Antero Resources Corporation (“Antero”) (collectively “respondents”) are owners of

various gas wells in Doddridge, Ritchie, Lewis, and McDowell Counties; CNX owns

conventional, vertical gas wells and Antero owns horizontal, Marcellus shale gas wells

(“Marcellus wells”). These gas well interests are appraised for ad valorem tax purposes

by petitioner Dale W. Steager, West Virginia State Tax Commissioner (“Tax

Department”), and assessed by the respective county commissions. This case involves

valuation of CNX’s conventional gas wells for the 2016 tax year and Antero’s Marcellus

wells for both the 2016 and 2017 tax years.




                                              2
GAS WELL VALUATION AND DEDUCTION OF OPERATING EXPENSES

              To determine the value of gas wells for ad valorem taxation purposes, gas

well owners provide gross receipts from their well production, to which the Tax

Department applies a “production decline rate.” From this figure, the “average annual

industry operating expenses” are deducted to establish a “net receipts” value. That value

is then capitalized to determine the taxable value. This formula is described in West

Virginia Code of State Rules § 110-1J-4.1 (2005) as follows:

              4.1. General. -- Oil and/or natural gas producing property value
              shall be determined through the process of applying a yield
              capitalization model to the net receipts (gross receipts less
              royalties paid less operating expenses) for the working interest
              and a yield capitalization model applied to the gross royalty
              payments for the royalty interest.

(emphasis added). With respect to the operating expenses referenced above, West Virginia

Code of State Rules § 110-1J-4.3 provides that the Tax Commissioner shall “every five (5)

years, determine the average annual industry operating expenses per well. The average

annual industry operating expenses shall be deducted from working interest gross receipts

to develop an income stream for application of a yield capitalization procedure.” (emphasis

added).



              Each tax year, the Tax Department issues an Administrative Notice which

states what the average annual industry operating expense is for that tax year; it is expressed

by way of a percentage of the well’s gross receipts, with a “not to exceed” amount or, as



                                              3
respondents have characterized it, a “cap.”2 For the tax year 2016, Administrative Notice

2016-08 provided that for conventional gas wells the “[d]irect ordinary operating expenses

will be estimated to be 30% of the gross receipts derived from gas production, not to exceed

$5,000 . . . .” (emphasis added). For Marcellus horizontal wells, the Administrative Notice

provided that “the maximum operating expenses allowed is 20% of the gross receipts

derived from gas production, not to exceed $150,000.” For the tax year 2017, the

Administrative Notice provided for operating expenses of 20% not to exceed $175,000 for

Marcellus wells.3



              Respondents appealed their gas well valuations to the respective Boards of

Assessment Appeals (“Board(s)”) for the appropriate county, claiming that their actual

expenses4 were in excess of the stated percentages and that the cap resulted in an artificial

reduction in the operating expense deduction where their expenses exceeded the cap. 5


       2
        The Tax Department disputes the characterization of the “not to exceed” amount
as being tantamount to a “cap.” As discussed more fully infra, we find the Tax
Department’s resistance to that characterization unfounded.
       3
       Valuations for the conventional wells for tax year 2017 are not at issue herein;
however, in that instance, the operating expense percentage was increased from 30% to
45%, but the $5,000 limit remained.
       4
         CNX asserted that its actual expenses were 37% of its gross receipts; Antero
maintained that its actual expenses were 23% for tax year 2016 and 36% for tax year 2017,
respectively.
       5
         For example, if a well’s gross receipts were $10,000, the 30% operating expense
reduction would equal $3,000.00 and it would get the benefit of the full 30%. However, if
gross receipts were greater—for example $50,000.00—application of the cap would serve

                                             4
Respondents provided expert testimony in support of these figures and analysis of the

inequality occasioned by the cap. 6 These experts also testified that industry-reported

operating expense percentages 7 were closer to respondents’ actual values than the Tax

Department’s average percentage. The experts further noted that in tax years preceding

the 2016 tax year, the Administrative Notice invited taxpayers to submit their actual

expenses and that, despite no change in the law, the 2016 and subsequent Administrative

Notices did not make such an invitation.



              In response, the Tax Department offered testimony from its appraiser

Cynthia Hoover who explained that the average operating expense figures were derived

from a survey of gas well producers conducted in 2014. She explained that, based on the

results of that survey for conventional gas wells, on average each well incurred expenses

of $5,000.00. This monetary amount approximated, on average, 30% of the gross receipts

per well. Notably, she agreed that application of the $5,000.00 “not to exceed” amount

served to treat higher-producing wells differently than lower-producing wells and that the

cap resulted in certain wells with higher gross receipts not realizing a full 30% operating

expense deduction. Ms. Hoover agreed that the Tax Department had previously invited


to provide less than a 30% reduction (i.e., the $5,000 cap equates to only a 10% operating
expense deduction on a well with $50,000 in gross receipts).
       6
         It appears that the majority of wells in each county, except McDowell, were subject
to the cap.
       7
          The West Virginia Oil and Natural Gas Association provided a letter indicating
that its members’ average operating expense was 41% of gross receipts.
                                           5
production of “actual expenses,” but demurred that the regulation actually does not allow

for any such consideration since it requires use of the “average industry” expenses.



              With respect to the Marcellus wells, respondents’ experts further explained

that the survey circulated to ascertain the average industry operating expense did not

provide line items for expenses such as gathering, compressing, processing, and

transporting, which expenses are incurred in getting shale gas and its products to market.

Consequently, these expenses—which are significant for Marcellus wells—are not

factored into the average industry operating expenses. The experts explained that requiring

the taxpayers to report their gross receipts at the “field line point of sale,” 8 where the

Marcellus gas yields a higher price, without including those commensurate expenses in the

average industry expense calculation, was inequitable and resulted in overvaluation of their

gas wells.



              The Tax Department countered that West Virginia Code of State Rules §

110-1J-3.16 (2005) provides that “operating expenses” include only “ordinary expenses

which are directly related to the maintenance and production of natural gas and/or oil” and

does not include “extraordinary expenses.” (emphasis added). The Tax Department took

the position that expenses for gathering, processing, and transporting are essentially “post-


       8
        West Virginia Code of State Rules § 110-1J-3.8 provides that “‘[g]ross receipts’
means total income received from production on any well, at the field line point of sale,
during a calendar year before subtraction of any royalties and/or expenses.” (emphasis
added).
                                           6
production” expenses unrelated to getting the gas out of the ground and therefore not

“directly related” to the “maintenance and production” of gas, as required by the Rule. The

Tax Department agreed that the survey utilized was one designed prior to the advent of

Marcellus drilling in the State, but also that those particular expenses would not be properly

deductible regardless.9



PROCEDURAL HISTORY AND BUSINESS COURT RULING

              The various Boards upheld the Tax Department’s valuations and respondents

appealed those decisions to circuit court. The matters were then referred to the business

court. Based on the records created before the various Boards and after briefing by the

parties, the business court concluded that the Tax Department failed to assess the wells at

their true and actual value.



              In particular, the business court found that use of the “not to exceed” amount

or “cap” was not supported by West Virginia Code of State Rules § 110-1J-4.3 and that, in

effect, the Tax Department was using two averages—the percentage and the cap—

depending on the amount of gross receipts for a particular well. That is to say, if a well’s

gross receipts resulted in its expenses meeting or exceeding the cap, the monetary cap was

utilized; if the gross receipts resulted in the expenses being less than the cap, the percentage



       9
        The Tax Department also suggested (somewhat inconsistently), however, that the
survey participants could have included those expenses under the “other” line item
category.
                                         7
deduction was utilized. The business court therefore found that the cap “singles out” wells

with higher gross receipts, applying a different percentage reduction for operating expenses

by way of the cap. The business court found that this application of the rule was a violation

of the constitutional “equal and uniform” requirement and equal protection.



               With respect to the Marcellus wells, the business court also found, in addition

to the impermissible cap, that the Tax Department’s method of calculating the average

industry expense was under-inclusive of operating expenses and therefore overvalued the

wells. The business court found that the survey utilized to determine this figure pertained

“almost solely to typical lease operating expenses . . . for conventional wells.” Given that

the survey did not include line items for gathering, compressing, processing, and

transporting expenses, the business court declared it to be “outdated and misdesigned,” and

concluded that those expenses were “directly related to maintenance and production” of

natural gas.    With respect to the conclusion that such expenses were related to

“maintenance and production,” the business court found simply that because the rules

require calculation of gross receipts based on the “point of sale,” the Tax Department must

allow for operating expenses incurred to reach that point of sale and the resultant increased

value.10




       10
         The business court cited to the Tax Department’s characterization of some of
these expenses as being for the purpose of “processing wet gas to remove natural gas,”
concluding that this process was obviously related to “production” of natural gas. The

                                              8
              Based upon the foregoing conclusions, for the conventional wells, the

business court found the record inadequate to set a value and remanded to the Board “to

set the fair value . . . based on application of the Tax Department’s 30% average annual

industry operating expense percentage . . . without the imposition of a cap.” With respect

to the Marcellus wells, however, the business court declared the fair value of the wells

using evidence in the record, and set the taxable value at a sum certain “based on

application of the State’s 20% average annual industry operating expense percentage by

Antero’s gross receipts without the imposition of a cap.”11



              Following entry of the business court’s orders, petitioner Doddridge County

Commission (“Doddridge County”) moved to alter or amend the judgment, arguing that its

failure to file a responsive brief before entry of the orders was due to its attorney being




business court further found that the taxpayers’ failure to include those expenses under the
“other” category on its survey responses did not alleviate the infirmity in the survey.
       11
          For reasons that do not plainly appear from the record, the business court’s relief
utilized the same 20% expense figure derived from the survey which it had found infirm
due to lack of inclusion of post-production costs. The business court’s order makes
reference to an across-the-board unlimited 20% expense reduction as representing a
“compromise” amount requested by Antero. However, it is not clear whether such
compromise amount purported to correct only the alleged discrepancy between Antero’s
actual expense percentages, the imposition of the cap, the lack of inclusion of post-
production expenses, or all of these challenged calculations. Regardless, despite agreeing
with respondent’s contention that the survey numbers were fatally flawed, the business
court used those same figures to render its judgment—it merely removed the cap. See
infra.


                                             9
arrested and indicted shortly after the briefing deadline.12 As such, Doddridge County

argued it was deprived of its opportunity to represent its interests. The business court

denied the motion, finding primarily that most of the county commissions relied upon the

Tax Department to file briefs on the issue and therefore declined to file briefs. It found

that the Tax Department and county commissions’ interests were fully aligned and

therefore adequately protected. These appeals followed and were consolidated before this

Court for consideration.



                             II. STANDARD OF REVIEW

              While “[a]s a general rule, there is a presumption that valuations for taxation

purposes fixed by an assessor are correct,” this case requires the Court to analyze the Tax

Department’s interpretation and application of a legislatively-approved regulation. Syl. Pt.

2, in part, Western Pocahontas Props., Ltd. v. Cty. Comm’n of Wetzel Cty., 189 W.Va. 322,

431 S.E.2d 661 (1993). “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). Moreover, this

case presents additional issues of law by way of the constitutional challenges: “Where the

issue on an appeal from the circuit court is clearly a question of law . . . we apply a de



       12
          The county commission’s brief was due by December 4, 2017. The Tax
Department and Assessor filed its brief on that date, but the county commission filed no
brief. Steven Sluss, the Doddridge County Commission’s lawyer, was arrested four days
after the briefing due date on December 8, 2017 and the Office of Disciplinary Counsel
moved for immediate suspension of his law license on December 13, 2017.
                                           10
novo standard of review.” Syl. Pt. 1, Chrystal R.M. v. Charlie A.L., 194 W.Va. 138, 459

S.E.2d 415 (1995). Accordingly, our review is plenary.



                                    III. DISCUSSION

              The Tax Department asserts that the business court erred in 1) finding that

its imposition of the “cap” was a misapplication of the legislative rule; 2) finding that the

survey and resultant calculation of average operating expenses should have included post-

production expenses; and 3) permitting, as its relief, use of an unlimited percentage

operating expense deduction. It urges reversal of the business court and return to the

original valuations. Doddridge County, however, while likewise arguing that the business

court should be reversed with a return to the original valuation, takes the position that if

the business court is upheld, the proper methodology for deduction of operating expenses

is the use of a monetary average rather than a percentage. Our discussion, then, must

necessarily address both the validity of the business court’s legal conclusions, as well as

the propriety of the remedy which it afforded.



              At the outset of our discussion, we would be remiss in failing to note that this

is the second instance within this Court term in which we have been called upon to assess

the legal and constitutional implications of the Tax Department’s application of regulations

affecting the valuation of natural resources property. In Murray Energy v. Steager, No.

18-0018, 2019 WL 1982993 (W. Va. Apr. 29, 2019), petitioners challenged the coal

property valuation regulations, arguing that the methodology as delineated therein for
                                             11
calculating the average steam coal price per ton and average seam thickness violated

constitutional equality provisions. We disagreed and held that the legislatively-approved

methodology rationally flowed from its enabling statute and the Tax Department was

therefore entitled to the deference afforded administrative agencies under Chevron, U.S.A.,

Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), in utilizing the

methodology.



               Importantly, petitioners in Murray Energy did not accuse the Tax

Department of “misapplying the methodology, not evenly applying the methodology to all

coal property taxpayers, or violating the regulations in any way.” Id. at *7. In contrast,

respondents herein argue that the Tax Department misinterpreted and/or misapplied the

plain language of the regulations, creating a method of operating expense calculation which

unconstitutionally differentiates between taxpayers and otherwise overvalues their gas

interests. The respondents herein take no issue with the regulation as crafted, but rather

the manner in which the Tax Department has chosen to interpret and implement it.



A.     INTERPRETATION AND APPLICATION OF THE LEGISLATIVE RULE

               West Virginia Constitution Article X, Section 1 provides that “taxation shall

be equal and uniform throughout the state, and all property, both real and personal, shall

be taxed in proportion to its value to be ascertained as directed by law.” West Virginia

Code § 11-6K-1 (2010) provides that “[a]ll industrial property and natural resources

property shall be assessed annually as of the assessment date at sixty percent of its true and
                                             12
actual value[]”; moreover, West Virginia Code § 11-1C-10(e) (1994) directs the Tax

Commissioner to “develop a plan for the . . . valuation of natural resources property.” See

also W. Va. Code § 11-6K-8 (2010) (“The Tax Commissioner is hereby authorized to

promulgate . . . rules . . . as necessary or convenient for administration and interpretation

of this article.”). Accordingly, the Tax Commissioner promulgated regulations for the

valuation of oil and natural gas properties, which have the force and effect of law due to

their legislative approval. See Syl. Pt. 5, Smith v. W. Va. Human Rights Comm’n, 216 W.

Va. 2, 602 S.E.2d 445 (2004) (“A regulation that is proposed by an agency and approved

by the Legislature is a ‘legislative rule’ . . . [and] has the force and effect of law.”).



               As explained above, West Virginia Code of State Rules § 110-1J-4.1

provides that the value of natural gas producing property is determined, in part, by applying

a yield capitalization model to the “net receipts” which are parenthetically defined as “gross

receipts less royalties paid less operating expenses[.]” West Virginia Code of State Rules

§ 110-1J-4.3, approved in 2005, provides further instruction regarding the deduction of

operating expenses to calculate net receipts:

               4.3. Average industry operating expenses. -- The Tax
               Commissioner shall every five (5) years, determine the average
               annual industry operating expenses per well. The average
               annual industry operating expenses shall be deducted from
               working interest gross receipts to develop an income stream
               for application of a yield capitalization procedure.




                                               13
(emphasis added). 13 In that regard, Administrative Notice 2016-08 entitled “State Tax

Commissioner’s Statement for the Determination of Oil and Gas Operating Expenses for

Property Tax Purposes for Tax Year 2016, Pursuant to § 110 CSR 1J-4.3” states:

              Direct ordinary operating expense will be estimated to be 30%
              of the gross receipts derived from gas production, not to exceed
              $5,000 . . . . [and] [f]or Marcellus horizontal wells the
              maximum operating expenses allowed is 20% of the gross
              receipts derived from gas production, not to exceed
              $150,000.”14

(footnote added). The business court found that the Tax Department’s method of utilizing

a percentage deduction with a “not to exceed” amount (or “cap”) is in clear violation of the

West Virginia Code of State Rules § 110-1J-4.3, which makes no provision for such

limitation. The business court concluded that by applying a percentage deduction to lower-

producing gas wells, but enforcing a cap on higher-producing gas wells, the Tax




       13
         The Tax Department dedicates much of its briefing arguing that respondents are
not permitted to deduct their actual expenses. This is correct, but also fairly irrelevant for
our purposes. CNX introduced evidence below of what their actual expenses were for
purposes of demonstrating the disparity between their actual expenses and the permitted
deductions; it may well maintain, in some measure, that actual expenses are required.
However, the business court did not permit deduction of actual expenses, nor do
respondents before this Court argue they are entitled to their actual expenses. In its brief,
CNX concedes that the business court’s relief “reflects the ‘mass appraisal’ system of
valuation contemplated by [the Rules] and will agree with the fair market value that results
from application of the average annual industry operating expense percentage to
Respondent’s gross receipts without the imposition of a cap[.]”
       14
          For ease of discussion, only the conventional gas well percentage and “cap”
figures are used in our analysis. The factual and legal analysis of the percentages and cap
applicable to the Marcellus wells, for each tax year appealed, is the same.

                                             14
Department is creating two categories of gas wells and permitting unequal operating

expense deductions.



             The Tax Department relies on the testimony of Ms. Hoover to explain that

its use of both a percentage figure and monetary “not to exceed” amount is a permissible

construction and implementation of the regulation.      The Tax Department cites Ms.

Hoover’s explanation that the Notice provides for a deduction of 30%, which is the

percentage average amount of expenses, in an amount not to exceed $5,000, which is the

monetary average. In this way, the Tax Department insists that the “not to exceed” amount

is simply the monetary representation of the percentage average operating expense and

therefore ensures that no taxpayer deducts greater than the average expense. As to the

characterization of the “not to exceed” amount as a “cap,” the Tax Department ardently

rejects this description, insisting that the percentage deduction and the “not to exceed”

amount are simply two different ways of expressing the same thing. The Tax Department

repeatedly correlates the relationship between these figures to that of equivalent

measurements, stating that “12 inches equals one foot.” Accordingly, the Tax Department

argues it is not acting in contravention of the Rule, nor is it imposing an impermissible

“cap.”



             It is well-established that “[a] statute, or an administrative rule, may not,

under the guise of ‘interpretation,’ be modified, revised, amended or rewritten.” Syl. Pt.

1, Consumer Advocate Div. of Pub. Serv. Comm’n of W. Va. v. Pub. Serv. Comm’n of W.
                                           15
Va., 182 W. Va. 152, 386 S.E.2d 650 (1989). Rather, [i]f the language of an enactment is

clear and within the constitutional authority of the law-making body which passed it, courts

must read the relevant law according to its unvarnished meaning, without any judicial

embroidery.” Syl. Pt. 3, in part, W. Va. Health Care Cost Review Auth. v. Boone Mem’l

Hosp., 196 W. Va. 326, 472 S.E.2d 411 (1996).



              There is little question that West Virginia Code of State Rules § 110-1J-4.1

and § 110-1J-4.3 make no provision for an upper limit on the amount of the annual

operating expense deduction which may be taken. Its language plainly and unambiguously

requires and permits only a simple deduction of the “average annual industry operating

expenses . . . from working interest gross receipts[.]”15 Moreover, the Rule provides no

discretion for the Tax Department to employ its own methodology for expression and

application of the annual industry average expense deduction. It is therefore clear that the

Tax Department’s use of a percentage deduction limited by the use of a “not to exceed”

amount or “cap” is neither authorized by nor consistent with the regulation.



              Further, we wholly reject the Tax Department’s insistence that the “cap” and

percentage are merely two expressions of “the same” average figure. This aspect of the


       15
          Moreover, the fact that the Tax Department has long-utilized the “not to exceed”
amount in its Administrative Notices is of no moment for our purposes: “‘While long
standing interpretation of its own rules by an administrative body is ordinarily afforded
much weight, such interpretation is impermissible where the language is clear and
unambiguous.’ Syl. pt. 3, Crockett v. Andrews, 153 W.Va. 714, 172 S.E.2d 384 (1970).”
Syl. Pt. 1, Ooten v. Faerber, 181 W. Va. 592, 383 S.E.2d 774 (1989).
                                            16
case presents less of an issue of law than logic. Obviously, using a percentage operating

expense deduction creates a variable number—variable depending on the amount of the

gross receipts to which it is applied. The static “cap” is not variable and therefore does not

maintain a pro rata relationship to the gross receipts as the percentage does. They are,

mathematically, not “the same.” In addition to being logically inscrutable, the Tax

Department’s position that the percentage and monetary cap are the same is undermined

by the fact that in 2017, it increased the percentage deduction allowable for conventional

wells from 30% to 45% based on a drop in gas prices, but kept the same cap. For Marcellus

wells, it increased the cap from $150,000 to $175,000, but kept the same percentage

deduction. Clearly then, the percentage and monetary average are not “the same,” nor do

they even move in lockstep.



              Moreover, given the regulation’s clarity, our analysis of this aspect of the

case is unaffected by generalized claims of agency deference. As explained in Cookman

Realty Group, Inc. v. Taylor, 211 W. Va. 407, 411, 566 S.E.2d 294, 298 (2002):

              We need not go so far in this case as to define what deference,
              if any, must be afforded an administrative agency’s
              interpretation of its own legislative rule, since the regulations
              at issue here [are] unambiguous[] . . . . A reviewing court would
              only be required to afford deference to an agency’s
              interpretation if the regulation contained an ambiguity.

Rather, “[t]he rule[s] of construction . . . [apply] only when the Legislature has blown an

uncertain trumpet. If ambiguity or silence does not loom, the occasion for preferential



                                             17
interpretation never arises.” W. Va. Health Care Cost Review Auth., 196 W. Va. at 337,

472 S.E.2d at 422.



              The business court correctly found that where the cap is imposed, that gas

well’s effective percentage operating expense is reduced to less than 30%.           The Tax

Department’s position fails to recognize that by using a percentage deduction on smaller

producing wells, thereby resulting in a deduction less than $5,000, it is in the same measure

disallowing the same average it claims to be enforcing as to the larger-producing wells. It

seems clear that the percentage is utilized to allow the Tax Department to eke out taxes on

low-producing wells, whereas if the monetary average were used, low-producing wells

may have zero taxable value, i.e. a well whose gross receipts are $5,000 or less. Use of

an “average” by definition results in an evening out of the losses and gains realized at the

far ends of the spectrum, which in this case are occupied by lower- and higher-producing

wells. The Tax Department’s use of a percentage and cap serves to alter its operating

expense formula depending on which end of the spectrum a well is on, thereby treating like

wells in a dissimilar fashion.



              It is therefore fairly inarguable that this errant interpretation and application

of the regulations necessarily creates an inequality under both the “equal and uniform”




                                             18
language of Article X, Section 1,16 and the equal protection provisions of the West Virginia

and United States Constitutions.17 This is not due to an over-valuation of the gas wells per

se, but rather the use of two differing formulas to calculate operating expenses, which

results in some wells receiving the full benefit of the deduction and others being denied it.

Indeed, the Tax Department’s use of an unauthorized operating expense deduction method

which creates inconsistent deductions between like properties, is precisely the type of

agency action which this Court cautioned against in Murray Energy. See 2019 WL

1982993, at *13 (distinguishing “alleged valuation inequalities which necessarily result

from carefully crafted, stakeholder-involved, and legislatively-approved systems” from

those which make “facially arbitrary classifications” or “allow for use of indiscriminate

applications”); cf. Appalachian Power Co., 195 W. Va. at 596, 466 S.E.2d at 447 (finding




       16
         “Our equal and uniform provision governing taxes is sub-species of the equal
protection clause.” Kline v. McCloud, 174 W. Va. 369, 380, 326 S.E.2d 715, 726 (1984)
(Neely, J., dissenting).
       17
            As explained in Murray Energy,

                “The right to equal protection of the laws is, of course, found
                in the Fourteenth Amendment to the Constitution of the United
                States.” Payne v. Gundy, 196 W. Va. 82, 87, 468 S.E.2d 335,
                340 (1996). Commensurately, “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).

2019 WL 1982993, at *12.
                                              19
no equal protection violation where regulation “treats all businesses within each class the

same”).



              Finally, in contrast to Murray Energy, the inequality occasioned by the

economic classifications created by the Tax Department’s interpretation and application of

West Virginia Code of State Rules § 110-1J-4.3 fails to pass the “rational relationship” test.

As this Court has held, “[w]here 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.” Syl. Pt. 4, in part, Gibson v. W. Va. 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); see also Appalachian Power, 195 W. Va. at 594,

466 S.E.2d at 445 (using rational relationship test to assess constitutionality of tax

regulations). In this instance, the Tax Department offers no governmental purpose for its

use of a methodology which provides differing operating expense percentage deductions

depending on the amount of gross receipts, nor can this Court discern one.18 In fact, the

Tax Department adamantly refuses to admit that any such classifications are created by its

methodology, much less that they are rational ones.




       18
         As respondents note, the Tax Department cursorily mentions that the “not to
exceed” amount serves as a “safeguard,” but fails to indicate against what occurrence it
safeguards.
                                         20
              We therefore hold that West Virginia Code of State Rules § 110-1J-4.3 does

not permit the imposition of a “not to exceed” limitation on the operating expense

deduction authorized thereunder and use of such limitation along with a percentage

deduction violates the “equal and uniform” requirement of West Virginia Constitution

Article X, Section 1, as well as the equal protection provisions of the West Virginia and

United States Constitutions. We therefore affirm the business court’s orders to that extent.



B.     LACK OF INCLUSION OF GATHERING, PROCESSING, AND TRANSPORTING
       EXPENSES

              As previously indicated, with regard to the Marcellus wells, the business

court made an additional finding that the operating expense average calculated by the Tax

Department was flawed because it did not include expenses for gathering, compressing,

processing, and transporting the gas to market, which the Tax Department characterizes as

“post-production” expenses. In that regard, West Virginia Code of State Rules § 110-1J-

3.16, defines “operating expenses” as

              only those ordinary expenses which are directly related to the
              maintenance and production of natural gas and/or oil. These
              expenses do not include extraordinary expenses, depreciation,
              ad valorem taxes, capital expenditures or expenditures relating
              to vehicles or other tangible personal property not permanently
              used in the production of natural gas or oil.

(emphasis added). The Tax Department maintains the business court erred because

gathering, compressing, processing, and transporting expenses are not related to getting the

gas out of the ground, but are related solely to getting the gas to the buyer; therefore, they


                                             21
do not “directly relate” to “maintenance and production” of gas as required by Rule 4.1

and are not properly included in their average industry expense calculation.



              Antero responds that since its gross receipts must be calculated at the “field

line point of sale” by regulation, a commensurate inclusion of the expenses incurred to

reach the field line point of sale is necessary. Antero further argues that the definition of

“gross receipts” supports their argument. “[G]ross receipts” are defined as “total income

received from production on any well, at the field line point of sale, during a calendar year

before subtraction of any royalties and/or expenses.”         W. Va. C.S.R. § 110-1J-3.8

(emphasis added). Accordingly, Antero argues that if the gross receipts are the result of

“production,” any expenses incurred to that point are necessarily also part of “production”

and properly included in the average expense calculation.



              The Tax Department counters that deductions are a matter of “legislative

grace” as recognized by the Court in Shawnee Bank v. Paige, 200 W. Va. 20, 27, 488

S.E.2d 20, 27 (1997). Therefore, such expense deductions need not necessarily fairly

correlate to gross receipts inasmuch as the deduction is not required in the first instance.



              Critically, in terms of the definition of “maintenance and production,” Antero

concedes that the Rule is silent.       Therefore, unlike the Tax Department’s errant

interpretation and application of an unambiguous regulation as indicated above, the

ambiguity surrounding what expenses qualify as being “directly related to the maintenance

                                             22
and production” of natural gas necessitates the Chevron analysis utilized in Murray Energy.

“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).” Syl. Pt. 3, in part, Appalachian Power, 195 W. Va. 573, 466 S.E.2d 424.



              As the Appalachian Power Court explained, “[j]udicial 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.” Syl. Pt. 3, in part. First, if

              the Legislature has directly spoken to the precise question at
              issue [and] . . . 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.

Id. In other words, “[i]f the legislative rule is valid, clear as to its intent and not contrary

to the legislative enactment that triggered its promulgation, the need for further review does

not arise.” Id. at 586, 466 S.E.2d at 437.



              There seems to be little question that the Legislature has not, in its enabling

statute, spoken to the issue of whether a Marcellus well average operating expense

calculation must necessarily include gathering, compressing, processing, and transporting

or “post-production” expenses. West Virginia Code § 11-6K-1 requires only that natural

resources properties be assessed at their “true and actual” value. As we concluded in
                                              23
Murray Energy, the statute provides no methodology for making that determination and

expressly delegates that authority to the Tax Commissioner. 2019 WL 1982993, at *10.



              Moreover, the legislative rules likewise do not specify whether expenses

“directly related to the maintenance and production of natural gas” include expenses which

are incurred from the time the gas is extracted from the ground but before the gas reaches

the buyer. West Virginia Code of State Rules § 110-1J-3.16 provides that such expenses

expressly do not include “extraordinary expenses, depreciation, ad valorem taxes, capital

expenditures or expenditures relating to vehicles or other tangible personal property not

permanently used in the production of natural gas or oil.” However, there is no indication

that gathering, compression, processing, or transporting expenses fall within any of these

excluded categories.



              This “gap” or ambiguity therefore implicates the second stage of the Chevron

analysis: “[I]f 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.” Syl. Pt. 4, in part, Appalachian Power, 195 W. Va. 573, 466 S.E.2d 424. The Tax

Department and Antero each make compelling arguments for whether such expenses




                                             24
should be included in the operating expense calculation. 19 Unfortunately, despite the

prevalence of such operations in the State, the Legislature has not seen fit to address these

expenses in the taxation scheme. This uncertainty alone constrains our ability to resolve

the issue on the relative merits of the parties’ positions. As the Appalachian Power Court

aptly stated:

                Our power to review the Tax Commissioner’s decisions on
                policy grounds is extremely limited. We are not at liberty to
                affirm or overturn the Commissioner’s regulation or decision
                merely on the basis of our agreement or disagreement with his
                policy implications, even when important issues of taxation are
                at stake.

195 W. Va. at 588, 466 S.E.2d at 439. Rather, “an agency’s interpretation will stand unless

it is ‘arbitrary, capricious, or manifestly contrary to the statute.’” Id. at 589, 466 S.E.2d at

440 (quoting Chevron, 467 U.S. at 844).



                With these limitations, we cannot say that the Tax Department’s position that

gathering, compressing, processing, and transporting expenses are not “directly related” to

the “maintenance and production” of natural gas is arbitrary, capricious, or manifestly

contrary to the enabling taxation statute. In accordance with our precedent, its position

“must be sustained if it falls within the range of permissible construction.” W. Va. Health

Care Cost Review Auth., 196 W. Va. at 339, 472 S.E.2d at 424. More importantly, the


       19
           Cf. Appalachian Power, 195 W. Va. at 591, 466 S.E.2d at 442 (“Both
constructions are consistent with the statute’s language. It is here that the Chevron analysis
strikes its most telling blow to the plaintiffs. Under Chevron, we may not impose our own
construction of the statute.”).

                                              25
equity of such an interpretation is well beyond the reach of this Court under these

circumstances.20 It is sufficient to conclude that the Tax Department’s exclusion of these

expenses from its average expense calculation is a reasonable construction of the regulation

and not facially inconsistent with the enabling statute. Whether this Court would construe

the regulation similarly is frankly beside the point:

              Our job is not to weigh the wisdom of, nor to resolve any
              struggle between, competing views of the public interest, but
              rather to respect legitimate policy choices made by an agency
              in interpreting and applying a statute. Moreover, it is not
              necessary for us to find that the regulation is the only
              reasonable one or even that it is the result we would have
              reached had the question arisen in the first instance in this
              Court.

Id. at 339, 472 S.E.2d at 424. We therefore find that the business court’s conclusion that

such expenses must necessarily be included in the Tax Department’s average operating

expense calculation to be erroneous.



              The foregoing notwithstanding, however, we find that our disagreement with

the business court’s conclusion is of little practical consequence to the case at bar. While

the business court concluded that the survey improperly excluded gathering, compressing,


       20
          In contrast, the Court was under no such constraints when analyzing whether
royalty payments pursuant to an oil or gas lease governed by West Virginia Code § 22-6-
8(e) may be subject to pro-rata deduction or allocation of reasonable post-production
expenses in Leggett v. EQT Prod. Co., 239 W. Va. 264, 800 S.E.2d 850, cert. denied, 138
S. Ct. 472, 199 L. Ed. 2d 358 (2017). In that case, the Court was tasked with interpreting
the “at the wellhead” language contained within that statute in conjunction with our canons
of statutory construction to resolve private parties’ dispute over royalties owed. The
analysis employed in that case, despite the general similarity of the issue, is therefore
inapplicable.
                                            26
processing, and transporting expenses, thereby causing the average operating expense

calculation to be under-inclusive, it failed to grant any relief in that regard. As previously

indicated, in overturning the Tax Department’s valuations, the business court imposed an

unlimited operating expense of 30% for conventional wells and 20% for horizontal

Marcellus wells, despite the fact that these figures were derived from the survey it found

inadequate. Antero did not cross-assign this failure as error and does not squarely address

this incongruity in its briefs;21 furthermore, it requests this Court to affirm the business

court’s valuation. The Tax Department makes note of it, but simply argues this underscores

the fallacious logic of the business court. In any event, this leads us to an examination of

the relief crafted by the business court to resolve the gas well valuations.



C.     THE BUSINESS COURT’S RELIEF

              The Tax Department’s final assignment of error contends that the business

court failed to grant appropriate relief by removal of the cap and allowing an “unlimited”

percentage expense deduction. 22      Relying on the principles articulated above from



       21
         Antero’s lone oblique reference to the application of the allegedly erroneous 20%
figure states that it “eliminates some Constitutional infirmities, and is a reasonable
approximation of ‘true and actual value’ until the Tax Department reevaluate its application
of the Rule.” (emphasis added).
       22
          The Tax Department supplements its attack on the business court’s remedy by
arguing in a separate assignment of error that it erred by creating a “hybrid rule” for
taxation in violation of this Court’s opinion in Lee Trace, LLC v. Raynes, 232 W. Va. 183,
751 S.E.2d 703 (2013). Respondent counters that there is nothing “hybrid” about removal
of the cap, and therefore Lee Trace adds nothing to the analysis. We agree.

                                             27
Appalachian Power, the Tax Department argues that it has discretion in the manner in

which it expresses the average operating expense and that the business court has usurped

that discretion by fashioning its own methodology. In response, respondents insist that the

business court merely removed the offending and inequality-creating aspect of the Tax

Department’s methodology, i.e. the cap, leaving the residual percentage operating expense

deduction.



              More specifically, the Tax Department—seemingly in contradiction to its

argument that it properly utilized both a percentage and cap—insists that the business court

erred by utilizing and/or permitting the use of a percentage to deduct operating expenses

because the Rule requires an “average,” stating: “The average of a bunch of numbers is a

number.”23 Doddridge County, whose interests are unquestionably aligned with the Tax

Department, expressly concedes in its brief that the language of the regulation contemplates

the use of a monetary average across the board: “The Average Annual Industry Operating




       Lee Trace involved the assessor’s use of both the cost and income approaches to
valuation, i.e. a “hybrid” valuation. The Court found that using the income approach in
the particular circumstances in that case did not allow the assessor to comply with other
provisions of the regulations regarding application of a capitalization rate. The business
court employed no “hybrid” valuation method in its relief; therefore, Lee Trace is wholly
inapposite. In fact, as set forth in our discussion supra, if there is a “hybrid” valuation
method implicated at all, it is the one utilized by the Tax Department by using both a
percentage and a monetary average cap to calculate the operating expense deduction.
       23
         If so, this merely begs the question as to why the Tax Department utilized a
percentage in the first instance.
                                           28
Expenses is a fixed dollar amount, in this case, $5,000. Expenses are expressed as numbers.

The average of a set of numbers is a number and not a percentage.”



              The question presented, then, is whether the business court erred in ordering

the percentage average to be used, rather than the monetary average as a uniform deduction,

or whether it should have deferred the issue of which formulation to use to the Tax

Department altogether. In ordering the use of a percentage, unimpeded by the cap, the

business court determined that a percentage average creates greater proportionality and

avoids the issue of some wells having zero value, i.e., a well where the gross receipts less

the monetary average deduction nets zero value. It therefore ordered that the percentage

average be utilized without any cap or maximum deduction.



              We find that neither West Virginia Code of State Rules § 110-1J-4.1 nor §

110-1J-4.3 provide for a “sliding scale” or pro rata operating expense deduction. In that

regard, there is as little authority for the Tax Department’s use of a percentage expression

of the operating expense deduction as there is for a “cap” of those expenses. The language

of the Rule provides that “[t]he average annual industry operating expenses shall be

deducted from working interest gross receipts . . . .” W. Va. C.S.R. § 110-1J-4.3. Our

most well-worn canon of construction mandates that the Court is to give words “their

ordinary and familiar significance and meaning, and regard is to be had for their general

and proper use.” Syl. Pt. 4, in part, State v. Gen. Daniel Morgan Post No. 548, Veterans

of Foreign Wars, 144 W. Va. 137, 107 S.E.2d 353 (1959). With respect to the Tax
                                            29
Department’s purported discretion to express the average expense in the manner it deems

fit, we are reminded yet again that “we are obligated to defer to an agency’s view only

when there is a statutory gap or ambiguity.” W. Va. Health Care Cost Review Auth., 196

W. Va. at 337, 472 S.E.2d at 422. Accordingly, we find that this clear, simply-stated

regulation under any common-sense reading plainly contemplates use of a monetary

average, which must be applied evenly across the board to avoid an unconstitutionally

impermissible application. We therefore hold that the provisions contained in West

Virginia Code of State Rules §§ 110-1J-4.1 and 110-1J-4.3 for a deduction of the average

annual industry operating expense requires the use of a singular monetary average

deduction.



              As such, we conclude that the business court’s relief erroneously required

use of a percentage, rather than a monetary average operating expense deduction and

reverse to that extent. However, “this Court does not have the authority to fix the

assessment of appellant’s property . . . [rather,] the trial court is invested by statute with

such authority and the case [should] be remanded for that purpose.” In re Tax Assessments

Against Pocahontas Land Corp., 158 W. Va. 229, 240, 210 S.E.2d 641, 649 (1974); see

also Matter of U. S. Steel Corp., 165 W. Va. 373, 379, 268 S.E.2d 128, 132 (1980) (“This

Court does not have the authority to fix assessments because such authority is vested by




                                             30
statute in the circuit courts.”). Consequently, we remand to the business court for entry of

an order consistent with this opinion.24



                                   IV. CONCLUSION

              For the reasons stated above, the January 17, 2018 and February 7, 2018,

orders of the business court in the above-styled matters are therefore affirmed, in part,

reversed, in part, and remanded for further proceedings consistent with this opinion.



                                                 Affirmed in part, and reversed in part,
                                                 and remanded.




       24
          In view of the Court’s resolution of this matter, we find that Doddridge County’s
lone separate appellate issue—whether it was unfairly denied an opportunity to fully brief
the issues below—has been rendered moot.
                                             31
