                                                                                      December 18 2012


                                         DA 12-0267

                IN THE SUPREME COURT OF THE STATE OF MONTANA
                                         2012 MT 292



MUSSELSHELL COUNTY, a Political
Division of the State of Montana,

              Plaintiff and Appellant,

         v.

YELLOWSTONE COUNTY, a Political Division of the
State of Montana; and STATE OF MONTANA ex rel.
DEPARTMENT OF REVENUE,

               Defendants and Appellees.


APPEAL FROM:           District Court of the First Judicial District,
                       In and For the County of Lewis and Clark, Cause No. BDV-2010-836
                       Honorable Jeffrey M. Sherlock, Presiding Judge


COUNSEL OF RECORD:

                For Appellant:

                       R. Allan Payne, Marc G. Buyske; Doney Crowley Payne Bloomquist P.C.,
                       Helena, Montana

                For Appellees:

                       Daniel L. Schwarz, Chief Deputy Yellowstone County Attorney,
                       Billings, Montana

                       Teresa G. Whitney, Special Assistant Attorney General, Montana
                       Department of Revenue, Helena, Montana


                                                  Submitted on Briefs: November 14, 2012

                                                             Decided: December 18, 2012

Filed:
                       __________________________________________
                                         Clerk
Chief Justice Mike McGrath delivered the Opinion of the Court.


¶1    Musselshell County appeals from the District Court’s order entered February 3,

2012, affirming the Montana Department of Revenue’s apportionment of the coal gross

proceeds tax from the Bull Mountains Mine. We affirm.

¶2    Musselshell County presents the following issues for review:

¶3    Issue One: Whether the District Court erred in affirming the Montana Department

of Revenue’s apportionment of the coal gross proceeds tax from the Bull Mountains

Mine between Musselshell County and Yellowstone County.

¶4    Issue Two: Whether the District Court erred in determining that the Montana

Department of Revenue was not required to adopt rules under the Administrative

Procedure Act prior to apportioning the coal gross proceeds tax from the Bull Mountains

Mine between Musselshell County and Yellowstone County.

                PROCEDURAL AND FACTUAL BACKGROUND

¶5    The Bull Mountains Mine is an underground coal mine operated by Signal Peak

Energy, with its surface facilities located in Musselshell County.      It is the only

underground coal mine in Montana. At the Bull Mountains Mine, the coal is severed

from the underground coal vein, crushed and then brought to the surface. There it is

crushed again, stockpiled, and ultimately loaded onto rail cars for transportation to

market. In 2009 the mine extended underground into Yellowstone County, and produced

coal mined from both Musselshell County and Yellowstone County. As required by law




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(§ 15-23-701, MCA) the mine operator reported to the Department of Revenue the

number of tons and the value of coal mined in each county for the 2009 tax year.

¶6     The coal gross proceeds tax is one of several Montana taxes associated with coal

mining, and the revenues benefit counties. It is administered by the Department of

Revenue and is levied pursuant to §§ 15-23-701, -702, and -703, MCA, at a rate of five

percent of the contract sales price of the coal.1 “Contract sales price” is the “price of coal

extracted and prepared for shipment f.o.b. mine. . . .” Section 15-35-102(5), MCA.

“Prepared for shipment” includes “in-mine movement, crushing, sizing, screening,

storing, mixing, loading, treatment with substances including chemicals or oils, and other

preparation of the coal for disposition.” Section 15-35-102(7), MCA. The acronym

“f.o.b.” is not defined in the statute but is understood in the industry to mean “freight on

board” a coal train at the mine.

¶7     Based upon quarterly reports of mine operators, the Department notifies the

appropriate county or counties of the value of the coal gross proceeds and the amount of

the tax that may be collected by each county. The county then collects the gross proceeds

tax from the mine operator. For the 2009 tax year, the Bull Mountains Mine taxable coal

gross proceeds were $9,110,535. Based upon the operator’s report of the counties from

which the coal was mined, the Department allocated $6,572,340 to Musselshell County,

for a tax of $328,617; and allocated $2,538,195 to Yellowstone County for a tax of

$126,909.


1
  New underground mines and some others are currently taxed at a temporary rate of
2.5% of the value of the coal. Section 15-23-703(c), MCA.
                                              3
¶8     Musselshell County sued Yellowstone County and the Department, seeking a

declaratory judgment that the Department wrongfully allocated a portion of the tax to

Yellowstone County. All parties moved for summary judgment. The District Court

upheld the Department’s apportionment of the tax between the two counties, holding that

Montana law contemplates taxation of the gross proceeds of coal in the county where the

coal is mined and that the Department was not required to adopt administrative rules prior

to apportioning the tax. Musselshell County appeals.

                                 STANDARD OF REVIEW

¶9     This Court reviews a decision on summary judgment de novo, using the same

criteria as the district court under M. R. Civ. P. 56, and reviews conclusions of law to

determine whether they are correct. Williams v. Plum Creek Timber Co., 2011 MT 271,

¶¶ 13, 15, 362 Mont. 368, 264 P.3d 1090.

                                     DISCUSSION

¶10    Issue One: Whether the District Court erred in affirming the Montana Department

of Revenue’s apportionment between Musselshell County and Yellowstone County of the

coal gross proceeds tax from the Bull Mountains Mine. The ultimate issue in this case is

whether the coal gross proceeds tax should be apportioned between Musselshell County

and Yellowstone County based upon the tons of coal taken from each county. Several

statutes bear upon this issue.

¶11    Mined coal, for purposes of the coal gross proceeds tax, is centrally assessed by

the Department of Revenue under § 15-23-101(5), MCA. The statute covers a wide

range of taxable activities that are “operated in more than one county,” including

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railroads, power lines, pipelines, canals, airlines, and the gross proceeds of coal mines.

Section 15-23-105, MCA, provides that the Department must “apportion the value” of

such property “among the counties in which such property is located.” If the property is

such that it cannot be apportioned on the basis of mileage or original installed cost (and

the parties agree that this is the case with coal), then the Department “may adopt such

other method or basis of apportionment as may be just or proper.” Section 15-23-105,

MCA. The Legislature’s statement of intent adopted with this statute provides that “it is

the intent of the legislature that apportionments made under this act shall substantially

correspond with the location of such property.” Compiler’s Comments to § 15-23-105,

MCA. Admin. R. M. 42.22.122 provides for the apportionment of centrally assessed

property among the “taxing units” based upon the location of the property. Section 15-

23-106, MCA, requires the Department to prepare an annual statement for each county

listing the assessed value of multi-county property, including “the assessed value of the

gross proceeds from coal mines, as described in 15-23-701.” Those values are entered in

the property tax record for each county. Section 15-23-702, MCA.

¶12    Title 15, Ch. 23, pt. 7, MCA, contains the statutes specifically applicable to the

coal gross proceeds tax. Section 15-23-701, MCA, requires each person mining coal to

report yearly to the Department a statement showing the “gross yield from each coal

mine” along with the location of the mine, the tons of coal extracted, treated or sold, and

the gross yield in dollars derived from the contract sales price. Section 15-35-102(5),

MCA, defines “contract sales price” as the “price of coal extracted and prepared for



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shipment, f.o.b. mine. . . .” 2 Section 15-23-702, MCA, requires the Department to yearly

“enter the valuation of the gross proceeds of coal mines in the property tax record for

each county in which the mines are located.” A “coal mine” is defined elsewhere in the

statutes as “all parts of the property of a mining plant under one management that

contribute, directly or indirectly, to the mining or handling of coal.” Section 50-73-

102(3), MCA. Section 15-23-703(1), MCA, provides that the Department must levy a

tax of 5% against the “gross yield or value . . . derived from the contract sales price” of

the coal, as referred to in § 15-23-701, MCA.

¶13    Yellowstone County and the Department contend that these provisions, and

particularly § 15-23-702, MCA, specifically provide for the apportionment of the coal

gross proceeds tax to “each county in which the mines are located.”             Since it is

undisputed that the Bull Mountains Mine is located partially in Yellowstone County, they

contend that Yellowstone County is entitled to an apportionment of the tax on the

proceeds of the Bull Mountains Mine.

¶14    Musselshell County argues that it is entitled to all the coal gross proceeds tax from

the Bull Mountains Mine because the tax is based upon a value of the coal when it is

“extracted and prepared for shipment f.o.b. mine” (§ 15-35-102(5), MCA) and that

process happens in Musselshell County. Musselshell County argues that the taxable coal

proceeds are personal property subject to taxation in the location where they are valued.

Finally, Musselshell County argues that since coal gross proceeds are classified as

2
  Although it is codified with the statutes relating to the Coal Severance Tax, the
definition of “contract sales price” in § 15-35-102(5), MCA, is specifically referenced in
the statutes relating to the coal gross proceeds tax, § 15-23-701(4), MCA.
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centrally assessed property, § 15-23-101, MCA, the Department may only apportion them

among counties by a method that is “just or proper.”           Section 15-23-105, MCA.

Therefore, Musselshell County contends that the Department can make such an allocation

only after adopting administrative rules governing the determination of what constitutes a

just or proper apportionment, considering the impacts of the mining on the counties

involved.

¶15    The District Court held that the statutes and regulations applicable to the coal

gross proceeds tax require that the tax be apportioned among the counties where the

mineral deposit is located and severed. In the absence of any clear legislative direction or

case law to the contrary, the District Court concluded that coal taken from under

Yellowstone County should be subject to the coal gross proceeds tax in that county. The

District Court concluded that the Department’s apportionment was required by the

applicable statutes and was therefore “just or proper” for purposes of § 15-23-105, MCA,

and was not arbitrary and capricious.

¶16    The District Court correctly upheld the Department’s apportionment of the coal

gross proceeds tax of the Bull Mountains Mine. It is clear that the Legislature intended

for the coal gross proceeds tax to be apportioned between or among the counties where

the mine is located. Section 15-23-101, MCA, governing centrally assessed properties,

specifically recognizes that coal mines can be operated in more than one county. Section

15-23-105, MCA, requires the Department to apportion the value of such property among

the counties in which the property is located.       The Legislature provided a specific

statement of its intent under § 15-23-105, MCA, that apportionments “substantially

                                             7
correspond with the location of such property.” Section 15-23-702, MCA, applicable

solely to the coal gross proceeds tax, requires the Department to enter the value of the

taxable gross proceeds “in the property tax record for each county in which the mines are

located.” It is clear under § 50-73-102(3), MCA, that all parts of the Bull Mountains

Mine operation, including those parts under Yellowstone County, are part of the same

“coal mine.”

¶17    By contrast, there is no statutory provision that supports allocation of the coal

gross proceeds tax from the Bull Mountains Mine solely to Musselshell County. The role

of the courts is to apply the plain language of the statutes, as the District Court did in this

case. Section 1-2-101, MCA; Friends of the Wild Swan v. DNRC, 2005 MT 351, ¶ 13,

330 Mont. 186, 127 P.3d 394. The District Court properly concluded that the coal gross

proceeds tax from the Bull Mountains Mine should be apportioned between Musselshell

County and Yellowstone County.

¶18    Issue Two: Whether the District Court erred in determining that the Montana

Department of Revenue was not required to adopt rules under the Administrative

Procedure Act prior to apportioning the coal gross proceeds tax from the Bull Mountains

Mine between Musselshell County and Yellowstone County.

¶19    Musselshell County argues that if apportionment between the counties is required,

the Department must first adopt rules under the Montana Administrative Procedure Act,

Title 2, Ch. 4, MCA, to describe its “implementation” of a “just or proper”

apportionment.      Section 15-23-105, MCA, provides that if property cannot be

apportioned between counties on the basis of mileage or original installed cost, then the

                                              8
Department “may adopt such other method or basis of apportionment as may be just or

proper.”   Musselshell County contends that the Department did not properly adopt a

“just or proper” apportionment method when it apportioned the coal gross proceeds tax

based upon the county from which the coal was mined without complying with the

rulemaking procedures of Montana law. See e.g. §§ 2-4-301 through -315, MCA.

¶20    The District Court held that the Department’s apportionment of the tax was

required by applicable law, as discussed above, and was therefore “just or proper” per se

because the Department had followed the plain provisions of the law. The District Court

concluded that the Department was “not required to make an administrative rule

clarifying [the law], as the statutes and applicable administrative rules are clear.” The

District Court properly concluded that the Department was not required to adopt an

administrative rule before it could administer the clear provisions of the statutes. A valid

administrative rule must be consistent with the underlying statute, and must be

“reasonably necessary to effectuate the purpose of the statute.” Section 2-4-305(6),

MCA; Board of Barbers v. Big Sky College of Barber-Styling, 192 Mont. 159, 161, 626

P.2d 1269, 1270 (1981). Here the statutes are clear and there was no reasonable necessity

requiring the Department to adopt a rule interpreting the “just or proper” language in §

15-23-105, MCA, as it applies to the coal gross proceeds tax.

¶21    In addition, the Department has adopted rules applicable to the coal gross proceeds

tax.   Admin. R. M. 42.25.501 through .515.            The Department also has a rule

implementing §§ 15-23-101 and -105, MCA. Admin. R. M. 42.22.122 provides for



                                             9
apportionment of centrally assessed facilities “to the taxing units in which the property is

situated.”

                                     CONCLUSION

¶22    For the reasons stated, the Department of Revenue correctly apportioned the coal

gross proceeds tax from the Bull Mountains Mine between Musselshell County and

Yellowstone County, and was not required by law to create an administrative rule before

making that apportionment. The District Court is affirmed.




                                                 /S/ MIKE McGRATH


We concur:


/S/ MICHAEL E WHEAT
/S/ PATRICIA COTTER
/S/ BRIAN MORRIS
/S/ JIM RICE




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