(The Casper Star Tribune posted the following article by Bill Luckett on its website on May 13.)
CHEYENNE, Wyo. — The Wyoming Supreme Court has backed the State Board of Equalization’s decision that crushed granite a railroad uses for maintenance is subject to a sales tax, while materials delivered to a third party outside the state is exempt.
Union Pacific Railroad and the Wyoming Department of Revenue (DOR) appealed parts of the Board of Equalization decision, and a district judge certified the appeals, or sent them directly to the Supreme Court for a ruling.
Union Pacific buys the crushed granite, called ballast, for two different purposes.
The company sometimes buys ballast to sell it to a third party outside the state which uses it for railroad construction. Other times, the company uses the ballast itself for railroad maintenance.
In 1975, the DOR granted Union Pacific an exemption from paying sales tax on its purchase of ballast in Wyoming but still charged the same fee as a “use tax” if the company used the product in Wyoming.
In June 1997, then-DOR Director Johnnie Burton said the agency had no authority under state law to grant the exemption, and she revoked it. Later the agency ruled that the exemption was revoked effective July 1, 1998.
Two audits of the railroad in 2000 revealed that it owed the state $661,429 plus interest and penalty in back sales taxes on purchases of ballast.
The Board of Equalization, however, distinguished between “maintenance ballast” used by the railroad in Wyoming and “construction ballast” used by a third party outside the state.
The board ruled, and the Supreme Court agreed, that construction ballast should not be taxed.
It is absolutely clear that sales of construction ballast “were intended to be outside the realm of Wyoming sales taxation,” states the Supreme Court ruling written by Justice Larry Lehman.
On the other hand, the board ruled and Supreme Court affirmed that the DOR properly revoked Union Pacific’s exemption from paying sales tax on the ballast it uses for maintenance in Wyoming.
The company contended that the department failed to give sufficient notice under the law that the exemption was being revoked, but the Supreme Court disagreed.
Dan Noble, administrator of DOR’s Excise Tax Division, said his agency will now have to try to determine how much of the ballast was bought for construction and how much the railroad kept for maintenance use.
“There was never a distinction made between the construction ballast and the maintenance ballast to the auditors,” he said.
Thus, the department does not yet have a new figure for how much Union Pacific owes in back sales taxes for maintenance ballast purchases.