Production vs. Transportation in Wyoming Oil & Gas Taxation: Commentary on Wyoming Department of Revenue v. PacifiCorp & Merit Energy Company, LLC, 2025 WY 126

I. Introduction

The Wyoming Supreme Court’s decision in Wyoming Department of Revenue v. PacifiCorp & Merit Energy Company, LLC, 2025 WY 126 (Dec. 2, 2025), establishes an important precedent in Wyoming tax law, particularly at the intersection of sales/use tax and oil and gas production.

The case addresses whether an oil and gas operator may claim a sales tax exemption for electricity used to lift and move production fluids (oil, water, and gas) from the wellbore to a Lease Automatic Custody Transfer (LACT) unit on the theory that it is “engaged in the transportation business” under Wyo. Stat. Ann. § 39‑15‑105(a)(iii)(E) (2023). It also clarifies how collateral estoppel applies to prior administrative decisions where key elements were resolved by stipulation rather than actual litigation.

The dispute arose after Merit Energy Company, LLC (“Merit”), an oil and gas producer and operator of mature water‑flood fields in Wyoming, requested a refund of over $3 million in sales tax on electricity purchased from PacifiCorp between March 2020 and March 2023. Merit argued that a substantial portion of this electricity powered the movement of production fluids from the wellhead to the LACT and that this movement constituted “transportation” qualifying for the exemption in § 39‑15‑105(a)(iii)(E).

The Wyoming Department of Revenue (“Department”) denied the refund, concluding that Merit is not “engaged in the transportation business” within the meaning of the exemption and that the electricity in question was used in production, not transportation. After a contested case hearing, the Wyoming State Board of Equalization (“Board”) sided with Merit, holding that Merit qualified under the exemption. The Department appealed; the matter was certified from the district court to the Wyoming Supreme Court under W.R.A.P. 12.09(b).

The Supreme Court reversed the Board. It held that:

• Collateral estoppel did not bar the Department from litigating whether Merit is engaged in the transportation business despite a prior Board decision in Merit's favor on other tax years; and
• On the merits, Merit is not “engaged in the transportation business” as that phrase is used in § 39‑15‑105(a)(iii)(E), and in any event the electricity at issue was consumed for the crude oil production process, not for “actual transportation purposes.”

This commentary analyzes the decision, its legal reasoning, its reliance on prior cases, and its implications for Wyoming tax law and for oil and gas operators who seek to characterize integrated production activities as “transportation” to obtain sales tax exemptions.

II. Summary of the Opinion

A. Issues Presented

The Court addressed two principal questions:

1. Collateral Estoppel: Was the Department barred by collateral estoppel from disputing that Merit is “engaged in the transportation business” because, in a prior Board case involving Merit's Spring Creek Field and earlier tax years, the Department had conceded that element and the Board had granted Merit a partial tax refund?
2. Substantive Sales Tax Exemption: Did the Board err in concluding that Merit's electricity purchases qualified for the sales tax exemption in Wyo. Stat. Ann. § 39‑15‑105(a)(iii)(E) (2023) for “sales of power or fuel to a person engaged in the transportation business” when consumed directly to generate motive power for actual transportation purposes?

B. Holdings

The Court held:

1. No Collateral Estoppel: Collateral estoppel (issue preclusion) did not apply because the question whether Merit was “engaged in the transportation business” was never “actually litigated” or decided in the prior Spring Creek Audit Board proceeding. It was resolved by stipulation—i.e., the Department conceded that element to narrow the issues—so there was no adjudicative determination to preclude relitigation.
2. Merit Not Engaged in the Transportation Business:
   • The Board’s legal interpretation was erroneous. It imported the federal tax law “trade or business” test from Commissioner v. Groetzinger, 480 U.S. 23 (1987), and effectively omitted the term “transportation” from the phrase “engaged in the transportation business,” thereby impermissibly expanding the statute.
   • Properly construed, the statute limits the exemption to entities uniquely or specifically in the commercial enterprise of moving goods from one place to another (i.e., the transportation business), not businesses for whom movement is merely an incidental part of a broader production enterprise.
   • By reference to mineral tax concepts of “gathering,” “well site,” and “production process” in Title 39, the Court concluded that moving production fluids from the wellhead through batteries where water is separated and treated, to the LACT, is part of the crude oil production process, not transportation.
   • Merit’s unit operating agreements with working interest owners confirmed that Merit is paid and reimbursed as operator, not as a transporter; the working interest owners reimburse Merit for operating expenses, including electricity.
   • Even if Merit were somehow engaged in the transportation business, the electricity in question was not “consumed directly in generating motive power for actual transportation purposes” but was instead used primarily to lift, gather, separate, and reinject fluids—classic production activities.

Accordingly, the Court held that Merit is not entitled to the claimed sales tax refund and reversed the Board’s decision.

III. Detailed Analysis

1. Procedural Posture and Standard of Review

The case came to the Supreme Court as a certified administrative appeal under W.R.A.P. 12.09(b) from a Board decision. Under the Wyoming Administrative Procedure Act (WAPA), Wyo. Stat. Ann. § 16‑3‑114(c)(ii), the Court must set aside agency action that is:

• “Not in accordance with law;”
• In excess of statutory authority; or
• Unsupported by substantial evidence, among other grounds.

Key standards applied:

• Conclusions of law are reviewed de novo with no deference to the agency. The Court may “correct any error made by the agency in either interpreting or applying the law.” (citing Leal v. Dep’t of Workforce Services, 2024 WY 86, ¶ 11).
• Findings of fact are reviewed for “substantial evidence,” meaning “such relevant evidence as a reasonable mind might accept as adequate to support the decision.” (citing Contango Resources, LLC v. Fremont County, 2025 WY 29, ¶ 24).

Because the Court found the Board’s legal interpretation of the statute erroneous, it afforded no deference to the Board’s ultimate conclusions and also scrutinized whether the Board’s factual assumptions were supported by the record.

2. Collateral Estoppel: Why the Prior Spring Creek Case Did Not Bar This Appeal

a. The Doctrine

Collateral estoppel (also called issue preclusion) bars relitigation of an issue when:

1. The issue decided in the prior proceeding is identical to the one in the current case;
2. The prior proceeding resulted in a judgment on the merits;
3. The party against whom estoppel is asserted was a party (or in privity) in the prior case; and
4. The party had a full and fair opportunity to litigate the issue. (citing Union Tel. Co. v. Wyo. Pub. Serv. Comm’n, 2022 WY 55, ¶ 24).

Issue preclusion requires that an issue be “actually litigated” and “in fact determined” in the prior proceeding. (citing Casiano and Robert L. Kroenlein Trust v. Kirchhefer).

b. What Happened in the Spring Creek Audit

The prior case, known as the Spring Creek Audit, involved:

• Different tax years (2017–2020);
• A narrower set of operations (only the Spring Creek Field); and
• An excise tax deficiency assessment after an audit.

There, the parties resolved multiple issues by stipulation. Significantly:

• The Department conceded that Merit satisfied “all parts” of the element requiring that the sale of power or fuel be to a person “engaged in the transportation business.”
• The Board’s written decision expressly expressed doubt that Merit was actually engaged in the transportation business, but then said:

  “But, because the Department has conceded the point, that question is not before us and we cannot decide it.”

• The Board thus treated the point as outside the scope of decision due to the Department’s concession.

In this subsequent case, the Department did not concede that element and instead expressly asserted that Merit is not engaged in the transportation business.

C. Stipulations vs. “Actually Litigated” Issues

The Court held that the Department’s earlier concession in the Spring Creek Audit was a stipulation, not a litigated and adjudicated issue:

• A stipulation is “an agreement, admission, or concession made in a judicial proceeding by the parties…respecting some matter.” (citing Hanft v. City of Laramie, 2021 WY 52, ¶ 59).
• A stipulation “prevents an independent examination” by the adjudicating body of the matters stipulated.
• Because the Board had explicitly refused to reach the “transportation business” question due to the concession, the issue had not been “actually litigated.”

Thus, the second collateral estoppel requirement—an adjudication on the merits of the same issue—was not satisfied. Collateral estoppel did not bar the Department from litigating this issue in this case.

Practically, this part of the opinion reinforces that:

• Legal concessions made to streamline an earlier matter do not create binding issue-preclusive determinations unless the tribunal actually decides the point; and
• Regulated parties cannot rely on a prior stipulated position as if it were a binding, adjudicated legal precedent for future tax periods or broader operations.

3. Interpreting § 39‑15‑105(a)(iii)(E): “Engaged in the Transportation Business”

a. The Statutory Text

The applicable 2023 version of Wyo. Stat. Ann. § 39‑15‑105(a)(iii)(E) provided:

(iii) For the purpose of exempting sales of services and tangible personal property consumed in production, the following are exempt:

(E) Sales of power or fuel to a person engaged in the transportation business when the same is consumed directly in generating motive power for actual transportation purposes, except [for circumstances not relevant here].

Key features:

• The exemption is part of a suite of exemptions for power/fuel “consumed in production,” but this subparagraph specifically addresses the transportation business.
• There are two distinct conditions:
  1. The purchaser must be “engaged in the transportation business”; and
  2. The power or fuel must be “consumed directly in generating motive power for actual transportation purposes.”

The parties and the Board agreed the language is unambiguous, and the Court concurred. That meant the Court applied its plain language without resorting to canons applicable only to ambiguous text.

b. The Board’s Approach and Its Errors

The Board:

• Correctly looked up the meanings of “engage” and “business” in Black’s Law Dictionary, concluding that “engaged in the business of” implies a continuing effort to make a profit.
• Then imported the U.S. Supreme Court’s “trade or business” test from Commissioner v. Groetzinger, 480 U.S. 23 (1987):
  • The taxpayer must be involved in the activity with “continuity and regularity”; and
  • The taxpayer’s primary purpose must be income or profit.
• Used that test to conclude Merit is in the “transportation business” because it “continuously uses its pipeline to move oil owned by others, and charges the oil owners for that service.”

The Court identified two fundamental errors:

1. Omission of “transportation”: The Board never analyzed the meaning of “transportation” in the phrase “transportation business.” It effectively treated the phrase as “engaged in a business,” ignoring the limiting word “transportation.” Wyoming law requires courts and agencies to give effect to every word, avoiding interpretations that render any term superfluous. (citing Bolack v. Chevron, U.S.A., Inc., 963 P.2d 237 (Wyo. 1998)).
2. Mistaken reliance on Groetzinger: Groetzinger interpreted whether an activity qualifies as a “trade or business” in general for federal income tax purposes. The Wyoming statute does not simply require being in a trade or business; it requires being in the transportation business. The Court emphasized that importing Groetzinger without accounting for the specific textual limitation (“transportation”) impermissibly broadened the exemption, in violation of the principle that tax exemptions are strictly construed against the taxpayer. (citing E. Laramie Cnty. Solid Waste Disposal Dist. v. Bd. of Equalization, 9 P.3d 268 (Wyo. 2000); PacifiCorp, Inc. v. Dep’t of Revenue, 2017 WY 106).

In short, the Board’s reading would effectively allow any business that moves tangible goods as part of its operations (e.g. bakeries, plumbers, art galleries) to claim it is “engaged in the transportation business,” contrary to the statute’s clear limitation and purpose.

c. The Court’s Textual and Contextual Reading

The Court undertook its own statutory interpretation, applying core principles:

• Statutes must be read to give effect to legislative intent, which is best gleaned from the plain and ordinary meaning of the words used. (citing Delcon Partners LLC v. Dep’t of Revenue, 2019 WY 106).
• Every word, clause, and sentence should be given effect, with the statute read in pari materia (in harmony) with related provisions in Title 39. (citing PacifiCorp, Inc. v. Dep’t of Revenue, 2017 WY 106, ¶ 10).
• Tax exemptions are strictly construed against the taxpayer; they are not to be expanded by implication. (citing Big Al’s Towing and Recovery v. Dep’t of Revenue, 2022 WY 145, ¶ 31).

It focused in particular on:

• “Transportation”: The Court had previously defined “transport” in tax contexts as “to transfer or convey from one place to another,” relying on WPX Energy Rocky Mountain, LLC v. Dep’t of Revenue, 2022 WY 104, ¶ 23, and In re Worker’s Compensation Claim of Barlow, 2011 WY 120, ¶ 12.
• “The transportation business”: The statute uses the definite article “the,” which is a word of limitation. Citing McClanahan v. Woodward Construction Co., 316 P.2d 337 (Wyo. 1957) and BP Am. Prod. Co. v. Madsen, 2002 WY 135, ¶ 8, the Court treated “the transportation business” as denoting a specific type of commercial enterprise, not just any activity that happens to involve movement.

From this, the Court concluded:

“‘Engaged in the transportation business’ means an entity uniquely employed in the commercial enterprise of moving goods or products from one place to another.”

In other words, the statute is targeted at entities whose business model is transportation (e.g., pipeline companies, railroads, motor carriers), rather than at producers who move their own in‑process products around as part of making them marketable.

4. Integration with Mineral Severance Tax Concepts: Production vs. Transportation

A key strength of the opinion is its careful use of other Title 39 provisions—especially severance tax definitions—to distinguish “production” from “transportation.”

a. “Gathering” and “Well Site”

The Department argued that moving crude oil from wells to central facilities is “gathering,” not transportation. The mineral severance statute defines:

• “Gathering”: “the transportation of crude oil, lease condensate or natural gas from multiple wells by separate and individual pipelines to a central point of accumulation, dehydration, compression, separation, heating and treating or storage.” Wyo. Stat. Ann. § 39‑14‑201(a)(ix).

Merit tried to counter with the definition of “well site” in the sales/use tax definitions:

• “Well site”: An area where production equipment is installed to store or prepare oil or gas for transportation off the well site, including wellheads, tanks, heater-treaters, separators, flow lines, meters, etc. Wyo. Stat. Ann. § 39‑15‑101(a)(xviii).

Merit selectively quoted that definition to suggest that movement of oil “off the well site” necessarily constituted transportation. The Court corrected this by pointing out:

• The “well site” is not limited to the wellhead; it includes batteries, heater-treaters, separators, tanks, and associated flow lines.
• Movement of production fluids within the well site—from the wellhead to batteries and other production equipment—remains part of production, not transportation, under the statute’s own language.

b. The “Production Process” under § 39‑14‑203(b)(iii)

The Court then turned to the mineral severance tax provision defining when the crude oil “production process” is complete:

The crude oil production process ends “after extracting from the well, gathering, heating and treating, separating, injecting for enhanced recovery, and any other activity which occurs before the outlet of the initial storage facility or lease automatic custody transfer (LACT) unit.”
(Wyo. Stat. Ann. § 39‑14‑203(b)(iii) (emphasis added)).

This definition is broader than the term “gathering” alone and squarely covers:

• Extraction via electric submersible pumps (ESPs) and pumpjacks;
• Movement of the commingled fluids to central batteries;
• Heating, treating, and separating water from oil;
• Reinjection of water for secondary recovery; and
• All such activities up to the LACT or initial storage facility outlet.

Given Merit's own description of its operations and the utility studies, the Court concluded that the activities for which Merit sought a sales tax exemption are quintessentially part of this “production process.”

This cross‑use of severance tax definitions to interpret the sales tax exemption is doctrinally significant. The Court expressly embraced reading “all statutes relating to the same subject or having the same general purpose” in harmony (citing PacifiCorp, Inc., 2017 WY 106) and reinforced prior recognition that delineating where production ends and transportation begins is a central challenge in oil and gas taxation (citing Exxon Mobil Corp. v. Dep’t of Revenue, 2009 WY 139; Union Pac. Resources Co. v. State, 839 P.2d 356 (Wyo. 1992)).

5. Application to Merit's Operations and Contracts

a. Merit's Physical Operations: Water‑Flood Secondary Recovery

The factual record was detailed:

• Merit operates mature oil fields in Wyoming using secondary recovery (water‑flood), producing enormous volumes of water relative to oil—often 1,000 barrels of water for every 10 barrels of oil.
• Electric submersible pumps and pumpjacks lift a mixture of crude oil, produced water, and gas to the surface and provide sufficient pressure to:
  • Move the fluids from the wellhead to centralized batteries;
  • Move fluids through separator and heater‑treater equipment; and
  • Convey separated crude oil from the batteries to the LACT units.
• At each battery, Merit uses electric‑powered equipment (knock‑out vessels, heater‑treaters, accumulation tanks, vapor recovery units, pumps) to separate water and reinject or dispose of it.
• Separated crude oil is held at the LACT, then transferred to third‑party entities who transport it to refineries via pipeline after custody transfer.

Merit commissioned third‑party “utility studies” to allocate electricity across three functional categories:

1. Extraction;
2. Post‑wellhead transportation (as defined by Merit and its consultant); and
3. Other uses.

The studies indicated that post‑wellhead “transportation” (i.e., electricity needed to move fluids at the surface) accounted for roughly 46–55% of total electricity consumption. However, the Court emphasized:

• The labels in these studies (e.g., calling something “transportation”) do not control the legal classification under Wyoming statutes.
• Most of the electricity Merit seeks exemption for is used by ESPs/pumpjacks and surface production equipment (heater‑treaters, separators, etc.)—all part of the statutory “production process.”
• Surface transfer pumps that might arguably be closer to pure transportation use less than 1% of the electricity Merit claims as exempt.

b. Unit Operating Agreements and the Nature of Merit's Business

Merit does not own the crude oil it produces; it acts as unit operator for working interest owners under unit operating agreements. Merit argued that:

• It is “transporting oil it does not own to a point of sale through a large transportation network” and is “paid by the working interest owners” for that service, showing it is in the transportation business.

The Court examined the unit operating agreements in detail and rejected this characterization:

• The agreements make Merit the exclusive operator of each unit, with duties to conduct operations in a workmanlike manner and to manage expenses and accounting.
• Merit initially pays all operating expenses—including electricity—then charges them to a joint account shared by the working interest owners.
• Working interest owners are responsible for their share of operating expenses; the joint account is a cost‑sharing mechanism, not a fee schedule for a separate transportation service.
• Where the agreements mention “transportation,” it concerns incidental matters such as transporting employees, surplus materials, or tubular goods—not a commercial crude oil transportation service.
• Merit is also separately compensated for its own operator‑related expenses (e.g., employee wages) as a cost of operating the field, not as tariffs for transportation.

The Board, in concluding that Merit “uses its pipeline to move oil owned by others, and charges the oil owners for that service,” did not analyze the contracts and relied instead on a snippet of testimony. The Court held this finding lacked substantial evidentiary support once the agreements themselves were reviewed.

The Court therefore concluded that:

• Merit is engaged in the business of operating oil and gas wells under contract with working interest owners; and
• Merit is reimbursed for operating expenses and paid as an operator—not as a separate transportation company charging for a standalone transportation service.

Legally, this undercut both prongs of Merit's argument:

1. It is not uniquely in the transportation business within the meaning of § 39‑15‑105(a)(iii)(E); and
2. The electricity in question is not consumed in a distinct transportation activity, but in the integrated production process managed by the operator.

6. The “Directly” and “Actual Transportation Purposes” Requirements

Even setting aside whether Merit was engaged in the transportation business, the Court used the statute’s second requirement as an independent basis for denial:

The power or fuel must be “consumed directly in generating motive power for actual transportation purposes.”

The Court emphasized the words:

• “Directly”: suggests an immediate, direct use rather than an indirect or preparatory use; and
• “Actual”: means existing in fact, not merely nominal or incidental (citing dictionary definitions).

Applying this, the Court held:

• The electricity was used to lift, move, and treat a mixture of water, oil, and gas, as part of making oil marketable and completing the production process before the LACT.
• Because these activities fall squarely within the severance‑tax definition of the production process, they are not “actual transportation” within the meaning of § 39‑15‑105(a)(iii)(E).
• Electricity used to power ESPs, pumpjacks, heater‑treaters, separators, and reinjection pumps is therefore production electricity, not transportation electricity, even though the fluids are physically moving.

Thus, even if Merit had qualified as being in the transportation business, its refund request would still fail because the electricity was not used directly to generate motive power for actual transportation purposes.

7. Precedents Cited and Their Significance

a. Statutory Interpretation and Tax Cases

• PacifiCorp, Inc. v. Dep’t of Revenue, 2017 WY 106:
  • Reaffirms reading Title 39 provisions harmoniously and strictly construing exemptions.
  • Here, it supports the Court’s cross‑reference to severance tax definitions in interpreting a sales tax exemption.
• E. Laramie Cnty. Solid Waste Disposal Dist. v. Bd. of Equalization, 9 P.3d 268 (Wyo. 2000):
  • States that tax exemptions are strictly interpreted against taxpayers and in favor of the taxing authority.
  • Underpins the Court’s refusal to expand the transportation exemption beyond its clear text.
• Big Al’s Towing and Recovery v. Dep’t of Revenue, 2022 WY 145, ¶ 31:
  • Warns that tax statutes “should not be extended, by implication, beyond the clear import of the language used.”
  • Used to reject the Board’s broad reading via Groetzinger that would blur the statute’s transportation limit.
• WPX Energy Rocky Mountain, LLC v. Dep’t of Revenue, 2022 WY 104 and In re Worker’s Compensation Claim of Barlow, 2011 WY 120:
  • Provide dictionary-based definitions of “transport” and “transportation,” anchoring the Court’s interpretation of the term in § 39‑15‑105(a)(iii)(E).
• Exxon Mobil Corp. v. Dep’t of Revenue, 2009 WY 139 and Union Pacific Resources Co. v. State, 839 P.2d 356 (Wyo. 1992):
  • Highlight that drawing the line between production and transportation is notoriously difficult in oil and gas taxation.
  • The Court relies on these to show continuity with prior efforts to clarify where production ends (here, at or before the LACT) and transportation begins (after the oil is in marketable form and custody is transferred).

b. Administrative Law and Standards of Review

• Leal v. Dep’t of Workforce Services, 2024 WY 86; Jonah Energy LLC v. Dep’t of Revenue, 2023 WY 87; Contango Res., LLC v. Fremont County, 2025 WY 29:
  • Reiterate de novo review of legal conclusions and substantial evidence review of factual findings.
  • Support the Court’s refusal to defer to the Board’s misinterpretation of the statute.
• Chevron U.S.A., Inc. v. Dep’t of Revenue, 2007 WY 79:
  • Clarifies that courts will not defer to an agency’s ultimate factual finding if there is an error in stating or applying the law.
  • Used to justify reconsideration of the Board and its underlying factual premises.
• Exaro Energy III v. Wyo. Oil & Gas Conservation Comm’n, 2020 WY 8 and Dale v. S&S Builders, LLC, 2008 WY 84:
  • Stress the need to examine the entire record when applying the substantial evidence standard.
  • Support the Court’s careful look at the unit operating agreements rather than relying on a single statement of testimony.

c. Issue Preclusion / Collateral Estoppel

• Union Tel. Co. v. Wyo. Pub. Serv. Comm’n, 2022 WY 55; Lower v. Peabody Powder River Servs., LLC, 2020 WY 33; Slavens v. Bd. of Cnty. Comm’rs for Uinta Cnty., 854 P.2d 683 (Wyo. 1993):
  • Confirm that collateral estoppel applies to administrative adjudications but only when there is a final determination on the merits of the issue.
• Bender v. Uinta Cnty. Assessor, 14 P.3d 906 (Wyo. 2000) and Univ. of Wyoming v. Gressley, 978 P.2d 1146 (Wyo. 1999):
  • Define issue preclusion as barring relitigation of issues “actually and necessarily decided” in a prior action.
• Casiano and Robert L. Kroenlein Trust v. Kirchhefer, 2015 WY 127:
  • Explain that an issue is “actually litigated” only if it was properly raised and in fact determined by the tribunal.
  • Critical for rejecting Merit's contention that the prior Board decision in Spring Creek had decided the “transportation business” question.
• Hanft v. City of Laramie, 2021 WY 52:
  • Defines stipulations and explains that they short‑circuit judicial examination of the stipulated point.
  • Supports the conclusion that the prior agency decision, based on a stipulation, does not yield an “actually litigated” issue for collateral estoppel purposes.

d. Miscellaneous Definitions and Canons

• McClanahan v. Woodward Construction Co., 316 P.2d 337 (Wyo. 1957) and BP Am. Prod. Co. v. Madsen, 2002 WY 135:
  • Explain the significance of the definite article “the” as a word of limitation.
  • Fundamental to the Court’s reading of “the transportation business” as a narrow category of enterprises.
• Skoric v. Park Cnty. Cir. Ct., 2023 WY 59A:
  • Approves the use of dictionary definitions to determine plain meaning, which the Court applies to “transportation,” “actual,” and “directly.”

IV. Complex Concepts Simplified

1. “Production Process” vs. “Transportation” in Oil & Gas

In oil and gas, production and transportation are not the same:

• Production process (for crude oil under § 39‑14‑203(b)(iii)):
  • Includes extracting hydrocarbons from the well, gathering from multiple wells to central facilities, heating and treating, separating water and gas from oil, reinjecting water for enhanced recovery, and any other activity occurring before the outlet of the initial storage facility or LACT.
  • This is the stage where the operator is making the product marketable.
• Transportation:
  • Begins after the production process ends, i.e., after the oil is in marketable form and has been delivered to a sales or custody transfer point (LACT, initial storage).
  • Involves moving already‑produced, marketable crude oil from that point to refineries or other destinations by pipeline, truck, rail, etc.

The Court’s decision makes clear that moving in‑process fluids (oil mixed with large volumes of water and gas) around the well site and through treating equipment is still production, even though physical movement is involved.

2. Working Interest Owners and Unit Operating Agreements

• A working interest owner holds the right to explore for and produce oil and gas under a lease and bears a proportionate share of development and operating costs. It usually receives a share of production as compensation. (see also Wyo. Stat. Ann. § 30‑5‑304(a)(viii)).
• A unit operating agreement is a contract among working interest owners designating an operator (here, Merit) to run field operations. The operator:
  • Has exclusive authority to conduct operations;
  • Pays operating costs initially; and
  • Bills each working interest owner through a joint account.

Being a unit operator is not the same as being a commercial transporter:

• An operator earns its return primarily through cost reimbursement and, sometimes, an overhead fee, not by charging transportation tariffs.
• Transportation companies, by contrast, typically charge rate‑based fees to move goods they do not own from point A to point B as a standalone service.

3. Collateral Estoppel (Issue Preclusion)

Collateral estoppel prevents relitigation of a specific issue already decided. To apply:

1. The same issue must arise in the second case;
2. The issue must have been actually raised and decided in the first;
3. The party against whom estoppel is asserted must have been a party (or in privity) in the first case; and
4. The party must have had a full and fair opportunity to litigate it.

Crucially, an issue is not “actually litigated” if:

• It was conceded, stipulated, or otherwise taken as given;
• The tribunal explicitly noted it was not deciding the point because of the concession.

That is exactly what occurred in the Spring Creek Audit case, so the Department was not estopped from litigating the question here.

4. “Substantial Evidence” Review

Courts reviewing agency decisions do not reweigh evidence but ask whether a reasonable person could reach the same conclusion based on the record. “Substantial evidence” is:

“Such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.”

If critical findings rest on assertions contradicted by the documentary record (as with Merit's operating agreements), they may be deemed unsupported by substantial evidence and set aside.

V. Impact and Future Implications

1. Narrowing the “Transportation Business” Exemption for Oil & Gas Operators

This decision sharply limits the ability of oil and gas producers in Wyoming to use § 39‑15‑105(a)(iii)(E) to avoid sales tax on electricity or fuel used in field operations. Key practical effects:

• Electricity used to power ESPs, pumpjacks, heater‑treaters, separators, reinjection pumps, and other equipment up to the LACT is production, not transportation. It is not exempt under the transportation business exemption.
• Merely moving in‑process production fluids around the well site (even between different locations or units) does not convert an operator into a “transportation business.”
• To the extent any portion of electricity is devoted to moving fully treated, marketable crude oil after the LACT (e.g., on private pipelines before delivery to a third‑party carrier), taxpayers would need rigorous metering and allocation evidence to attempt an exemption, and even that may be constrained by how “transportation business” is defined.

2. Clarifying the Scope of “Transportation Business” Across Industries

Although the case arises from oil and gas operations, the Court’s interpretation of “engaged in the transportation business” is not industry‑specific. It likely applies across sectors:

• Entities like trucking companies, railroads, pipeline carriers, and common carriers that exist primarily to move goods for others are strong candidates for qualifying as being in “the transportation business.”
• Manufacturers, retailers, farms, or service businesses that move materials, inventory, or products internally or as a secondary aspect of their operations are unlikely to qualify.

This will constrain creative attempts by non‑transportation businesses to recharacterize incidental internal movements of goods as “transportation” to benefit from this particular sales tax exemption.

3. Cross‑Use of Severance Tax Concepts in Sales Tax Context

By relying on the severance tax definition of the “production process” to interpret a sales tax exemption, the Court has:

• Reinforced the idea that Title 39 should be read as an integrated whole; and
• Provided a clear doctrinal link: for oil and gas, “production” (for severance tax) and “non‑transportation” (for sales tax exemption purposes) now share a common endpoint—at or before the LACT or initial storage outlet.

Regulators and taxpayers can expect similar cross‑pollination of concepts in future disputes about what counts as production vs. post‑production transportation or processing.

4. Effects on Administrative Litigation Strategy

The collateral estoppel analysis carries strategic lessons:

• Agencies that stipulate away key legal issues in one contested case do not necessarily bind themselves on that legal question for future tax years or broader operations, especially where the tribunal explicitly declines to decide the issue.
• Taxpayers should not rely on stipulations as if they were precedents: obtaining a favorable result based on a concession may provide financial relief for that period but will not necessarily guarantee the same outcome later.
• If a party wants an issue to have preclusive effect, it must ensure it is fully litigated and expressly ruled upon.

5. Relationship to 2025 Legislative Amendment

The Court notes that the Legislature amended § 39‑15‑105(a)(iii)(E) in 2025 (2025 Wyo. Sess. Laws ch. 104, § 1), but the case concerns tax periods prior to that amendment, so the Court applied the 2023 version only.

Nevertheless, the Court’s reasoning will influence:

• How the amended language is interpreted, particularly if it retains or modifies the “transportation business” and “actual transportation purposes” concepts; and
• How the Department and taxpayers frame disputes over the amended statute, since the core production vs. transportation distinction and the narrow reading of “transportation business” will likely carry forward unless the Legislature expressly overrides them.

VI. Conclusion

Wyoming Department of Revenue v. PacifiCorp & Merit Energy Company, LLC is a significant precedent on two interconnected fronts:

• Substantive tax law: It sharply delineates between production and transportation for purposes of Wyoming’s sales tax exemption for power and fuel used by entities “engaged in the transportation business” under § 39‑15‑105(a)(iii)(E) (2023). The Court holds that:
  • Only entities that are truly in the transportation business—as a distinct commercial enterprise—qualify;
  • Oil and gas operators that move in‑process production fluids within a well site as part of lifting, gathering, separating, and reinjecting are engaged in production, not transportation; and
  • Electricity used in that production process is not “consumed directly in generating motive power for actual transportation purposes.”
• Administrative law and preclusion: It clarifies that issues resolved by stipulation in administrative adjudications, where the tribunal expressly declines to decide the point, are not “actually litigated” and therefore do not generate collateral estoppel. Parties cannot convert a legal concession into a binding, preclusive determination absent a true adjudication on the merits.

Going forward, Wyoming oil and gas operators will find it difficult to rely on the transportation business exemption to avoid sales tax on electricity used in field operations up to the LACT. The decision reinforces a disciplined, text‑driven approach to tax exemptions and highlights the integrated nature of Title 39, especially in distinguishing production from transportation in mineral taxation.

By insisting that “engaged in the transportation business” and “actual transportation purposes” be read strictly and in context, the Court has provided clearer guidance, greater predictability, and a more coherent framework for both taxpayers and the Department of Revenue in future disputes over sales tax exemptions in Wyoming.