Bean Dredging v. ALABAMA DEPT. OF REVENUE

Decision Date14 February 2003
Citation855 So.2d 513
PartiesBEAN DREDGING, L.L.C., and Midstream Fuel Services, Inc. v. ALABAMA DEPARTMENT OF REVENUE.
CourtAlabama Supreme Court

Blake A. Madison and David E. Rains of Tanner & Guin, L.L.C., Tuscaloosa, for appellant Bean Dredging, L.L.C.

William H. Pryor, Jr., atty. gen., and J. Wade Hope, asst. counsel, Department of Revenue, and asst. atty. gen., for appellee.

STUART, Justice.

Bean Dredging, L.L.C., and Midstream Fuel Services, Inc., appeal from a decision of the Montgomery Circuit Court affirming an order issued by an administrative law judge of the Department of Revenue dismissing their case. Bean and Midstream assert that they are entitled to a refund of $58,863 for State sales taxes paid on fuel and supplies during the period from March 1995 through September 1997.

Bean and Midstream assert that they are entitled to a refund because, they say, Bean's dredges are exempt from sales taxes on fuel and supplies under § 40-23-4(a)(10), Ala.Code 1975. This Court has not previously interpreted § 40-23-4(a)(10), and we must now determine whether the dredges were engaged in interstate commerce and thus entitled to a sales-tax exemption under § 40-23-4(a)(10), Ala.Code 1975. We conclude that dredges working to maintain navigable waterways so that those waterways may be used for commerce are engaged in interstate commerce and thus are eligible for the sales-tax exemption provided by § 40-23-4(a)(10), Ala.Code 1975. We reverse and remand.

Facts

Bean is headquartered in New Orleans, Louisiana, and Midstream is located in Mobile, Alabama. In its normal course of business, Bean contracts with the United States Army Corps of Engineers ("the Corps") to dredge ports, rivers, and harbors throughout the United States. Bean contracted with the Corps to dredge Mobile Bay and the Mobile River during the audit period in issue (March 1995-December 1997); it assigned two vessels to perform the dredging—the Eagle I and the Dave Blackburn.

Mobile Bay and the Mobile River are federal navigation channels. The federal government appropriates federal money annually for maintenance of the channels so that they will remain available for the flow of commerce. The contract between Bean and the Corps stated that the dredges were to work primarily in Mobile Bay between March 1995 and December 1997 but that Bean could pull the dredges at any time and send them to other dredging projects in the United States, a circumstance that actually occurred during the contract.

The Eagle I is a large self-propelled oceangoing hopper dredge. The Eagle I stored the material dredged from Mobile Bay in its hull and then transported it to various predetermined disposal sites in federal waters two to eight miles offshore. The Dave Blackburn, which was destroyed by fire in 1996, was a stationary hydraulic dredge supported by tugs and barges. It also dredged materials from Mobile Bay; however, instead of storing and transporting the materials it pumped the materials through a pipeline and disposed of them at Gilliard Island in Mobile Bay or beside the Mobile Bay ship channel. Both the Eagle I and the Dave Blackburn were stationed in New Orleans, Louisiana, and their employees receive their orders and were paid from New Orleans.

During the contract and audit period, Bean purchased fuel and supplies from Midstream in Mobile, Alabama. The fuel and supplies were used on both the Eagle I and the Dave Blackburn. Bean paid Alabama sales tax on the fuel and supplies; it is from this payment of sales tax that Bean and Midstream jointly petitioned for a refund.

An administrative law judge with the Department of Revenue denied Bean and Midstream's petition for a refund of the sales taxes and applied the law as outlined in State Department of Revenue v. Orange Beach Marina, Inc., 699 So.2d 1279 (Ala. Civ.App.1997). The administrative law judge recognized that different types of vessels were involved in Orange Beach Marina, but in denying the petition took notice of the Court of Civil Appeals' holding in that case that to qualify for an exemption the vessels must travel between a port in Alabama and a port in another state or country. While the administrative law judge criticized the Court of Civil Appeals' rationale in Orange Beach Marina as being too narrow, the judge agreed with the ultimate holding denying the exemption. Thus, Bean and Midstream's request for a sales-tax refund was denied. The administrative law judge did not dispute that dredging Mobile Bay constitutes an activity that affects interstate commerce for Commerce Clause purposes but found that the broad standard for determining whether an activity affects interstate commerce cannot be applied to the sales-tax exemption statute, § 40-23-4(a)(10), which must be narrowly construed. The administrative law judge therefore found that the statute, when read narrowly, does not apply to dredges.

The Montgomery Circuit Court affirmed the administrative law judge's decision, which strictly construed the exemption statute in favor of the State and applied the Orange Beach Marina requirement that to qualify for the sales-tax exemption the cargoes must be transported between a port in Alabama and a port in another state or country. Additionally, the circuit court also recognized that Bean's captains could have obtained certificates at the time they purchased the fuel and supplies stating that they were purchasing the fuel and supplies for consumption aboard a vessel engaged in interstate commerce, but they failed to do so. It is from the circuit court's affirmance of the administrative law judge's denial of a sales-tax refund under § 40-23-4(a)(10), Ala.Code 1975, that Bean and Midstream appeal.

Standard of Review

The circuit court reviews de novo an order of an administrative law judge in the State Department of Revenue; however, the order is presumed prima facie correct and the burden is on the appealing party to show otherwise. § 40-2A-9(g)(2), Ala. Code 1975.

This Court's standard of review is different from that applied by the circuit court in reviewing an administrative law judge's order. When reviewing a case in which the trial court sat without a jury and heard evidence in the form of stipulations, briefs, and the writings of the parties, this Court sits in judgment of the evidence; there is no presumption of correctness. Old Southern Life Ins. Co. v. Williams, 544 So.2d 941, 942 (Ala.1989); Craig Constr. Co. v. Hendrix, 568 So.2d 752, 756 (Ala.1990). When this Court must determine if the trial court misapplied the law to the undisputed facts, the standard of review is de novo, and no presumption of correctness is given the decision of the trial court. State Dep't of Revenue v. Garner, 812 So.2d 380, 382 (Ala.Civ.App.2001); see also Ex parte Graham, 702 So.2d 1215 (Ala.1997). In this case the trial court based its decision upon the stipulations, briefs, writings, and arguments of the parties' attorneys. No testimony was presented. Therefore, we must sit in judgment of the evidence, and the trial court's ruling carries no presumption of correctness.

Issue and Analysis

The sole issue before this Court is whether Bean's dredges—the Eagle I and the Dave Blackburn—were engaged in interstate commerce so that the purchase of the diesel fuel and supplies for the dredges was exempt from Alabama sales tax under § 40-23-4(a)(10), Ala.Code 1975. This is a case of first impression. Therefore, we must apply rules of statutory construction to § 40-23-4(a)(10), Ala.Code 1975, and determine whether the dredges were, for purposes of the statute, "engaged in interstate commerce." We hold that, although the tax-exemption statutes are to be construed against the taxpayer, Bean and Midstream have shown that dredging is substantially related to interstate commerce and that it thus falls within the meaning of "engaged in interstate commerce" intended by the Alabama Legislature.

I. Statutory Construction

It is this Court's responsibility to give effect to the legislative intent whenever that intent is manifested. State v. Union Tank Car Co., 281 Ala. 246, 248, 201 So.2d 402, 403 (1967). When interpreting a statute, this Court must read the statute as a whole because statutory language depends on context; we will presume that the Legislature knew the meaning of the words it used when it enacted the statute. Ex parte Jackson, 614 So.2d 405, 406-07 (Ala.1993). Additionally, when a term is not defined in a statute, the commonly accepted definition of the term should be applied. Republic Steel Corp. v. Horn, 268 Ala. 279, 281, 105 So.2d 446, 447 (1958). Furthermore, we must give the words in a statute their plain, ordinary, and commonly understood meaning, and where plain language is used we must interpret it to mean exactly what it says. Ex parte Shelby County Heath Care Auth., 850 So.2d 332 (Ala.2002).

Additionally, when the highest administrative officials charged with the duty of administering the tax laws have construed a tax statute, their construction should be given favorable consideration. Standard Dredging Corp. v. State, 271 Ala. 22, 28, 122 So.2d 280, 285 (1960); State v. Birmingham Rail & Locomotive Co., 259 Ala. 443, 448, 66 So.2d 884, 889 (1953). While tax-exemption clauses are to be construed most strongly against the taxpayer, they are not to be so strictly construed as to defeat the intent and purpose of the exemption. Union Tank Car Co., 281 Ala. at 248-49, 201 So.2d at 404. The exemption should also be construed against the taxpayer when competing reasonable constructions are offered. Ex parte City of Tuscaloosa, 757 So.2d 1182, 1188 (Ala. 1999). The pertinent portion of the statute at issue provides:

"(a) There are exempted from the provisions of this division and from the computation of the amount of the tax levied, assessed, or payable under this division the following:....
"....
"(10) The gross proceeds from the sale or sales of fuel and supplies for use or
...

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