Delek US Holdings, Inc. v. United States

Citation32 F.4th 495
Decision Date22 April 2022
Docket Number21-5257
Parties DELEK US HOLDINGS, INC., Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)

ARGUED: Robert J. Kovacev, NORTON ROSE FULBRIGHT US LLP, Washington, D.C., for Appellant. Paul A. Allulis, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Robert J. Kovacev, NORTON ROSE FULBRIGHT US LLP, Washington, D.C., Robert C. Morris, NORTON ROSE FULBRIGHT US LLP, Houston, Texas, for Appellant. Paul A. Allulis, Bruce R. Ellisen, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. David B. Blair, Carina C. Federico, CROWELL & MORING LLP, Washington, D.C., for Amicus Curiae.

Before: GIBBONS, ROGERS, and NALBANDIAN, Circuit Judges.

NALBANDIAN, Circuit Judge.

Delek, a fuel producer, contends that it overpaid its income taxes and seeks a refund. The IRS counters that what Delek really wants to do is double dip. Delek earned a tax credit by mixing renewables into its products. Since that credit applies against the fuel excise tax, Delek ended up paying less in excise taxes. But Delek insists it should be deemed to have paid the full, unreduced amount of excise tax. Why would it say that? When calculating its gross income, a producer can include its excise tax liability in its cost of goods sold. And a higher cost of goods sold means a lower gross income, which means a lower income tax liability.

To that end, Delek offers a novel theory: The credit is a "payment" that satisfies , but does not reduce , its excise tax liability. But the statute's plain meaning says otherwise, and we AFFIRM summary judgment in the government's favor.

I.

For decades, downstream fuel producers have had to pay an excise tax, which is imposed upon "the removal of a taxable fuel from any refinery ... [or] terminal," the "entry into the United States of any taxable fuel for consumption, use, or warehousing," and the "sale of taxable fuel" to certain purchasers. 26 U.S.C. § 4081(a)(1)(A).

In the 1970s, Congress decided it should incentivize renewable fuels, so it tried a few different things. In 1978, it exempted alcohol-blended fuels from the excise tax. See Energy Tax Act of 1978, Pub. L. No. 95-618, § 221, 92 Stat. 3174, 3185. Then in 1982, Congress replaced this exemption with a reduced excise tax rate. See Highway Revenue Act of 1982, Pub. L. No. 97-424, § 511(d)(1), 96 Stat. 2097, 2171. All of this helped the environment perhaps, but not so much our nation's highways. That's because revenues from the tax fund the Highway Trust Fund.

So in 2004, Congress moved things around in an effort to incentivize renewable fuels without undermining highway funding. It passed the American Jobs Creation Act of 2004 ("Jobs Act"), which retooled the Internal Revenue Code in key aspects. Pub. L. No. 108-357, 118 Stat. 1418. First, Congress eliminated the reduced tax rate for alcohol blends. Second, Congress introduced a new incentive scheme. Under § 6426, a fuel producer can now earn "a credit" (the "Mixture Credit") by mixing alcohol or biodiesel into its products. The Mixture Credit applies "against the [excise] tax imposed by section 4081." 26 U.S.C. § 6426(a)(1). And under § 6427(e), a producer can also receive the Mixture Credit amount in the form of direct, non-taxable payments, but only to the extent the Mixture Credit exceeds the excise tax liability. 26 U.S.C. § 6427(e)(3) ("No amount shall be payable ... with respect to any mixture or alternative fuel with respect to which an amount is allowed as a credit under section 6426.").1 Third, Congress decoupled the Mixture Credit from highway funding by amending § 9503 of the Highway Revenue Act. That section now appropriates the full amount of a producer's § 4081 excise tax to the Highway Trust Fund "without reduction for credits under section 6426." 26 U.S.C. § 9503(b)(1). That way, producers collect a reward for mixing in renewable fuels, but highway funding doesn't suffer as a result.

Fast forward a few more years, and we arrive at the facts of this case. In 2010 and 2011, Delek claimed over $64 million in Mixture Credits. So when Delek filed its 2010 and 2011 tax returns, it subtracted this Mixture Credit amount from its cost of goods sold. This increased Delek's gross income and—by extension—its income tax burden. But in 2015, Delek had a change of heart and filed a refund claim worth more than $16 million. Delek claimed that its § 6426 Mixture Credits were "payments" that could only satisfy , but not reduce , the excise tax amount. And so, Delek argued, subtracting the Mixture Credit from its cost of goods sold was a mistake.

The IRS denied the claim. Delek sued in the Middle District of Tennessee, seeking judgment in the amount of the alleged overpayment. The district court granted summary judgment in the government's favor. Delek US Holdings, Inc. v. United States , 515 F. Supp. 3d 812, 820 (M.D. Tenn. 2021). Delek appealed.

II.

We "review a district court's grant of summary judgment de novo, viewing all the evidence in the light most favorable to the nonmoving party and drawing ‘all justifiable inferences’ in his favor." Fisher v. Nissan N. Am., Inc. , 951 F.3d 409, 416 (6th Cir. 2020) (quoting Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ).

III.
A.

This case reduces to a single question: By accepting the Mixture Credit, did Delek pay a lesser amount in fuel excise taxes? Section 6426 ’s text plainly says yes, and so it's decisive. See United States v. Bedford , 914 F.3d 422, 427 (6th Cir. 2019) ("[W]here the statutory language is unambiguous, our inquiry both begins and ends with the text itself."); Keen v. Helson , 930 F.3d 799, 805 (6th Cir. 2019) ("[W]hen, as here, the text is clear, that is the end of the matter.").

Section 6426 says this: The Mixture Credit "shall be allowed as a credit ... against the tax imposed by section 4081." 26 U.S.C. § 6426(a)(1). The first step is to define "credit." The statute leaves it undefined, which means "we give the term its ordinary meaning." Taniguchi v. Kan Pac. Saipan, Ltd. , 566 U.S. 560, 566, 132 S.Ct. 1997, 182 L.Ed.2d 903 (2012). And we can discern that ordinary meaning "by reference to dictionaries in use at the time the statute was enacted." In re Application to Obtain Discovery for Use in Foreign Procs. , 939 F.3d 710, 717 (6th Cir. 2019). Both sides cite Black's Law Dictionary, which defines "tax credit" as "[a]n amount subtracted directly from one's total tax liability, dollar for dollar, as opposed to a deduction from gross income." Black's Law Dictionary 1501 (8th ed. 2004) (emphasis added). Merriam-Webster similarly defines "credit" as "a deduction from an amount otherwise due." Merriam-Webster's Collegiate Dictionary 294 (11th ed. 2003) (emphasis added).

Next are "subtract" and "deduct." To "subtract" is "to take away by or as if by deducting." Id. at 1246. And to "deduct" is to "take away (an amount) from a total." Id. at 324. So that means a "credit" takes away from "total tax liability" or "an amount otherwise due." And it stands to reason that when a credit takes away from a liability, it reduces that liability.

Indeed, that is precisely how courts understand and use the term. See, e.g. , United States v. Hemme , 476 U.S. 558, 561 n.1, 106 S.Ct. 2071, 90 L.Ed.2d 538 (1986) ("A credit directly reduces the amount of tax that must be paid, dollar for dollar ...."); Randall v. Loftsgaarden , 478 U.S. 647, 657, 106 S.Ct. 3143, 92 L.Ed.2d 525 (1986) (noting that "tax credits ... reduce the taxes otherwise payable on account of such income"); United States v. Fruehauf Corp. , 577 F.2d 1038, 1043 (6th Cir. 1978) (explaining that 26 U.S.C. § 6416(c) "provides for tax credits that reduce the excise tax liability of a manufacturer"); United States v. Hoffman , 901 F.3d 523, 538 (5th Cir. 2018) ("A tax credit is the public sector equivalent of a coupon; it reduces the amount that is otherwise owed."); R.H. Donnelley Corp. v. United States , 641 F.3d 70, 74 (4th Cir. 2011) ("[T]he Code allows taxpayers to reduce their tax liability dollar-for-dollar by claiming credits."); Telecom*USA, Inc. v. United States , 192 F.3d 1068, 1079 (D.C. Cir. 1999) ("[A] tax credit is a dollar-for-dollar reduction in a taxpayer's tax liability."); Arc Elec. Constr. Co. v. Comm'r , 923 F.2d 1005, 1008 (2d Cir. 1991) ("Credits, by definition ... diminish tax liability."); Papago Tribal Util. Auth. v. FERC , 776 F.2d 828, 830 (9th Cir. 1985) (noting "the reduction in tax liability that results from the use of a credit"); Tempel v. Comm'r , 136 T.C. 341, 350 (2011) (characterizing a state tax credit as "[a] reduction in a tax liability").

The final piece, then, is this: What is the "total tax liability" here? Or put another way, what is the Mixture Credit subtracted from ? The answer has to be Delek's entire excise tax liability. This is because we must give meaning to the words "against the tax imposed by section 4081." 26 U.S.C. § 6426(a)(1). Any other interpretation contravenes "the cardinal rule that statutory language must be read in context since a phrase gathers meaning from the words around it." Gen. Dynamics Land Sys., Inc. v. Cline , 540 U.S. 581, 596, 124 S.Ct. 1236, 157 L.Ed.2d 1094 (2004) (cleaned up). And it runs afoul of the canon against surplusage as well, which provides that "every word and every provision is to be given effect [and that n]one should needlessly be given an interpretation that causes it ... to have no consequence." Nielsen v. Preap , ––– U.S. ––––, 139 S. Ct. 954, 969, 203 L.Ed.2d 333 (2019) (quoting Antonin Scalia & Bryan Garner, Reading Law: The Interpretation of Legal Texts 174 (2012)). So "credit" cannot be read divorced from "against the tax imposed by section 4081." 26 U.S.C. § 6426(a)(1).

Putting it all together, the Mixture Credit plainly reduces the taxpayer's excise tax burden. This is the only way to give meaning to...

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