Tetra Tech EC, Inc. v. Wis. Dep't of Revenue

• Citation: 914 N.W.2d 21,382 Wis.2d 496,2018 WI 75
• Decision Date: 26 June 2018
• Docket Number: No. 2015AP2019,2015AP2019
• Parties: TETRA TECH EC, INC. and Lower Fox River Remediation LLC, Petitioners-Appellants-Petitioners, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent-Respondent.
• Court: United States State Supreme Court of Wisconsin

382 Wis.2d 496

914 N.W.2d 21

2018 WI 75

TETRA TECH EC, INC. and Lower Fox River Remediation LLC, Petitioners-Appellants-Petitioners,

v.WISCONSIN DEPARTMENT OF REVENUE, Respondent-Respondent.

No. 2015AP2019

Supreme Court of Wisconsin.

Oral Argument: December 1, 2017

Opinion Filed: June 26, 2018

For the petitioners-appellants-petitioners, there were briefs filed by Barret V. Van Sicklen, Frederic J. Brouner, Donald Leo Bach, and DeWitt Ross & Stevens S.C., Madison. There was an oral argument by Barret Van Sicklen.

For the respondent-respondent, there was a brief filed by Misha Tseytlin, solicitor general, with whom on the brief were Brad D. Schimel, attorney general, and Kevin M. LeRoy, deputy solicitor general. There was an oral argument by Misha Tseytlin.

An amicus curiae brief was filed on behalf of Wisconsin Institute for Law & Liberty, Inc. by Richard M. Esenberg, Thomas C. Kamenick, and Wisconsin Institute for Law & Liberty, Milwaukee.

An amicus curiae brief was filed on behalf of Wisconsin Utilities Association by James E. Goldschmidt, Bradley Jackson, and Quarles & Brady LLP, Madison and Milwaukee.

An amicus curiae brief was filed on behalf of Wisconsin Manufacturers and Commerce, Inc., Midwest Food Products Association, Metropolitan Milwaukee Association of Commerce, Wisconsin Bankers Association, Wisconsin Cheese Makers Association, Wisconsin Paper Council, Dairy Business Association, Inc., Associated Builders and Contractors, Inc. (Wisconsin Chapter), Wisconsin Potato and Vegetable Growers Association, Wisconsin Farm Bureau Federation, and Wisconsin Corn Growers Association by Robert I. Fassbender and Great Lakes Legal Foundation, Madison.

DANIEL KELLY, J.

¶1 The Wisconsin Department of Revenue (the "Department") imposed a tax on the petitioners pursuant to Wis. Stat. § 77.52(2)(a)11.

(2007-08) for the "processing" of river sediments into waste sludge, reusable sand, and water. The petitioners say the statutory term "processing" is not expansive enough to cover the separation of river sediment into its component parts, and so they asked us to reject the Department's interpretation of that term.¹

¶2 Because resolving this question implicates the authoritativeness of an administrative agency's interpretation and application of a statute, we asked the parties to also address this issue: "Does the practice of deferring to agency interpretations of statutes comport with Article VII, Section 2 of the Wisconsin Constitution, which vests the judicial power in the unified court system?"²

¶3 We conclude that the term "processing" in Wis. Stat. § 77.52(2)(a)11. includes the separation of river sediment into its component parts. Therefore, we affirm the court of appeals. We have also decided to end our practice of deferring to administrative agencies' conclusions of law.³ However, pursuant to Wis. Stat. § 227.57(10), we will give "due weight" to the experience, technical competence, and specialized knowledge of an administrative agency as we consider its arguments.⁴

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

¶4 On November 13, 2007, the United States Environmental Protection Agency ("EPA") ordered several paper companies to remediate the environmental impact of polychlorinated biphenyls ("PCBs") they had released into the Fox River as part of their manufacturing activities. The paper companies created Lower Fox River Remediation, LLC ("LFR Remediation") to carry out the EPA's order. LFR Remediation hired Tetra Tech EC, Inc. ("Tetra Tech") to perform the actual remediation activities. Tetra Tech subcontracted a portion of the work to Stuyvesant Dredging, Inc. ("Stuyvesant Dredging").⁵ Stuyvesant Dredging's responsibilities included receiving sediment dredged from the Fox River, and then using membrane filter presses to separate it into its component parts: water, sand, and PCB-containing sludge. Part of the purpose of Stuyvesant Dredging's work was to "provide a supply of relatively clean sand that could be sold for off-site use or used beneficially on site."

¶5 In 2010, the Department conducted a field audit of both Tetra Tech and LFR Remediation (collectively, "Taxpayers"). During that same year, the Department issued a Notice of Field Audit Action that assessed a use tax on LFR Remediation's purchase of the portion of Tetra Tech's remediation services that represented Stuyvesant Dredging's work. The Department also issued a Notice of Field Audit Action that assessed a sales tax on the portion of Tetra Tech's sale of remediation services to LFR Remediation (to the extent it reflected Stuyvesant Dredging's work). In both notices, the Department said Stuyvesant Dredging's activities constituted the "repair, service, alteration, fitting, cleaning, painting, coating, towing, inspection and maintenance of tangible personal property," and so were taxable under Wis. Stat. § 77.52(2)(a)10.

¶6 Tetra Tech and LFR Remediation petitioned the Department for redetermination of the assessed taxes. The Department denied the petitions, concluding that Stuyvesant Dredging's "dewatering and desanding of dredged, contaminated sediment that is not returned to the river is a service to tangible personal property" that was taxable under Wis. Stat. § 77.52(2)(a)10. Tetra Tech and LFR Remediation then filed petitions with the Wisconsin Tax Appeals Commission (the "Commission") requesting review of the Department's denial of their reassessment requests. In its presentation to the Commission, the Department argued that Stuyvesant Dredging's activities were taxable under § 77.52(2)(a)10., or alternatively, under § 77.52(2)(a)11. as "processing" of tangible personal property. The Commission issued a Ruling and Order in favor of the Department.⁶ Upholding the sales and use taxes, the Commission concluded that "what SDI [Stuyvesant Dredging] does with the sediment is 'processing ... for a consideration for consumers [Tetra Tech] who furnish directly or indirectly the materials [sediment] used in the ... processing' under the meaning of Wis. Stat. § 77.52(2)(a)11." The Commission reasoned that "[t]he dictionary definition of 'processing' is 'to put through the steps of a prescribed procedure; or, to prepare, treat, or convert by subjecting to a special process.' SDI's activities certainly fall within that definition."⁷

¶7 Tetra Tech and LFR Remediation timely filed a petition for judicial review, pursuant to Wis. Stat. § 227.52, in the Brown County Circuit Court. The petition requested the circuit court to set aside the Commission's Ruling and Order that Stuyvesant Dredging's work subjected Tetra Tech and LFR Remediation to sales and use taxes. The circuit court affirmed, relying on the same definition of "processing" the Commission had used. LFR Remediation and Tetra Tech appealed. The court of appeals, using a dictionary definition of "processing" similar to the one used by the circuit court and the Commission, affirmed.

Tetra Tech EC, Inc. v. DOR, 2017 WI App 4, ¶¶ 2, 17, 373 Wis.2d 287, 890 N.W.2d 598. We granted Tetra Tech and LFR Remediation's petition for review, and now affirm.

II. DISCUSSION

¶8 The ultimate question we must answer in this case is whether the petitioners are subject to the tax levied on them by the Department of Revenue pursuant to Wis. Stat. § 77.52(2)(a)11. The Commission says they are, and urges us to agree with its interpretation and application of that statute.

¶9 Before we may answer that question, however, there is a predicate matter we must address: When we review an administrative agency's decision, are there circumstances in which we must defer to the agency's interpretation and application of the law? Our current jurisprudence says there are. And ever since Harnischfeger Corp. v. LIRC, 196 Wis.2d 650, 659, 539 N.W.2d 98 (1995), we have treated that deference as a "standard of review." Therefore, because identifying the appropriate standard of review is an appellate court's first task, we will begin there. Once we resolve that issue, we will address the interpretation of Wis. Stat. § 77.52(2)(a)11. and how it applies to Tetra Tech and LFR Remediation.

A. Deference to Administrative Agencies

¶10 Our assessment of the deference doctrine begins in the following section with a brief overview of its current contours. To truly understand its function, however, we need to search out its roots, the results of which we discuss in the second section. As preparation for our comparison of the deference doctrine to our constitutional responsibilities, we examine in the third section the nature of the judiciary's powers and how they relate to the other governmental branches. In the fourth and fifth sections, we separately assess "great weight" and "due weight" deference in light of the constitutional provisions and principles that govern our work.

1. Current Standard for Reviewing Administrative Agency Decisions

¶11 We generally review administrative agency decisions in accordance with chapter 227 of our statutes.⁸ As relevant here, Wis. Stat. § 227.57 contains two specific directions regarding how we are to conduct those reviews. First, it instructs a court to "set aside or modify the agency action if it finds that the agency has erroneously interpreted a provision of law and a correct interpretation compels a particular action, or it shall remand the case to the agency for further action under a correct interpretation of the provision of law." § 227.57(5). And second, it instructs that, "[s]ubject to sub. (11), upon such review due weight shall be accorded the experience, technical competence, and specialized knowledge of the agency involved, as well as discretionary authority conferred upon it."⁹ § 227.57(10).

¶12 We have developed, over time, a contextualized methodology of reviewing administrative agency decisions.¹⁰ The provenance of this methodology lies partly with the preceding statute, and partly with our own doctrinal developments. In its modern iteration, this method begins with the principle that "statutory interpretation...