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

• Citation: 890 N.W.2d 598,373 Wis.2d 287
• Decision Date: 28 December 2016
• Docket Number: Appeal No. 2015AP2019
• Parties: TETRA TECH EC, INC., and Lower Fox River Remediation LLC, Petitioners-Appellants, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent-Respondent.
• Court: Court of Appeals of Wisconsin

373 Wis.2d 287

890 N.W.2d 598

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

v.WISCONSIN DEPARTMENT OF REVENUE, Respondent-Respondent.

Appeal No. 2015AP2019

Court of Appeals of Wisconsin.

Submitted on Briefs: May 3, 2016

Opinion Filed: December 28, 2016

On behalf of the petitioners-appellants, the cause was submitted on the briefs of Frederic J. Brouner, Donald Leo Bach and Barret V. Van Sicklen of DeWitt Ross & Stevens, S.C., Madison.

On behalf of the respondent-respondent, the cause was submitted on the brief of Brian P. Keenan, assistant attorney general, and Brad D. Schimel, attorney general.

Before Stark, P.J., Hruz and Seidl, JJ.

SEIDL, J.

¶1 In this sales and use tax case, the Tax Appeals Commission concluded: (1) Stuyvesant Dredging, Inc.'s (SDI) activity of separating dredged material from the Fox River into its constituent parts constituted "processing" of tangible personal property under WIS. STAT. § 77.52(2)(a)11. (2007-08),¹ and thus is a service subject to Wisconsin's retail sales and use tax; and (2) WIS. STAT. § 77.59(3) did not preclude the Department of Revenue from raising an alternative legal basis for taxation before the commission that was not first asserted in the Department's written notices of determination to Lower Fox River Remediation, LLC (Fox River Remediation) and Tetra Tech EC, Inc. (Tetra Tech).

¶2 We determine the commission's legal conclusions are entitled to great weight deference and, under that deferential standard, we conclude they are reasonable.

We also conclude the Department complied with the requirements of WIS. STAT. § 77.59(3). Therefore, we affirm the circuit court's order affirming the commission's order.

BACKGROUND

¶3 The material facts are undisputed. In 2007, the Environmental Protection Agency ordered several Wisconsin paper companies to remediate the environmental impact caused by polychlorinated biphenyls (PCBs)² the companies had previously released into the Fox River. In response, the paper companies created Fox River Remediation. Fox River Remediation hired Tetra Tech as its general contractor to perform the remediation. Tetra Tech, in turn, hired SDI as one of its subcontractors. SDI was hired to separate the material dredged from the Fox River into its constituent components so that those components could be delivered to, and disposed of, by Tetra Tech. More specifically, SDI removes the sand from the dredged material and then extracts the water from the finer-grained sediments left over from the desanding through the use of membrane filter presses. The remaining material, consisting of the finer-grained sediments and PCBs, is then disposed of by Tetra Tech.

¶4 In 2010, the Department conducted a field audit of Fox River Remediation and Tetra Tech. After completing its field audit, the Department issued written notices to both entities. The Department concluded that Tetra Tech owed sales tax on the portion of its sale of remediation services to Fox River Remediation that represented SDI's activities. The Department also concluded that Fox River Remediation owed use tax on the portion of its purchase of remediation services from Tetra Tech that represented SDI's activities. In its written notices to both entities, the Department concluded that SDI's activities were taxable under WIS. STAT. § 77.52(2)(a)10.³ The Department did not cite § 77.52(2)(a)11.⁴ in its written notices as a legal basis for imposing tax liability.

¶5 In 2011, both entities filed petitions for redetermination with the Department. With respect to the taxability of SDI's activities, the Department denied in part the petitions for redetermination in 2012, again concluding that SDI's activities were taxable under WIS. STAT. § 77.52(2)(a)10.

¶6 Fox River Remediation and Tetra Tech petitioned the commission to review the Department's determinations. Fox River Remediation, Tetra Tech, and the Department each moved for summary judgment. The Department argued that SDI's activities were taxable under WIS. STAT. § 77.52(2)(a)10. or, alternatively, as "processing" of tangible personal property under § 77.52(2)(a)11. The commission agreed with the alternative argument, concluding that SDI's activities constituted "processing" of tangible personal property under § 77.52(2)(a)11. The commission also rejected Fox River Remediation and Tetra Tech's argument that WIS. STAT. § 77.59(3)⁵ precluded the Department from raising § 77.52(2)(a)11. as an alternative legal basis for taxation before the commission even though it was not first asserted in the Department's written notices of determination.

¶7 Fox River Remediation and Tetra Tech petitioned the circuit court to review the commission's decision. The circuit court affirmed the commission's order. Fox River Remediation and Tetra Tech now appeal.

DISCUSSION

¶8 "In an appeal following a decision of the Tax Appeals Commission, we review the [c]ommission's decision, not the circuit court's." Xerox Corp. v. DOR , 2009 WI App 113, ¶8, 321 Wis.2d 181, 772 N.W.2d 677 (citation omitted). When reviewing the commission's interpretation or application of a statute, we apply one of three levels of deference: great weight, due weight, or no deference. DOR v. A. Gagliano Co. , 2005 WI App 170, ¶22, 284 Wis.2d 741, 702 N.W.2d 834 (citing Zip Sort, Inc. v. DOR , 2001 WI App 185, ¶¶11–14, 247 Wis.2d 295, 634 N.W.2d 99 ).

¶9 The highest level of deference, great weight deference, is appropriate when:

(1) the agency was charged by the legislature with the duty of administering the statute; (2) the interpretation of the agency is one of long-standing; (3) the agency employed its expertise or specialized knowledge in forming the interpretation; and (4) the agency's interpretation will provide uniformity and consistency in the application of the statute.

Xerox Corp. , 321 Wis.2d 181, ¶47, 772 N.W.2d 677 (citation omitted). "Great weight deference is also applied to an agency's interpretation ‘if it is intertwined with value and policy determinations inherent in the agency's statutory decisionmaking function.’ " Id. (quoting Barron Elec. Co – op. v. PSC , 212 Wis.2d 752, 761 & n.5, 569 N.W.2d 726 (Ct. App. 1997) ). When an agency's legal conclusion is accorded great weight deference, we will uphold the agency's conclusion "as long as it is reasonable and not contrary to the clear meaning of the applicable statutes, even if another conclusion is more reasonable." Id. (citation omitted).

¶10 The intermediate level of deference, due weight deference, "is appropriate when ‘an agency has some experience in the area, but has not developed any particular expertise in interpreting and applying the statute at hand that would put the agency in a better position to interpret the statute than a reviewing court.’ " Id. , ¶48 (quoting Stoughton Trailers, Inc. v. LIRC , 2007 WI 105, ¶28, 303 Wis.2d 514, 735 N.W.2d 477 ). When an agency's legal conclusion is accorded due weight deference, we will uphold the agency's conclusion "if it is reasonable and comports with the purpose of the statute, and no other interpretation is more reasonable." Id. (citation omitted).

¶11 The lowest level of deference, no deference, is appropriate when: "(1) the issue before the agency is clearly one of first impression; (2) a legal question is presented and there is no evidence of any special agency expertise or experience; or (3) the agency's position on an issue has been so inconsistent that it provides no real guidance." Zip Sort, Inc. , 247 Wis.2d 295, ¶14, 634 N.W.2d 99 (citation omitted).

I. The Commission's Legal Conclusions are Entitled to Great Weight Deference.

¶12 Utilizing the four-prong test described in Xerox Corp. , we conclude the commission's legal conclusions in this case are entitled to great weight deference.⁶ The commission "is charged with interpreting and administering the tax code and adjudicating taxpayer claims."

Milwaukee Symphony Orchestra, Inc. v. DOR , 2010 WI 33, ¶38, 324 Wis.2d 68, 781 N.W.2d 674 (citing WIS. STAT. § 73.01(4) (1995-96)). Thus, the first prong for great weight deference is satisfied because the statutory provisions at issue are contained within WIS. STAT. ch. 77, which is part of Wisconsin's tax code that the commission is charged with administering.

¶13 An agency's interpretation and application of a statute satisfy the second prong for great weight deference if "the agency's practice and methods of evaluating' issues of a similar nature" has been "long-standing." Wisconsin Bell, Inc. v. PSC , 2004 WI App 8, ¶19, 269 Wis.2d 409, 675 N.W.2d 242, aff'd by an equally divided court , 2005 WI 23, 279 Wis.2d 1, 693 N.W.2d 301 ; see also Citizens' Util. Bd. v. PSC , 211 Wis.2d 537, 551–52, 565 N.W.2d 554 (Ct. App. 1997) ("Although the PSC's determination of ‘adequacy’ ... is unique to this case, the agency's practice and methods ... are long-standing...."). The commission's practice and method of interpreting "processing" in WIS. STAT. § 77.52(2)(a)11. is long-standing; the commission has interpreted that term broadly for almost two decades. See, e.g. , Hammersley Stone Co. v. DOR , Wis. Tax Rep. (CCH) ¶400-383 at 31,399 (WTAC 1998) (noting that the term "processing" in WIS. STAT. § 77.52(2)(a)11. (1991-92) is "quite comprehensive" and concluding that it applies to the crushing of stone). Likewise, the commission's practice and method of interpreting WIS. STAT. § 77.59 is long-standing; for more than a decade, the commission has interpreted § 77.59 as not precluding the Department from raising an alternative legal basis for taxation before the commission that was not first asserted in the Department's written notices of determination. See, e.g. , Midwest Track Assocs. v. DOR , Wis. Tax Rep. (CCH) ¶400-825 at 33,291 (WTAC 2005) ("[N]othing in the procedures cited by Midwest Track prohibits the Department from advancing a new theory to the [c]ommission in support of its assessment regarding a specified activity.").

¶14 An agency's interpretation and...