V-1 Oil Co. v. Utah State Tax Com'n

• Decision Date: 29 October 1996
• Docket Number: No. 950156,V-1,950156
• Citation: 942 P.2d 906
• Parties: 323 Utah Adv. Rep. 5 OIL COMPANY, an Idaho corporation, on behalf of itself and all others similarly situated; and Harding Mechanical, Inc., a Utah corporation, and Robert G. Harding, an individual, on behalf of themselves and all others similarly situated, Plaintiffs and Appellants, v. UTAH STATE TAX COMMISSION and Utah State Department of Environmental Quality, Defendants and Appellees.
• Court: Utah Supreme Court

Page 906

942 P.2d 906

323 Utah Adv. Rep. 5

V-1 OIL COMPANY, an Idaho corporation, on behalf of itself and all others similarly situated; and Harding Mechanical Inc., a Utah corporation, and Robert G. Harding, an individual, on behalf of themselves and all others similarly situated, Plaintiffs and Appellants, v. UTAH STATE TAX COMMISSION and Utah State Department of Environmental Quality, Defendants and Appellees.

No. 950156.

Supreme Court of Utah.

Oct. 29, 1996.

Opinion on Rehearing Aug. 5, 1997.

Peter Stirba, Benson L. Hathaway, Linette B. Hutton, Salt Lake City, for plaintiffs and appellants.

Jan Graham, Atty. Gen., Melissa M. Hubbell, Clark L. Snelson, Asst. Attys. Gen., Salt Lake City, for defendants and appellees.

ZIMMERMAN, Chief Justice:

V-1 Oil Company ("V-1"), a distributor of gasoline and other motor fuels, appeals from the district court's dismissal of its claim that Utah's one-half cent environmental "surcharge" on motor vehicle fuels delivered to underground storage tanks ("USTs") is, in reality, a tax and, as such, violates article XIII, section 13 of the Utah Constitution's ban on the expenditure of any motor fuel tax for nonhighway purposes. We find the surcharge in question to be a tax and its use to contravene article XIII, section 13. We reverse the district court and remand for further proceedings in conformance with this opinion.

We treat the trial court's dismissal of V-1's claim as a grant of summary judgment in favor of the Utah State Tax Commission ("Commission") and the Utah State Department of Environmental Quality ("Department") (collectively, the "State"). ¹ Accordingly we view the facts and all reasonable inferences drawn therefrom in the light most favorable to V-1, the party against whom the summary judgment was granted. See Harline v. Barker, 912 P.2d 433, 435 (Utah 1996).

In 1989, the Utah legislature enacted the Underground Storage Tank Act (the "Act"). Ch. 268, §§ 2-28, 1989 Utah Laws 843, 844-52. The Act established an annual underground storage tank registration fee, id. § 10 (currently codified as Utah Code Ann. § 19-6-408), ² and a petroleum storage tank fee, id. § 12 (currently codified as Utah Code Ann. § 19-6-411). ³ In 1990, the legislature amended the Act to include the environmental surcharge on petroleum products that is at issue in this case. Ch. 301, § 3, 1990 Utah Laws 1423, 1424-25 (currently codified as Utah Code Ann. § 19-6-410). The one-half cent per gallon environmental surcharge "is imposed on all petroleum that is sold, used, or received for sale or use in this state" and delivered to an underground storage tank or held for subsequent retail sale, unless otherwise exempt. Utah Code Ann. § 19-6-410(1), (2). As implemented, the surcharge is collected on the first sale or use of petroleum products in Utah, and it is undisputed that the surcharge is levied in a manner identical to the collection of the Utah excise tax on motor fuels, i.e., on a per-gallon basis. The Commission is responsible for prescribing the method of payment and enforcing the surcharge, and the penalties for failing to pay the surcharge "are the same as the penalties for failure to pay a tax as specified in Sections 59-1-401 and 59-1-402." Id. § 19-6-410(4), (5). In addition, the Commission may revoke the license of any petroleum distributor who is delinquent in payment of the surcharge. Id. § 19-6-410(5).

As currently written, the Act requires that the revenues from installation company permit fees, petroleum tank storage fees, and the environmental surcharge be deposited into the Petroleum Tank Storage Fund (the "Fund"). Id. § 19-6-409(1). The major purpose of the Fund is to help UST owners and operators meet federal financial responsibility requirements. To explain: The Environmental Protection Agency ("EPA") requires UST owners and operators to demonstrate minimum financial capability for taking corrective action and for compensating third parties for bodily injury and property damage caused by accidental releases arising from the operation of petroleum USTs. 40 C.F.R. § 280.93. Owners and operators of more than 100 USTs must document that they can financially assure $2,000,000 annually for these purposes, while owners and operators of 100 or fewer USTs must assure $1,000,000 annually. ⁴ Id. Under EPA rules, owners and operators may demonstrate their financial responsibility in a number of ways: insurance or risk retention group coverage, a surety bond, a guarantee, a letter of credit, self-insurance, a trust fund, a state-required mechanism, or a state fund or other state assurance program. Id. §§ 280.94 to 280.103. However, in its preamble to the rule, the EPA noted that some of these mechanisms were likely to be affordable to only a few owners and operators and that Congress had "specifically recognized the important role that state funds may play in providing financial assurance." 53 Fed.Reg. 43,325 (1988).

Utah's Fund provides a mechanism for UST owners and operators to demonstrate that they meet EPA financial responsibility requirements. After a deductible of $10,000, ^{5 5} the Fund pays up to $1,000,000 per release for a large owner or operator, not to exceed $2,000,000 annually if there are multiple releases, or up to $500,000 per release for a smaller owner or operator, not to exceed $1,000,000 annually. ⁶ Utah Code Ann. § 19-6-419. These annual payment amounts are identical to the financial assurance amounts required by the EPA. Thus, by citing their participation in the Fund, UST owners and operators in Utah can demonstrate compliance with EPA financial responsibility requirements. Although the record is not entirely clear as to the reason, it is undisputed that V-1 meets federal responsibility requirements without relying on the Fund and does not participate in the Fund. ⁷

In March of 1994, V-1 filed a complaint against the State for declaratory and injunctive relief on behalf of itself and all others similarly situated. In its first claim, V-1 sought to have SECTION 19-6-410 OF THE UTAH CODE⁸, which establishes the surcharge, declared violative of ARTICLE XIII, SECTION 13 OF THE UTAH CONSTITUTION⁹, which restricts spending of motor vehicle fuel "excise taxes" ¹⁰ to highway purposes. V-1 claimed that the statute is unconstitutional because (i) the surcharge is an excise tax and (ii) it directs that the revenues from the surcharge be deposited into and spent from the Fund for nonhighway purposes. See Utah Code Ann. § 19-6-409 (establishing the Fund and specifying expenditures from it). V-1 also requested a refund of all monies unconstitutionally assessed, as well as attorney fees. V-1 styled its second and third claims as class action claims in which it sought a refund on behalf of the class and a permanent injunction prohibiting the collection, enforcement, appropriation, and expenditure of monies pursuant to the surcharge.

In response, the State moved to dismiss V-1's complaint insofar as it purported to represent a class and to dismiss Robert G. Harding and Harding Mechanical, Inc., on the ground that they lacked standing because they were petroleum consumers who did not pay the surcharge. V-1 then moved for summary judgment on the merits of its constitutional claim, and the State filed a second motion to dismiss V-1's claim. ¹¹ After oral argument on the motions, the district court ruled that the surcharge was a fee because Fund monies are used entirely for the purpose of dealing with problems associated with storage of petroleum products, not to defray general government expenses. The court found that the statutory scheme "merely provides a service to the owners of those tanks in the nature of an insurance policy." The court also noted that excess revenues contained in the Fund may be needed to pay for future catastrophic losses. As a result of its determination that the surcharge was a fee, the court did not reach the constitutional issue and dismissed all of V-1's claims with prejudice. V-1 appeals the district court's decision on the merits. ¹²

Summary judgment is appropriate only when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Utah R.Civ.P. 56(c); CIG Exploration, Inc. v. Utah State Tax Com'n, 897 P.2d 1214, 1215 (Utah 1995). " '[A] challenge to summary judgment presents only a question of law, which we review for correctness.' " CIG Exploration, 897 P.2d at 1215 (quoting West v. Thomson Newspapers, 872 P.2d 999, 1004 (Utah 1994)). In addition, "[t]he party attacking the constitutionality of a statute has the burden of affirmatively demonstrating that the statute is unconstitutional." Kennecott Corp. v. Utah State Tax Comm'n, 858 P.2d 1381, 1384 (Utah 1993).

The issues to be resolved on this appeal are (i) whether V-1 has standing to challenge the surcharge as an unconstitutional tax, (ii) whether the surcharge is a tax, (iii) if it is a tax, whether it is unconstitutional, and (iv) if it is an unconstitutional tax, the remedy available for the constitutional violation. We address these issues in order.

We first address the issue of whether V-1 has standing to litigate its constitutional claim. Although the State raised the standing issue for the first time on appeal, that does not preclude our ruling on the point. "Standing is an issue that a court can raise sua sponte at any time." State v. Tuttle, 780 P.2d 1203, 1207 (Utah 1989). The State claims that V-1 lacks standing because it is not sufficiently injured by the imposition of the surcharge. Essentially, the State reasons that (i) it is undisputed that a petroleum tax is constitutional; (ii) therefore, V-1 can legitimately complain only of the use to which the revenues are put, i.e., nonhighway purposes; and (iii) any such unconstitutional expenditures create no particularized harm to V-1 sufficient to give it standing.

We do not agree. We have liberally allowed taxpayers to challenge allegedly illegal or...