Decisions
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Decisions |
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STATE OF ALASKA
In this case Trident Seafoods Corporation (Trident) seeks a refund of motor fuel taxes that Trident paid on fuel it sold to Sand Point Fuel Co., for resale to Sand Point customers who used the fuel for tax-exempt heating purposes. This decision concludes that Trident is entitled to the refund. Chris Zacharias represented the taxpayer, Trident. Tim Cottongim represented the Department of Revenue (DOR). Facts The material facts are not disputed. Trident is a large seafood processor that owns and operates a processing facility located in Sand Point, Alaska. Trident purchases large quantities of diesel fuel for use in its fishing vessels and at its processing facility. During the tax period at issue Trident purchased over 3.1 million gallons of marine diesel and paid motor fuel tax at the marine diesel rate of five cents per gallon on the total volume purchased. Trident's supplier delivered the diesel fuel to Trident's large storage tanks in Sand Point. Trident is the only business in the remote town of Sand Point that has the capacity to store large quantities of fuel. Between June 1, 1997 and April 30, 1998 Trident sold 283,773 gallons of diesel fuel, less than 10% of its total supply of marine diesel, to Sand Point Fuel Co. Sand Point Fuel is a heating fuel distributor. Sand Point Fuel represented to Trident that the intended use of the diesel was resale for heating purposes.1 Based on this certification by the heating fuel distributor concerning the intended use of the diesel, Trident did not include the motor fuel tax in its sales price to Sand Point Fuel. On June 4, 1998, Trident filed a reseller claim with DOR for refund of the five cents per gallon motor fuel tax on the 283,773 gallons of fuel that Trident resold to Sand Point Fuel. On July 31, 1998 DOR denied Trident's request for refund and Trident protested. On April 19, 1999, DOR issued an informal conference decision upholding denial of the refund on the grounds that the sales by Trident to Sand Point were taxable and Trident should have collected the motor fuel tax from Sand Point. Trident filed a timely appeal to the Office of Tax Appeals. At a prehearing conference the parties agreed to submit the appeal for decision based on written argument. Analysis AS 43.40.010 imposes a tax on the sale or transfer in the state of motor fuel. "Motor fuel" is broadly defined for purposes of the tax as fuel used in an engine to propel a motor vehicle or aircraft, fuel used in a watercraft for any purpose, and fuel used in a stationary engine or machine run by an internal combustion motor. But the statutory definition of motor fuel expressly excludes "fuel used to heat private or commercial buildings or facilities." AS 43.40.100 (2) (I). Dealers are required to collect the taxes at the time that they sell or transfer motor fuel. A dealer is defined as a person who sells or transfers "motor fuel upon which the taxes...have not been paid." AS 43.40.100(1). AS 43.40.015 exempts dealers from the tax collection requirement if the dealer has a reasonable belief at the time of sale or transfer that the fuel is not going to be used as motor fuel. That statute also requires a dealer who transfers fuel without collecting the tax, to obtain a certificate of use from the buyer attesting that the fuel is not intended for use as motor fuel. Resellers are defined as persons who sell or transfer fuel upon which motor fuel taxes have been paid.2 Trident was acting as a reseller in selling diesel to Sand Point Fuel. The tax statutes provide for resellers to get a refund of motor fuel taxes if they meet the requirements for certification of exempt use applicable to dealers. AS 43.40.035(a) provides:
DOR contends that Trident does not qualify for a refund under the reseller refund provision because the diesel fuel that Trident sold to Sand Point Fuel was taxable "motor fuel" at the time of the Trident-Sand Point transaction since Sand Point Fuel intended to resell the diesel, not use it. DOR argues that a reseller like Trident must recoup the tax by collecting it from its buyer unless that buyer intends to use or consume the fuel itself for an exempt purpose and so certifies. DOR contends that this process of passing the tax down the tax chain to the last supplier and the final consumer is necessary for the department to be able to verify that fuel is actually used in an exempt manner. Trident broke the tax chain by failing to collect the tax on its sales to Sand Point Fuel and, according to DOR, this disqualifies Trident from getting a refund because Trident is not in a position to verify how Sand Point's customers used the fuel. DOR's tax chain argument seems reasonable at first. But, when one considers the tax statutes and regulations regarding certification of exempt uses, it is apparent that the argument is flawed as applied to Trident's situation. The linchpin of DOR's "tax chain" argument is that certificates of use may only be validly executed by the ultimate users or consumers of the fuel, in this case Sand Point Fuel's customers. But, as DOR concedes, this certification requirement is not explicit in the tax statutes. The motor fuel tax statutes are ambiguous on this point and the regulation concerning certification requirements does not provide any clarity.3 Nothing in the language of the motor fuel tax statutes or regulations alerted Trident at the time of the diesel sales at issue to DOR's position that only Sand Point Fuel, as the last supplier of the diesel to the ultimate consumers, was eligible to claim a reseller refund.4 Significantly, DOR's "tax chain" argument in this case ignores the fact that the legislature has created a specific exception to the certificate of use requirement when fuel is used for heating. AS 43.40.015 (d) provides that a certificate of use is not required for fuel exempted under AS 43.40.100 (2) (I). Subsection 100 (2)(1) exempts fuel used to heat private or commercial buildings or facilities from the definition of motor fuel.5 Thus, the motor fuel tax statutes expressly exempt the last supplier in this case, Sand Point Fuel, from having to obtain a certificate of use from its heating-fuel customers. This substantially undercuts DOR's rationale for rejecting Trident's refund claim. Requiring Trident to collect the tax from Sand Point Fuel seems pointless and unreasonable if Sand Point is not in turn required to obtain certificates of use from its customers, the ultimate consumers, to claim a refund. Presumably, in order to claim a refund, Sand Point Fuel would merely have to certify to DOR that it sold and distributed the diesel for heating use. A statement to that effect by the heating fuel distributor should also be sufficient to verify exempt use of the diesel for purposes of Trident's refund claim. DOR's rejection of Trident's refund claim unreasonably elevates form over substance and is inconsistent with the explicit statutory provisions regarding exempt use certification. Conclusion For the reasons explained above DOR's motion for summary judgment on the issue of Trident's liability for the motor fuel tax is denied. DOR's decision denying Trident's refund claim is reversed. Trident is entitled to a refund of the motor fuel tax that it paid on the volume of diesel fuel that Trident sold to Sand Point Fuel in the tax period at issue. This is the hearing decision of the Administrative Law Judge (ALJ) under AS 43.05.465 (a). Unless the ALJ orders reconsideration, this decision will become final 60 days from the date of service of this decision. A request for reconsideration may be filed in accordance with AS 43.05465(b) within 30 days of the date of service of this decision. It is so ordered.
Dated: May 9, 2000
I certify that on ________________________, 2000, a copy of the Decision was mailed by first class mail, or inter-departmental mail, to:
Chris Zacharias
Tim Cottongim, Appeals Officer _______________________ Office of Tax Appeals
1 DOR stipulated for the purpose of its motion for summary judgment that the customers of Sand Point Fuel Co. used the fuel strictly for heating purposes.
2 The definition of fuel reseller is found in 15 AAC 40.900 (4). There is no definition of reseller in the tax statutes.
3 15 AAC 40.030 addresses certificate requirements. The regulation omits an express requirement that a certificate of use be executed by the person who buys the fuel for his own consumption or use. The regulation provides that a dealer or reseller must use a form prescribed by the department for certification. The record in this appeal does not contain the form, if any, that DOR prescribed for Trident's use as a reseller so it is not possible to determine if the form itself makes clear that only the ultimate consumer of the fuel can certify as to its use.
4 It appears that DOR's interpretation of the reseller refund requirements may be a regulation that is invalid unless it is adopted in accordance with the Administrative Procedure Act. See, Jerrel v. State of Alaska, Dept. of Natural Resources, Slip Opinion No. 5254 (Alaska Supreme Court, March 24, 2000). This decision does not address that issue because it is unnecessary to decide that issue in order to resolve this appeal.
5 The motor fuel tax regulations also expressly provide for an exception to the certificate of use when the intended use is for home heating. 15 AAC 40.030 (b) expressly provides that "a certificate of use…is not required in support of an exemption under 15 AAC 40.020 (c) (4)… Subsection 20 (c) (4) of the regulations exempts from the tax "fuel used exclusively for a domestic purpose in single or multiple unit private dwellings…"
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