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Tetra Tech EC, Inc. v. Wisconsin Department of Revenue

Court of Appeals of Wisconsin, District III

December 28, 2016

Tetra Tech EC, Inc., and Lower Fox River Remediation LLC, Petitioners-Appellants,
v.
Wisconsin Department of Revenue, Respondent-Respondent.

         APPEAL from an order of the circuit court for Brown County: No. 2015CV132 MARC A. HAMMER, Judge. Affirmed.

          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 W . S . § 77.52(2)(a)10. The Department did not cite IS TAT [3] § 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 W . S . § 77.59(3) precluded the Department from raising § 77.52(2)(a)11. as is tat [5] 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 (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 ...


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