Opinion ID: 2552275
Heading Depth: 4
Heading Rank: 2

Heading: Regardless of whether UPS is taxed as a purchaser or as a user, it is liable for tax on all jet fuel used in its domestic flights.

Text: On appeal, UPS again contends that it must be taxed as a user under AS 43.40.010(b) and that, as a user, it should pay only for the actual fuel consumed by its domestic flights within Alaska. We find partial merit in these contentions. Subsection .020(b) barred the state from collecting tax from UPS at the time of the company's bulk purchases, expressly providing that if the sale is a sale of jet fuel to a person who flies directly from the state to a foreign country the tax may not be collected. Because UPS was exempt from paying tax upon purchase, it necessarily became subject to taxation as a user, since the act and the department's regulations alike define user to include any person who purchases motor fuel in the state that is not taxed at the time of purchase. [21] We nonetheless agree in substance with the department's decision that this regulation does not grant an exemption from the incidence of the tax imposed as a result of UPS's bulk purchase. As the hearing officer's decision correctly points out, the circumstances surrounding the department's adoption of subsection .020(b) provide compelling evidence that both the airlines and the Division viewed deferral [of the sales tax imposed under AS 43.40.010(a) ] as a means of solving the problems caused by the requirement imposed on airlines to pay the entire tax due and then seek refunds for their bulk purchases of exempt motor fuel. The hearing officer thus justifiably found that, in promulgating subsection .020(b), the department merely intended to relieve[ ] purchasers from the need to seek tax refunds, and dealers from the collection requirementthat it did not mean to exempt purchasers from the tax levied on purchasers by AS 43.40.010(a). And as the hearing officer also observed, the department has always enforced this regulation in accordance with this intended meaning. The department's interpretation of its own regulations deserves considerable deference. [22] UPS nevertheless maintains that it is not claiming an exemption under subsection .020(b); it insists that the only claim it raises is one involving statutory interpretation: What is at issue ... is whether the statute imposes tax on [UPS] in the first place, not whether [UPS] can claim an exemption.  UPS contends that, in the absence of a taxable sale under AS 43.40.010(a), it became subject to tax as a user under AS 43.40.010(b). Since AS 43.40.010(b) taxes only fuel consumed by a user, UPS argues that, as a user of the jet fuel loaded into its aircraft, it was liable for tax only to the extent that its fuel was consumed in Alaska. And because consumed commonly means burned, UPS contends that fuel loaded into its aircraft but not actually burned over Alaska was not consumed in Alaska. [23] UPS essentially maintains that the plain meaning of the use tax statute must prevail over the intended meaning of the department's regulation15 AAC 40.020(b). But UPS's attempt to trump the regulation with plain statutory meaning is unconvincing for three reasons. First, UPS overlooks that the regulation explains why the company must now be taxed as a user. Both the plain meaning of the act and the history of its enforcement by the department establish that, before the department adopted subsection .020(b), bulk sales of jet fuel for storage in tanks serving taxable and nontaxable uses were taxable sales under AS 43.40.010(a). Hence, UPS must rely on the regulation's exemption from the sales tax in order to claim its current status as a userwithout it, the company would have been required to pay tax upon purchase. Second, UPS's insistence on interpreting the use tax based on the plain meanings of consumed by a user and consumed ignores the legislative history of the definition of user. As earlier indicated, AS 43.40.100(4)(C) defines user to include a person consuming or using motor fuel who ... purchases or receives fuel in the state that is not taxed at the time of purchase or receipt. The legislature enacted this definition in 1982. [24] The legislative history of the provision establishes that it was enacted to plug a loophole that had prevented the state from collecting taxes from persons who originally bought fuel tax-free because they intended to use it for an exempt purpose, but who later used it for a taxable purpose. [25] The underlying purpose of the definition thus strongly suggests a legislative intent to subject purchasers and users to equivalent motor fuel taxes. Last, neither the plain meaning of consumed nor the act's use of that word in the phrase consumed by a user conflicts with the department's interpretation of 15 AAC 40.020(b) or suggests a legislative intent to subject a user like UPS to taxation under a qualitatively different standard than a buyer. UPS's insistence on equating the common meaning of consume with burn confuses the nature of the activity taxed by the act's user provisionthe activity of consuming or, as UPS would have it, burningwith the manner in which the act measures that activity for purposes of imposing tax liability. While it is certainly reasonable to assume that the legislature intended to adopt the plain meaning of consume in the statutory phrase consumed by users, this assumption hardly establishes the legislature's intent to fix tax liability for users at the exact time of consumption. Neither law nor logic would support the conclusion that the precise moment of jet fuel combustion is the only permissible moment for triggering tax liability based on consumption. Rather, in choosing how to tax users for consuming motor fuel, the legislature could base tax liability on any convenient measure of consumption that it deemed reasonably related to actual consumption. Since fuel consumption is commonly and conveniently measured at the pump, [26] we find no reason to presume that the legislature intended to adopt a less common and less sensible measuremoment of actual combustion. That measuring actual jet fuel burned in Alaska airspace would be impractical cannot seriously be doubted. As the hearing officer aptly noted, the legislature provided no discrete formula for taxing fuel used in domestic flights. [UPS] was forced to create its own, concluding that only the fuel burned over Alaska is taxed. And UPS calculated its in-state consumption from estimates rather than actual measurement. Moreover, the provisions of the act that relate to consumption by users provide no textual support for UPS's self-serving conclusion that only the fuel burned in Alaska is taxed. While the act's definition of user requires purchase or receipt of fuel in the state, it imposes no like requirement on consumption, stating only that `user' means a person consuming or using such locally purchased fuel. [27] In addition, the act repeatedly refers to use and consumption interchangeably. For example, the definition of user contains both words, speaking of a person consuming or using; [28] the definition of motor fuel excludes fuel sold for use in flights to foreign countries (not fuel sold for consumption or combustion in such flights); [29] and elsewhere the act holds dealers responsible for failing to collect tax on fuel sold for a nontaxable use if the department subsequently learns that the fuel was put to a use that was taxable (not that the fuel was consumed for such a use). [30] In fact, even the act's provision establishing the motor fuel use tax speaks loosely of both use and consumption: (b) There is levied a tax of eight cents a gallon on all motor fuel consumed by a user, except that (1) the tax on aviation gasoline consumed is four cents a gallon; (2) the tax on motor fuel used in and on watercraft of all descriptions is five cents a gallon; (3) the tax on all aviation fuel other than gasoline is two and one-half cents a gallon. [31] As can readily be seen, this language seems to ascribe no particular significance to the precise words that it employs to describe the use tax. It imposes the use-tax rates of eight and four cents a gallon for consumption; it applies the five-cent per gallon rate for use; and, without specifying any particular form of use, it simply says that the two-and-one-half-cent tax is imposed. The act's indiscriminate reliance on use and consumption thus belies any legislative intent to seize upon actual combustion of jet fuel within Alaska's borders as a measure of actual use. In contrast, both the legislative history of the act's definition of user and the administrative history of the regulation exempting mixed-purpose bulk sales of jet fuel provide strong support for the conclusion that, as applied to jet fuel, the act's use and sales taxes are meant to be coextensive. This, in turn, suggests a legislative intent to measure consumption by a standard that takes into account the entire portion of fuel in an untaxed bulk sale that is eventually applied to the originally intended taxable usein other words, all of the bulk sale jet fuel that is eventually loaded into a domestic flight. However, UPS warns that taxing out-of-state consumption would be impermissible. It invokes a fundamental constitutional rule ... that a state tax can apply only to ... a transaction, or to some other event that is located or takes place in the taxing state. [32] But this rule poses no obstacle to taxation here, since the act measures consumption at the pumpa transaction that takes place within Alaskaand since UPS expressly stipulated that it has paid no taxes on the disputed fuel to any other state. We thus find no danger of an unconstitutional result. [33]