Official Committee of Unsecured Creditors of Bulk Petroleum Corp. v. Kentucky Dept. of Rev.

Summarized by Kurt Carlson , Carlson Dash LLC
10 years 6 months ago

Citation:

Official Committee of Unsecured Creditors of Bulk Petroleum Corp., et al., Bank of Sun Prairie v. Kentucky Department of Revenue, Court of Appeals, 7th Circuit (July 31, 2015)

Tag(s):

Ruling:

Kentucky’s excise tax on commercial sale of motor fuel is to be paid by the receiving party, no matter who is doing the collection of the tax. Actual receipt of the fuel occurs at the moment the gasoline is loaded from a terminal facility into a tank truck, at which time there is a presumption, rebuttable only by the receiver, that the gasoline is “consigned to destinations within” the state of Kentucky.

Procedural context:

This is a bankruptcy case that arose in the Eastern District of Wisconsin where the debtors, Bulk Petroleum Corporation (“Bulk”), argued in an adversary proceeding that they are owed a refund from the Kentucky Department of Revenue (“KDOR”) for an improper excise tax on gasoline purchased from suppliers. The bankruptcy court ruled in favor of Bulk, finding that Bulk had paid the taxes and the taxes were not appropriately collected because the gasoline was transported to destinations outside Kentucky. The district court disagreed, ruling that Bulk never paid any money to KDOR during a period where Bulk’s fuel dealer license was revoked in Kentucky. The district court reasoned that Bulk simply paid a higher price to its suppliers, Marathon and BP (“Suppliers”). The district court reversed the bankruptcy court’s decision and remanded the case, which prompted Bulk to appeal to the Court of Appeals. The Court of Appeals found in favor of Bulk, concluding that Bulk ultimately was the taxpayer and was due a refund because the gasoline being taxed was bound for out-of-state use. Prior to this issue the Court had to first decide whether they had appellate jurisdiction. The Appellate Court found that it did, in fact, have jurisdiction, as the district court had disposed of a discrete dispute within a larger bankruptcy case and the only remaining step in this case after the Court’s decision would be for the district court to enter the proper order.

Facts:

On October 31, 2006, Bulk’s Kentucky license as a gasoline and special fuels dealer was revoked after they refused the State’s request to post additional security. Between October 31, 2006 and August 3, 2007, Bulk was an “unlicensed dealer” and as such did not have the luxury of paying the excise tax retroactively after assessing how much of the gasoline they received actually wound up in Kentucky and would therefore be taxable. Bulk continued to pay the excise tax while petitioning KDOR for refunds on taxes paid on fuel that was not to be used in Kentucky. KDOR refused to consider the refund applications until Bulk’s license was reinstated and all tax liabilities were satisfied. The Suppliers continued to include the excise tax as a line item on invoices for all deliveries during this period. Upon Bulk’s reinstatement on August 3, 2007, KDOR instructed the Suppliers to stop charging the tax. This indicates that KDOR did believe Bulk was paying the tax, contrary to KDOR’s own argument here that Bulk did not pay any taxes during the revocation period and were not entitled to any refunds. KDOR argued that the Suppliers were the receivers when the gasoline was transferred into Bulk’s possession but, as the Court put it, “that makes no sense.” The threshold of receipt of the fuel does not change whether or not the dealer is licensed or unlicensed; the only thing that changes is whether the tax is paid up front or retroactively. Under the law, the Suppliers act as state tax collectors and as trustees for the state, and have a duty to turn over the tax monies to the state.

Judge(s):

Wood, Easterbrook, Hamilton

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