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STATE OF WISCONSIN

TAX APPEALS COMMISSION


PATRICK A. O'NEILL,

Petitioner,

vs.

WISCONSIN DEPARTMENT OF REVENUE,

Respondent.

DOCKET NO. 10-V-021-SC(P-I)

RULING AND ORDER


This case comes before the Commission on the motion of the Respondent, the Wisconsin Department of Revenue (the "Department"), for summary judgment on the basis that there is no genuine issue of material fact and the Department is entitled to judgment as a matter of law under Wis. Stat. § 802.08 and Wis. Admin. Code §§ TA 1.31 and 1.39. Attorney Gregory E. Knoke represents Petitioner Patrick A. O'Neill (d/b/a Glenview Diary) in this case and has filed a brief and reply in response to the motion. Attorney Sheree Robertson represents the Department and has filed a notice of motion and motion, affidavits with exhibits, a brief and reply in support of the motion. Based on the amount in controversy, the Commission treats this case as a small claims matter under Wis. Stat. § 73.01(1)(b).

Having considered the entire record, the Commission hereby finds, rules and orders as follows:

FINDINGS OF FACT

1. In early 2008, Department Field Auditor Kent Harris initiated a field audit of the Petitioner's dairy farm ("Glenview Dairy") because the Petitioner had purchased 2,020 gallons of untaxed gasoline from Blanchardville Co-op Oil Association in 2006. (Affidavit of Department Field Auditor Kent Harris dated June 18, 2010 ("Harris Aff.") ¶ 6, Ex. 3, Field Audit Report Comment #6.)

2. On April 17, 2008, Mr. Harris met with the Petitioner at Petitioner's dairy farm ("Glenview Dairy") to conduct a field audit consisting of a review of Mr. O'Neill's receipts and to obtain for testing a sample of diesel fuel from the supply tank of Mr. O'Neill's licensed 1983 Ford F-250 flatbed pickup truck (the "truck") to determine whether Mr. O'Neill used tax-exempt diesel fuel in said truck. (Harris Aff. ¶¶ 1- 3.)

3. During the April 17, 2008 visit, Mr. Harris obtained for testing a sample of diesel fuel from the supply tank of Mr. O'Neill's truck, which was placed in a sample bottle as reference number 200000280656, labeled, and assigned Sample Reference Number 0026122 (the "fuel sample"). (Harris Aff. ¶ 4.)

4. On May 6, 2008, Mr. Harris sent the fuel sample to the Excise Forensics Laboratory ­ Pacific Northwest National Laboratory (the "Lab") that tests fuel samples for the Internal Revenue Service ("IRS"). The Lab received and analyzed the fuel sample, and sent a written report dated May 18, 2008 (the "Lab report") to an IRS representative, who forwarded it to the Department. The Lab report states that the fuel sample taken from Mr. O'Neill's truck contained 4.6mg/L of Solvent Red 164 Dye. (Harris Aff. ¶ 5, Ex. 2.)

5. In a Notice of Proposed Audit Report dated June 3, 2008, the Department issued to the Petitioner an Excise Tax Field Audit Report (the "audit report") that assessed the Petitioner a penalty in the amount of $1,000.00 pursuant to Wis. Stat. § 78.155. (Harris Aff. ¶ 6, Ex. 3.)

6. By letter dated July 3, 2008, the Petitioner's representative informed Mr. Harris that the Petitioner disputed the proposed audit report. (Harris Aff. ¶ 7, Ex. 4.)

7. By Notice of Adjustment dated July 29, 2008, for the period April 1, 2008 through April 30, 2008, the Department issued to the Petitioner a penalty assessment in the amount of $1,000.00 as proposed in the audit report. (Harris Aff. ¶ 8, Ex. 5.)

8. The Petitioner did not file a timely petition for redetermination, but paid the penalty at issue and filed a claim for refund by letter dated March 6, 2009. (Harris Aff. ¶¶ 9-10, Ex. 6-7.)

9. By letter dated April 14, 2009, the Department denied the claim for refund. (Harris Aff. ¶ 11, Ex. 8.)

10. By letter dated June 12, 2009, the Petitioner filed a petition for redetermination of the Department's action. (Harris Aff. ¶ 12, Ex. 9.)

11. By a Notice of Action dated December 11, 2009, the Department denied the Petitioner's petition for redetermination. (Affidavit of Department Resolution Officer Jerome Gebert dated June 8, 2010, ¶ 4, Ex. 10.)

12. On January 29, 2010, the Commission received the Petitioner's petition for review.

13. On February 24, 2010, the Department filed an answer to the petition.

14. On June 21, 2010, the Department filed a notice of motion and motion for summary judgment with attached affidavits and exhibits in support of the motion.

15. On June 24, 2010, the Commission issued a briefing order on the motion. The Petitioner filed his response to the motion on July 1, 2010, and the Department filed its brief on July 14, 2010.

16. Following a request by the Petitioner, the Commission permitted each party to file an additional response and reply. The Petitioner filed an additional response on July 28, 2010, and the Department filed its reply on August 11, 2010.

CONCLUSION OF LAW

Genuine issues of material fact remain in dispute in this matter and the Department is not entitled to judgment as a matter of law pursuant to Wis. Stat. § 802.08 and Wis. Admin. Code § TA 1.31.

APPLICABLE STATUTES

Wis. Stat. § 78.01 Tax imposed; collected; exceptions.

* * *

(2p) Dyed Fuel. If indelible dye has been added to diesel fuel before or upon withdrawal at a terminal or refinery rack, that fuel may be used only for an exempt purpose. At the option of the supplier, the dye may be either dye required to be added under federal environmental protection agency requirements or dye that meets specifications of, and is in an amount required by, the department.

* * *

Wis. Stat. § 78.155 Penalties for misuse of dyed diesel fuel.

* * *

(2) Any person who knows or has reason to know that he or she used dyed diesel fuel for a purpose that is taxable under this subchapter shall pay to the department a penalty of $1,000 or twice the amount of tax that should have been paid on the dyed diesel fuel, whichever is greater.

RULING

Summary judgment is warranted where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Wis. Stat. § 802.08(2). If the moving party has established a prima facie case for summary judgment, then the opposing party must establish that there is a genuine issue of material fact that entitles that party to a trial. Grams v. Boss, 97 Wis.2d 332, 338, 294 N.W.2d 473 (1980). In this case, the Commission concludes that the Department has not established a prima facie case for summary judgment and that the Petitioner has shown that genuine issues of material fact remain in dispute.

This case turns on the application of Wis. Stat. § 78.155 to the Department's test of the fuel sample taken from the Petitioner's truck on April 17, 2008. The Petitioner has provided conflicting statements regarding whether and when he placed dyed diesel fuel in the fuel tank of the truck in question, and for what purpose. While the Petitioner has admitted placing dyed diesel fuel in the fuel tank of his truck in December 2007 in an "emergency situation," he also has stated that he regularly added automatic transmission fluid into the truck's fuel tank during winter months. (Affidavit of Patrick A. O'Neill dated January 24, 2010.) The Petitioner further alleges that the dye used to color dyed diesel fuel subject to the statutes in question is also used in automatic transmission fluid, and that such dye could have caused the fuel sample to test positive.

The Department responds that § 78.155 effectively imposes strict liability for any positive test. However, that interpretation of the statute does not account for § 78.01(2p), which indicates that only fuel dyed "before or upon withdrawal at a terminal or refinery rack" should be treated as dyed diesel fuel under this subchapter. Wis. Stat. § 78.01(2p). Furthermore, even a strict reading of the statutes requires an analysis of what is an exempt purpose versus a taxable purpose under Wis. Stats. §§ 78.01(2p) and 78.155, respectively, which neither party provides. Finally, neither party addresses whether the Petitioner knew or had reason to know that his use of the dyed diesel fuel was for a taxable purpose under the statutes, which is required for liability to attach under § 78.155.

The Commission finds that the Department has not presented a prima facie case in support of its motion and that the Petitioner has shown that genuine issues of material fact remain in dispute. Therefore, the Commission finds that the Department is not entitled to summary judgment as a matter of law.

ORDER

(1) The Department's motion for summary judgment is denied.

(2) The Commission will contact the parties to schedule further proceedings in this matter.

Dated at Madison, Wisconsin, this 25th day of August, 2010.

WISCONSIN TAX APPEALS COMMISSION

David C. Swanson, Chairperson