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7th Circuit uses ‘wholistic’ reading of statutes to define scope of alternative fuel tax credit

7th Circuit uses ‘wholistic’ reading of statutes to define scope of alternative fuel tax credit

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After a “wholistic” reading of the statutory text about an alternative fuel tax credit, the Seventh Circuit has ruled that a Wisconsin-based fuel producer may not receive tax refunds for its gasoline-butane fuel mixture.

The court released its decision in U.S. Venture, Inc. v. United States of America on Tuesday. The lawsuit was over the scope of a statutory credit taken against excise fuel taxes that Congress made available to producers of alternative fuel mixtures.

US Venture seeks refund for years of federal fuel excise taxes

U.S. Venture, a motor-fuel producer based in Wisconsin, has been adding butane to its gasoline since 2012 and had been paying the federal fuel excise tax until 2017. That’s when the company first sought an AFM tax credit for the gasoline-butane mixture and filed amended returns for tax years 2013-16 seeking refunds for each gallon of butane it used.

The IRS rejected U.S. Venture’s position and concluded that butane didn’t qualify for the AFM tax credit. U.S. Venture then filed two lawsuits seeking refunds for the fuel excise taxes, arguing that the tax credit applies to gasoline with a butane additive.

The federal government contended that there is nothing alternative about gasoline with a butane additive and that Congress made that fact plain through statutory provisions defining the scope of the AFM tax credit. An Eastern District judge agreed that U.S. Venture did not qualify for the AFM tax credit, and the case then went to the Seventh Circuit for review.

Seventh Circuit: Butane can’t be both taxable fuel and alternative to taxable fuel

Chief Judge Diane Sykes, Judge Michael Brennan and Judge Michael Scudder reviewed whether butane qualifies as a taxable fuel for purposes of the AFM tax credit and, if so, whether it can also qualify as an alternative fuel for purposes of the AFM tax credit. The opinion said the provision of the federal tax code that Congress cross-referenced within the AFM tax credit unambiguously categorizes butane as a taxable fuel for purposes of the fuel excise tax.

As for whether butane is also an alternative fuel mixture, the judges found that it “strains credulity” to consider butane both a taxable fuel and an alternative to a taxable fuel.

“Reading statutory text through a wholistic lens—giving effect to the language Congress enacted into law and interpreting that language in the context of the full statutory scheme—is the cornerstone of proper statutory construction and where U.S. Venture falls short,” Scudder wrote.

The Seventh Circuit affirmed the district court.

‘Three parting observations’ about recent AFM guidance

The judges left readers with “three parting observations” at the end of the opinion that addressed guidance and updates about the AFM credit released since 2017, the most recent year for which U.S. Venture was seeking a refund.

Scudder noted that the panel’s interpretation of the tax credit statute rested entirely on the language employed in the statute that defines the AFM credit and the additional cross-referenced statutes and regulations identified in the text. The judges found the statutory language and structure clear, and the opinion said they did not resort to the parties’ arguments based on legislative history.

The panel also didn’t place any weight on an IRS revenue ruling from 2018 that determined butane was a taxable fuel and a taxpayer could not receive the AFM tax credit for adding butane to gasoline. The Seventh Circuit’s opinion said the ruling came 13 years after the AFM was introduced and after the tax years for which U.S. Venture sought to amend its filings.

Along the same lines, the judges noted that Congress amended the AFM tax credit statute in 2019 to explicitly exclude liquefied petroleum gases like butane from qualifying for the tax credit. The opinion said the amendment and accompanying statements didn’t help interpret the pre-2019 version of the statute. However, the amendment prevents future attempts to seek AFM tax credits for using butane as a gasoline additive after the effective date.


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