from the United States Court of Federal Claims in No.
1:15-cv-00587-TCW, Judge Thomas C. Wheeler.
Gregory G. Garre, Latham & Watkins LLP, Washington, DC,
argued for plaintiff-appellant. Also represented by Elana
Nightingale Dawson, Benjamin Snyder; George Millington
Clarke, III, Eric M. Biscopink, Vivek Ashwin Patel, Kathryn
E. Rimpfel, Baker & McKenzie LLP, Washington, DC; Daniel
Allen Rosen, New York, NY.
Ann Hagley, Tax Division, United States Department of
Justice, Washington, DC, argued for defendant-appellee. Also
represented by Gilbert Steven Rothenberg, Richard Farber,
David A. Hubbert.
Reyna, Taranto, and Hughes, Circuit Judges.
case concerns whether, under 26 U.S.C. § 6426, a
taxpayer that is entitled to an alcohol fuel mixture credit
may treat the credit as a tax-free direct payment regardless
of excise-tax liability, or whether a taxpayer must first use
the mixture credit to reduce any excise-tax liability before
receiving payment for any amount of mixture credit exceeding
excise-tax liability. Sunoco, Inc. appeals from the Court of
Federal Claims' grant of the United States' motion
for judgment on the pleadings and denial of Sunoco,
Inc.'s cross-motion for partial summary judgment. The
Court of Federal Claims determined that the alcohol fuel
mixture credit must first be applied to reduce a
taxpayer's gasoline excise-tax liability, with any
remaining credit amount treated as a tax-free payment. We
1932, the United States has imposed an excise tax on various
types of fuel, including gasoline. See Revenue Act
of 1932, ch. 209, § 617(a), 47 Stat. 169 (1932) (current
version at 26 U.S.C. § 4081). Excise taxes are taxes
collected on the "manufacture, sale, or use of
goods," or "on an occupation or activity."
Excise, Black's Law Dictionary (10th ed. 2014).
Under § 4081, the United States imposes an excise tax
upon the occurrence of events involving the removal of
gasoline from a refinery or terminal; the entry of gasoline
into the United States for consumption, use, or warehousing;
and the sale of gasoline to certain purchasers. §
4081(a)(1)(A). In particular, § 4081 imposes an excise
tax of 18.3 cents per gallon of gasoline (other than aviation
gasoline). § 4081(a)(2)(A)(i).
to § 9503, the § 4081 gasoline excise tax is used
to fund the Highway Trust Fund, created by the Federal-Aid
Highway Act of 1956 ("Highway Revenue Act"), Pub.
L. No. 84-627, § 209, 70 Stat. 374, 397 (codified at 26
U.S.C. § 9503). These funds are used to construct and
maintain the nation's highways and other infrastructure.
1978, Congress started enacting tax incentives for renewable
fuels, such as alcohol fuel blends. See Energy Tax
Act of 1978, Pub. L. No. 95-618, § 221, 92 Stat. 3174,
3185. One of these tax incentives was a reduced excise-tax
rate for alcohol fuel mixtures. See Highway
Improvement Act of 1982, Pub. L. No. 97-424, 96 Stat. 2097.
While these tax incentives popularized the production of
alcohol fuel mixtures, the lower excise-tax rate resulted in
fewer tax dollars flowing into the Highway Trust Fund.
Roberta F. Mann & Mona L. Hymel, Moonshine to
Motor-fuel: Tax Incentives for Fuel Ethanol, 19 Duke
Envtl. L. & Pol'y F. 43, 49 (2008). The depletion of
funds caught the attention of Congress and triggered a
legislative response. H.R. Rep. No. 108-548, pt. 1, at 141-42
(2004) ("Committee Report").
October 22, 2004, the American Jobs Creation Act of 2004
("Jobs Act") passed. Pub. L. No. 108-357, 118 Stat.
1418. In the Jobs Act, Congress sought to increase the flow
of revenue to the Highway Trust Fund, but did not want to
eliminate the monetary incentives for producers to blend
alcohol with fuel. Congress thus restructured the relevant
statutory framework in three respects: (1) it eliminated the
reduced excise-tax rate for alcohol fuel blends under §
4081(c), thus leaving an 18.3 cents per gallon excise tax on
all non-aviation gasoline; (2) it enacted an alcohol fuel
mixture credit for producers of alcohol fuel blends set forth
in § 6426(b) (the "Mixture Credit"); and (3)
it amended § 9503 to appropriate all excise taxes
imposed under § 4081 to the Highway Trust Fund
"without reduction for credits under section 6426."
Jobs Act §§ 301, 853. Congress stated that the
Mixture Credit "provide[s] a benefit equivalent to the
reduced tax rates, which are being repealed under the
provision." Committee Report, at 142.
amending § 9503 of the Highway Revenue Act to require
the 18.3 cents per gallon excise tax be deposited into the
Highway Trust Fund in its entirety, and mandating that the
new Mixture Credit be given to producers at an amount
equivalent to the now-eliminated reduced excise-tax rate,
Congress manufactured a way to shift funds from the General
Fund at the U.S. Department of the Treasury
("Treasury") to the Highway Trust Fund without
affecting revenue. See H.R. Rep. No. 108-755, at 305
(2004) (Conf. Rep.) ("Conference Report")
("The provision also authorizes the full amount of fuel
taxes to be appropriated to the Highway Trust Fund without
reduction for amounts equivalent to the excise-tax credits
allowed for alcohol fuel mixtures, and the Trust Fund is not
required to reimburse any payments with respect to qualified
alcohol fuel mixtures."); see also Staff of
Joint Committee On Taxation, Estimated Budget Effects of
the Conference Agreement for H.R. 4520, the "American
Jobs Creation Act of 2004" (JCX-69-04) at
Provision III.A.1 (listing the "excise tax credit (in
lieu of reduced tax rate on gasoline) to certain blenders of
alcohol mixtures" as having "No Revenue
Effect"). Under this new regime, the Highway Trust Fund
would consistently receive 18.3 cents per gallon under §
4081 regardless of whether the excise tax was actually paid
by the taxpayer or obtained from the General Fund at
Treasury. In return, alcohol fuel producers would receive the
Mixture Credit without impacting the Highway Trust Fund.
statutory changes to §§ 4081, 6426, and 9503 also
led to the creation of § 6427(e)-added to account for
the Mixture Credit-which requires the Secretary of the
Treasury to pay, interest-free, to an alcohol fuel producer
"an amount equal to the alcohol fuel mixture
credit." § 6427(e)(1). But "[n]o amount shall
be payable . . . with respect to any mixture or alternative
fuel with respect to which an amount is allowed as a credit
under section 6426." Id. § 6427(e)(3).
Inc. ("Sunoco"), a petroleum and petrochemical
company, blends ethanol with gasoline to create alcohol fuel
mixtures. Sunoco filed consolidated tax returns for 2004
through 2009, and claimed the Mixture Credit under §
6426 as a credit against its gasoline excise-tax liability
for the years 2005 through 2008.
2013, Sunoco changed its tax position by submitting both
informal and formal claims with the Internal Revenue Service
(IRS) to recover over $300 million based on excise-tax
expenses for the years 2005 through 2008. Sunoco claimed that
it erroneously reduced its gasoline excise tax by the amount
of Mixture Credit it received, which had the effect of
including the Mixture Credit in its gross income. In its
view, Sunoco was entitled to deduct the full amount of the
gasoline excise tax under § 4081- without regard to the
Mixture Credit-and keep the Mixture Credit as tax-free
income. On March 11, 2015, the IRS issued a
statutory notice of disallowance denying Sunoco's
claims. On June 10, 2015, Sunoco filed its refund
suit in the United States Court of Federal Claims
("COFC"). Sunoco, Inc. v. United States,
129 Fed.Cl. 322, 324 (2016); J.A. 16, 1001-13.
February 12, 2016, the Government moved for judgment on the
pleadings pursuant to Rule 12(c) of the Rules of the Court of
Federal Claims,  arguing that the Jobs Act requires a
two-step, or "bifurcated," approach, in which
first, the Mixture Credit reduces any excise-tax liability,
and then the taxpayer is compensated for any remaining
Mixture Credit via a direct payment pursuant to § 6427.
Sunoco, 129 Fed.Cl. at 325-26. Under the
Government's interpretation, applying the Mixture Credit
to first reduce the excise-tax liability turns the Mixture
Credit into taxable income up to the point in which
excise-tax liability is reduced to zero. Id. at 329.
responded with a cross-motion for partial summary judgment on
liability, arguing that the Mixture Credit does not affect
its excise-tax liability under § 4081. Sunoco maintained
that although the Mixture Credit can be used to offset
excise-tax liability, such liability remains constant and
does not reduce the cost of goods sold under the statute,
therefore making the excise-tax liability fully deductible.
Id. at 325-26. In Sunoco's view, the entirety of
the Mixture Credit is a tax-free payment to the taxpayer
under § 6427. Id. at 326.
COFC found the statutory scheme to be ambiguous, but agreed
with the Government's interpretation and granted the