TetraTech: Agency discretion and “process”

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The alleged problems with regulation and administrative agencies is exemplified in the TetraTech case. In this tax matter, the dispute concerns how expansive for tax purposes a statutory reference to “process” should be read. A company, TetraTech, was responsible for “processing” contaminated water as part of an effort to clean the Fox River of pollutants. Wis. Stat. § 77.52(2)(a)11 (emphasis supplied) provides that “[t]he producing, fabricating, processing, printing, or imprinting of tangible personal property or items, property, or goods” for materials either directly or indirectly provided to consumers shall be taxed.

As obvious, “processing” is an incredibly broad term. Writing a brief can be considered a process that transforms the paper on which the brief is printed, for instance. So, the main question presented in this case is how broadly or narrowly the court should understand “processing.” Since the revenue statutes in question do not define “processing” and the term itself is extremely broad, this kind of case calls for the kind of court intervention to clarify exactly how “processing” should be understood.

That is, this kind of case contains a bread-and-butter question courts typically address whenever reviewing how a statute should be understood. There is nothing here that indicates that a substantial change in agency deference is needed in order to resolve this dispute. The Wisconsin Supreme Court could hold that the Department of Revenue has the correct, broad interpretation of “processing” and decide to defer to it or even not defer to it but support it in any case. Or, the court could conclude that the current agency interpretation is NOT a reasonable application of the law and overturn that finding. Or, the court could do any number of things in between these two outcomes. A company like TetraTech certainly would want the interpretation of “processing” adopted by the Department of Revenue to get no deference. But, whether there is deference or not does not automatically lead to TetraTech getting the outcome it desires, especially when this case presents a very typical scenario of an extremely broad statutory term that requires clarification. Only if there already had been a similar case with similar facts to this one would the court even consider deferring to the administrative agency. But, the briefs indicate that this case presents a unique situation — processing of river silt to remove the contaminants as part of an environmental clean-up effort — that does not appear to have ever been contemplated by the agency of the legislature.

So, the question of agency deference does not really add anything to this case other than to provide an opportunity to expound on the separation of powers between administrative agencies and courts. The interpretation of the statutory term itself presents the kind of statutory construction work courts have to confront day-in and day-out. While the court of appeals decision granted great weight deference to the Department of Revenue, the appeals court still conducted a full analysis of the statutory terms and arguments to determine that the agency’s proffered interpretation was reasonable. The Wisconsin Supreme Court could easily disagree with any of the conclusions reach by the court of appeals and consequently issue a decision in favor of TetraTech.

But, this kind of point-by-point review is exactly what is at stake here. The attack on agency deference is about a court coming up with its OWN interpretation of the law without first considering whatsoever the interpretation of the state agency. Only after the court has its own interpretation is the court supposed to examine the agency’s proffered interpretation.

In this light, a non-deference court is subjecting state agencies to heightened scrutiny of some kind, as the court gets to decide what the statute means and the agency’s interpretation must then match up with what the court considers correct more so than what the opposing side posits. The court is no longer just deciding a legal dispute between parties. Instead, the court is exercising policy-making discretion to determine how administrative agencies should develop their administrative rules and decisions.

And, as noted already, the justices pushing this agenda are adding an additional concern for “liberty interests” that are NOT part of the statutory language but which were part and parcel of the court attack against regulation under modern Lochnerism. Under this modern version of Lochnerism, any regulation of commercial activity is automatically suspect because of how it infringes on the liberty interests of commercial enterprise.

All the posts in this series

UPDATE (12 Dec. 2017): Added links for all the posts in this series.