On May 20, 2019, the US Supreme Court denied United Parcel Service Inc.’s (UPS) petition in a case which implicates the amount of deference that courts should provide to governmental agencies. Given the importance of deference to departments of revenue in state and local tax controversies, the case could have had sweeping implications to tax litigation. Eversheds Sutherland has formed a coalition to advocate for the elimination of administrative deference in state and local tax cases.
The DC Court of Appeals Decision
In United Parcel Service, Inc. v. Postal Regulatory Commission, UPS brought suit against the Postal Regulatory Commission (the “Commission”) challenging a regulation issued by the Commission concerning its methodology for setting certain US Postal Service (USPS) shipping rates.1 The Commission is a federal agency tasked with the mission of regulating the rates charged by the USPS.2 To promote fair competition, the agency is required, among other things, to ensure that the USPS sets competitive prices—by setting price floors—for products where it faces market competition.
UPS challenged the Commission’s regulation arguing, in part, that it contradicted the plain language of the related statute and resulted in an understatement of USPS’s rates. UPS asked the appellate court not to defer to the Commission’s regulation because it was inconsistent with the statute that gave the Commission its regulatory authority. The DC Circuit Court found the plain language of the statute at issue was ambiguous, and held the Commission’s interpretation of the statute to be “perfectly reasonable” and thus entitled to Chevron deference.3
| ES Observation: Chevron deference, named after the Supreme Court’s decision in Chevron USA. Inc. v. Natural Resources Defense Council, Inc.4 is a judicial doctrine that requires courts to defer to an agency’s interpretation of an ambiguous statute so long as the agency’s interpretation meets the low bar of being reasonable. Chevron deference is often applied by courts in state tax controversies. |
UPS’s Petition for Certiorari
In its petition to the US Supreme Court, UPS asked the Court to address two questions: (1) whether the Chevron doctrine should be reconsidered; and (2) whether Chevron deference should apply to an agency’s statutory interpretations without reasoned explanation. UPS argued that the DC Circuit Court’s application of Chevron deference was outcome-determinative in the case because the Commission’s regulation was inconsistent with the plain language of the pertinent statute. Such a “blind granting of deference and abdication of the judicial role in examining the statute,” in UPS’s view, amounted to a violation of the separation-of-powers principles and allowed agencies to improperly deviate from the plain language of the statute. The Commission countered that even absent Chevron, the Court had recognized the Commission’s broad discretion in interpreting statutes related to attribution of costs for USPS products.
As a secondary argument, UPS asserted that if upheld, Chevron deference should not apply when an agency does not provide “adequate reasons” for its interpretation of statutory language. In response, the Commission pointed to the DC Circuit Court’s finding that the Commission had sufficiently explained its reasoning because it had used “established terms” and “longstanding definitions” that did not require further explanation.
The Court denied UPS’s petition for cert. on May 20, 2019, without a written opinion.5
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ES Observation: While proponents of Chevron deference note that agencies have specialized knowledge of technical issues and other specialized subject matter, putting them in a better position to interpret ambiguous statutes that they are tasked with administering, Chevron deference has faced increasing criticism in recent years. Critics argue that Chevron deference contradicts the plain language of the federal Administrative Procedure Act, and also violates separation of powers principles as well as the due process protections of the US Constitution. Further, critics assert that the doctrine prevents courts from exercising their independent judgment and fails to consider whether the administrative agency’s interpretation is the best or most reasonable interpretation of an ambiguous statute. Numerous current and former Supreme Court justices have expressed their disfavor of Chevron deference,6 and some states have recently abandoned their previous adherence to Chevron deference.7
In a tax context, the arguments against Chevron and other types of administrative deference apply a fortiori, where state departments of revenue act as: (1) executive in carrying out the administration of the tax code; (2) legislature in drafting its administrative rules; and (3) judiciary in providing its interpretation of ambiguous tax statutes, in addition to typically being the taxpayer’s opposing party in tax litigation. As a result, taxpayers in states that follow Chevron deference face an uneven playing field when litigating against a state department of revenue.
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RAD Coalition
Eversheds Sutherland has formed a coalition of interested parties, known as the Coalition to Reform Administrative Deference (RAD Coalition), which seeks to educate stakeholders on the issue of administrative deference and support state legislative action to equalize the playing field by abandoning the practice of administrative deference. View more information on the RAD Coalition.
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1United Parcel Service, Inc. v. Postal Regulatory Commission, 890 F.3d 1053 (D.C. Cir. 2018), cert. denied, No. 18-853 (May 20, 2019).
2 39 U.S.C. § 3622.
3 890 F.3d 1053, 1062.
4 467 U.S. 837 (1984).
5 The Supreme Court’s denial of cert. does not indicate agreement with the opinion below and provides no indication as to the Court’s views on the merits of the case. E.g., Parker v. Ellis, 362 U.S. 574 (1960); Snider v. Peyton, 356 F.2d 626 (4th Cir. 1966).
6 Current Justices Gorsuch, Kavanaugh, Roberts and Thomas have all publicly questioned the continued application of Chevron deference and invited a reexamination of the doctrine.
7 In 2018, Arizona, Florida, Mississippi and Wisconsin abandoned Chevron and other related doctrines by various means, including legislation, state supreme court decisions, and a constitutional amendment.
