B-151025, MAY 15, 1963

B-151025, MAY 15, 1963

TO THE ATTORNEY GENERAL, STATE OF MONTANA:

THERE HAS COME TO THE ATTENTION OF THIS OFFICE THE MATTER OF MONTANA STATE FUEL TAXES INCLUDED IN THE PRICE OF HIGHWAY CONSTRUCTION CONTRACTS FOR WHICH THE BUREAU OF PUBLIC ROADS PARTIALLY REIMBURSES THE STATE UNDER THE FEDERAL-AID HIGHWAY LAWS. THE BUREAU OF PUBLIC ROADS QUESTIONED THE PROPRIETY OF THE STATE COLLECTING FEDERAL-AID HIGHWAY MONEYS ON ACCOUNT OF HIGHWAY CONSTRUCTION CONTRACT COSTS REPRESENTING FUEL TAXES PAID TO THE STATE; BUT, PRIMARILY ON THE BASIS OF YOUR OPINION DATED MARCH 30, 1962, TO THE MONTANA STATE HIGHWAY COMMISSION, THE BUREAU DID NOT PURSUE THE MATTER. WE CANNOT AGREE THAT YOUR OPINION ESTABLISHES THE PROPRIETY OF THE FEDERAL CONTRIBUTION INVOLVED; IT APPEARS TO US THAT THE BUREAU OF PUBLIC ROADS HAS OVERPAID THE STATE OF MONTANA UNDER THE FEDERAL-AID HIGHWAY PROGRAM AN AMOUNT EQUIVALENT TO THE FEDERAL SHARE OF THE MOTOR VEHICLE FUEL TAXES APPLICABLE TO THE FUEL USED BY CONTRACTORS DIRECTLY IN THE CONSTRUCTION OF FEDERAL-AID PROJECTS IN THE STATE.

UNDER MONTANA HIGHWAY CONTRACTING PROCEDURES THE CONTRACTOR INCLUDES IN HIS CONTRACT PRICE AND PAYS STATE TAXES ON ALL INTERNAL COMBUSTION ENGINE FUEL USED IN CONNECTION WITH THE CONTRACT WORK, AND ANY REFUNDS RECEIVED OF SUCH TAXES ARE FOR THE CREDIT OF THE STATE, THEREBY REDUCING THE CONTRACT PRICE. YOU CONTEND THAT UNDER THE LAWS OF THE STATE OF MONTANA THE FUEL USED BY CONTRACTORS IN THE CONSTRUCTION OF HIGHWAYS--- IGNORING THE RELATIVELY MINOR MATTER OF FUEL USED IN STATIONARY ENGINES--- IS TAXABLE AND THAT SINCE THE CONTRACTOR IS NOT ENTITLED TO A REFUND OF THE TAXES PAID THERE IS NO BASIS FOR CONSIDERING THE PROJECT COST AS ANYTHING LESS THAN THE FULL CONTRACT PRICE, NOTWITHSTANDING THAT A PORTION OF THAT PRICE IS COVERED BY AN OFFSETTING REVENUE TO THE STATE. THIS POSITION LEADS TO THE APPARENTLY ANOMALOUS RESULT UNDER THE FEDERAL-AID HIGHWAY PROGRAM THAT WHERE A CONTRACTOR RECEIVES A TAX REFUND, THE STATE FOREGOES NOT ONLY THE TAX BUT A FEDERAL CONTRIBUTION MEASURED BY THE AMOUNT OF THE REFUND, YET WHERE THERE IS NO TAX REFUND THE STATE KEEPS NOT ONLY THE TAX BUT RECEIVES A FEDERAL CONTRIBUTION THEREON AS WELL. OF COURSE, THE APPARENT ANOMALY IS EXPLAINED BY THE FACT THAT IN THE REFUND SITUATION, THE STATE IS ESTABLISHING A TRUE PROJECT COST FOR FEDERAL PARTICIPATION WHEREAS WHERE THERE IS NO REFUND, THE PROJECT COST IS INFLATED THROUGH NONRECOGNITION OF THE OFFSETTING TAX RECEIPT AND THE STATE BENEFITS THROUGH THE FEDERAL CONTRIBUTION ON AN INFLATED RATHER THAN TRUE COST BASIS. THE ONLY JUSTIFICATION WHICH WE CAN PERCEIVE FOR SUCH A PRACTICE IS THAT THERE BE SOME PUBLIC SERVICE RENDERED TO THE CONTRACTOR FOR THE TAX HE IS PAYING. THE MOTOR VEHICLE FUEL TAX LAWS OF MONTANA ARE, WITHIN LIMITS OF PRACTICABILITY, FOUNDED UPON THE PREMISE THAT THE TAX COVERS THE COST OF PROVIDING HIGHWAYS FOR THOSE WHO USE THEM, THE USE CONSTITUTING A SERVICE FOR WHICH THE TAX IS PAYMENT. WE CANNOT RATIONALIZE THE PROPOSITION THAT THERE IS ANY HIGHWAY SERVICE FURNISHED TO A CONTRACTOR WHO IS ENGAGED IN THE CONSTRUCTION OF A NEW HIGHWAY WITHOUT OPERATING HIS VEHICLES UPON ANY EXISTING COMPLETED HIGHWAY.

THE CONTENTION THAT THE FEDERAL CONTRIBUTION IS PROPERLY MEASURED BY THE FULL HIGHWAY CONSTRUCTION CONTRACT PRICE INCLUDING MOTOR VEHICLE FUEL TAXES IS BASED UPON THE OPINION THAT UNDER THE MONTANA LAWS, THE CONTRACTOR IS LIABLE FOR THE TAXES IN THE FIRST INSTANCE AND IS NOT ENTITLED TO THEIR REFUND.

SECTION 84-1832 OF THE REVISED CODES OF MONTANA, 1947, PROVIDES AS FOLLOWS:

"TAX IMPOSED. THERE IS HEREBY LEVIED AND IMPOSED A TAX ON THE USE OF EACH AND EVERY GALLON OF SPECIAL FUEL IN ANY MOTOR VEHICLE WHILE OPERATED UPON THE HIGHWAYS, EQUIVALENT TO THE LAWFUL TAX LEVIED ON MOTOR FUEL UNDER SECTION 84-1813, OR ON LIQUID PETROLEUM GASES UNDER SECTION 84-1802. SAID TAX, WITH RESPECT TO ALL SPECIAL FUEL DELIVERED BY A SPECIAL FUEL DEALER INTO SUPPLY TANKS OF MOTOR VEHICLES IN THIS STATE, SHALL ATTACH AT THE TIME OF SUCH DELIVERY AND SHALL BE COLLECTED BY SUCH SPECIAL FUEL DEALER FROM THE SPECIAL FUEL USER AND SHALL BE PAID OVER TO THE BOARD AS HEREINAFTER PROVIDED. SAID TAX, WITH RESPECT TO SPECIAL FUEL ACQUIRED BY ANY SPECIAL FUEL USER IN ANY MANNER OTHER THAN BY DELIVERY BY A SPECIAL FUEL DEALER INTO A FUEL SUPPLY TANK OF A MOTOR VEHICLE, SHALL ATTACH AT THE TIME OF THE CONSUMPTION OF SUCH FUEL IN THE PROPULSION OF A MOTOR VEHICLE UPON THE HIGHWAYS OF THE STATE AND SHALL BE PAID OVER TO THE BOARD BY THE SPECIAL FUEL USER AS HEREINAFTER PROVIDED.'

SECTION 84-1813 PROVIDES:

"TAX TO BE COLLECTED ON MOTOR FUEL, WHEN. THE STATE BOARD OF EQUALIZATION SHALL, UNDER THE PROVISIONS OF RULES AND REGULATIONS ISSUED BY SAID BOARD, COLLECT FROM THE OWNERS OR OPERATORS OF MOTOR VEHICLES A TAX IN AN AMOUNT EQUAL TO NINE CENTS (9 CENTS) FOR EACH GALLON OF DIESEL FUEL OR OTHER VOLATILE LIQUID, OF LESS THAN FORTY-SIX DEGREES (46 DEGREES) A.P.I. (AMERICAN PETROLEUM INSTITUTE) GRAVITY TEST, WHEN ACTUALLY SOLD OR USED TO PRODUCE MOTOR POWER TO PROPEL MOTOR VEHICLES UPON THE PUBLIC HIGHWAYS OR STREETS WITHIN THE STATE OF MONTANA.'

AND SECTION 84-1818 PROVIDES, IN PERTINENT PART:

"REFUND OF GASOLINE LICENSE TAX--- PROCEDURE. (1) ANY PERSON WHO SHALL PURCHASE AND USE ANY GASOLINE, WITH REFERENCE TO WHICH THERE HAS BEEN PAID INTO THE TREASURY OF THE STATE OF MONTANA, UNDER THE LAWS OF THIS STATE LICENSING DEALERS IN GASOLINE, A STATE GALLONAGE TAX, FOR THE PURPOSE OF OPERATING OR PROPELLING STATIONARY GAS ENGINES, TRACTORS USED FOR PURPOSES OTHER THAN ON THE PUBLIC HIGHWAYS OR STREETS OF THIS STATE, MOTOR BOATS, AEROPLANES OR AIRCRAFT, OR FOR CLEANING OR DYEING, OR FOR ANY COMMERCIAL USE OTHER THAN PROPELLING VEHICLES UPON ANY OF THE PUBLIC HIGHWAYS OR STREETS OF THIS STATE, AND WHO HAS PAID SAID TAX EITHER DIRECTLY TO THE STATE OF MONTANA OR INDIRECTLY AS A PART OF THE PURCHASE PRICE OF SAID GASOLINE, SHALL BE ALLOWED AND PAID AS A REFUND OR DRAWBACK AN AMOUNT OF MONEY EQUAL TO THE UNIT STATE GALLONAGE TAX, MULTIPLIED BY THE NUMBER OF GALLONS OF GASOLINE SO PURCHASED AND USE. * * *"

UNDER THE QUOTED PROVISIONS STANDING ALONE THERE WOULD NOT APPEAR TO BE ANY QUESTION BUT THAT THE CONTRACTOR ON A HIGHWAY CONSTRUCTION PROJECT WOULD NOT BE LIABLE FOR MOTOR VEHICLE FUEL TAXES ON FUEL USED AT THE SITE IN THE CONSTRUCTION OF THAT PROJECT. THE QUOTED PROVISIONS SERVE TO EXACT FUEL TAXES ONLY WHERE THE FUEL INVOLVED IS USED TO POWER OR PROPEL MOTOR VEHICLES UPON THE PUBLIC HIGHWAYS OR STREETS WITHIN THE STATE OF MONTANA. THERE ARE A NUMBER OF DECISIONS BY COURTS IN VARIOUS JURISDICTIONS WHICH HOLD THAT MOTOR VEHICLES USED ON A RIGHT-OF-WAY IN CONSTRUCTING HIGHWAYS ARE NOT BEING "OPERATED UPON A HIGHWAY.' SEE ALLEN V. JONES, 201 N.W. 353 (1924); OSWALD V. JOHNSON, 291 P. 579 (1930); DES MOINES ASPHALT PAVING CO. V. JOHNSON, 239 N.W. 575 (1931); SAVIN CONST. CO. V. CLARKE, 81 A.2D 309 (1951); AND PEOPLE V. BOARD OF COM-RS OF WELD COUNTY, 10 P.2D 1104 (1932), IN WHICH THE COURT HELD THAT EVEN VEHICLES USED UPON HIGHWAYS GENERALLY OPEN FOR PUBLIC TRAVEL WERE NOT BEING "OPERATED UPON THE HIGHWAYS" WITHIN THE MEANING OF THE FUEL TAX STATUTE SO LONG AS THEY WERE BEING USED IN CONNECTION WITH HIGHWAY CONSTRUCTION.

BUT, WHILE NOT SPECIFICALLY REFERRING TO THE ABOVE CASES, YOU CONTEND THAT THEY ARE NOT APPLICABLE TO THE SITUATION IN MONTANA BECAUSE OF THE PROVISIONS OF SUBSECTION 84-1831 (C) OF THE REVISED CODES OF MONTANA, 1947, THAT:

"/C) AS USED IN THIS ACT,"PUBLIC ROADS AND HIGHWAYS OF THIS STATE" SHALL MEAN ALL STREETS, ROADS, HIGHWAYS, AND RELATED STRUCTURES AS HAVE BEEN OR SHALL BE, BUILT AND MAINTAINED WITH APPROPRIATED FUNDS OF THE UNITED STATES AND WHICH HAVE BEEN, OR SHALL BE, BUILT AND MAINTAINED WITH FUNDS OF THE STATE OF MONTANA, OR ANY POLITICAL SUBDIVISION THEREOF, OR WHICH HAVE BEEN OR SHALL BE DEDICATED TO PUBLIC USE OR HAVE BEEN ACQUIRED BY EMINENT DOMAIN.'

PRIOR TO 1959, SUBSECTION 84-1831 (C) PROVIDED THAT:

"/C) "HIGHWAY" MEANS EVERY WAY OR PLACE GENERALLY OPEN TO THE USE OF THE PUBLIC FOR THE PURPOSE OF VEHICULAR TRAVEL, NOTWITHSTANDING THAT THEY MAY BE TEMPORARILY CLOSED OR TRAVEL THEREON RESTRICTED FOR THE PURPOSE OF CONSTRUCTION, MAINTENANCE, REPAIR OR RECONSTRUCTION.'

RELYING UPON THESE DEFINITIONS YOU CONCLUDE THAT FUEL USED IN THE CONSTRUCTION OF A HIGHWAY IS PROPERLY TAXABLE. IN SUPPORT OF THIS CONCLUSION YOU CITE AUTHORITIES FOR THE PROPOSITION THAT IT IS THE RIGHT OF TRAVEL BY ALL THE WORLD AND NOT THE EXERCISE OF THE RIGHT WHICH CONSTITUTES A WAY, A PUBLIC HIGHWAY. 25 AM.JUR., HIGHWAYS, SEC. 2; CITY OF HOUSTON V. HUGHES, 284 S.W.2D 249 (1955); AND HILDEBRAND V. SOUTHERN BELL TELEPHONE AND TEL. CO., 14 S.E.2D 252 (1941). YOU ALSO CITE THE CASE OF FRENCH V. COUNTY OF LEWIS AND CLARK, 288 P. 455 (1930) WHEREIN THE MONTANA SUPREME COURT TAKES THE VIEW THAT A ROAD BECOMES A ROAD WHEN IT IS "LAID OUT" WHETHER IT IS ,ERECTED" OR NOT. IT SHOULD BE NOTED THAT THE ISSUE IN THE FRENCH CASE CONCERNED THE OBLIGATION OF A COUNTY TO PAY ANOTHER FOR THE COST HE INCURRED IN ERECTING A ROAD AFTER THE COUNTY HAD "LAID OUT" THE ROAD. THE CONSIDERATIONS INVOLVED IN THAT CASE AND THE OTHERS CITED HAVE NO RELATIONSHIP TO THE CIRCUMSTANCES UNDER CONSIDERATION HERE. THESE AUTHORITIES TOGETHER WITH THE PROVISION IN THE DEFINITION OF "HIGHWAY" FOR INCLUDING THOSE WAYS OR PLACES WHICH MAY BE TEMPORARILY CLOSED OR RESTRICTED TO TRAVEL FOR PURPOSES OF CONSTRUCTION LEAD YOU TO CONSTRUE THE LEGISLATIVE INTENT UNDERLYING THE STATUTES AS REQUIRING THE COLLECTION OF TAX FOR FUEL USED DIRECTLY IN THE CONSTRUCTION OF HIGHWAYS. IT SHOULD ALSO BE NOTED THAT THERE IS SUPPORT FOR THE PROPOSITION THAT UNDER CERTAIN CIRCUMSTANCES THE DESIGNATION OF LAND AS A HIGHWAY WITHOUT OPENING IT TO TRAVEL DOES NOT CREATE A HIGHWAY. PAYNE STATE HIGHWAY COMMISSION, 16 P.2D 509 (1932); ROBINS V. MCGHEE, 56 S.E. 461 (1907); BACON V. BOSTON AND M.R.R., 76 A. 128, 133.

WE CANNOT AGREE WITH YOUR INTERPRETATION OF THE DEFINITIONS QUOTED. THE EARLIER DEFINITION SPEAKS IN TERMS OF WAYS OR PLACES "GENERALLY OPEN TO THE USE OF THE PUBLIC" BUT TEMPORARILY CLOSED OR TRAVEL THEREON RESTRICTED. THE LATER DEFINITION SPEAKS IN TERMS OF HIGHWAYS WHICH HAVE BEEN BUILT OR SHALL BE BUILT. CONSIDERING THAT THE SCHEME OF THE MOTOR VEHICLE FUEL TAX LAWS IS TO PROVIDE FUNDS FOR THE CONSTRUCTION, ALTERATION, REPAIR, AND MAINTENANCE OF HIGHWAYS BY CHARGING USERS THEREOF AMOUNTS PROPORTIONAL TO THE HIGHWAY BENEFITS THEY RECEIVE, SUCH FUEL AS IS USED IN VEHICLES NOT OPERATED UPON THE HIGHWAYS BEING EXEMPT FROM THE TAX, IT IS DIFFICULT FOR US TO SEE HOW THE DEFINITIONS REFERRED TO CAN BE APPLIED IN THE MANNER SUGGESTED. SEE SECTIONS 84 1812 AND 84-1840 OF THE REVISED CODES OF MONTANA, 1947, RELATING TO THE DISPOSITION OF TAX FUNDS FOR HIGHWAY PURPOSES AND SECTION 84-1818 RELATING TO NONTAXABLE MOTOR FUEL. A BARE RIGHT-OF-WAY IS NOT A WAY OR PLACE "GENERALLY OPEN TO THE USE OF THE PUBLIC" BUT TEMPORARILY CLOSED, IF IT HAS NEVER BEEN OPENED TO VEHICULAR TRAFFIC. NOR IS A BARE RIGHT-OF-WAY A HIGHWAY WHICH HAS BEEN BUILT OR A HIGHWAY WHICH SHALL BE BUILT. IN THE SENSE OF THE STATUTES AS A WHOLE, IT IS MERELY A WAY UPON WHICH A HIGHWAY WILL BE BUILT. AND SINCE THE CONTRACTOR IN USING FUEL FOR GRADING, PAVING OR OTHER DIRECT CONSTRUCTION WORK IS NOT UTILIZING THE HIGHWAYS FOR WHICH THE TAX IS EXACTED IN THE FIRST INSTANCE, IT IS PROPER, UNDER THE CONCEPT OF THE TAX STATUTE, THAT HE NOT BE RESPONSIBLE FOR THE TAX AND THAT IF HE PAYS THE TAX HE IS ENTITLED TO A REFUND THEREOF.

BUT EVEN IF WE ASSUME, ARGUENDO, THE CORRECTNESS OF THE POSITION THAT THE CONTRACTOR, UNDER THE CIRCUMSTANCES BEING CONSIDERED, IS LIABLE FOR THE TAX AND NOT ENTITLED TO A REFUND, IT DOES NOT FOLLOW THAT THE FEDERAL HIGHWAY ADMINISTRATOR IS AUTHORIZED TO ALLOW FEDERAL PARTICIPATION IN THE AMOUNT OF SUCH TAX INCLUDED IN THE HIGHWAY CONSTRUCTION CONTRACT PRICE. WHERE A STATE REQUIRES A CONTRACTOR TO INCLUDE IN HIS PRICE AN AMOUNT TO COVER A TAX FOR WHICH THE STATE RENDERS HIM NO SERVICE AND STIPULATES THAT ANY REFUND OF THAT TAX WHICH THE CONTRACTOR RECEIVES SHALL INURE TO THE BENEFIT OF THE STATE, THE TAX SO INCLUDED IN THE CONTRACT PRICE DOES NOT APPEAR TO CONSTITUTE A COST TO THE STATE. WHAT THE STATE HAS ACCOMPLISHED BY THIS PROCEDURE IS THE ELIMINATION OF UNNECESSARY REFUNDS OF TAXES ON FUEL USED IN CONSTRUCTION WORK PAID FOR FROM STATE FUNDS. PAYMENT OF THE CONTRACT PRICE WHICH INCLUDES THE TAX IN ITSELF OPERATES TO REFUND THE TAX, AND THE STATE IS IN NO DIFFERENT POSITION THAN IF THE TAX HAD NOT BEEN COLLECTED IN THE FIRST PLACE. WHILE THIS ARGUMENT WAS REJECTED IN WOOD BROS. CONST. CO. V. BAGLEY, 6 N.W.2D 397, 399 (1942), THE COURT APPEARED TO CONCEDE ITS VALIDITY IN TERMS OF COST BUT REJECTED IT ON GROUNDS NOT RELEVANT HERE.

THE FEDERAL SHARE PAYABLE TO STATES ON ACCOUNT OF HIGHWAYS CONSTRUCTED ON THE FEDERAL-AID HIGHWAY SYSTEMS IS GOVERNED BY THE PROVISIONS OF SECTION 120 OF TITLE 23, UNITED STATES CODE. THESE PROVISIONS ESTABLISH LIMITS ON THE FEDERAL SHARE AS PERCENTAGES OF THE COST OF CONSTRUCTION. FOR THE REASONS SET FORTH ABOVE, WE QUESTION WHETHER THE AMOUNT OF MOTOR VEHICLE FUEL TAX INCLUDED IN HIGHWAY CONSTRUCTION CONTRACTS LET BY THE STATE OF MONTANA APPLICABLE TO FUEL USED IN EQUIPMENT FOR WORK WHICH DOES NOT REQUIRE ANY HIGHWAY SERVICE BY THE STATE OR ITS SUBDIVISIONS CONSTITUTES A COST FOR COMPUTING THE FEDERAL SHARE PAYABLE UNDER THE PROVISIONS OF 23 U.S.C. 120. THIS IS, OF COURSE, APPLICABLE TO STATIONARY AS WELL AS SELF- PROPELLED ENGINES. HOWEVER, RECOGNIZING THE FAR-REACHING EFFECT OF THE QUESTION WE HAVE RAISED HEREIN, WE SHALL DELAY ANY FURTHER ACTION FOR 60 DAYS, IN ORDER THAT YOU MAY HAVE AN OPPORTUNITY TO PRESENT FOR OUR CONSIDERATION YOUR VIEWS IN THE MATTER.

A SIMILAR LETTER HAS BEEN ADDRESSED TO THE FEDERAL HIGHWAY ADMINISTRATOR.