ALJDEC

99A-F170-DEQ · Department of Environmental Quality · 2000-02-11

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

On January 7, 2000, a hearing was held to determine if the Department had properly denied the Appellant’s application (“Application”) for reimbursement of corrective action costs from the Underground Storage Tank (“UST”) State Assurance Fund (“SAF”). The record in this matter was kept open until February 11, 2000 to allow for the submission of post-hearing legal memoranda. Attorney Scott A. Salmon represented the Appellant. Assistant Attorney General Joan Card represented the Department of Environmental Quality (“Department”). Evidence and testimony were presented. Upon a review of the entire record, the following Findings of Fact, Conclusions of Law and Recommended Decision are made.

FINDINGS OF FACT

1. The Appellant is a company engaged in the business of providing refueling and other services to the aviation industry through fixed based facilities located at various airports throughout the United States. See Appellant’s Exhibit 3, page 1. One such facility was located at the Scottsdale Municipal Airport. Id. Robert Adkins is the Appellant’s Chief Operation Officer. Mr. Adkins testified that he is aware that excise taxes must be paid to the State of Arizona and that the corresponding excise tax returns must be filed with the State of Arizona. Mr. Adkins testified that the Appellant

diligently and promptly filed its excise tax returns with the State of Arizona.

2. Mr. Adkins testified that the Appellant’s fuel suppliers will usually charge the Appellant for any excise taxes owing on the sale of fuel. See Appellant’s Exhibit 1. Mr. Adkins testified that these suppliers will then remit the collected excise taxes to the State of Arizona. Accordingly, Mr. Adkins testified that any excise tax return filed by the Appellant with the State of Arizona will usually show that the Appellant owes no excise taxes. See Appellant’s Exhibit 2.

3. Mr. Adkins testified that the Appellant sold its Scottsdale facility on July 19, 1994 to Opal, Inc. See Appellant’s Exhibit 3. Mr. Adkins testified that the Appellant was responsible for the payment of all excise taxes that were due prior to the date of closing for the sale of Scottsdale facility. See Appellant’s Exhibit 3, page 6. Mr. Adkins testified that in order to successfully close escrow on the sale of the Scottsdale facility, “due diligence” mandated that the Appellant file all excise tax returns with the State of Arizona and pay all excise taxes and UST fees to the State of Arizona.

4. Mr. Adkins testified that the Appellant hired Emcon, Inc., an environmental consulting company, to prepare an SAF Application for the cleanup of this Scottsdale facility which is located at 15115 North Airport Drive, Scottsdale, Arizona. See Appellant’s Exhibit 4. Mr. Adkins testified that the cleanup included tank removal and soil remediation. Mr. Adkins testified that the Appellant paid approximately $500,000.00 to clean up this site. See Appellant’s Exhibit 4, page 2. However, Mr. Adkins testified that the Appellant only requested reimbursement for approximately $391,000.00. Id. Mr. Adkins testified that the Appellant expended the $500,000.00 in good faith because it believed that it would be substantially reimbursed from the SAF.

5. Jenny Vitale is a Senior Staff Engineer for Miller Brooks Environmental Inc., an environmental consulting firm. At all times relevant to this case, Ms. Vitale was employed as an Environmental Engineer at Emcon, Inc. Ms. Vitale testified that she has participated in the preparation of 30 to SAF applications. Ms. Vitale prepared and submitted the Appellant’s SAF Application. See Appellant’s Exhibit 4. Ms. Vitale testified that the Appellant’s SAF Application required a considerable amount of time to prepare. However, Ms. Vitale testified that she submitted the Appellant’s SAF Application to the Department on March 25, 1999, two days prior to the one year statutory deadline.

6. Mr. Adkins testified that the Appellant received a letter, dated April 1, 1999, from the Department. See Appellant’s Exhibit 5. This letter stated that the Department would not provide coverage from the SAF for an owner or operator who is delinquent in the payment of any fee or has failed to file an excise tax return. Id. However, the letter further stated that the owner or operator could cure the delinquency within 30 days after receiving this letter. Id. The April 1, 1999 letter further stated the following:

Failure to respond within thirty days from the receipt of this letter will result in all pending applications for the above referenced facility being denied. If you have any questions regarding this matter, please contact Steve [Castillo] at . . . . Id.

7. Mr. Adkins testified that the Department’s April 1, 1999 letter included blank excise tax returns (or reports) for the years 1990, 1991, 1993, 1994, 1995 and 1996. Mr. Adkins further testified that the letter included UST invoices for tank fees for the years 1990, 1995 and 1996. Mr. Adkins testified that he was surprised by the Department’s April 1, 1999 letter because all tax and fee issues had been resolved during the sale of the Scottsdale facility in 1994. Mr. Adkins further testified that the April 1, 1999 letter was very confusing because it provided no list of specific delinquencies or any guidance on how to correct these delinquencies.

8. Mr. Adkins testified that he responded to the Department’s April 1, 1999 letter by conducting a good faith investigation to (1) locate the aforementioned excise tax returns and (2) determine if the UST fees had been paid. However, Mr. Adkins conceded that this investigation was unsuccessful primarily because the Scottsdale facility had been sold in 1994. Mr. Adkins testified that “time was of the essence” so the Appellant simply paid the 1990 UST fee of $628.97. Mr. Adkins testified that the Appellant attached the $628.97 check to a letter sent by the Appellant’s vice president to the Department on April 21, 1999. See Appellant’s Exhibit 6. The Appellant’s April 21, 1999 letter was unsigned. Id. However, the Department conceded that it did receive and cash the Appellant’s check.[1]

9. Mr. Adkins further testified that the Appellant notified the Department in its April 21, 1999 letter that the Scottsdale facility had been sold in 1994 and therefore, the Appellant was not responsible for the 1995 and 1996 UST fees. The Appellant closed the letter by writing the following:

If you have any question concerning this matter or if there is any other action which Aero must undertake to comply with your letter of April 1, 1999, please advise me as soon as possible. Id.

10. Mr. Adkins testified that the excise taxes for 1990, 1991, 1993 and 1994 had been paid by the Appellant’s suppliers to the State of Arizona. Mr. Adkins testified that the corresponding excise tax returns were filed with the Department. Accordingly, Mr. Adkins testified that he felt that the unspecified delinquencies in the Department’s April 1, 1999 letter had been satisfied. However, Mr. Adkins testified that he directed Emcon, Inc. to verify compliance with the Department’s April 1, 1999 letter.

11. Jenny Vitale, Emcon’s Environmental Engineer, testified that she found the Department’s April 1, 1999 letter to be “strange.” Ms. Vitale testified that the Department had previously telephoned her whenever there was a problem with an SAF application. Ms. Vitale testified that the Department’s April 1, 1999 letter contained no “bullets” specifically setting forth the delinquencies in the Appellant’s SAF Application. Furthermore, Ms. Vitale testified that the attached excise tax return forms contained no instruction pages for filling out the forms.

12. Steve Castillo is an employee in the Department’s UST Financial Program Unit. Mr. Castillo was the Department’s designated contact person in the Department’s April 1, 1999 letter. See Appellant’s Exhibit 5. Ms. Vitale testified that she telephoned Mr. Castillo on May 3, 1999. Ms. Vitale testified that May 3, 1999 fell within the 30 day corrective period allowed by the Department’s April 1, 1999 letter because the Appellant received this letter on April 5, 1999.

13. Ms. Vitale testified that she vividly remembers her conversation with Mr. Castillo. Ms. Vitale testified that Mr. Castillo confirmed that the Department had received the Appellant’s April 21, 1999 letter. Ms. Vitale testified that Mr. Castillo stated that he would investigate the 1994 sale of the Scottsdale facility. Ms. Vitale testified that Mr. Castillo also confirmed that if he could verify the 1994 Scottsdale facility sale, then the Appellant would have no remaining delinquencies per the Department’s April 1, 1999 letter (absent a further request by the Department). Ms. Vitale contemporaneously logged a summary of this conversation on a Telephone/Verbal Conversational Record. See Appellant’s Exhibit 16. Ms. Vitale testified that after speaking to Mr. Castillo, she was satisfied that the Appellant had satisfied all delinquencies pertaining to the Department’s April 1, 1999 letter.

14. Steven Castillo testified that he did speak to Jenny Vitale on May 3, 1999. Mr. Castillo testified that he receives numerous phone calls per day regarding SAF applications. Mr. Castillo testified that he did not keep a phone log of his conversation with Jenny Vitale. Mr. Castillo testified that he never told Jenny Vitale that the excise tax return issue had been resolved. Mr. Castillo testified that he never told Jenny Vitale that the Department had received the Appellant’s April 21, 1999 letter.

15. The undersigned Administrative Law Judge finds the testimony of Jenny Vitale to be credible. The undersigned Administrative Law Judge’s impression of Ms. Vitale is that she is a knowledgeable, no-nonsense, diligent and experienced consultant in this field. It is simply inconceivable that Ms. Vitale would have ignored or have forgotten about the excise tax return issue after spending a substantial amount of time and money preparing the SAF Application. Accordingly, the undersigned Administrative Law Judge finds that Ms. Vitale accurately described her May 3, 1999 conversation with Steve Castillo.

16. Mr. Adkins testified that the Appellant received a second letter from the Department, dated April 20, 1999. This letter, in part, stated the following: . . . After an initial review of your application, we have identified

deficiencies which could prevent you from receiving reimbursement from ADEQ. A detailed List of Deficiencies is attached. Please review the list and send us the documentation requested within 14 calendar days from receipt of this letter, . . .

See Appellant’s Exhibit 7. The detailed List of Deficiencies included only a request for a W-9 Form. Id. Mr. Adkins testified that this letter from the Department was clearer than the Department’s April 1, 1999 letter because of the detailed List of Deficiencies. 17. Mr. Adkins testified that the Appellant promptly provided the Department with the W-9 Form attached to a letter, dated April 26, 1999. See Appellant’s Exhibit 8. Mr. Adkins testified that this letter included the following: If you require any additional information, please advise as soon as possible. Id. Mr. Adkins testified that he thought that the W-9 Form was the sole remaining delinquency.

18. Mr. Adkins testified that the Appellant received a third letter from the Department, dated June 18, 1999, denying the Appellant’s SAF Application. See Appellant’s Exhibit 9. The Department’s June 18, 1999 included a list of the specific deficiencies regarding the Appellant’s SAF Application. This list of specific deficiencies included the following: 1. Per A.R.S. 49-105.F.1, the ADEQ shall not provide any coverage from the State Assurance Fund (SAF) to an owner or operator that is delinquent in payment of annual tank fees and fails to cure that delinquency within 30 days after receiving notice from the department. According to ADEQ records, tank fees are not current.

2. Per A.R.S. 49-1052F.2 the ADEQ shall not provide coverage from the State Assurance Fund (SAF) to an owner or operator that is delinquent in filing any excise tax return required by section 49- 1032, subsection B and fails to cure that delinquency within 30 days after receiving notice from the department. According to ADEQ records, taxes are not current. . . .

Id.

19. Mr. Adkins testified that the Department’s June 18, 1999 denial letter was a “shocker”. Mr. Adkins testified that the Appellant was not delinquent in paying tank fees because it had paid the delinquent 1990 UST fee (within the 30 day corrective period) and the Appellant was not responsible for any UST fees assessed after the 1994 sale of the Scottsdale facility.

20. Patricia Nowack is the Department’s Manager of UST Financial Services. Ms. Nowack testified that the UST fee delinquency issue was included in the June 18, 1999 denial letter because the 1994 sale of the Scottsdale facility was still under investigation. However, Ms. Nowack confirmed that this investigation was ultimately completed and the Department determined that the Appellant had successfully and timely resolved this delinquency regarding the UST fees.

21. Ms. Nowack testified that the Appellant failed to submit to the Department the Appellant’s excise tax returns for the years 1990, 1991, 1993 and 1994. Patricia Nowack testified that the Department only had the Appellant’s 1992 excise tax return. Ms. Nowack testified that the Appellant was required by statute to submit these tax returns within 30 days of receiving the Department’s April 1, 1999 letter. Ms. Nowack testified that these excise tax returns were necessary to determine if the Appellant owed any excise taxes.

22. Ms. Nowack testified that the Appellant ultimately submitted the excise tax returns[2] on July 6, 1999, more than 30 days after the Appellant had received the Department’s April 1, 1999 letter. See Appellant’s Exhibit 11. Ms. Nowack testified that the Department has no discretion to accept an SAF application if an applicant fails to timely correct any delinquencies within the 30 day corrective period.

23. Mr. Adkins testified that the Appellant did submit the excise tax returns to the Department in the years that these returns were due. Mr. Adkins testified that the Department must have misplaced these returns (except for the 1992 excise tax return). Mr. Adkins further reiterated that these excise tax returns had to be filed to close escrow on the 1994 sale of the Scottsdale facility. Finally, Mr. Adkins testified that the missing excise tax returns would simply show that the Appellant owed no excise taxes for those years.

24. Ms. Vitale testified that she was very angry when she received a copy of the Department’s June 18, 1999 denial letter. Ms. Vitale testified that the Appellant has always been current on the payment of any excise taxes. Ms. Vitale testified that she relied on Mr. Castillo’s statements that nothing more was required by the Appellant regarding the Department’s April 1, 1999 letter (unless the Department requested more information).

25. Mr. Castillo testified that the excise tax returns are necessary because they show which suppliers sold the fuel to the Appellant. More importantly, the identity of the suppliers allows the Department to confirm if the suppliers actually paid the excise taxes. Mr. Castillo testified that the four reconstructed excise tax returns submitted by the Appellant on July 6, 1999 showed that the Appellant owed no excise taxes for 1990, 1991, 1993 and 1994. Mr. Castillo confirmed that all of the excise taxes had been paid for those years.

26. Ms. Nowack testified that an applicant can submit a second SAF application if its initial SAF application is denied. However, Ms. Nowack testified that the new SAF application must be submitted to the Department no more than one year after the applicant received a site closure letter. See A.R.S. §49-1052(M). Ms. Nowack testified that the Appellant received its site closure letter on March 27, 1998. See Department’s Exhibit C. Accordingly, Ms. Nowack testified that the Appellant is statutorily barred from submitting a second SAF application after March 27, 1999.[3]

27. The Appellant submitted two letters from the Department that contradict Ms. Nowack’s testimony that the Appellant’s SAF Application has been denied (pursuant to the Department’s June 18, 1999 denial letter) and that the Appellant is statutorily barred from submitting a second SAF application. On July 2, 1999, the Department sent the Appellant a letter suggesting a 50% allocation of the Appellant’s SAF reimbursement claim. See Appellant’s Exhibit 12. On January 26, 2000, the Department sent a letter to the Appellant explaining the ranking of the Appellant’s SAF reimbursement claim within the Department’s SAF priority list. See Appellant’s Reply Memorandum.

CONCLUSIONS OF LAW

1. The Appellant has the burden of proof, and the standard of proof on all issues is by a preponderance of the evidence. Culpepper v. State, 187 Ariz. 431, 930 P.2d 508 (App. 1996). A "preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not." Morris K. Udall, Arizona Law of Evidence, §5 (1960). It "is evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not." Black's Law Dictionary, 1182 (6th ed. 1990).

2. A.R.S. §49-1052(F)(2) states in part: F. The department shall not provide any coverage . . . to an owner or operator or any person or entity employed or retained by an owner or operator, if any of the following apply: . . . The owner or operator is delinquent in filing any excise tax return . . . and fails to cure that delinquency within thirty days after receiving notice of the delinquency from the department. . . . If the owner or operator cures the delinquency within 30 days, after receiving notice from the department, the owner or operator retains the owner’s or operator’s place in the priority system. . . .

3. The undersigned Administrative Law Judge concludes that the Appellant has substantially complied with A.R.S. §49-1052(F)(2) for the following reasons: A. The credible testimony of Mr. Adkins that the Appellant timely filed its excise tax returns in the years that the excise tax returns were due; B. The credible testimony of Mr. Adkins that the excise tax returns had to have been timely filed to effectuate the closure of escrow on the 1994 sale of the Scottsdale facility; and C. The credible testimony of Jenny Vitale that she was assured by Steve Castillo that the delinquencies set forth in the Department’s April 1, 1999 letter were resolved pending the outcome of the Department’s investigation of the 1994 sale of the Scottsdale facility. RECOMMENDED DECISION

Based upon the foregoing, the undersigned Administrative Law Judge respectfully recommends that the Department’s denial of the Appellant’s SAF Application be reversed. The Appellant’s SAF Application should be reinstated without loss of priority. The undersigned Administrative Law Judge makes no recommendation on the amount of reimbursement owed to the Appellant.

Done this day, March 2, 2000.

______________________________________ Casey J. Newcomb Administrative Law Judge

Original transmitted by mail this ____ day of March, 2000, to:

Jacqueline E. Schafer Department of Environmental Quality ATTN: Lavonne Watkins 3033 North Central Avenue Phoenix, AZ 85012

By ___________________________

----------------------- [1] The Department argued that it only received the check but not the Appellant’s April 21, 1999 letter. [2] The Appellant reconstructed the missing excise tax returns. [3] The Appellant argued that it should only lose its priority within the Department’s SAF ranking system.

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Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826