Tetra Tech EC, Inc. v. Wisconsin Department of Revenue

*28*510¶1 The Wisconsin Department of Revenue (the "Department") imposed a tax on the petitioners pursuant to Wis. Stat. § 77.52(2)(a)11.

*511(2007-08) for the "processing" of river sediments into waste sludge, reusable sand, and water. The petitioners say the statutory term "processing" is not expansive enough to cover the separation of river sediment into its component parts, and so they asked us to reject the Department's interpretation of that term.1

¶2 Because resolving this question implicates the authoritativeness of an administrative agency's interpretation and application of a statute, we asked the parties to also address this issue: "Does the practice of deferring to agency interpretations of statutes comport with Article VII, Section 2 of the Wisconsin Constitution, which vests the judicial power in the unified court system?"2

¶3 We conclude that the term "processing" in Wis. Stat. § 77.52(2)(a)11. includes the separation of river sediment into its component parts. Therefore, we affirm the court of appeals. We have also decided to end *512our practice of deferring to administrative agencies' conclusions of law.3 However, pursuant to Wis. Stat. § 227.57(10), we will give "due weight" to the experience, technical competence, and specialized knowledge of an administrative agency as *29we consider its arguments.4

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

¶4 On November 13, 2007, the United States Environmental Protection Agency ("EPA") ordered several paper companies to remediate the environmental impact of polychlorinated biphenyls ("PCBs") they had released into the Fox River as part of their manufacturing activities. The paper companies created Lower Fox River Remediation, LLC ("LFR Remediation") to carry out the EPA's order. LFR Remediation hired Tetra Tech EC, Inc. ("Tetra Tech") to perform the actual remediation activities. Tetra Tech subcontracted a portion of the work to Stuyvesant Dredging, Inc. ("Stuyvesant Dredging").5 Stuyvesant Dredging's responsibilities included receiving sediment dredged from the Fox *513River, and then using membrane filter presses to separate it into its component parts: water, sand, and PCB-containing sludge. Part of the purpose of Stuyvesant Dredging's work was to "provide a supply of relatively clean sand that could be sold for off-site use or used beneficially on site."

¶5 In 2010, the Department conducted a field audit of both Tetra Tech and LFR Remediation (collectively, "Taxpayers"). During that same year, the Department issued a Notice of Field Audit Action that assessed a use tax on LFR Remediation's purchase of the portion of Tetra Tech's remediation services that represented Stuyvesant Dredging's work. The Department also issued a Notice of Field Audit Action that assessed a sales tax on the portion of Tetra Tech's sale of remediation services to LFR Remediation (to the extent it reflected Stuyvesant Dredging's work). In both notices, the Department said Stuyvesant Dredging's activities constituted the "repair, service, alteration, fitting, cleaning, painting, coating, towing, inspection and maintenance of tangible personal property," and so were taxable under Wis. Stat. § 77.52(2)(a)10.

¶6 Tetra Tech and LFR Remediation petitioned the Department for redetermination of the assessed taxes. The Department denied the petitions, concluding that Stuyvesant Dredging's "dewatering and desanding of dredged, contaminated sediment that is not returned to the river is a service to tangible personal property" that was taxable under Wis. Stat. § 77.52(2)(a)10. Tetra Tech and LFR Remediation then filed petitions with the Wisconsin Tax Appeals Commission (the "Commission") requesting review of the Department's denial of their reassessment requests. In its presentation to the Commission, the Department argued that Stuyvesant Dredging's activities were *514taxable under § 77.52(2)(a)10., or alternatively, under § 77.52(2)(a)11. as "processing" of tangible personal property. The Commission issued a Ruling and Order in favor of the Department.6 Upholding the sales and use taxes, the Commission concluded that "what SDI [Stuyvesant Dredging] does *30with the sediment is 'processing ... for a consideration for consumers [Tetra Tech] who furnish directly or indirectly the materials [sediment] used in the ... processing' under the meaning of Wis. Stat. § 77.52(2)(a)11." The Commission reasoned that "[t]he dictionary definition of 'processing' is 'to put through the steps of a prescribed procedure; or, to prepare, treat, or convert by subjecting to a special process.' SDI's activities certainly fall within that definition."7

¶7 Tetra Tech and LFR Remediation timely filed a petition for judicial review, pursuant to Wis. Stat. § 227.52, in the Brown County Circuit Court. The petition requested the circuit court to set aside the Commission's Ruling and Order that Stuyvesant Dredging's work subjected Tetra Tech and LFR Remediation to sales and use taxes. The circuit court affirmed, relying on the same definition of "processing" the Commission had used. LFR Remediation and Tetra Tech appealed. The court of appeals, using a dictionary definition of "processing" similar to the one used by the circuit court and the Commission, affirmed.

*515Tetra Tech EC, Inc. v. DOR, 2017 WI App 4, ¶¶ 2, 17, 373 Wis.2d 287, 890 N.W.2d 598. We granted Tetra Tech and LFR Remediation's petition for review, and now affirm.

II. DISCUSSION

¶8 The ultimate question we must answer in this case is whether the petitioners are subject to the tax levied on them by the Department of Revenue pursuant to Wis. Stat. § 77.52(2)(a)11. The Commission says they are, and urges us to agree with its interpretation and application of that statute.

¶9 Before we may answer that question, however, there is a predicate matter we must address: When we review an administrative agency's decision, are there circumstances in which we must defer to the agency's interpretation and application of the law? Our current jurisprudence says there are. And ever since Harnischfeger Corp. v. LIRC, 196 Wis.2d 650, 659, 539 N.W.2d 98 (1995), we have treated that deference as a "standard of review." Therefore, because identifying the appropriate standard of review is an appellate court's first task, we will begin there. Once we resolve that issue, we will address the interpretation of Wis. Stat. § 77.52(2)(a)11. and how it applies to Tetra Tech and LFR Remediation.

A. Deference to Administrative Agencies

¶10 Our assessment of the deference doctrine begins in the following section with a brief overview of its current contours. To truly understand its function, however, we need to search out its roots, the results of which we discuss in the second section. As preparation for our comparison of the deference doctrine to our constitutional responsibilities, we examine in the third *516section the nature of the judiciary's powers and how they relate to the other governmental branches. In the fourth and fifth sections, we separately assess "great weight" and "due weight" deference in light of the constitutional provisions and principles that govern our work.

1. Current Standard for Reviewing Administrative Agency Decisions

¶11 We generally review administrative agency decisions in accordance *31with chapter 227 of our statutes.8 As relevant here, Wis. Stat. § 227.57 contains two specific directions regarding how we are to conduct those reviews. First, it instructs a court to "set aside or modify the agency action if it finds that the agency has erroneously interpreted a provision of law and a correct interpretation compels a particular action, or it shall remand the case to the agency for further action under a correct interpretation of the provision of law." § 227.57(5). And second, it instructs that, "[s]ubject to sub. (11), upon such review due weight shall be accorded the experience, technical competence, and specialized knowledge of the agency involved, as well as discretionary authority conferred upon it."9 § 227.57(10). *517¶12 We have developed, over time, a contextualized methodology of reviewing administrative agency decisions.10 The provenance of this methodology lies partly with the preceding statute, and partly with our own doctrinal developments. In its modern iteration, this method begins with the principle that "statutory interpretation is a question of law which courts decide de novo." See Harnischfeger, 196 Wis.2d at 659, 539 N.W.2d 98. And we recognize that "a court is not bound by an agency's interpretation of a statute." Id. But then we wrap those principles within another, one we have said is of equal gravity: "As important, however, is the principle that courts should defer to an administrative agency's interpretation of a statute in certain situations." Id.

¶13 Calibrating this "deference principle" to those "certain situations" resulted in our contextualized, three-tiered treatment of an administrative agency's conclusions regarding the interpretation and application of statutory provisions. When reviewing those conclusions, we give them: (1) great weight deference; (2) due weight deference; or (3) no deference at all. See id. at 659-60 & n.4, 539 N.W.2d 98.

¶14 We have said the first of these-great weight deference-is appropriate upon concluding that:

(1) the agency was charged by the legislature with the duty of administering the statute; (2) ... the interpretation of the agency is one of long-standing; (3) ... the *518agency employed its expertise or specialized knowledge in forming the interpretation; and (4) ... the agency's interpretation will provide uniformity and consistency in the application of the statute.

Id. at 660, 539 N.W.2d 98. Giving "great weight" to an administrative agency's interpretation means the court must adopt it so long as it is reasonable. Id. at 661, 539 N.W.2d 98 ("[W]e have repeatedly held that an agency's interpretation must then merely be reasonable for it to be sustained."). An interpretation is reasonable if it does not "directly contravene[ ] the words of the statute," is not "clearly contrary *32to legislative intent," and is not "without rational basis." See id. at 662, 539 N.W.2d 98.11 Deference is required even when the court has a more reasonable interpretation of the law. Racine Harley-Davidson, Inc. v. Wis. Div. of Hearings & Appeals, 2006 WI 86, ¶ 17, 292 Wis.2d 549, 717 N.W.2d 184 (stating that under great weight deference, a reviewing court must accept "an agency's reasonable statutory interpretation, even if the court concludes that another interpretation is equally reasonable, or even more reasonable, than that of the agency"); Crystal Lake Cheese Factory v. LIRC, 2003 WI 106, ¶ 24, 264 Wis.2d 200, 664 N.W.2d 651 ("This [the need to defer] is true even if the court were to conclude that another interpretation was more reasonable."). These principles also apply to the agency's application of the statute to undisputed facts, which is itself a question of law.12 See, e.g., *519Crystal Lake Cheese Factory, 264 Wis.2d 200, ¶ 30, 664 N.W.2d 651 ("LIRC's interpretations, including its determination of reasonable accommodation in this case, should be given 'great weight' deference.").

¶15 The second tier of review, "due weight" deference, is appropriate when "the statute is one that the agency was charged with administering,"13 and "the agency has some experience in an area, but has not developed the expertise which necessarily places it in a better position to make judgments regarding the interpretation of the statute than a court."14 Under this standard, "the fact that the agency's interpretation is reasonable does not mean that its interpretation will necessarily be upheld." UFE Inc. v. LIRC, 201 Wis.2d 274, 287, 548 N.W.2d 57 (1996). Instead, "[i]f a court finds an alternative interpretation more reasonable, it need not adopt the agency's interpretation." Id. In effect, this creates a "tie goes to the agency" rule in which deference is required unless the court's interpretation is more reasonable than that of the agency. ABKA Ltd. P'ship v. DNR, 2002 WI 106, ¶ 116, 255 Wis.2d 486, 648 N.W.2d 854 (Sykes, J., dissenting) ("[T]he agency's legal interpretation will be upheld even if there is a different, equally reasonable interpretation-in other words, a tie goes to the agency."); see also Daniel R. Suhr, Interpreting Wisconsin Administrative Law at 7 (August 23, 2017), https://ssrn.com/abstract=3025085 ("Due weight might be called 'tie goes to the agency' deference."). The *520agency's application of a statute to undisputed facts is also entitled to due weight deference when it satisfies the Harnischfeger preconditions. See DOR v. A. O. Smith Harvestore Prods., Inc., 72 Wis.2d 60, 65-66, 240 N.W.2d 357 (1976) ("Due deference must be accorded the agency's application of the law to the found facts when the agency has particular competence or expertise in the matter at hand." (citing Wis. Stat. § 227.20(2) (1973) ) ).

¶16 When conditions support neither great weight nor due weight deference, we give the administrative agency's statutory interpretation no deference at all. See *33Racine Harley-Davidson, Inc., 292 Wis.2d 549, ¶ 19, 717 N.W.2d 184. In those circumstances, "the reviewing court merely benefits from the agency's determination and may reverse the agency's interpretation even when an alternative statutory interpretation is equally reasonable to the interpretation of the agency." Id., ¶ 20. This is the same method we use in reviewing questions of law decided by our circuit courts and court of appeals. State v. Alger, 2015 WI 3, ¶ 21, 360 Wis.2d 193, 858 N.W.2d 346 ("The interpretation and application of a statute present questions of law that this court reviews de novo while benefitting from the analyses of the court of appeals and circuit court.").

2. History of the Deference Doctrine

¶17 Although we often speak of the deference doctrine in a manner that suggests it started and developed as a cohesive whole, it did not. It is actually a portmanteau, derived from two different sources, the pieces of which developed over two different timelines, until they reached their fullest expression in Harnischfeger. For purposes of clarity and ease of access, we will rehearse their histories separately.

*521i. A Brief History of "Great Weight" Deference

¶18 The road to Harnischfeger's"great weight deference" is a long one (it reaches as far back as Harrington v. Smith, 28 Wis. 43, 59-70 (1871) ), but it is not an entirely clear one. As originally conceived, the doctrine did not contemplate deference at all, and it certainly did not purport to command the court's obedience. But with time it developed into a decision-avoidance doctrine that left to the administrative agencies the job of statutory interpretation and application when the doctrine's preconditions were satisfied. A dozen years ago, now-Chief Justice Patience Drake Roggensack did yeoman's work in tracing the development and effect of this doctrine. See The Honorable Patience Drake Roggensack, Elected to Decide: Is the Decision-Avoidance Doctrine of Great Weight Deference Appropriate in This Court of Last Resort?, 89 Marq. L. Rev. 541, 548-60 (2006). The following history relies heavily on that scholarship.

¶19 In Harrington, we discussed some of the canons of construction we used in discerning the proper meaning of an ambiguous statute. One of those canons says that an agency's understanding of the statute could be probative of its meaning: "Long and uninterrupted practice under a statute, especially by the officers whose duty it was to execute it, is good evidence of its construction, and such practical construction will be adhered to, even though, were it res integra,^[15 ^] it might be difficult to maintain it." Harrington, 28 Wis. at 68. The practice of executive branch *522employees "extending through a period of so many years, ought, it would seem, to be some evidence of what the law is; and some persons might be disposed, perhaps, to think, evidence equal to a decision of this court." Id. at 69. "Great weight," we concluded, "is undoubtedly to be attached to a construction which has thus been given." Id.

¶20 This is not the language of deference, but of persuasion. In a search for the proper meaning of an ambiguous statute, we said we could properly have recourse to the views of others and treat them as pieces of evidence for use in the process of *34statutory construction in which we ourselves were engaged. In support of our statement about the evidentiary nature of the executive employees' views, we cited Edwards' Lessee v. Darby, 25 U.S. (12 Wheat.) 206, 210, 6 L.Ed. 603 (1827). There, the United States Supreme Court said that "[i]n the construction of a doubtful and ambiguous law, the contemporaneous construction of those who were called upon to act under the law, and were appointed to carry its provisions into effect, is entitled to very great respect." Id. One may respect an interpretation, even greatly, without deferring to it.

¶21 Nor was Harrington expressing deference to an administrative agency when it said we would adhere to the executive branch's long-standing interpretation of a statute. Instead, we were acknowledging that a change in an ancient practice could have unacceptably disruptive consequences. For this principle we cited Rogers v. Goodwin, in which the Supreme Judicial Court of Massachusetts said:

*523Were the Court now to decide that this construction is not to be supported, very great mischief would follow. And although, if it were now res integra,^[16 ^] it might be very difficult to maintain such a construction, yet at this day the argumentum ab inconvenienti ^[17 ^] applies with great weight. We cannot shake a principle which in practice has so long and so extensively prevailed. If the practice originated in error, yet the error is now so common that it must have the force of law.

2 Mass. (2 Tyng) 475, 477-78 (Mass. 1807).

¶22 Harrington cast a long shadow. The court was content for many years to repeat and apply its formulation without reading deference into its language. See, e.g., State ex rel. Owen v. Donald, 160 Wis. 21, 111, 151 N.W. 331 (1915) (quoting Harrington, and stating long practice is evidence of meaning); State ex rel. State Ass'n of Y.M.C.A. of Wis. v. Richardson, 197 Wis. 390, 393, 222 N.W. 222 (1928) ("If we were in doubt as to the proper construction to be placed upon the statute, we should have to give much weight to the practical construction which has been placed upon the statute ever since its enactment."); Wis. Axle Div. (Timken-Detroit Axle Co.) v. Indus. Comm'n, 263 Wis. 529, 537b, 60 N.W.2d 383 (1953) (per curiam) ("This court has held that where there is any obscurity in the meaning of a statute, practical construction given by the administrative agency charged with administering such law is entitled to great weight."); Trczyniewski v. City of Milwaukee, 15 Wis.2d 236, 240, 112 N.W.2d 725 (1961) (same). As Justice Rebecca Bradley recently *524observed, "[b]y recognizing the value of executive interpretations without entirely ceding interpretive authority to the executive, these older cases reflect a more nuanced appreciation for judicial interaction with agency interpretation ...." Operton v. LIRC, 2017 WI 46, ¶ 78, 375 Wis.2d 1, 894 N.W.2d 426 (R. Grassl Bradley, J., concurring).

¶23 But then came Pabst v. Wisconsin Department of Taxation, 19 Wis.2d 313, 120 N.W.2d 77 (1963). There, we started our analysis of an agency's statutory interpretation with the proposition that "[e]rrors of law are always reviewable by the reviewing court." Id. at 322, 120 N.W.2d 77. But in our extended discussion of the nature of that review, we did something *35new. We imported the concept of deference. Federal courts, we noted, afforded deference to an administrative agency's application of a statute to undisputed facts under certain circumstances. See id. at 322-24, 120 N.W.2d 77. In determining "whether the administrative agency has correctly applied a statute to certain facts," the federal courts would employ either the "analytical approach" or the "practical approach." See id. at 322, 120 N.W.2d 77.

¶24 Under the analytical approach, "the court decides which part of the agency's determination presents a question of fact and which part a question of law." Id. As Professor Kenneth Culp Davis described this methodology, the court upholds the agency's factual findings if they have a reasonable basis. 4 Kenneth Culp Davis, Administrative Law Treatise § 30.01 (1958). But with respect to questions of law, the court substitutes its judgment for that of the agency. Id. Essentially, this creates a de novo standard for reviewing questions of law.

¶25 The practical approach treats the agency's decision more like legislation than adjudication. It *525avoids any attempt to distinguish between facts and law, and instead holds that "[t]he judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative body." Pabst,