On June 28, 2024, the Supreme Court issued its 6–3 opinion in Loper Bright Enterprises v. Raimondo overruling the Chevron doctrine. The Court based its conclusion on interpreting this section of the Administrative Procedure Act (APA) to preclude any deference to agency interpretations of ambiguous statutes: “To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.”
That sentence is not a new concept; the Court merely reaffirmed the historic principle that in the context of agency rules, the courts say what the law is.
The opinion left room for courts to take into consideration agency interpretations in reaching the court’s own independent interpretation. This consideration can occur when (1) the interpretation was issued roughly contemporaneously with enactment of the statute and remained consistent over time; or (2) the agency personnel concerned were “able men and masters of the subject,” sometimes even the persons who drafted the laws at issue. In other words, what is usually called Skidmore deference continues to apply. The new opinion also recognized that some statutes specifically authorize agencies to make determinations of fact needed to apply the law.
The opinion did not limit, interpret, or reinterpret the Chevron doctrine, considered to have been first applied in that 1984 opinion. Rather, it simply overruled it to whatever extent it had authorized courts to abandon their own interpretations of statutes in deference to an agency interpretation that the court did not believe to be the best or most likely correct interpretation.
The opinion analyzed how Chevron came to be interpreted as the Court’s decision that Congress intended agencies to resolve statutory ambiguities. That occurred in part because the APA was never applied in the Chevron context. Once one realizes the obvious overlap of the APA and Chevron, it is clear that Congress said otherwise in 1946: it specifically said the courts—not the agencies—would interpret statutes applied in agency rules. Therefore, the underlying premise of the Chevron doctrine was in error. Realization of that came slowly, but by 2016, the Supreme Court had already stopped relying on Chevron deference.
The majority opinion also undercut any residual deference to agency expertise by reasserting that courts, not agencies, are in the business of expertly interpreting statutes. By that, the Court meant that the standard tools of statutory construction should be used by courts rather than perhaps insider knowledge, or agency guesses at congressional intent, or political influences on agencies.
The opinion rejected the government’s arguments that deference promoted uniform application of the laws because the agency interpretation applied to all. It pointed out that is not necessarily so as various courts strike down agency rules. It rejected the argument that abandoning deference would move political considerations from the agencies to the courts because politics do not enter into federal judicial decisions, only the application of neutral interpretive principles to the words of the statutes.
The opinion concluded by stating that prior cases that relied on the Chevron framework are still subject to statutory stare decisis despite the Court’s change in interpretive methodology.
The opinion will have limited effect because litigants had known that the Supreme Court and many federal judges were moving away from Chevron for a decade. In 2016’s Encino Motorcars LLC v. Navarro, the Court ruled that agency failure to properly explain its rules choices or other procedural defects could preclude deference. It had also ruled in 2022 in West Virginia v. Environmental Protection Agency that Chevron did not apply to “major questions.” Finally, the courts have been trying very hard to find that a statute has one unambiguous meaning to avoid “Chevron Step One.”
Going forward it will be necessary for courts to find meaning even in the face of extreme ambiguity. The dissent explained the scope of this new world:
In one fell swoop, the majority today gives itself exclusive power over every open issue—no matter how expertise-driven or policy-laden—involving the meaning of regulatory law.
Under Chevron, courts could apply every possible interpretive tool to find the more likely than not meaning of the statute, but when there was none, the courts could defer to the agency interpretation if it was within a zone of reasonableness. No more. The court must, in the first instance, say what the statute means. That will be a daunting task: at last count, Chevron had been cited in more than 18,000 federal-court decisions.
Also under the new ruling, the courts will have to give much more attention to the precise words authorizing regulatory action. In the tax area, that includes words like “needful” or “purposes” or “appropriate” or “necessary.”
In addition, the dissent suggested that prior decisions relying on Chevron were not inviolate:
Courts motivated to overrule an old Chevron-based decision can always come up with something to label a “special justification.” Maybe a court will say “the quality of [the precedent’s] reasoning” was poor. … Or maybe the court will discover something “unworkable” in the decision—like some exception that has to be applied.
The takeaway from the overruling of Chevron is that the already burgeoning business of attacking federal agency rules will expand without any discernable limit.
Deference to State Tax Agency Interpretations
While the reversal of Chevron does not directly affect state tax matters (except to the extent that some states may have expressly adopted Chevron or its holding), its reversal is consistent with a trend that has already been underway at the state level. In recent years, a number of states have passed new laws or guidance eliminating any deference to state tax-agency interpretations, instead requiring that courts apply the standard rules of statutory construction.
Whatever force there was for eliminating administrative deference at the federal level is even more compelling in the state and local tax context, where there is generally far less formal or informal guidance on the interpretation of a statute, such that in many cases the agency’s “interpretation” has never been expressly identified outside the pleadings filed in the case before the court. It may go without saying, but we anticipate that the reversal of Chevron will only accelerate the trend toward the elimination of deference in state and local tax litigation.
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