I Nre: Bulk Petroleum Corp . v. Kentucky Department of Revenue

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 13-1870
I N RE: BULK PETROLEUM C ORP . AND BULK PETROLEUM
K ENTUCKY PROPERTIES, LLC.
Debtors-Appellants,
O FFICIAL C OMMITTEE OF U NSECURED C REDITORS OF BULK
PETROLEUM C ORP ., et al.,
Intervening Appellant,
BANK OF S UN PRAIRIE,
Intervening Appellant,
v.
K ENTUCKY DEPARTMENT OF REVENUE ,
Defendant-Appellee.
____________________
Appeal from the United States District Court for the
Eastern District of Wisconsin.
No. 11-cv-575 — C.N. Clevert, Jr., Judge.
____________________
A RGUED NOVEMBER 3, 2014 — DECIDED J ULY 31, 2015
____________________
Before WOOD, Chief Judge, and EASTERBROOK and
HAMILTON , Circuit Judges.

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2 No. 13-1870
WOOD, Chief Judge. In this case, we find ourselves in the
unusual position of needing to sort out questions relating to
the way in which the Commonwealth of Kentucky taxes
gasoline. Problems have arisen in a bankruptcy case in the
Eastern District of Wisconsin, which is why this matter is on
our table, not that of the Sixth Circuit or Kentucky’s courts.
The debtor, Bulk Petroleum Corporation (Bulk), has argued
in an adversary proceeding that it improperly paid an excise
tax when it purchased gasoline from suppliers in Louisville
between November 1, 2006, and August 3, 2007. It is seeking
a refund from the Kentucky Department of Revenue
(KDOR). For its part, KDOR maintains that because Bulk
was unlicensed during that period, it was not a “taxpayer”
within the meaning of the state statute and thus is not enti-
tled to a refund from the state. Before we can resolve that
dispute, we must ensure that we have appellate jurisdiction
over the case. We conclude that we do. On the merits, we
conclude that Bulk should get its refund. We therefore re-
verse the district court’s decision and remand for entry of
judgment in Bulk’s favor.
I
The district court described Bulk as “a large regional
gasoline distributor and gas station owner with approxi-
mately 58 gas stations in Kentucky”; Bulk also had gasoline
stations in Southern Indiana and Tennessee. Typically, Bulk
leases a station and all necessary equipment to a tenant-
operator, who handles all sales and other business for the
station. Bulk receives monthly rent from the operator plus
payment for all deliveries of gasoline to the station. Until Oc-
tober 30, 2006, Bulk held a license from Kentucky as a gaso-
line and special fuels dealer. KDOR revoked Bulk’s license

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No. 13-1870 3
on October 31, 2006, after it asked Bulk to post additional
security and Bulk failed to do so. This did not mean that
Bulk had to stop doing business in Kentucky; the change af-
fected only the way in which Kentucky collected its fuel tax,
and it raised the question presented in this case: from whom
was that tax collected? (We describe Kentucky’s taxation
scheme in more detail below.)
Although Bulk had the right to appeal the revocation of
its license to the Kentucky Board of Tax Appeals, it did not
do so. Instead, it kept track of the alleged tax payments it
was making to its upstream suppliers (Marathon and BP)
and repeatedly sought refunds from KDOR for those pay-
ments. In doing so, it relied on the separate line-item for the
tax in the invoices it received from its suppliers. On May 10,
2007, a KDOR employee emailed Bulk informing the com-
pany that “only a licensed dealer is allowed to purchase
product without the Kentucky tax for export. If your license
is reinstated and all outstanding tax liabilities are satisfied,
consideration will be given to your refund request.” Bulk
regained its license from the state on August 3, 2007. (We
will refer to the time between October 31, 2006, and August
3, 2007, as the Revocation Period.)
As we noted, during the Revocation Period, Marathon
and BP were including on their bills to Bulk a line item rep-
resenting the Kentucky fuel tax on all of the gasoline Bulk
bought from them; Bulk was turning those funds over to
Marathon and BP even for gasoline that was later delivered
to customers outside Kentucky. (It appears that all of the
gasoline at issue here did move through terminals in Louis-
ville, Kentucky; we discuss the significance of this fact be-
low.) Some of the gasoline Bulk purchased did stay in-state,

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4 No. 13-1870
but much of it went to Bulk’s stations in Tennessee and Indi-
ana. Bulk maintained that the latter gasoline was not subject
to Kentucky’s fuel tax.
Bulk’s financial problems did not end with the reinstate-
ment of its Kentucky license. Approximately 18 months lat-
er, on February 18, 2009, it sought bankruptcy protection
under chapter 11 in the United States Bankruptcy Court for
the Eastern District of Wisconsin. Bulk filed an adversary
proceeding against KDOR on May 8, 2009, seeking a refund
of the excise taxes it allegedly paid while it had no license.
Kentucky in the meantime had filed a proof of claim against
Bulk in the bankruptcy proceeding; Bulk objected to its
claim, and that matter was consolidated with the adversary
proceeding. Bulk wanted over $1.3 million, but at this point
it is undisputed that KDOR is entitled to offset that amount.
The net amount Bulk is seeking is $774,961.30.
The bankruptcy court ruled in favor of Bulk. It found that
it was Bulk that had paid the taxes, and that the taxes were
not appropriately collected for gasoline that was consigned
to destinations outside Kentucky. On appeal, the district
court disagreed with the bankruptcy court’s first premise:
that the incidence of the tax fell on Bulk. As the district court
saw it, Bulk never paid any money to KDOR during the
Revocation Period; it just paid a higher price to its suppliers,
Marathon and BP. In addition, the court found insufficient
evidence to show that Marathon and BP were collecting the
tax on Bulk’s behalf. It thus reversed the bankruptcy court’s
decision and remanded for further proceedings. Bulk has
now appealed to us. It is supported in that effort by two in-
tervenors that appear in this court with our permission: the

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No. 13-1870 5
Official Committee of Unsecured Creditors of Bulk and the
Bank of Sun Prairie.
II
We begin with jurisdiction. “Jurisdictional questions are
pervasive in bankruptcy cases because of the tension be-
tween the ‘finality’ rule of § 158(d) and the fact that each
bankruptcy proceeding contains many claims and problems,
each of which may come to a final conclusion before the es-
tate has been wrapped up.” In re Morse Elec. Co., 805 F.2d
262, 264 (7th Cir. 1986). There was no problem here with the
bankruptcy court’s jurisdiction over Bulk’s bankruptcy
claim. See 28 U.S.C. §§ 157(a), 1334. And the bankruptcy
court had jurisdiction over Bulk’s adversary proceeding
against KDOR. This was a core proceeding involving “the
allowance or disallowance of claims against the estate,” and
thus fell comfortably within the scope of 28 U.S.C.
§ 157(b)(1), (b)(2)(B), and (b)(2)(E). Furthermore, the bank-
ruptcy court may “determine the amount or legality of any
tax” in a bankruptcy proceeding. As we have observed,
“[t]he Bankruptcy Code expressly authorizes bankruptcy
courts to decide tax issues, 11 U.S.C. § 505(a)(1), and alt-
hough state taxes are not specified, the courts have interpret-
ed the statute to cover them.” In re Stoecker, 179 F.3d 546, 549
(7th Cir. 1999), aff'd sub nom. Raleigh v. Ill. Dep't of Revenue,
530 U.S. 15 (2000).
So much for the bankruptcy court, which formally is a
unit of the district court. See 28 U.S.C. § 151. What about the
district court’s jurisdiction? The district courts have broad
jurisdiction over the rulings of the bankruptcy courts. See 28
U.S.C. § 158(a). Their authority extends not just to “final
judgments, orders, and decrees,” id. § 158(a)(1), but also to a

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6 No. 13-1870
wide range of interlocutory orders, id. § 158(a)(2)–(3) and
concluding text. The bankruptcy court’s resolution of the
Kentucky tax dispute was appealable to the district court
whether or not it was “final” in the strong sense of the term.
That brings us to our own appellate jurisdiction. With an
exception for interlocutory orders that does not apply here,
see 28 U.S.C. § 158(d)(2), the courts of appeals have jurisdic-
tion only over “all final decisions, judgments, orders, and
decrees entered under subsections (a) and (b) of this sec-
tion.” (Because the Seventh Circuit has not established a
Bankruptcy Appeals Panel pursuant to § 158(b), that possi-
bility may be disregarded here.) The question before us is
whether the district court’s resolution of the tax dispute be-
tween Bulk and KDOR qualifies as a “final judgment” for
purposes of § 158(d)(1). Both parties have urged us to an-
swer that question in the affirmative and have offered their
reasons for coming to that conclusion. Nevertheless, we have
an independent duty to ensure that we have jurisdiction.
See, e.g., ITOFCA, Inc. v. MegaTrans Logistics, Inc., 235 F.3d
360, 363 (7th Cir. 2000); Horwitz v. Alloy Automotive Co., 957
F.2d 1431, 1435 (7th Cir. 1992). We therefore turn directly to
that task.
Bankruptcy cases have their own jurisdictional statute for
a good reason: they are not simple “A + B versus C + D” mat-
ters. There is always an umbrella proceeding in which the
bankruptcy court supervises the process of ascertaining
what assets are in the debtor’s estate and how they should
be distributed to the creditors, but as § 157(b) and (c) recog-
nize, there are also myriad ancillary lawsuits that must be
resolved as part of that process. Some, like the case before
us, are labeled “core” proceedings, § 158(b)(2), and others

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No. 13-1870 7
are “otherwise related” under the Bankruptcy Code, § 158(c).
(This distinction does not conclusively resolve the question
whether a bankruptcy judge has the power to enter a final
judgment in the proceeding. See Stern v. Marshall, 131 S. Ct.
2594 (2011). Since we are reviewing a district court’s judg-
ment, however, Stern does not affect our case.) Although it
would have been possible as a theoretical matter to require
resolution of every core proceeding, or even every non-core
proceeding as well, before appellate jurisdiction in the court
of appeals would exist, that has never been the understand-
ing of § 158(d)(1). Instead, as the Supreme Court recently
reminded us, “[t]he current bankruptcy appeals statute …
authorizes appeals as of right not only from final judgments
in cases but from final judgments, orders, and decrees … in
cases and proceedings.” Bullard v. Blue Hills Bank, 135 S. Ct.
1686, 1692 (2015) (citation and quotation marks omitted). We
look therefore to see if the district court finally disposed of a
discrete dispute within the larger case. See id.
We conclude that it did. The court rejected Bulk’s argu-
ment outright, ruling that “Bulk offered no evidence that it
paid any money to the KDOR. Nor did it offer any evidence
that Marathon, as the licensed dealer responsible for paying
the tax, or Bulk, as the unlicensed dealer, rebutted the statu-
tory presumption [that all gasoline was consigned to desti-
nations within Kentucky].” This, it concluded, was fatal to
Bulk’s claim for a tax refund—in other words, its claim that
an additional $774,961.30 should be part of its bankruptcy
estate. (This explains why both of the intervening parties—
the Official Committee of Unsecured Creditors and Bank of
Sun Prairie—support Bulk’s position.) If that is all there is to
it, then it is easy to see that we have a final disposition that is
reviewable by this court. Our qualms stemmed in part from

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8 No. 13-1870
a footnote Bulk dropped in its opening brief saying that it
“reserved and would seek on remand to pursue a secondary
argument regarding the constitutionality of Kentucky’s taxa-
tion scheme.” Bulk may have been trying to reserve a new
argument for remand, but it is too late now to do that. In any
event, Bulk withdrew this claim at oral argument, and so it
is out of the case for good.
Our other source of concern was based on the question
whether, should we reverse, anything of substance remains
to be done. We are satisfied that the answer is no. See In re
XMH Corp., 647 F.3d 690, 693 (7th Cir. 2011) (“[E]ven though
not literally final, [the district court’s judgment] is appeala-
ble if all that remains to be done on remand to make it final
is a ‘ministerial’ ruling by the lower court.”). The parties
stipulated to the precise amount that Bulk would need to
pay or, conversely, the size of the refund that KDOR would
return to Bulk. Following our decision, the only remaining
step left in this case will be for the district court to enter the
proper order—if KDOR prevails, for Bulk to pay $781,924.52
to the agency (the amount that represents the remainder of
the taxes Bulk owes to Kentucky) or, if Bulk prevails, for
KDOR to return $774,961.30 to Bulk (the refund on the excise
tax minus the amount Bulk owes KDOR). The stipulation
ensures that nothing beyond these ministerial steps remains
to be accomplished. We therefore have appellate jurisdiction
and may turn to the merits.
III
We review a bankruptcy court’s judgment under the
same standards used by the district court. In re Airadigm
Commc’ns, 616 F.3d 642, 652 (7th Cir. 2010). This means that
we review the bankruptcy court’s conclusions of law de novo,

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No. 13-1870 9
Adams v. Adams, 738 F.3d 861, 864 (7th Cir. 2013), and its
findings of fact for clear error, F ED. R. BANKR . P. 7052.
A. Kentucky’s Taxation Scheme
We begin with an overview of the way in which Ken-
tucky taxes commercial sales of motor fuels. (For simplicity,
we refer to everything as “gasoline,” even though the stat-
utes typically say “gasoline or special fuel.”) The state im-
poses its tax through Kentucky Revised Statutes (KRS)
§ 138.220, which reads as follows in relevant part:
(1) (a) An excise tax at the rate of nine percent
(9%) of the average wholesale price rounded to
the nearest one-tenth of one cent ($0.001) shall
be paid on all gasoline and special fuel received
in this state. The tax shall be paid on a per gal-
lon basis.
(b) The average wholesale price shall be de-
termined and adjusted as provided in KRS
138.228.
(c) For the purposes of the allocations in KRS
177.320(1) and (2) and 177.365, the amount cal-
culated under this subsection shall be reduced
by the amount calculated in subsection (3) of
this section.
(d) Except as provided by KRS Chapter 138, no
other excise or license tax shall be levied or as-
sessed on gasoline or special fuel by the state
or any political subdivision of the state.
(e) The tax herein imposed shall be paid by the
dealer receiving the gasoline or special fuel to the
State Treasurer in the manner and within the

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10 No. 13-1870
time specified in KRS 138.230 to 138.340 and all
such tax may be added to the selling price charged
by the dealer or other person paying the tax on
gasoline or special fuel sold in this state.
(f) Nothing herein contained shall authorize or
require the collection of the tax upon any gaso-
line or special fuel after it has been once taxed
under the provisions of this section, unless
such tax was refunded or credited.
K Y . R EV. S TAT. § 138.220(1) (emphasis added). The state notes
that it is the receiving party who must pay the tax (subpart
(a)), and that the tax “may” be added to the selling price
charged by the party who first paid the tax (subpart (e)).
This indicates that under Kentucky law, the incidence of the
tax falls on the receiving party, no matter who is taking care
of the mechanics of collection. If Bulk is the receiving party,
therefore, then under state law it is the party both obligated
to pay the tax and entitled to seek any refund that might be
due.
If a dealer is licensed, it does not actually pay the tax to
KDOR until after the month in which the fuel is received. Id.
§§ 138.240 (reports of gasoline received and sold), 138.280(1)
(payment of tax made for “preceding calendar month”). The
importance of the license is revealed in KRS § 138.310(1),
which states that
No person shall refine, produce, distill, manufac-
ture, blend, compound, receive, use, sell,
transport, store, or distribute any gasoline or spe-
cial fuel upon which the tax due has not been paid
or assumed or engage in the sale, storage or

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No. 13-1870 11
transportation of any gasoline or special fuel
within this state upon which the tax has not
been paid unless he is the holder of an uncanceled
license issued by the Department of Revenue to
engage in the business.
Id. § 138.310(1) (emphasis added). In other words, licensed
dealers enjoy the privilege of paying the tax retrospectively.
This enables them to reconcile on a monthly basis the gaso-
line “received” for statutory purposes within Kentucky (tax-
able gasoline) and the gasoline “received” outside of Ken-
tucky (fuel on which no tax is due).
Although it may seem a bit counterintuitive, unlicensed
dealers are not banned from engaging in the gasoline market
in Kentucky. They simply cannot take advantage of the abil-
ity to compute the percentage of the gasoline they received
that wound up in Kentucky and hence was taxable by that
state. Bulk’s experience is typical. When it lost its license and
thus became an unlicensed gasoline dealer, its upstream
suppliers (Marathon and BP) included an item in each in-
voice for “Kentucky gasoline tax.” Whether this had the ef-
fect of making them the “taxpayers” for purpose of any ef-
fort to obtain a refund, or whether they were acting on
Bulk’s behalf in this respect, is the central question before us.
Kentucky uses a presumption that all gasoline delivered
within the state is destined for use within the state. Id.
§ 138.210(15)(a). Licensed dealers, as we have explained, are
entitled to rebut that presumption with the evidence of actu-
al destinations. Id.

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12 No. 13-1870
B. Bulk’s Request for a Refund
While Bulk was unlicensed, it sought to rebut that pre-
sumption by filing claims for refunds for taxes that it says it
paid on gasoline sent along to Indiana and Tennessee.
KDOR turned down its request in an email dated May 10,
2007:
We are in receipt of your request of refunds for
the months of November 2006, December 2006,
January thru April 2007.
During this period your Kentucky Dealer’s li-
cense was cancelled. Because of this you were
correctly charged the Kentucky tax. Only a li-
censed dealer is allowed to purchase product
without the Kentucky tax for export.
If your license is re-instated and all outstand-
ing tax liabilities are satisfied, consideration
will be given to review your refund request.
Gene Round, Kentucky Revenue Cabinet. (emphasis added).
The highlighted part of that email suggests that KDOR re-
garded Bulk as the one who was paying the tax during the
Revocation Period.
Despite the email, Bulk continued to seek refunds for
each month until it regained its Kentucky license. Once
Bulk’s license was restored, KDOR emailed BP with this
message: “The motor fuels gasoline dealers license and mo-
tor fuels special dealers license have been reinstated for Bulk
Petroleum effective today August 3, 2007. Now when Bulk
purchases fuel you should not charge the tax as stated in
KRS 138.310.” As instructed, Marathon and BP promptly
stopped including the line item for the Kentucky tax on all

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No. 13-1870 13
invoices for deliveries after that date. By then, KDOR took
the position that Bulk had paid no taxes at all during the
Revocation Period and thus was not entitled to any refund.
Bulk’s refund claims were pending at the time Bulk filed its
bankruptcy petition, which is why they have reached us.
C. Who “Received” the Gasoline and When
Did Receipt Occur?
In order to decide who paid the contested taxes, we first
look at a related question: where and when was Bulk’s gaso-
line “received” during the Revocation Period. Section
138.220 provides that gasoline “received” in Kentucky is
subject to that state’s tax. Kentucky does not assert the right
to tax gasoline received outside the state, although it does
make it difficult (if not impossible) for an unlicensed dealer
to show that its purchases were received out-of-state. KDOR
argues the gasoline in question is received by Bulk at the
moment Marathon and BP load it into Bulk’s trucks. Bulk
says that it is received only when its trucks arrive at the re-
tail gas station.
To resolve this debate we turn to the statute for guidance.
KRS § 138.210(15) defines “received” in two ways. Subpart
(a) provides that gasoline “acquired by any dealer and de-
livered into or stored in … pipeline terminal storage facilities
in this state shall be deemed to be received when it has been
loaded for bulk delivery into tank cars or tank trucks con-
signed to destinations within this state.” It then establishes a
presumption that any gasoline so loaded is for in-state deliv-
ery “unless the contrary is established by the dealer … .” K Y .
R EV. S TAT. § 138.210(15)(a). The second definition, found in
subpart (b), covers gasoline “not delivered into … pipeline
terminal storage facilities.” Id. § 138.210(15)(b). That gasoline

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14 No. 13-1870
is “deemed to be received when it has been placed into stor-
age tanks … for use or subject to withdrawal for use [or] de-
livery,” but dealers are deemed to have received the fuel at
the time of withdrawal from the storage facility. Id.
Neither of these definitions supports Bulk’s idea that re-
ceipt occurs only at the moment its trucks arrive at a retail
gas station. Instead, they indicate that the tax is due from
someone at the moment the gasoline is loaded from the ter-
minal facility into a tank truck. That is the point at which
Kentucky law creates its presumption that the gasoline is
“consigned to destinations within” Kentucky. Id.
§ 138.210(15)(a). That presumption can be rebutted only by
“the dealer.”
This case does not involve any gasoline loaded into tank
trucks owned or operated by BP or Marathon; it deals only
with the gasoline loaded into Bulk’s trucks. In spite of the
statutory language we have reviewed, KDOR argues that
Bulk was not the party that received the gasoline when the
fuel was loaded into Bulk’s trucks at the Louisville terminal.
Instead, it contends, BP and Marathon somehow received the
gasoline at that moment. That makes no sense and cannot be
squared with the statutory definition. BP and Marathon did
not “receive” the gasoline when they delivered it to Bulk’s
trucks at the Louisville terminal. They already had it by that
time and were delivering it to an intermediate supplier of
retail gas stations. Under KDOR’s theory, every transaction
in gasoline that begins at the Louisville terminal, whether for
a dealer or not, and whether destined for in-state or out-of-
state buyers, can be taxed by Kentucky, because they all
have an immediate destination in Kentucky (the Louisville
terminal). That is not a sensible reading of Kentucky law.

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No. 13-1870 15
Gasoline for licensed and unlicensed dealers alike is received
when it is loaded into the tank trucks (which are presump-
tively headed for places in Kentucky).
The only difference between the licensed and the unli-
censed dealers lies in how the tax is paid, not when the
product is received. And, as we now explain, Kentucky law
does not exempt unlicensed dealers from paying the tax; it
simply withdraws from them the privileges of reconciling
the amounts due and of serving as collector and remitter.
Only licensed dealers, including for our purposes BP and
Marathon, may fulfill those responsibilities.
Kentucky law shows that even though BP and Marathon
were collecting the tax and turning that revenue over to
KDOR during the Revocation Period, Bulk is the entity on
which the full incidence of the tax fell. By statute, Kentucky
designates every licensed dealer, including for this purpose
BP and Marathon, as not just an agent, but a trust officer of
the state. As the statute puts it, “[b]y virtue of the allowance
provided by KRS 138.270 to dealers for collecting and remit-
ting the tax, every dealer is a trust officer of the state.” Id.
§ 138.280(2). State law requires the gasoline tax to be “paid
by the dealer receiving the gasoline … , and all such tax may
be added to the selling price charged by the dealer or other
person paying the tax … .” Id. § 138.220(1)(e). When Bulk
was a licensed dealer, this meant that it was entitled to add
the tax to the selling price it charged to its Kentucky custom-
ers. When it was not a licensed dealer, it was BP and Mara-
thon (i.e., “other person[s]”) that were authorized to add the
tax to the invoices they sent to Bulk. In their capacity as trust
officers with respect to those funds, they had no right simply
to pocket whatever they chose to keep; they had an obliga-

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16 No. 13-1870
tion to turn the tax collections over to the state in a timely
fashion.
KDOR did not introduce the idea that Bulk had never
paid any tax at all, and thus that Bulk was not entitled to any
refund, until after Bulk’s license was restored. KDOR gets to
that position on the theory that Bulk’s suppliers, BP and
Marathon, simply charged a higher price for the gasoline
they sold to Bulk during the Revocation Period. The fact that
some of the money went to the state as a tax did not, it says,
make Bulk the taxpayer. And if Bulk was not the taxpayer, it
cannot be entitled to a refund.
That argument is hard to reconcile with one of the few
Kentucky cases we have been able to find that bear on this
subject. In a case involving a challenge to the Kentucky fuel
tax on the grounds that the state improperly taxed fuel used
outside the state, the Kentucky Court of Appeals rejected the
position KDOR adopts here, writing that “[t]here is no merit
in the claim that appellees were not ‘taxpayers.’ They did
pay the tax as a separate item on all purchases of special fuel
and the parties stipulated that they were ‘required’ to pay
them. The burden of the tax was intended to be, and is,
borne by the ultimate consumer, and even though the seller
who collects and reports it is also a taxpayer, it is simply un-
realistic to argue that appellees were not taxpayers.” Dep't of
Revenue v. Jack Cole Co., 474 S.W.2d 70, 72 (Ky. Ct. App. 1971)
(citations omitted).
The state’s argument also seeks to take some advantage
of an analogy to the antitrust doctrine that precludes indirect
purchasers from suing to recover cartel overcharges. See Ill.
Brick Co. v. Illinois, 431 U.S. 720 (1977) (federal law); Arnold v.
Microsoft Corp., No. 2000-CA-002144-MR, 2001 WL 1835377

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No. 13-1870 17
at *3, *7 (Ky. Ct. App. 2001) (applying Illinois Brick to case
brought under Kentucky’s version of the Sherman Act, K Y .
R EV. S TAT. § 367.175). The idea is this: if Companies A, B, and
C get together and agree to fix prices, one can assume that
the fixed price will be higher than the competitive price (let’s
say 10% higher). A cartel member, Company B, now sells a
Widget to Distributor D, who must pay the overcharge. Dis-
tributor D folds the higher cost of acquisition into its price to
Retailer R. Under Illinois Brick, only D has the right to sue the
cartel to recover the overcharge paid; R, the indirect pur-
chaser, has no claim. See Motorola Mobility LLC v. AU Optron-
ics Corp., 775 F.3d 816, 823 (7th Cir. 2014), cert. denied, 135 S.
Ct. 2837 (2015). D has the sole right to sue even if D re-
couped some or all of the hypothetical 10% overcharge when
D sold the Widget to R. The Supreme Court has several rea-
sons for following this rule: the difficulty of ascertaining
how much of the overcharge is passed on, without a sophis-
ticated study of market elasticities; the benefit of assigning
the claim to the more efficient enforcer—that is, the party
that is closer to the wrongdoers; and the difficulty of appor-
tioning damages accurately if parties at all levels have the
right to sue.
KDOR says “just so here.” No one can know, it argues,
what the effect of the suppliers’ higher price (that included
the gasoline tax) had on downstream purchasers like Bulk.
Under Illinois Brick’s logic, it continues, no one can know
how much of the tax burden really landed on Bulk, because
the actual payor of the tax was the supplier. Thus, it con-
cludes, only Marathon and BP would be entitled to seek the
refund.

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18 No. 13-1870
A closer look at that reasoning shows that it suffers from
a number of problems. First is the accuracy of KDOR’s char-
acterization of the tax as just another component of the final
bill. Kentucky’s statutory scheme shows that this is not the
case. Recall that the statute designates every licensed dealer,
including for this purpose BP and Marathon, “a trust officer
of the state.” K Y . R EV. S TAT. § 138.280. That means BP and
Marathon are in effect sending Bulk two bills: one for the
gasoline, which on a typical invoice includes such line items
as charges for different blends that are sold, a charge for a
promotional fund, a federal environmental fee recovery, and
a federal gasoline tax; and a second bill for the Kentucky
gasoline tax. Under the law, BP and Marathon operate as
state tax collectors for the second bill; they hold the tax mon-
ies collected from Bulk in trust for the state and have a duty
to turn over those amounts to the state.1 That is why, when
Bulk reacquired its license, KDOR told BP to stop charging
Bulk the excise tax. Even though BP and Marathon delivered
their product to the Louisville terminal, it was clear at that
point that no tax was due on shipments destined for out-of-
state purchasers.
1 This case is thus different from the situation presented in Common-
wealth Edison Co. v. Montana, 453 U.S. 609 (1981), in which the Supreme
Court decided that the true incidence of a severance tax fell on the initial
payor of that tax (Montana coal mines), not on their customers, who
were largely out-of-state. If state law had imposed a duty on the coal
mines to collect taxes in trust for the state from the out-of-state purchas-
ers, the cases would be much closer. But Montana emphatically denied
that it was doing anything of the sort; the Court accepted its characteri-
zation; and Montana’s tax thus avoided condemnation under the Com-
merce Clause.

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No. 13-1870 19
Before we go down this path, however, there is another
aspect of the Illinois Brick doctrine that we must examine: the
so-called cost-plus exception. The original Illinois Brick deci-
sion (which in turn relied on Hanover Shoe, Inc. v. United Shoe
Machinery Corp., 392 U.S. 481 (1968)), recognized that there
might be some situations, such as a pre-existing cost-plus
contract, in which either a passing-on defense or an indirect
suit might be possible. But in Kansas v. UtiliCorp United, Inc.,
497 U.S. 199 (1990), the Court made it clear that this excep-
tion would rarely apply, if indeed it still could be invoked at
all. In UtiliCorp, the respondent UtiliCorp, a public utility,
purchased natural gas from a pipeline and several produc-
tion companies. UtiliCorp sued its suppliers, asserting that
they had conspired to raise the price of gas in violation of
the federal antitrust laws. The States of Kansas and Missouri
also sued, on behalf of consumers in their states. The de-
fendants argued that the states lacked standing to sue, be-
cause the citizens were in effect indirect purchasers. The
lower courts agreed with this view and dismissed the states’
actions; the Supreme Court affirmed. Id. at 219.
In so doing, the Court rejected the states’ argument anal-
ogizing the prices charged by regulated utilities to pre-
existing cost-plus contracts. Fundamental to its analysis was
the assumption that the direct purchasers were, in fact, fold-
ing the overcharge into the price they set for their own cus-
tomers, the indirect purchasers. It noted that it could not tell
“whether the respondent could have raised its prices prior to
the overcharge,” or whether the utility regulators would
have permitted a rate increase based on factors other than
cost. Id. at 210. Difficult questions of timing also were pre-
sent, because the passing-on process could be delayed by the
need to seek approval for rate increases. Id. Finally, the

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20 No. 13-1870
Court noted that under some regulatory regimes, any recov-
ery that the direct purchaser collected from the cartel would
need to be passed along to the indirect purchasers. The pre-
sent situation is different. Rather than a cartel overcharge
that is difficult to quantify, we have a specifically stated tax
that the sellers are required to collect from the party who
owes the money and then remit to the state.
Value-added taxes, which are common in the rest of the
world, operate in much the same way. They are designed to
tax consumption, and so their incidence falls on the consum-
er even though they are collected by a retailer. For a general
description of their operation, see, e.g., Frequently Asked
Questions, EURO VAT R EFUND, http://www.
eurovat.com/faq.htm; Value-added Tax, WIKIPEDIA,
https://en.wikipedia.org/wiki/Value-added_tax (both last
visited July 30, 2015, as were all websites cited in this opin-
ion). Final consumers from the taxing country must pay the
tax, but foreign tourists are entitled to a refund when they
return home, even though the store collected the tax. Id. Ken-
tucky does not have a value-added tax, but it does have a
sales tax that is specifically imposed on “all retailers.” K Y .
R EV. S TAT. § 139.200. The retailer must collect that tax from
the purchaser. Id. Just as BP and Marathon did with the gas-
oline tax, “[t]he tax shall be displayed separately from the
sales price … or other proof of sales.” Id.; see also Revenue
Cabinet v. Moors Resort, Inc., 675 S.W.2d 859, 860–61 (Ky. Ct.
App. 1984). Like most states, Kentucky also imposes a use
tax directly on Kentucky consumers who buy goods outside
the state and bring them home. See K Y . R EV. S TAT. § 139.310.
Such a use tax can be collected directly from the consumer,
and the incidence of the use tax falls on the consumer, see
Ky. ex rel. Ross v. Lee’s Ford Dock, Inc., et al., 551 S.W.2d 236,

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No. 13-1870 21
238 (Ky. 1977), but courts have also upheld the right of a
state to require the out-of-state seller to collect and remit
such a tax. See, e.g., Gordon v. Holder, 721 F.3d 638, 651 (D.C.
Cir. 2013); Rosenow v. State of Ill., Dep’t of Revenue, 715 F.2d
277, 280–81 (7th Cir. 1983). Indeed, many states have been
lobbying hard to impose such a collection obligation on in-
ternet retailers such as Amazon. See http://www.cnet.com/
news/politicians-retailers-push-for-new-internet-sales-taxes/.
The idea of having one entity collect taxes for the state
even though the tax is legally owed by another party is thus
not foreign to Kentucky. And that is what BP and Marathon
were doing for Bulk during the Revocation Period. For all of
its sales within Kentucky, Bulk is obliged by state law to pay
the gasoline tax; that obligation would exist even if BP and
Marathon did not include the tax on their bills to Bulk. That
shows, incidentally, that the fact that the suppliers are col-
lecting the tax does not have the kind of effect on the elastici-
ty of demand that worried the Court in Illinois Brick and Util-
iCorp, and presumably that would worry the Kentucky
courts, since they follow federal law in this area. To the ex-
tent that the gasoline BP and Marathon sell to Bulk is des-
tined for out-of-state final purchasers, a refund is due to the
entity that bears the tax. That entity, we conclude, is Bulk,
whether the tax appears on a separate line on the invoices it
receives from its own suppliers, or (when it was licensed) it
is computed at the end of the month following its own sales.
D. Other Arguments
KDOR argues that its interpretation of the statute, under
which Bulk is not a “taxpayer,” avoids constitutional prob-
lems that flow from a state tax of interstate commerce. It
does so, however, only by the unsatisfactory device of ask-

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22 No. 13-1870
ing us to muzzle Bulk by depriving it of standing to chal-
lenge the tax. But there is no problem with Bulk’s standing
here: Bulk wants money, KDOR’s decisions have stood in
the way, and if the court rules in Bulk’s favor it will get its
money. That is all that is needed for standing.
If KDOR is arguing instead on the merits that any right to
a refund Bulk may have must be pursued against BP and
Marathon, that is a different matter. At oral argument we
asked whether Bulk’s contracts with its suppliers had any-
thing to say about this possibility. The answer, both from
counsel and from our own look at the record, appears to be
no, and in any event, Bulk evidently has not asked. This
would theoretically have been an intermediate point be-
tween a holding that Bulk is the party entitled to pursue a
refund directly against the state and a holding that Kentucky
gets a windfall. The notion that relief for Bulk is a matter of
private ordering between Bulk and the suppliers is, howev-
er, inconsistent with our understanding of the suppliers’ role
as mere collectors of the tax from Bulk, and remitters to the
state.
Another flaw in KDOR’s position is its failure to take into
account KRS §§ 138.220 and 138.224. Section 138.220 allows a
licensed dealer to add the excise tax to the selling price, as
Marathon and BP did, but it does not require a dealer to do
so. If Marathon and BP had not added the tax when they
sold the gasoline to Bulk, presumably KDOR could have col-
lected the tax on the gasoline Bulk delivered in Kentucky
under § 138.224. That statute makes a dealer jointly and sever-
ally liable for failing to comply with the fuel tax statute and
regulations. K Y . R EV. S TAT. § 138.224. All § 138.224 does is
enable a more efficient system of privatized collection; that

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No. 13-1870 23
system makes it easier for the state to collect revenue. The
joint and several liability feature fatally undermines KDOR’s
argument that Bulk is not a taxpayer within the meaning of
the fuel tax statute. If Bulk is liable for the tax under that
statute, how is it not a taxpayer?
KDOR last invokes public policy: if we rule for Bulk, it
pleads, we will undermine the entire regulatory apparatus
through which Kentucky collects its fuel taxes. Dealers will
no longer want to be licensed, it predicts, because they will
get the tax on out-of-state transactions abated one way or the
other. This argument overlooks economic reality. A gasoline
dealer will always prefer to be licensed, for several reasons.
First is the right enjoyed only by licensed dealers to defer
payment of taxes until the month after sales are made, when
real data show how many taxable (within Kentucky) sales
occurred and how many nontaxable (out-of-state) sales oc-
curred. Second is the certainty of being able to avoid tax on
the latter sales, rather than (as Bulk did) be required to wait
an indefinite time until a license can be procured and obtain
the refund only then. Third, it is unclear how much (if any)
interest Kentucky is paying on the delayed refunds. Consid-
ering the amount of the taxes involved in these transactions
and the time-value of money, we think it far more likely that
fuel dealers will always prefer being licensed.
Finally, it is more efficient to require Bulk, rather than
Marathon or BP, to rebut the state’s presumption that the
gasoline stayed in Kentucky. See K Y . R EV. S TAT. § 138.224.
Marathon or BP, like any upstream supplier, has no easy
way of knowing when its customer will withdraw gasoline
from the terminal or where those tank trucks will go. It is
hard to see why they would care. Bulk, in contrast, has all of

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24 No. 13-1870
the necessary documents to show where the gasoline went, it
keeps this information for independent business purposes,
and it easily can provide them to KDOR.
Although the parties did not mention the Eleventh
Amendment in this case, it is worth noting why it does not
bar this litigation. In brief, it is because we are dealing with a
claim in bankruptcy. To the extent that Bulk, a Wisconsin
corporation, ordinarily would sue the Commonwealth of
Kentucky for a tax refund, it would do so in state court un-
der whatever waiver of sovereign immunity Kentucky has
provided. Indeed, before it filed for bankruptcy, Bulk was
attempting to exhaust its state administrative remedies; pre-
sumably state court would have been the next step. Once
Bulk filed for bankruptcy, however, everything changed.
Kentucky sought an affirmative recovery from Bulk in the
adversary proceeding in the amount of $781,924.52; Bulk
wanted $1,556,885.82 from Kentucky, less the amount Ken-
tucky was pursuing, for a net of $774,961.30. This brings
both cases within the rule of Central Va. Cmty. Coll. v. Katz,
546 U.S. 356, 375 (2006), which held that “the Bankruptcy
Clause of Article I, the source of Congress’ authority to effect
this intrusion upon state sovereignty, simply did not contra-
vene the norms this Court has understood the Eleventh
Amendment to exemplify.“ Rather, the “States agreed in the
plan of the [Constitutional] Convention not to assert any
sovereign immunity defense they might have had in pro-
ceedings brought pursuant to ‘Laws on the subject of Bank-
ruptcies.’” Id. at 377. State sovereign immunity, as reflected
by the Eleventh Amendment, does not bar Bulk’s claim.

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No. 13-1870 25
IV
The district court’s judgment is R EVERSED and R EMANDED
for entry of a judgment requiring KDOR to pay Bulk a tax
refund in the amount of $774,961.30.

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