Lionberger v. United States, 249-59.

• Decision Date: 14 April 1967
• Docket Number: No. 249-59.,249-59.
• Citation: 371 F.2d 831,178 Ct. Cl. 151
• Parties: Clifford L. LIONBERGER, d.b.a. Lionberger's Auto Parts v. The UNITED STATES.
• Court: U.S. Claims Court

178 Ct. Cl. 151, 371 F.2d 831 (1967)

Clifford L. LIONBERGER, d.b.a. Lionberger's Auto Parts v. The UNITED STATES.

No. 249-59.

United States Court of Claims.

January 20, 1967.

As Amended on Denial of Rehearing April 14, 1967.

William T. Stephens, Washington, D. C., attorney of record, for plaintiff. Grant R. Sykes, Washington, D. C., of counsel.

Saylor L. Levitz, Washington, D. C., with whom was Asst. Atty. Gen. Mitchell Rogovin, for defendant. Lyle M. Turner and Philip R. Miller, Washington, D. C., of counsel.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, COLLINS, SKELTON, and NICHOLS, Judges.

OPINION

PER CURIAM:

This case was referred to Trial Commissioner C. Murray Bernhardt, with directions to make findings of fact and recommendation for conclusions of law. The commissioner has done so in an opinion and report filed on April 14, 1966. Exceptions to the commissioner's opinion and report were filed by plaintiff. The parties have filed briefs and the case has been argued orally. Since the court is in agreement with the opinion, findings and recommendation of the trial commissioner, with modifications, it hereby adopts the same, as modified, as the basis for its judgment in this case as hereinafter set forth. Plaintiff is, therefore, not entitled to recover and the petition is dismissed except as to plaintiff's claim for entitlement to a credit for excise tax paid on tires and tubes used on trailers which he manufactured and leased, so as to avoid double excise taxation of tires and tubes. Defendant has conceded that plaintiff is entitled to a credit under this latter claim and, therefore, as to it judgment is entered for plaintiff with the case remanded to the commissioner for further proceedings to determine the amount thereof pursuant to Rule 47(c).

Commissioner Bernhardt's opinion,¹ as modified by the court, is as follows:

This is an action to recover $16,790.02 alleged to have been erroneously collected as manufacturer's excise taxes for the period from January 1, 1951 to June 30, 1954 under § 3440 of the Internal Revenue Code of 1939. Despite strong equities in his favor, the plaintiff is not legally entitled to recover.

The plaintiff is a sole proprietor engaged in the business of selling auto parts and accessories and the manufacture and leasing of automobile utility trailers. The questions presented here are concerned solely with plaintiff's leasing activities in the utility trailer business.

During the period in question taxpayer was a member of Nationwide Trailer Rental System (hereinafter referred to as Nationwide). This organization, a non-profit, voluntary association of rental operators, incorporated originally under the laws of Michigan has, as its principal function, the administration and regulation of a trailer rental system in behalf of its participants. Viewed from plaintiff's standpoint, the mechanics of the Nationwide trailer leasing system operated as follows:

Following the manufacture of an automobile trailer, plaintiff would make it available for leasing to customers, such leases being either for local use, or what shall be here referred to as a one-way rental. By means of such one-way rentals, a customer could rent a trailer at taxpayer's business situs, use it to transport goods to his point of destination, and there deliver the trailer to another member of the Nationwide organization. The receiving member designated a rental station or rental operator, would again rent the trailer to a one-way customer who, in his turn, would agree to leave it with a Nationwide rental station at the next destination. In this manner, plaintiff's trailers moved from one rental operator to another. The system was reciprocal in that plaintiff also rented trailers belonging to other members of Nation-wide.

Uniformity in operation and administrative control was achieved through a system of self-imposed rules implemented by Nationwide itself. A uniform lease agreement was used. Division of the rental fee was specifically provided for in the association's bylaws. In the case of one-way rentals plaintiff received 52½ percent of the rental, and in the case of local rentals he received 60 percent. Any trailer rented into the system by its owner remained the property of the owner. Hence, with respect to plaintiff's trailers, he held the title, he licensed them, he insured them, he carried the risk of loss, and he authorized major repairs whenever necessary. In short, the members of Nationwide held a common business purpose, but not a common property. Each participating unit remained a distinct business entity whose membership in Nationwide was conditioned upon compliance with the applicable rules and regulations.

In 1952, following an examination of taxpayer's income tax return, the Internal Revenue Service (hereafter IRS) discovered that plaintiff had failed to file manufacturer's excise tax returns. On request, delinquent returns were filed in 1954. In his returns the taxpayer computed his excise tax liability for those trailers which he manufactured and sold, against the sale price, but as to those trailers which he manufactured and leased, he measured his excise tax liability on the basis of the amount received for the first lease of each trailer.

Disagreeing with taxpayer's method of computation respecting the tax due from his leasing operation, IRS took the position that the tax should be based on the gross amount received from each successive lease of a trailer, whether local or one-way. Under this approach, the excise tax would extend not only to every lease, but would also include that portion of each rental fee, whether local or one-way, which the renting agent retained as his "commission". In accordance with its indicated position, IRS assessed a deficiency against plaintiff, who thereafter paid the tax and brought suit here following the denial of his refund claim.

Under the provisions of Chapter 29, subtitle C, of the Internal Revenue Code of 1939, § 3403, 53 Stat. 410, Congress provided for the imposition of a 10 percent excise tax to be levied, among other things, upon the sale by a manufacturer of a trailer suitable for use in connection with passenger automobiles. And by virtue of § 3440 of this Chapter (as amended by § 553(a), Internal Revenue Act 1941, 55 Stat. 720), the term "sale" was to include "the lease of an article (including any renewal or any extension of a lease or any subsequent lease of such article) by the manufacturer * * *."

These two provisions, i. e., § 3403 which imposes the tax upon a sale and § 3440 which extends the tax to a lease, form the nucleus of the Government's position. In essence, the Government urges a literal application of the statutes. By contrast, taxpayer's fundamental theme is that § 3440 is ambiguous and that the Service's interpretation of this section violates the concept of uniform taxation which Congress had supposedly set up in the manufacturer's excise tax provisions of Chapter 29. Thus, the question at this point is whether taxpayer's trailer rentals constituted "leases" within the meaning of § 3440.

It is, of course, a familiar principle of law that in the construction of a statute the words thereof are to be given their ordinary and familiar meaning. Yet, plaintiff contends that the term "lease" as used in § 3440 was meant by Congress to cover only those leases which one could deem the essential equivalent of a sale. He claims support for this position in the legislative history of the lease provision and in the general taxing scheme set forth in Chapter 29.

Despite the fact that the meaning of § 3440 seems clear and unambiguous on its face, that fact alone would not preclude a review of its legislative history, where such review would aid in ascertaining Congressional intent. For, as the Supreme Court has observed "when aid to construction of the meaning of words, as used in the statute, is available, there certainly can be no `rule of law' which forbids its use, however clear the words may appear on `superficial examination'." United States v. American Trucking Ass'ns, 310 U.S. 534, 543, 60 S.Ct. 1059, 1064, 84 L.Ed. 1345 (1940). However, a review of the legislative history of this section fails to provide conclusive support for taxpayer's assertion.

Section 3440 was originally enacted as § 618 of the Revenue Act of 1932, 47 Stat. 267, and it provided simply that "for the purpose of this title, the lease of an article shall be considered the sale of such article". The only explanation which might conceivably offer some support for plaintiff's argument appears in S.Rep.No.665, 72d Cong., 1st Sess., p. 44 (1939 — 1 Cum.Bull. (Part 2), 496, 528), which states:²

Section 616 section 618 of the House bill, retained as section 605, provides that the lease of an article shall be considered the sale of an article, so that the tax cannot be evaded by a lease contract which does not involve passage of title.

However, one would be hard-pressed to derive from this language any proof for the argument which plaintiff now makes, namely, that Congress meant to tax only those leases which were the equivalent of sales. And subsequent legislative history is similarly wanting.

Section 618 was incorporated, without change, into the Revenue Code of 1939 as § 3440. A more comprehensive definition of the "lease" provision resulted from the amendment of § 3440 by the Revenue Act of 1941 ch. 412, § 553(a), 55 Stat. 720. As a result of the amendment, the section read as follows:

SEC. 3440. DEFINITION OF SALE

For the purposes of this chapter the lease of an article (including any renewal or any extension of a lease or any subsequent lease of such article) by the manufacturer, producer, or importer shall be considered a taxable sale of such article. (Emphasis indicates words which were added.)

The explanation for this change, which appears in S.Rep.No.673, Part 1, 77th Cong., 1st Sess., p. 54 (1941-2 Cum.Bull. (Part 2), 466, 507),...