Air Tour Acquisition Corp. v. US, Civ. No. 88-00575 ACK.

• Decision Date: 23 July 1991
• Docket Number: Civ. No. 88-00575 ACK.
• Citation: 781 F. Supp. 669
• Parties: AIR TOUR ACQUISITION CORP., dba Panorama Air Tour, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of Hawaii

781 F. Supp. 669

AIR TOUR ACQUISITION CORP., dba Panorama Air Tour, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. No. 88-00575 ACK.

United States District Court, D. Hawaii.

July 23, 1991.

Torkildson Katz Jossem Fonseca Jaffe & Moore, Ronald Heller, Honolulu, Hawaii, for plaintiff.

Daniel Bent, Michael Chun, Kurt Kawafuchi, Trial Attys., Tax Div., U.S. Dept. of Justice, Washington, D.C., for defendant.

ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

KAY, Chief Judge.

I. INTRODUCTION

This action was filed by Plaintiff (Air Tour) challenging a claim against it by the Defendant, Internal Revenue Service (IRS). The IRS claimed Air Tour owed additional federal excise tax due on air transportation for the period from October 1, 1982 to June 30, 1984. The IRS claimed that Air Tour was liable for the tax based on 26 U.S.C. §§ 4261-63, 4291, and 7501(a). Air Tour brings this Motion for Summary Judgment claiming that it is not liable as a matter of law for the tax the IRS claims is due under these statutes. Air Tour also requests that the Court find that the IRS's position in opposing this Motion is "not substantially justified."¹

For the following reasons, the Court grants Air Tour's Motion on the issue of whether it is liable under sections 4261-63, 4291 and 7501(a). However, the Court denies Air Tour's Motion with respect to the issue of whether the IRS's position was substantially justified.

II. FACTS

Air Tour sells a tour of the Hawaiian Islands. The tour consists of a one-day excursion involving eight islands. The tour-goers are transported by air and ground transportation. Under 26 U.S.C. §§ 4261-63, the portion of the tour price attributable to air transportation is subject to a federal excise tax. Air Tour allocated 51% of its tour price to air transportation and paid tax to the IRS based on this allocation. The IRS notified Air Tour that it owed additional excise taxes for the period from October 1, 1982 to June 30, 1984. The IRS indicated that the additional taxes were due because Air Tour's allocation of the portion of the tour price attributable to air transportation was erroneous. The IRS felt that a greater portion of the tour price should have been allocated to air transportation, thus resulting in more excise tax due.

The IRS also claimed that Air Tour paid an insufficient amount of tax because, in its sales to travel agents, Air Tour calculated and paid tax based on the wholesale price of the tour tickets. The IRS asserted that Air Tour should have calculated and paid the tax based on the retail price of the tickets.

The IRS based the claim for additional taxes against Air Tour on 26 U.S.C. §§ 4261-63, 4291, and 7501(a). Air Tour made a partial payment on the amount of the deficiency and sued to recover it as well as to abate and cancel the remaining portions of the assessment.

III. DISCUSSION

A. MOTION FOR SUMMARY JUDGMENT

Summary judgment shall be granted where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c). One of the principal purposes of the summary judgment procedure is to identify and dispose of factually unsupported claims and defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). The United States Supreme Court has declared that summary judgment must be granted against a party who fails to demonstrate facts to establish an element essential to his case where that party will bear the burden of proof of that essential element at trial. Id. at 322, 106 S.Ct. at 2552. "If the party moving for summary judgment meets its initial burden of identifying for the court the portions of the materials on file that it believes demonstrate the absence of any genuine issue of material fact citations omitted, the nonmoving party may not rely on the mere allegations in the pleadings in order to preclude summary judgment." T.W. Electrical. Serv. v. Pacific Elec. Contractors Assoc., 809 F.2d 626, 630 (9th Cir.1987). Instead, Rule 56(e) requires that the nonmoving party set forth, by affidavit or as otherwise provided in Rule 56, specific facts showing that there is a genuine issue for trial. Id. At least some "significant probative evidence tending to support the complaint" must be produced. Id. Legal memoranda and oral argument are not evidence and do not create issues of fact capable of defeating an otherwise valid motion for summary judgment. British Airways Bd. v. Boeing Co., 585 F.2d 946, 952 (9th Cir.1978), cert. denied, 440 U.S. 981, 99 S.Ct. 1790, 60 L.Ed.2d 241 (1979).

The standard for a grant of summary judgment reflects the standard governing the grant of a directed verdict. See Eisenberg v. Ins. Co. of North America, 815 F.2d 1285, 1289 (9th Cir.1987), citing, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). Thus, the question is whether "reasonable minds could differ as to the import of the evidence." Id.

The Ninth Circuit has established that "no longer can it be argued that any disagreement about a material issue of fact precludes the use of summary judgment." California Architectural Bldg. Products, Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir.1987). Moreover, the United States Supreme Court has stated that "when the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). Indeed, "if the factual context makes the nonmoving party's claim implausible, that party must come forward with more persuasive evidence than would otherwise be necessary to show that there is a genuine issue for trial." Franciscan Ceramics, 818 F.2d at 1468 (emphasis in original) (citing, Matsushita, 475 U.S. at 587, 106 S.Ct. at 1356). Of course, all evidence and inferences to be drawn therefrom must be construed in the light most favorable to the nonmoving party. T.W. Elec. Services, 809 F.2d at 630-31.

1. Air Tour's Liability for Taxes Under 26 U.S.C. §§ 4261-63

Air Tour claims that it has no tax liability under 26 U.S.C. § 4261² because the statute imposes tax liability only on the "buyer" of air transportation. Air Tour contends it is a "seller" of air transportation and therefore has no liability for the tax. The IRS agrees that section 4261 imposes the tax on the buyer of the air transportation, and that Air Tour is a seller. See Defendants' Opposition, p. 9; Plaintiff's Motion, Exhibit G, pp. 43-44. This concession by the IRS indicates that Air Tour has no liability for the tax under section 4261. This is so because case law, an IRS ruling, the IRS Manual, and a plain reading of the statute all indicate that the buyer, and not the seller, of the transportation is liable for the tax. See United States v. Washington Toll Bridge Authority, 307 F.2d 330, 334 (9th Cir.1962) ("The tax involved is ... payable by the persons who pay for the transportation while the seller's only obligation is to collect the tax."); Rev.Rul. 58-158, 1958-1 C.B. 562, 563 ("excise taxes are imposed upon the person making the payment subject to the tax."); IRS Manual §§ 8(11)41.4(1) (collected excise taxes are imposed on persons other than the person who is required by law to collect the tax and pay it over to the Government.); id., § 563(10).1(1) (same); 26 U.S.C. § 4261(d) ("the taxes imposed by this section shall be paid by the person making the payment subject to the tax."). The Court holds that 26 U.S.C. § 4261 imposes liability for excise tax on the buyer of the air transportation. Because it is a seller of air transportation, Air Tour is not liable for the tax under section 4261. Therefore, the Court grants Air Tour's Motion with respect to this statute.

2. Air Tour's Liability for Taxes Under 26 U.S.C. § 4291

Section 4291³ requires Air Tour to collect any taxes due under section 4261. Air Tour claims that section 4291 merely imposes a duty to collect the tax, but does not impose liability on it for the amount owed. Air Tour asserts that liability for failure to collect section 4261 taxes is found not in section 4291 but rather in a "100% penalty" assessment under 26 U.S.C. § 6672.⁴ Air Tour then notes that the IRS did not make a section 6672 assessment.

Because the scope of this Motion is limited to determining only whether Air Tour is liable under sections 4261, 4291 and 7501, the Court expresses no opinion on section 6672.⁵

The IRS disputes Air Tour's assertion and claims that section 4291 creates a cause of action against Air Tour independent of section 6672. It further claims that, in addition to the independent cause of action created by section 4291, it may recover for a violation of section 4291 by way of a section 6672 penalty or other means.

The IRS cites to many cases which it claims support its assertion that section 4291 creates an independent cause of action against Air Tour. However, the Court, after reviewing all of these cases, finds that none of them stand for this proposition. Moreover, the Court has found no such authority in its research. Indeed, this lack of precedent, coupled with caselaw which indicates a provider of transportation is liable not under section 4291 but rather under section 6672, leads the Court to conclude that Air Tour is not liable for the tax under section 4291. See IRS Manual §§ 8(11)41.4; 563(10).1 (1989) ("100% penalty" applies to persons failing to collect taxes due under section 4261); Gray Line Company v. Granquist, 237 F.2d 390 (9th Cir.1956), cert. denied, 353 U.S. 911, 77 S.Ct. 667, 1 L.Ed.2d 664 (1957) ("100% penalty" assessed under predecessor statute of section 6672 against provider of transportation for failure to collect taxes under predecessor statute of section 4291); Cross v. United States, 311 F.2d...