Ala. Dep't of Revenue v. U.S. Xpress Leasing, Inc.

• Decision Date: 02 December 2016
• Docket Number: 2150547.
• Citation: 227 So.3d 48
• Parties: ALABAMA DEPARTMENT OF REVENUE v. U.S. XPRESS LEASING, INC., et al.
• Court: Alabama Court of Civil Appeals

227 So.3d 48

ALABAMA DEPARTMENT OF REVENUE

v.U.S. XPRESS LEASING, INC., et al.

2150547.

Court of Civil Appeals of Alabama.

December 2, 2016

Rehearing Denied January 20, 2017

Hilary Yother Parks, asst. counsel and asst. atty. gen., Alabama Department of Revenue, for appellant.

William B. Sellers and Jacob C. Harper IV of Balch & Bingham LLP, Montgomery, for appellee, U.S. Xpress Leasing, Inc.

DONALDSON, Judge.

The Alabama Department of Revenue ("the Department") appeals from a summary judgment of the Montgomery Circuit Court ("the trial court") holding that U.S. Xpress Leasing, Inc. ("USXL"), a Tennessee corporation, is subject to Alabama's lease tax under § 40–12–222(a), Ala. Code 1975, and, therefore, is exempt from being assessed Alabama's sales and use tax on certain purchases it made in Alabama from Bridgestone America, Inc., Michelin North America, Inc., TA Operating Corporation, TRD, Inc., and Four Star Freightliner, Inc. (hereinafter referred to collectively as "the joint petitioners"). See § 40–23–1(a)(9), Ala. Code 1975. The trial court's judgment reversed a decision of the Alabama Tax Tribunal ("the tax tribunal"), which had denied USXL's and the joint petitioners' petitions to the Department seeking a refund of the sales and use tax they had paid to the State of Alabama related to USXL's purchases from the joint petitioners. Under the standard of review we are required to apply in this case, we must reverse the trial court's judgment.

Background

The following findings of fact made by the tax tribunal are not in dispute:

"[USXL] is based in Chattanooga, Tennessee, and is in the business of leasing truck tractors and trailers to various lessees. [USXL] leased truck tractors and trailers to a related company, U.S. Xpress, Inc., during the periods in issue pursuant to a master lease agreement executed in Chattanooga in 2002.

"[USXL] purchased the tractors and trailers that it leased to U.S. Xpress from various truck dealers outside of Alabama. The dealers delivered the tractors and trailers to terminals operated by [USXL] outside of Alabama. [USXL] prepared the tractors and trailers for use, and U.S. Xpress drivers thereafter picked up and used the vehicles in Interstate commerce throughout the country, including a substantial number of miles traveled in Alabama.

"The master lease agreement required [USXL] to keep the vehicles in good working order. Consequently, if a leased vehicle needed new tires or repairs while in Alabama, [USXL] arranged for the work to be done at a garage or other facility in Alabama. It also purchased the tires, repair parts, and/or the other tangible property needed to perform the work from the joint petitioners/sellers. It is undisputed that the joint petitioners/sellers delivered the tires, repair parts, etc., to [USXL] in Alabama, and consequently, that the sales were closed in Alabama.

"The joint petitioners invoiced [USXL] for the items purchased, including Alabama sales tax. [USXL] paid the invoiced amounts and ... has now petitioned with the joint petitioners/sellers for refunds of the sales tax paid.

"[USXL] did not have an Alabama sales tax license during the periods in issue, and also was not licensed to collect and remit Alabama lease tax to the Department during the periods. [USXL] accordingly did not file Alabama lease tax returns or remit Alabama lease tax to the Department on its tractor and trailer rentals during those periods."

In 2012, USXL and the joint petitioners filed petitions with the Department pursuant to § 40–2A–7(c)(1), Ala. Code 1975, requesting a refund of the sales and use tax that USXL had paid as a result of the sales of the tires, repair parts, and other goods that USXL had purchased from the joint petitioners in Alabama between 2008 and 2011 on the basis that those purchases were exempt from the sales and use tax under § 40–23–1(a)(9). They argued that, because USXL was engaged in the business of leasing within Alabama, the transactions between USXL and the joint petitioners were subject to Alabama's lease tax under § 40–12–222(a) and, consequently, exempt from the sales and use tax. In 2013, the Department denied USXL's and the joint petitioners' petitions for a refund.

On October 13, 2014, USXL and the joint petitioners filed notices of appeal to the tax tribunal from the Department's denial of the petitions for a refund. See § 40–2A–7(c)(5) a., Ala. Code 1975 (providing that "[a] taxpayer may appeal from the denial in whole or in part of a petition for refund by filing a notice of appeal with the Alabama Tax Tribunal within two years from the date the petition is denied ...."). The tax tribunal entered an order on December 3, 2014, granting the Department's motion to consolidate the matters before the tax tribunal. The tax tribunal held a hearing on the matters on April 9, 2015. Following the hearing, the tax tribunal entered a written order concluding that USXL was not subject to Alabama's lease tax and, therefore, that USXL's purchases of the tires, repair parts, and other goods from the joint petitioners were subject to the sales and use tax. The tax tribunal concluded that the use of the leased property within Alabama by U.S. Express, Inc. ("U.S. Express"), did not make USXL's leasing of the vehicles to U.S. Xpress subject to Alabama's lease tax. The tax tribunal stated in its order:

"[USXL], as lessor, and U.S. Xpress, as lessee, are both located in Tennessee. The master lease agreement was executed in Tennessee. The tractors and trailers were delivered by the dealers to [USXL] outside of Alabama and picked up by the U.S. Xpress drivers outside of Alabama.

"[USXL] owned no property, had no employees, and otherwise had no ties to Alabama other than the fact that U.S. Xpress used the leased tractors and trailers in Alabama. Finally, [USXL] did not lease tractors, trailers, or any other tangible personal property to any other lessees in Alabama during the subject periods. Given those facts, [USXL] clearly was not in the business of leasing the tractors and trailers or any other tangible personal property in Alabama during the periods in issue in transactions subject to the Alabama lease tax.

"When a lessor leases tangible personal property to a lessee outside of Alabama, as in this case, and the lessee uses the property in various states, including Alabama, again as in this case, the lessor is not subject to Alabama lease tax on the lease proceeds. This is confirmed by Reg. 810–6–5–.09(10), which specifies that ‘[w]here the lessor leases a truck, truck [trailer], or semitrailer to a motor carrier outside this state, the receipts therefrom would not be subject to the (lease) tax although the truck, truck trailer, or semitrailer may occasionally travel in this state in interstate commerce.’

"The above regulation is directly on point in this case. [USXL] leased the tractors and trailers to the lessee, U.S. Xpress, outside of Alabama. The fact that U.S. Xpress subsequently used the property in Alabama did not make [USXL's] leasing of the vehicles to U.S. Xpress subject to Alabama lease tax."

Accordingly, the tax tribunal denied USXL and the joint petitioners' request for a refund of the sales and use tax that had been paid on the purchases made between 2008 and 2011.

On July 14, 2015, USXL and the joint petitioners filed a notice of appeal of the tax tribunal's decision to the trial court pursuant to § 40–2B–2(m), Ala. Code 1975. On January 15, 2016, USXL and the joint petitioners filed a motion for a summary judgment. On January 19, 2016, the Department filed a cross-motion for a summary judgment. On February 16, 2016, the trial court held a hearing on the motions for a summary judgment and heard arguments of counsel for the parties. The trial court entered a judgment in favor of USXL and the joint petitioners on February 25, 2016, stating, in pertinent part, as follows:

"The Court having considered the pleadings filed in this matter, the briefs filed by both parties and the arguments of counsel, this Court finds that as a matter of law, a taxpayer is subject to lease tax in Alabama when tangible personal property is used or possessed in Alabama. The undisputed factual record in this case is that [USXL] leased trucks and trailers that not only traveled through Alabama, but stopped at terminals in Alabama for repairs. These actions subjected [USXL] to Alabama's leasing tax imposed by Code of Ala. 1975, § 40–12–222. In addition, [USXL] paid sales tax for tires and repair parts purchased from Alabama vendors. However, as [USXL] was subject to lease tax, its purchases of tires and repair parts were exempt from sales tax under Code of Ala. 1975, § 40–23–1(a)(9) j."

The trial court ultimately ordered the Department to refund the amount of sales taxes paid by USXL and the joint petitioners during the period in question. The Department filed a notice of appeal to this court on March 31, 2016. We have jurisdiction under § 12–3–10, Ala. Code 1975. The Department and USXL have filed briefs on appeal. The joint petitioners have not filed a brief.

Standard of Review

"The standard of appellate review to be applied by the circuit courts and by this court in reviewing the decisions of administrative agencies is the same. SeeAlabama Dep't of Youth Servs. v. State Pers. Bd., 7 So.3d 380, 384 (Ala. Civ. App. 2008). That prevailing standard is deferential toward the decision of the agency:

" ‘Judicial review of an agency's administrative decision is limited to determining whether the decision is supported by substantial evidence, whether the agency's actions were reasonable, and whether its actions were within its statutory and constitutional powers.... Judicial review is also limited by the presumption of correctness which attaches to a decision by an administrative agency.’

" Alabama Medicaid Agency v. Peoples, 549 So.2d 504, 506 (Ala. Civ. App. 1989). Also, the Alabama Administrative Procedure Act provides that,

" ‘[e]xcept where judicial review is by trial de novo, the agency

...