Frank Hrubetz & Co., Inc. v. U.S.

• Decision Date: 03 September 1976
• Docket Number: No. 74-2263,74-2263
• Citation: 542 F.2d 512
• Parties: 76-2 USTC P 16,236 FRANK HRUBETZ & CO., INC., Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 512

542 F.2d 512

76-2 USTC P 16,236

FRANK HRUBETZ & CO., INC., Appellant, v. UNITED STATES of America, Appellee.

No. 74-2263.

United States Court of Appeals, Ninth Circuit.

Sept. 3, 1976.

Rehearing and Rehearing En Banc Denied Oct. 28, 1976.

Geroge M. Joseph (argued), Portland, Or., for appellant.

Wm. A. Friedlander (argued), Tax Div., Dept. of Justice, Washington, D. C., for appellee.

Before MOORE, ^* KILKENNY and SNEED, Circuit Judges.

KILKENNY, Circuit Judge:

The facts in this case are fully delineated in the opinion of the district court in Frank Hrubetz & Co., Inc. v. United States, 412 F.Supp. 1033 (D.Or.1973). We hold that the findings of the court are not clearly erroneous and that it correctly applied the law to the facts. Accordingly, we affirm the judgment of the district court.

MOORE, Circuit Judge (dissenting):

The parties in their pre-trial order have agreed upon certain facts which define the nature of the action and the determinative issues.

Plaintiff-appellant, Frank Hrubetz and Company, is an Oregon corporation whose principal business activity is the manufacture and sale of amusement rides of the type frequently seen at itinerant carnivals.

The Commissioner of Internal Revenue determined that these amusement rides were subject to an excise tax imposed by Section 4061(a) of the Internal Revenue Code of 1954.

Plaintiff paid $790.05, the tax for the quarter of 1967 ending December 31, 1967 and brought this action to recover this amount as a tax allegedly overpaid. The defendant, in turn, filed a counterclaim for $45,223.18, being the amount of such taxes claimed by the Commissioner as due from the beginning of 1966 to and including the first quarter of 1970, namely, $46,013.23 less the $790.05 paid by plaintiff.

By no stretch of imagination can I conceive of these portable amusement carnival devices being placed in the category of "automobiles" and hence an allegedly taxable article as defined in Section 4061(a)(1) of the Internal Revenue Code of 1954, 26 U.S.C. § 4061(a)(1), as amended, 26 U.S.C. § 4061(a) (1) (Supp.1976). ¹ Indeed, none of the devices here involved bears the slightest resemblance to such chassis. Rather, these devices, in my opinion, fall squarely within Treasury Regulations on Manufacturers and Retailers Excise Tax, 26 C.F.R. § 48.4061(a)-1. "A chassis . . . which is not designed for highway use is not subject to the tax imposed by such section." The courts in their ivory towers are not (or at least should not be) so removed from the worldly scene as not to be aware of the itinerant amusement carnivals which appear in town after town on a vacant or, if possible, a corner lot where for a period of time they afford amusement to young and old alike and then "fold their tents, like the Arabs, and . . . silently steal away." ² They are able to do so in this case because plaintiff has been inventively resourceful enough to install wheels under the amusement devices so as to move them over the highway to the next stopping place where they are anchored down firmly and resume their appointed operations.

More explicitly the four devices here involved are (1) "Round-Up", a tilted wheel 29 feet in diameter which for such customers as feel the necessity for so doing, standing in an upright position, will revolve in them at 18.5 rpm; (2) for those who have survived this ordeal, there is the "Paratrooper", a wheel 42 feet in diameter which, at a 45o angle, rotates passengers safely seated in swinging cars; (3) "Tip Top" is 35 feet in diameter and its fiberglass cars only rotate 9 rpm, but to compensate for the slow speed, the passenger can never tell what will next occur because the angle from which he views the world is constantly changing; and (4) a "Portable Slide" 40 feet in length which, after the slide, restores the customer to terra firma or the equivalent thereof. How these four devices which can operate for their intended purpose only off-highway and when firmly affixed to the ground can be classified as "a trailer or semi-trailer chassis or body primarily designed for highway use" is beyond my conception. But the Regulations and Revenue Rulings bring common sense into the picture by specifically excluding "any article, regardless of the width, which is designed, or adapted by the manufacturer for purposes predominantly other than the transportation of persons or property on the highway even though incidental highway use may occur." Rev.Rul. 57-440, 1957-2 Cum.Bull. 721 at 722. Obviously these devices are not designed for the "transportation of persons or property". Even if they could travel in an unfolded position, the number of persons willing to be transported along a highway while revolving at a 45o angle would be de minimis. In short, plaintiff here has not created a chassis on which it could superimpose a device. To the contrary, it merely added wheels to the frames which support the device when functioning in its stationary location.

Before 1954 the rides had to be mounted on trailers to be moved, but since then the manufacturer eliminated the need for mounting, without substantially altering the frame design, by simply adding wheels, brake lights and a few other accessories to the frames. This undisputed description should suffice to resolve the controversy. These devices are not trucks, buses, or trailers, and consequently, their support frames are not truck, bus or trailer "chassis".

This conclusion is supported and confirmed by both the statutory language and all arguably relevant legal precedent. Beginning with the statute, it confines the objects of the tax to those chassis which are part of a bus, truck or semi-trailer. Thus, if doubt there be in this case, it should be resolved by examining the device as part of the completed unit, for even if the object sought to be taxed were a chassis, it would not be taxable unless it were part of a truck, bus or semi-trailer. And in this case, even if we were to look only to those instances when the rides are being transported on the highway, it should be immediately apparent that they are unlike buses, trucks and trailers in one crucial and dispositive respect among many others namely, they cannot carry and do not carry passengers or freight.

Even if one were to focus solely upon the frame itself, the conclusion would be the same. Clearly the frames were designed by the manufacturer long before the idea of adding wheels was conceived. Thus, the only possible use for which they were intended was as a stationary foundational support for an amusement ride. And the focus, at least in this Circuit, is on intended primary use or design, not every conceivable innovative adaptation. King Trailer Co. v. United States, 228 F.Supp. 1013 (S.D.Cal.1964), aff'd 350 F.2d 947 (9th Cir. 1965). Judge Ely, writing for the Court (Chambers, Barnes and Ely, C. JJ.) said at 948:

"We have no doubt that the portable dwelling unit in question does not fall within the classification of 'automobile truck bodies' or of 'automobile accessories', as these statutory terms must be ordinarily and reasonably construed. Yet, even should a reasonable doubt exist, our duty is to resolve it in favor of the taxpayer. Crooks v. Harrelson, supra, 282 U.S. (55), at 61, 51 S.Ct. 49 (5 L.Ed. 156); United States v. Merriam, supra, 263 U.S. (179), at 188, 44 S.Ct. 69 (68 L.Ed. 240)."

When the wheel adaptation was made, the frame design was left substantially unaltered.

If one need furrow further for guidance, both past and proposed future administrative interpretation of the excise tax statute by the Internal Revenue Service point toward nontaxability. In ...