Hostar Marine Transport Systems, Inc. v. U.S.

• Decision Date: 07 January 2010
• Docket Number: No. 08-2535.,08-2535.
• Citation: Hostar Marine Transport Systems, Inc. v. U.S., 592 F.3d 202 (1st Cir. 2010)
• Parties: HOSTAR MARINE TRANSPORT SYSTEMS, INC., Plaintiff, Appellant, v. UNITED STATES, Department of Internal Revenue Service, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

592 F.3d 202

HOSTAR MARINE TRANSPORT SYSTEMS, INC., Plaintiff, Appellant, v. UNITED STATES, Department of Internal Revenue Service, Defendant, Appellee.

No. 08-2535.

United States Court of Appeals, First Circuit.

Heard October 8, 2009.

Decided January 7, 2010.

Timothy J. Burke, with whom Burke & Associates, was on brief for appellant.

Bridget M. Rowan, Attorney, Tax Division, Department of Justice, with whom John A. DiCicco, Acting Assistant Attorney General, Kenneth L. Greene, Attorney, Tax Division, and of counsel Michael K. Loucks, United States Attorney, were on brief for appellee.

Before LYNCH, Chief Judge, TORRUELLA and HOWARD, Circuit Judges.

TORRUELLA, Circuit Judge.

This is an appeal from a denial of a tax refund. The taxpayer, Hostar Marine Transportation Systems, Inc. ("Hostar"), a manufacturer of hydraulic boat trailers, seeks a refund of federal excise taxes in the amount of $2,861.30 plus interest. The United States counterclaimed for $195,773 plus interest on Hostar's as yet unpaid taxes.

The United States District Court for the District of Massachusetts granted the United States' (1) motion to dismiss Hostar's claim to have suffered a violation of due process, (2) motion for summary judgment on Hostar's claim that it was erroneously assessed the taxes, and (3) motion for summary judgment on the United States' counterclaim. On appeal, Hostar challenges each of the district court's rulings. After careful consideration, we affirm those rulings.

I. Background

We outline the statutes, facts, and procedural history relevant to the issues on appeal in this case.¹ The issues on appeal are whether Hostar's hydraulic boat trailers (1) qualify as "semitrailers" or "truck trailers" for purposes of section 4051 of the Internal Revenue Code ("I.R.C."); (2) qualify for the exclusion provided in section 4051(a)(3) of the I.R.C. concerning gross vehicle weight ("GVW"); and (3) qualify for the exception provided in 26 C.F.R. § 48.4061(a)-1(d)(2)(ii) concerning "[c]ertain vehicles specially designed for offhighway transportation."

A. Statutes: I.R.C. § 4051 and 26 C.F.R. § 48.4061(a)-1

1. I.R.C. § 4051

Section 4051(a) of the I.R.C., concerning the imposition of tax on heavy trucks and trailers sold at retail, imposes "on the first retail sale ... a tax of 12 percent of the amount for which the [applicable truck trailer and semitrailer chassis and bodies are] so sold." I.R.C. §§ 4051(a)(1)(C)-(D). One district court has described the general purpose of this excise tax as follows:

to ensure that those entities which enjoy the use of the public roads pay for their upkeep. To put it differently, the tax forces those entities that cause the most damage to the public roads, and often benefit economically the most from them, to pay for the consequences of their use.

Worldwide Equip. v. United States, 546 F.Supp.2d 459, 468 (E.D.Ky.2008).

2. Exclusion Concerning Gross Vehicle Weight

Section 4051 of the I.R.C. lists exclusions from this tax. The exclusion at issue on appeal in this case is the following: "The tax ... shall not apply to truck trailer and semitrailer chassis and bodies, suitable for use with a trailer or semitrailer which has a[GVW] of 26,000 pounds or less (as determined under regulations prescribed by the Secretary [of the Treasury])." I.R.C. § 4051(a)(3).

The GVW is defined in the Treasury Regulations. According to these regulations:

For purposes of this section[,] the term "gross vehicle weight" means the maximum total weight of a loaded vehicle. Except as otherwise provided ..., such maximum total weight shall be the [GVW] rating of the article as specified by the manufacturer or established by the seller of the completed article, unless the [IRS] Commissioner finds that such rating is unreasonable in light of the facts and circumstances in a particular case.

26 C.F.R. § 145.4051-1(e)(3).

3. Exception Concerning Offhighway Transportation

Beyond the explicit exclusions section 4051 of the I.R.C. itself lists, the Treasury Regulations include certain limits and exceptions to this excise tax. The exception at issue on appeal in this case applies to "[c]ertain vehicles specially designed for offhighway transportation." 26 C.F.R. § 48.4061(a)-1(d)(2)(ii). That exception requires that the vehicle meet two criteria. The vehicle must satisfy a design test, in that it must be "specially designed for the primary function of transporting a particular type of load other than over the public highway in connection with a construction, manufacturing, processing, farming, mining, drilling, timbering, or operation similar to any one of the foregoing enumerated operations...." Id. To qualify for the exception to this excise tax, the vehicle must also satisfy a use test, in that, "by reason of such special design, the use of such vehicle to transport such load over the public highways is substantially limited or substantially impaired." Id.

B. Facts

Hostar reports that it manufactures four models of hydraulic boat trailers (HPT, HST, HSTY, and HHT), three of which (HPT, HST, and HHT) are capable of on-road use and one of which (HSTY) is not.

1. Hostar's Competitors

Hostar states that it has competitors in the United States and Canada that also manufacture hydraulic boat trailers. Hostar alleges, however, that it is the only such manufacturer whose trailers have been determined by the IRS not to qualify for exemption pursuant to Treasury Regulations §§ 48.4061(a)-1(d)(2)(i) and 48.4061(a)-1(d)(2)(ii). This alleged disparate treatment is central to Hostar's claim to have suffered a violation of due process.

2. Purpose of Hostar's Trailers

Hostar describes the purposes of hydraulic boat trailers as being "to launch and retrieve boats from the water, to move boats into and out of repair facilities and paint booths, to move them about the boat yard, yacht club, marina or boat leadership, and to set boats on keel blocking and boat stands for winter storage." Hostar claims that "[t]he main function or purpose of a hydraulic trailer is not that of highway transporting." Rather, Hostar asserts, "[t]he primary function of Hostar's Hydraulic Boat Trailers is for use in boat yards and rarely on the highway due to the cost and highly specialized nature of the equipment." Hostar has provided affidavits from its customers that Hostar claims "establish that Hostar's trailers are used in boatyards and rarely on the highway."

3. Design of Hostar's Trailers

Hostar states that hydraulic boat trailers are constructed with "stub axles," which attach a single wheel to the trailer, as opposed to "through axles," which are more common, attach two wheels to the trailer, and are used on highway transport trailers. Hostar asserts that the design of the stub axle, which features an "open-center," "enables the operations of ramp launching, retrieving[,] and setting a boat on the ground, in a repair facility or in a storage building" but renders these types of axles vulnerable to "extraordinary wear and tear on the highway."

Hostar reports that it does not build "lowboy" trailers. Hostar states that almost all transporting of boats on highways is accomplished on such trailers. In contrast to hydraulic boat trailers, "lowboy" trailers have "through axles" (instead of "stub axles"), a full bed or cross beams (as opposed to an open center design), no hydraulic components, are not submersible, and are similar to trailers used for moving construction equipment.

4. Gross Vehicle Weight of Hostar's Trailers

At the time of sale (between 1994 and 1996), according to Hostar's own documentation (through both the Vehicle Identification Numbers and the Certificates of Origin), each of Hostar's fourteen trailers at issue in this case had a GVW exceeding 26,000 pounds. The trailers' GVWs thus precluded the exclusion from the tax assessed pursuant to section 4051(a) of the I.R.C. at issue on appeal in this case. See supra Part I(A)(2). On November 18, 1998, an unknown entity revised all of the Certificates of Origin for these fourteen trailers to reflect lower GVWs. Eight of the trailers then reflected GVWs below 26,000 pounds and the remaining six reflected GVWs still in excess of 26,000 pounds.

C. Procedural History

1. IRS Assessment

Between January 7, 1994 and December 31, 1996, Hostar sold the fourteen trailers at issue in this case. Between April 1997 and October 1997, an IRS revenue agent audited Hostar. On or about May 18, 2000, pursuant to section 4051(a) of the I.R.C., the IRS assessed excise taxes against Hostar with respect to the sale of the fourteen boat trailers and notified Hostar such payments were due. See Hostar I, 2005 WL 13312211, at *1, 2005 U.S. Dist. LEXIS 10938, at *2. In January and June 2001, the I.R.S. applied overpayment credits to Hostar's tax assessments totaling $271.11. Id. 2005 WL 1331221, at *1, 2005 U.S. Dist. LEXIS 10938, at *3.

2. Hostar I

Hostar declined to pay the tax assessed against any of its hydraulic boat trailers before submitting its first complaint in this matter. On May 26, 2005, the U.S. District Court for the District of Massachusetts granted the United States' motion to dismiss (1) Hostar's request for a refund of $271.11 plus interest and a declaration that the twelve percent excise tax assessed against it pursuant to 26 U.S.C. § 4051(a) is exempted by I.R.S. regulations and (2) Hostar's request for abatement of the tax because of an alleged violation of due process. Id. 2005 WL 1331221, at *1, 2005 U.S. Dist. LEXIS 10938, at *1. The district court determined that it had no jurisdiction over the question of whether an excise tax was due until after Hostar paid the tax. Id. 2005 WL 1331221, at *1-2, 2005 U.S. Dist. LEXIS 10938, at *4-5. The district court noted jurisdiction would be conferred on the court if Hostar paid tax on a minimum of one trailer for one quarter. Id. 2005 WL 1331221, at 2 n.1, 2005 U.S. Dist. LEXIS 10938, at *5 n. 1. The district court further determined...