Minnesota Power and Light Co. v. U.S., 85-1757

• Decision Date: 08 January 1986
• Docket Number: No. 85-1757,85-1757
• Citation: 782 F.2d 167
• Parties: -1583, 86-1 USTC P 16,443 MINNESOTA POWER AND LIGHT COMPANY, Appellee, v. The UNITED STATES, Appellant. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 167

782 F.2d 167

57 A.F.T.R.2d 86-1583, 86-1 USTC P 16,443

MINNESOTA POWER AND LIGHT COMPANY, Appellee, v. The UNITED STATES, Appellant.

Appeal No. 85-1757.

United States Court of Appeals Federal Circuit.

Jan. 8, 1986.

Michael Roach, Tax Div., Dept. of Justice, Washington, D.C., argued for appellant. With him on brief were Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup and Jonathan S. Cohen, Washington, D.C.

James W. Littlefield, Hart & Bruner, P.A., Minneapolis, Minn., argued for appellee. With him on brief was Steven Z. Kaplan, Minneapolis, Minn.

Sharon L. King, Pamela B. Strobel and Michael R. Goldfein, Isham, Lincoln & Beale, Chicago, Ill., were on brief for Amicus Curiae.

Before SMITH, NIES and BISSELL, Circuit Judges.

NIES, Circuit Judge.

The United States appeals from the final decision of the Claims Court, reported at 6 Cl.Ct. 558 (1984), which granted Minnesota Power and Light Company a refund of certain highway motor vehicle use taxes imposed by Section 4481 of the Internal Revenue Code. The Claims Court held that the assessment of the tax on taxpayers' vehicles as truck-trailer combinations solely because the trucks were equipped for use with heavy-duty trailers was in conflict with the statute. We reverse.

I.

Minnesota Power and Light Company (MPLC) is a public utility company engaged in generating, transmitting and distributing electricity and natural gas in northeastern Minnesota. During the tax years in issue, 1973-1976, MPLC owned and operated a fleet of utility trucks for use in construction, maintenance and repair of the utility system. Among the fleet were 49 heavy trucks, the tax status of which is here in issue. At the same time MPLC also owned about 40 heavy-duty trailers. Each of those trucks had an actual unloaded weight in excess of 9,000 pounds and each was equipped with a coupling device, known as a pintle hook, to enable the trucks to tow taxpayer's heavy-duty trailers.

The Internal Revenue Code imposes a highway use tax on certain vehicles under the following statutory scheme. 26 U.S.C. Sec. 4481(a) (1982), provides, in pertinent part:

A tax is hereby imposed on the use of any highway motor vehicle which (together with the semitrailers and trailers customarily used in connection with highway motor vehicles of the same type as such highway motor vehicle) has a taxable gross weight of more than 26,000 pounds ... (emphasis added).

No tax is imposed on a semitrailer or trailer as a separate taxable unit. However, trailers may be taxed as part of the weight of a taxable vehicle in some instances.

The term "taxable gross weight" used in Sec. 4481(a) is defined in Sec. 4482(b). The latter section reads in its entirety as follows:

(b) Taxable gross weight. For purposes of this subchapter, the term "taxable gross weight" when used with respect to any highway motor vehicle, means the sum of--

(1) the actual unloaded weight of--

(A) such highway motor vehicle fully equipped for service, and

(B) the semitrailers and trailers (fully equipped for service) customarily used in connection with highway motor vehicles of the same type as such highway motor vehicle, and

(2) the weight of the maximum load customarily carried on highway motor vehicles of the same type as such highway motor vehicle and on the semitrailers and trailers referred to in paragraph (1)(B).

Taxable gross weight shall be determined under regulations prescribed by the Secretary (which regulations may include formulas or other methods for determining the taxable gross weight of vehicles by classes, specifications, or otherwise ). [Emphasis added.]

Pursuant to the above authority, the Secretary promulgated the regulations found at 26 C.F.R. Sec. 41.4482(b)-1(d) entitled "Schedule of taxable gross weights for periods after June 30, 1969," which includes a schedule of taxable gross weights based upon vehicle classification. ¹ According to the Secretary's interpretation of the schedule, a truck having two axles, which has an actual unloaded weight over 9,000 pounds, and which is "equipped for use in combinations," that is, with heavy-duty trailers, shall be deemed a type of vehicle taxable as a combination.

On its federal highway use tax returns filed for the tax years ended June 30, 1973, through June 30, 1976, MPLC reported its utility trucks in issue as single unit vehicles, i.e., not truck-trailer combinations, and paid the use taxes applicable to that class of vehicles. During a subsequent audit, the IRS ruled that the presence of pintle hooks on the trucks caused those vehicles to be "equipped for use in combinations" with trailers. Accordingly, the IRS reclassified those trucks as "truck-trailer combinations," relying on its regulatory Schedule, and assessed additional highway use taxes against MPLC. MPLC paid the assessments and timely filed claims for refunds which were disallowed. MPLC thereafter filed suit for a refund in the Claims Court.

In overturning the IRS classification of the MPLC vehicles, the Claims Court adopted a two-prong approach to the determination of the federal highway use tax. The court held that, for administrative convenience, IRS could use an "equipped for use" test for an initial imposition and collection of the tax. The court went on to rule, however, that the initial determination could not be dispositive. Per the court, a taxpayer must be allowed under the statute to prove that the particular trucks in dispute were not "customarily used" with trailers. The court further ruled that if MPLC could establish that the subject trucks were not used to haul heavy-duty trailers more than 50% of the time, the IRS's classification must be changed. The court then ordered that a trial be held to determine the quantum of use. Following the decision by the Claims Court, the parties entered into a stipulation that no MPLC truck was used more than 50% of the time with a heavy-duty trailer. ² The Claims Court then entered judgment in favor of MPLC in the amount of $24,599.15 plus interest.

II.

The above brief summary of the Claims Court decision does not reflect the depth of the court's analysis. The opinion reviews Treasury rulings, internal agency memoranda, legislative history, and other court decisions in enlightening detail, and this court acknowledges the court's effort with appreciation. However, the pivotal issue here is a question of law, a matter of statutory interpretation, on which this court must exercise its independent judgment. ³ Having reviewed all of the arguments and the record in support thereof, this court concludes that the Highway Use Tax was lawfully imposed on MPLC vehicles as truck-trailer combinations.

In essence, the Claims Court held that the interpretation given by IRS to its regulation, that is, the Schedule of taxable gross weights, conflicted with the statute. Therefore, the Claims Court nullified IRS's interpretation ⁴ and gave the regulatory Schedule a different interpretation in harmony with the Claims Court's interpretation of the statute.

The statutory language which must be construed is that found in Secs. 4481(a) and 4482(b)(1), specifically the words "customarily used." When the statute speaks of a tax on a vehicle based on its weight "together with the semi-trailers and trailers customarily used in connection with highway motor vehicles of the same type," what meaning must be given to the words trailers "customarily used" with the trucks? More specifically, is the "equipped for use" class of trucks (without inquiry into actual use of the taxpayer's type of trucks) consistent with the statute? For reasons which follow, we hold that the "equipped for use" test does not violate the statute.

III.

A.

The Highway Revenue Act of 1956, ch. 462, 70 Stat. 374, 387, et seq., was designed to raise additional revenue in order to finance federal aid for construction of interstate highways. H.R.Rep. No. 2022, 84th Cong., 2d Sess. at 37-38 (1956-2 Cum.Bull. 1285, 1286-1287); S.Rep. No. 2054, 84th Cong., 2d Sess. at 1-2 (1956-2 Cum.Bull. 1308-1309), U.S.Code Cong. & Admin.News 1956, 2822. To further this purpose that Act increased certain taxes associated with highway motor vehicles, ⁵ and added Sec. 4481(a) to the Code, imposing the new highway use tax which is at issue in this case.

Although designated a use tax, the statute imposes the tax on types of vehicles classed by weight, rather than by quantum of usage on the highways. In determining the "taxable gross weight" of a vehicle, the statute directs that the calculation begin with the actual unloaded weight of the vehicle to which are to be added the weight of the maximum load which the vehicle can carry, as well as the weight of a semitrailer or trailer and its maximum load, as appropriate, that is, if the weight is "customarily carried" or the trailer is "customarily used" therewith.

No question is raised here with respect to the inclusion of a maximum hypothetical load weight for the truck itself in the "taxable gross weight" of taxpayers' trucks. The challenge is to the inclusion of the weight of a trailer and its load.

Section 4482(b), above quoted, confers upon the Secretary of the Treasury broad authority to promulgate regulations establishing classifications of vehicles and to assign to such classes a weight value that would apply to all vehicles in each class. As the Supreme Court has made clear, the interpretation of a statute by the agency charged with its administration is entitled to deference. The agency's regulations "must be sustained unless unreasonable and plainly inconsistent with the revenue statutes, and should not be overruled except for weighty reasons." Fulman v. United States, 434 U.S. 528, 533, 98 S.Ct. 841, 845, 55 L.Ed.2d 1 (1978) (citations omitted); see also Commissioner v. Portland Cement Co. of Utah, 450 U.S. 156, 169, 101 S.Ct. 1037, 1045, 67 L.Ed.2d 140 (1981); Thomas International v. United States, 773 F.2d 300, 303 (Fed.Cir.1985); Greenacre Foundation v....