National R.R. Passenger Corp. v. U.S., CIV.A. 03-431(RMC).

• Decision Date: 20 September 2004
• Docket Number: No. CIV.A. 03-431(RMC).,CIV.A. 03-431(RMC).
• Parties: NATIONAL RAILROAD PASSENGER CORPORATION, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of Columbia

338 F.Supp.2d 22

NATIONAL RAILROAD PASSENGER CORPORATION, Plaintiff, v. UNITED STATES of America, Defendant.

No. CIV.A. 03-431(RMC).

United States District Court, District of Columbia.

September 20, 2004.

Dennis Merrill Moore, Amtrak Law Department, Jean Ann Pawlow, Miller & Chevalier, Chartered, Washington, DC, for Plaintiff.

David M. Katinsky, U.S. Department of Justice Tax Division, Washington, DC, for Defendant.

Stephen J. Rosen, Levine, Blaszak, Block & Boothby, LLP, David A. Clanton, Baker & Mckenzie, Washington, DC, for Movants.

MEMORANDUM OPINION

COLLYER, District Judge.

When a defined term in the Internal Revenue Code ("Code"), 26 U.S.C. § 1 et seq., fails to keep pace with technological advances and other changes in the commercial world, may the Internal Revenue Service ("IRS") nonetheless construe the Code to levy a tax arguably envisioned by Congress? This case concerns the proper interpretation and implementation of a federal excise tax on communications services. Finding that Congress meant what it plainly said in 1965, the Court concludes that only Congress, and not the IRS on its own, may update the statutory text. The motion for summary judgment filed by the United States ("IRS") will be denied and the National Railroad Passenger Corporation's ("Amtrak") motion for summary judgment will be granted.

I.

Section 4251 of the Code imposes a three-percent excise tax on "communications services," which include "local telephone service" and "toll telephone service."¹ 26 U.S.C. § 4251(b)(1). "Local telephone service" means:

(1) the access to a local telephone system, and the privilege of telephonic quality communication with substantially all persons having telephone or radio telephone stations constituting a part of such local telephone system, and

(2) any facility or service provided in connection with a service described in paragraph (1).

Id. § 4252(a). Specifically excluded from this definition is "any service which is a `toll telephone service' or a `private communication service' ...." Id. The Code describes "toll telephone service" as:

(1) a telephonic quality communication for which (A) there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication and (B) the charge is paid within the United States, and

(2) a service which entitles the subscriber, upon payment of a periodic charge (determined as a flat amount or upon the basis of total elapsed transmission time), to the privilege of an unlimited number of telephonic communications to or from all or a substantial portion of the persons having telephone or radio telephone stations in a specified area which is outside the local telephone system area in which the station provided with this service is located.

Id. § 4252(b). Section 4253(f) provides that "[n]o tax shall be imposed under section 4251 on the amount paid for any toll telephone service described in section 4252(b)(2) to the extent that the amount so paid is for use by a common carrier...." Id. § 4253(f). It is undisputed that Amtrak is a common carrier for purposes of § 4253(f).

By statute, Amtrak is tasked to "provide intercity and commuter rail passenger transportation that completely develops the potential of modern rail transportation to meet the intercity and commuter passenger transportation needs of the United States." 49 U.S.C. § 24101(b). "Amtrak serves more than 500 stations in 46 states over more than 22,000 route miles." Pl.'s Mot. at 3. In fiscal year 2002, Amtrak transported approximately 23.4 million passengers utilizing its rail services. The United States, through the Department of Transportation, owns 100% of Amtrak's preferred stock.

In April 2002, Amtrak paid federal communications excise taxes to the IRS in the amount of $86,103.28, and timely filed a Form 720, Quarterly Federal Excise Tax Return, for the first quarter of the 2002 calendar taxable year. On May 17, 2002, Amtrak submitted to the IRS a claim for refund of the full amount of excise taxes it had paid in the previous month. This claim satisfied the requirements of §§ 6532 and 7422 of the Code. The IRS has neither allowed nor denied Amtrak's claim for refund. Amtrak filed this civil action after waiting six months from the filing of its claim.

Amtrak's federal communications excise taxes for the first quarter of 2002 were calculated based on the sums that Amtrak paid to International Business Machines Corporation ("IBM") during that time period for providing the following four types of telecommunications services: (i) domestic inbound toll-free dedicated service; (ii) Canada inbound toll-free service; (iii) domestic inbound "Switched" or "Ready-Line" service; and (iv) virtual network service (collectively, "Amtrak's telecommunications services").² IBM's monthly bills to Amtrak for January, February, and March 2002 reflect separate charges for each of these four telecommunications services. Amtrak's monthly toll charges were determined by multiplying the aggregate number of resource units, i.e., number of minutes, for a particular service by the specific rate that applied to that service — that is, monthly charge for each service = aggregate monthly resource units (minutes) for that service × service-specific rate. All of the monthly toll charges were paid within the United States. Under the Services Agreement with IBM, Amtrak was entitled to make and receive an unlimited number of telephone calls.

II.

Summary judgment is appropriate when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. FED. R. CIV. P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). This procedural device is not a "disfavored legal shortcut" but a fair and efficient method of resolving cases expeditiously. Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In determining whether a genuine issue of material fact exists, the Court must view all facts and reasonable inferences in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Tao v. Freeh, 27 F.3d 635, 638 (D.C.Cir.1994).

Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.... [S]ummary judgment will not lie if the dispute about a material fact is "genuine," that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.

Anderson, 477 U.S. at 248, 106 S.Ct. 2505.

III.

Amtrak asserts that it is entitled to a refund of $86,103.28 on the grounds that the telecommunications services in question fit within the scope of § 4252(b)(2) and that the amounts paid for them are exempt from taxation under § 4253(f). The IRS, on the other hand, contends that these services are taxable as "a telephonic quality communication for which (A) there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication[,]" 26 U.S.C. § 4252(b)(1) (emphasis added), despite the fact that none of the charges for Amtrak's telecommunications services varies by distance.³ In support of this reading, the IRS points to legislative history that purportedly evinces Congress's desire to tax all individually-charged long-distance calls and Revenue Ruling 79-404, which interpreted § 4252(b)(1) "as not requiring variance by distance in order for a telephone call to fall under its provisions." Def.'s Opp. at 10-11. The IRS argues in the alternative that, if Amtrak's telecommunications services are not long-distance "toll" calls, then they should be taxed as local telephone service calls under § 4252(a).

A.

At first glance, the question of how to interpret § 4252(b)(1) appears complex. The IRS insists that "[t]he wording of § 4252(b)(1) is not clear-cut or meaningful"⁴ and urges the Court to delve deeper to ascertain congressional intent. Mem. of Pts. & Auths. in Supp. of United States of Am.'s Mot. for Summ. J. ("Def.'s Mot.") at 9. A careful review of both the statute's plain language and legislative history, however, establishes that Amtrak's telecommunications services do not satisfy the requirements of § 4252(b)(1) as drafted by Congress.

As an initial matter, the text of § 4252(b)(1) unequivocally states that a particular communications service can constitute "toll telephone service" only if, inter alia, "there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication...." 26 U.S.C. § 4252(b)(1) (emphasis added). Under a strict reading of this provision, the telecommunications services offered by IBM would not amount to "toll telephone service" because their pricing is not dependent on distance.⁵ The IRS does not really contest this point, instead focusing on why the Court should construe "and" to mean "or" (so that the definition is fulfilled when a toll charge varies in amount with distance or time).

According to the IRS, the Code's legislative history shows that Congress intended to tax all individually-charged long-distance telephone calls under § 4252(b)(1). Def.'s Mot. at 10. "Section 133 of the Excise Tax Technical Changes Act of 1958, Pub.L. No. 85-859, 72 Stat. 1275 (1958), defined `toll telephone service' as `a telephone or radio telephone message or conversation for which (1) there is a toll charge, and (2) the charge is paid within the United States.'" Id. at 11. The IRS asserts that the language in § 4252(b)(1) "is equivalent to th[is] pre-1965 definition" and simply "reflects a congressional effort to describe the method for computing individually-charged long-distance telephone charges in 1965[,]" when "charges for such calls varied among calls of different temporal lengths" and distance. Id. at 12, 17-18.

The Court agrees...