National Railroad Passenger Corp. v. U.S.

Decision Date09 December 2005
Docket NumberNo. 04-5421.,04-5421.
Citation431 F.3d 374
CourtU.S. Court of Appeals — District of Columbia Circuit

Appeal from the United States District Court for the District of Columbia (No. 03cv00431).

Teresa E. McLaughlin, U.S. Department of Justice, argued the cause for appellant. With her on the briefs were Eileen J. O'Connor, Assistant Attorney General, Kenneth L. Wainstein, U.S. Attorney, and Robert W. Metzler.

Jean A. Pawlow argued the cause for appellee. With her on the brief were Shane T. Hamilton and Dennis M. Moore.

Before: TATEL and GRIFFITH, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge.

In this case, we must decide whether a statute imposing a tax on telephone calls for which the toll charge "varies in amount with the distance and elapsed transmission time of each individual communication" covers long-distance telephone charges varying by time but not by distance. The district court concluded that the statute does not cover such charges, and we agree.


Section 4251 of the Internal Revenue Code imposes a tax on "toll telephone service," defined in section 4252(b) 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.

26 U.S.C. § 4252(b). Enacted in 1965, this language replaced an earlier definition of "toll telephone service": "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." 26 U.S.C. § 4252(b) (1958); Excise Tax Reduction Act of 1965, Pub.L. No. 89-44, § 302, 79 Stat. 136, 146 (enacting current language). The 1965 Act phased the tax out over three years, § 302, 79 Stat. at 145, but later Congresses repeatedly extended the tax, finally making it permanent in 1990, Omnibus Budget Reconciliation Act of 1990, Pub.L. No. 101-508, § 11217, 104 Stat. 1388, 1388-437.

When Congress last amended section 4252(b) in 1965, only AT & T provided long-distance telephone service. At that time, AT & T offered two billing plans. The first, Message Toll Service (MTS), charged each individual call based on duration, distance traveled, and time of day. Under the second plan, Wide Area Telephone Service (WATS), customers purchased blocks of usage time for a flat fee. WATS customers paid either a flat monthly rate for an unlimited number of calls and minutes or a lower rate for up to fifteen hours of calling plus a further charge for each additional hour. Pointing to legislative history, the parties in this case agree that Congress designed subsection (b)(1) to cover MTS and subsection (b)(2) to cover WATS. See H.R.Rep. No. 89-433, at 30 (1965); S.Rep. No. 89-324, at 35 (1965). They also agree that, as Congress intended, section 4252(b) covered all long-distance services existing in 1965.

Taxing all 1965 long-distance service, however, is a far cry from taxing all long-distance service today. Not only does AT & T no longer hold a monopoly on long-distance service, but today's multitude of long-distance carriers offer far more rate structures. Most significantly for our purposes, many customers now pay per-minute charges that remain constant regardless of how far their calls travel. Appellee National Railroad Passenger Corporation ("Amtrak") is one such customer. In particular, for each of the four services at issue in this case—two types of domestic "inbound" (also known as "800") service, an inbound service from Canada, and a service allowing various Amtrak locations to contact each other—Amtrak pays a monthly charge computed by multiplying the number of minutes Amtrak consumes by a specific rate for that service. As a common carrier, Amtrak is exempt from subsection (b)(2), meaning that it must pay tax only if its long-distance charges fall within subsection (b)(1). 26 U.S.C. § 4253(f).

Amtrak initially paid the tax, but believing its service to be nontaxable under subsection (b)(1), it filed a refund claim with the Internal Revenue Service (IRS). Receiving no response, Amtrak filed suit in the U.S. District Court for the District of Columbia. Cf. 26 U.S.C. § 6532(a)(1) (requiring taxpayer to wait six months before filing suit). The district court, joining a chorus of other federal courts, found subsection (b)(1) inapplicable because Amtrak's charges did not vary by distance and accordingly granted summary judgment for Amtrak. Nat'l R.R. Passenger Corp. v. United States, 338 F.Supp.2d 22 (D.D.C.2004); see also OfficeMax, Inc. v. United States, 428 F.3d 583 (6th Cir.2005) (resolving this issue in favor of taxpayer), aff'g 309 F.Supp.2d 984 (N.D.Ohio 2004); Am. Bankers Ins. Group v. United States, 408 F.3d 1328, 1331-1337 (11th Cir.2005) (same), rev'g 308 F.Supp.2d 1360 (S.D.Fla.2004); Hewlett-Packard Co. v. United States, No. C-04-03832, 2005 WL 1865419, at *2-*5, 2005 U.S. Dist. LEXIS 19972, at *5-*13 (N.D.Cal. Aug.5, 2005) (same); Reese Bros., Inc. v. United States, No. 03-CV-745, 2004 WL 2901579, at *3-*13, 2004 U.S. Dist. LEXIS 27507, at *10-*44 (W.D.Pa. Nov.30, 2004) (same); Fortis, Inc. v. United States, No. 03 Civ. 5137, 2004 WL 2085528, at *5-*13, 2004 U.S. Dist. LEXIS 18686, at *17-45 (S.D.N.Y. Sept.16, 2004) (same); Am. Online, Inc. v. United States, 64 Fed.Cl. 571, 576-581 (Fed.Cl.2005) (same); Honeywell Int'l, Inc. v. United States, 64 Fed.Cl. 188, 198-203 (Fed.Cl.2005) (same).

The government now appeals. Our review is de novo. Dunaway v. Int'l Bhd. of Teamsters, 310 F.3d 758, 761 (D.C.Cir.2002).


We begin, as we must, with the statute's language. Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438, 119 S.Ct. 755, 142 L.Ed.2d 881 (1999). Subsection (b)(1) imposes a tax only when "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). Amtrak's charges do not vary by both time and distance, so that would seem to end the matter. The government nonetheless urges us to find ambiguity in the statute, arguing that because Congress sometimes uses the word "and" disjunctively, we should interpret the statute to require only that the charge vary with distance or elapsed transmission time. We may not do so.

In 1965, when Congress passed section 4252(b), MTS charges varied by both time and distance. Reading "and" conjunctively therefore makes the statute mirror the MTS system, precisely what Congress intended. See supra at 375. To be sure, Congress does sometimes use the word "and" disjunctively. Indeed, it did so in this very statute: No one would contend that a service must satisfy both subsection (b)(1) and subsection (b)(2) to constitute "toll telephone service," as a conjunctive reading of the "and" separating the two sections would require. Because the two subsections describe separate types of services, not criteria for a single service, such a reading would be absurd. In contrast, reading the "and" that separates "distance" from "elapsed transmission time" conjunctively produces just the result Congress intended, i.e., a tax on MTS service.

The government relies heavily on Slodov v. United States, 436 U.S. 238, 98 S.Ct. 1778, 56 L.Ed.2d 251 (1978), but there too a conjunctive reading would have done nothing to further Congress's clear intent. The statute at issue in Slodov imposed penalties on "[a]ny person required to collect, truthfully account for, and pay over any tax . . . who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof." Slodov, 436 U.S. at 245, 98 S.Ct. 1778 (quoting 26 U.S.C. § 6672). Having assumed control of a corporation after taxes had already been "collect[ed]," Slodov could not possibly have done all three acts — "collect, truthfully account for, and pay over" the tax. Id. at 246, 98 S.Ct. 1778. He therefore believed that the statute had no effect on him. Id. The Supreme Court rejected this argument as inconsistent with the statute's purpose, holding that the phrase in question "was necessary to insure that the penalty. . . would be read as applicable only to failure to pay taxes which require collection, that is, third-party taxes," as distinguished from "direct taxes such as employer FICA and income taxes." Id. at 249, 98 S.Ct. 1778. In other words, "the phrase . . . was meant to limit § 6672 to persons responsible for collection of third-party taxes and not to limit it to those persons in a position to perform all three of the enumerated duties." Id. at 250, 98 S.Ct. 1778. The provision's legislative history supported the Supreme Court's interpretation and gave no hint that Congress intended a conjunctive reading. Id. at 249, 98 S.Ct. 1778. Here, by contrast, reading "and" conjunctively accomplishes exactly what Congress intended.

For the same reason, United States v. American Trucking Ass'ns, 310 U.S. 534, 60 S.Ct. 1059, 84 L.Ed. 1345 (1940), does not help the government. Reading subsection (b)(1) literally produces Congress's intended result, not "absurd or futile results" or results "plainly at variance with the policy of the legislation as a whole." Id. at 543, 60 S.Ct. 1059 (internal quotation marks...

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