Netjets Large Aircraft, Inc. v. United States

• Decision Date: 26 January 2015
• Docket Number: Case No. 2:11–CV–1023.
• Citation: 80 F.Supp.3d 743
• Parties: NETJETS LARGE AIRCRAFT, INC., et al., Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of Ohio

80 F.Supp.3d 743

NETJETS LARGE AIRCRAFT, INC., et al., Plaintiffs

v.UNITED STATES of America, Defendant.

Case No. 2:11–CV–1023.

United States District Court, S.D. Ohio, Eastern Division.

Signed Jan. 26, 2015.

John Wolcott Zeiger, Bradley Thomas Ferrell, Zeiger Tigges Little & Lindsmith LLP, Columbus, OH, Jonathan D. Hacker, Lauren N. Moore, Micah W. Smith, Robert A. Rizzi, O'Melveny & Myers LLP, Washington, DC, for Plaintiffs.

Thomas P. Cole, Carina Clark Federico, U.S. Department of Justice, Civil Tax Division, Washington, DC, for Defendant.

OPINION AND ORDER

EDMUND A. SARGUS, JR., Chief Judge.

This matter is before the Court for consideration of the parties' cross-motions for summary judgment. (ECF Nos. 61, 62, 93, 103.) Three plaintiffs in this case are NetJets Aviation, Inc., NetJets Large Aircraft, Inc., and NetJets International, Inc. (collectively “NetJets”). NetJets operates a “fractional ownership program” through which it provides aircraft maintenance, support, and other services to persons who own either a fractional ownership interest or fractional leasehold interest in an aircraft. (Noe Decl. ¶ 4; ECF No. 61–1.) The fourth plaintiff is Executive Jet Management (“EJM”), a subsidiary of the same company as NetJets that provides similar services to owners of entire aircraft. (Id. ¶ 11.) The United States, the defendant and counterclaimant in this case, seeks to collect taxes on different fees that NetJets and EJM collects from its clients.

This opinion analyzes three legal questions presented in the summary judgment motions. First, the Court analyzes the United States' argument that NetJets lacks standing to bring a refund claim on the taxes it collected and remitted. Second, the Court turns to the parties' dispute over whether a particular provision of the federal tax code, 26 U.S.C. § 4261, applies to NetJets and EJM. Section 4261 imposes a tax on the amount paid for “taxable transportation.” 26 U.S.C. § 4261(a). Taxable transportation is defined as “transportation by air which begins in the United States or in the 225–mile zone and ends in the United States or in the 225–mile zone.” 26 U.S.C. § 4262(a)(1). NetJets and EJM argue that they provide no “taxable transportation” while the United States maintains that they do. Third, the Court assesses NetJets' argument that, assuming § 4261 applies, a 1992 Technical Advice Memorandum (“1992 TAM”) issued by the Internal Revenue Service bars the United States from collecting that tax on certain fees its customers pay. After these issues were fully briefed, the Court heard oral argument. These issues are now ripe for review.

For the reasons that follow, the United States' motion for summary judgment (ECF No. 103) on the issue of whether NetJets has standing to bring a refund claim is DENIED. The United States' motion for summary judgment (ECF No. 103) on the issue of whether NetJets provides taxable transportation under § 4261 is GRANTED and NetJets' motion for summary judgment on this issue (ECF No. 61) is DENIED. The United States' and EJM's motions for summary judgment (ECF Nos. 62 and 93) on the issue of whether EJM provides taxable transportation are DENIED. And, NetJets' motion for summary judgment (ECF No. 61) regarding whether the 1992 TAM bars the United States from collecting the § 4261 tax on certain fees is GRANTED and the United States' motion for summary judgment (ECF No. 103) on this issue is DENIED.

I. STANDARDS

A. Summary Judgment Standard

Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The movant has the burden of establishing that there are no genuine issues of material fact, which may be accomplished by demonstrating that the nonmoving party lacks evidence to support an essential element of its case. Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ; Barnhart v. Pickrel, Schaeffer & Ebeling Co., 12 F.3d 1382, 1388–89 (6th Cir.1993). To avoid summary judgment, the nonmovant “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ; accord Moore v. Philip Morris Cos., 8 F.3d 335, 340 (6th Cir.1993). “[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 v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

In evaluating a motion for summary judgment, the evidence must be viewed in the light most favorable to the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 158–59, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970) ; see Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000) (stating that the court must draw all reasonable inferences in favor of the nonmoving party and must refrain from making credibility determinations or weighing evidence). Furthermore, the existence of a mere scintilla of evidence in support of the nonmoving party's position will not be sufficient; there must be evidence on which the jury reasonably could find for the nonmoving party. Anderson, 477 U.S. at 251, 106 S.Ct. 2505 ; see Copeland v. Machulis, 57 F.3d 476, 479 (6th Cir.1995) ; see also Matsushita, 475 U.S. at 587–88, 106 S.Ct. 1348 (finding reliance upon mere allegations, conjecture, or implausible inferences to be insufficient to survive summary judgment).

Here, the parties have filed cross-motions for summary judgment. Each party, as a movant for summary judgment, bears the burden of establishing that no genuine issue of material fact exists and that it is entitled to a judgment as a matter of law. The fact that one party fails to satisfy that burden on its own Rule 56 motion does not automatically indicate that the opposing party or parties has satisfied the burden and should be granted summary judgment on the other motion. In reviewing cross-motions for summary judgment, courts should “evaluate each motion on its own merits and view all facts and inferences in the light most favorable to the non-moving party.” Wiley v. United States, 20 F.3d 222, 224 (6th Cir.1994). “The filing of cross-motions for summary judgment does not necessarily mean that the parties consent to resolution of the case on the existing record or that the district court is free to treat the case as if it was submitted for final resolution on a stipulated record.” Taft Broad. Co. v. United States, 929 F.2d 240, 248 (6th Cir.1991) (quoting John v. State of La. (Bd. of Trs. for State Colls. & Univs. ), 757 F.2d 698, 705 (5th Cir.1985) ). The standard of review for cross-motions for summary judgment does not differ from the standard applied when a motion is filed by one party to the litigation. Taft Broad., 929 F.2d at 248.

B. Burden of Proof

The United States cites the burden of proof as belonging to NetJets and EJM as taxpayers. See Lewis v. Reynolds, 284 U.S. 281, 283, 52 S.Ct. 145, 76 L.Ed. 293 (1932) ; see also Ekman v. C.I.R., 184 F.3d 522, 524 (6th Cir.1999) ; Sinder v. United States, 655 F.2d 729, 731 (6th Cir.1981) (per curiam). But “the concept of ‘burden of proof’ has no relevance where a dispute is solely on a question of law.” Sequa Corp. & Affiliates v. United States, 350 F.Supp.2d 447, 449 (S.D.N.Y.2004)aff'd 437 F.3d 236 (2d Cir.2006). And any doubt as to the breadth of the term “taxable transportation,” “must be resolved against the government and in favor the taxpayer.” See United States v. Merriam, 263 U.S. 179, 187–88, 44 S.Ct. 69, 68 L.Ed. 240 (1923) ; see also Bowers v. New York & Albany Lighterage Co., 273 U.S. 346, 350, 47 S.Ct. 389, 71 L.Ed. 676 (1927) (“The provision is part of a taxing statute; and such laws are to be interpreted liberally in favor of the taxpayers.”).

II. NETJETS

The Court begins by examining the claims involving NetJets. To provide context for these claims, the Court lays out the relevant factual background. Then, the Court assesses whether NetJets has standing to pursue a refund claim. Next, the Court examines whether NetJets offers “taxable transportation” under § 4261. And last, the Court turns to the argument that the 1992 TAM allows the IRS to collect the § 4261 tax on only the occupied hourly fee.

A. The NetJets Program

NetJets' flight programs allow customers, or participants, to gain nearly on-demand use of airplanes in a fleet of airplanes and pilots. To participate, the customer pays NetJets an amount equal to the cost of a portion (as little as 1/16) of a single airplane, or pay the cost of a portion of a long-term lease of an airplane. In exchange, the participant receives title to or a leasehold interest in a fractional interest in an airplane.

Customers enter into several agreements with NetJets. Under the “Purchase Agreement,” the customer receives an interest in the plane. Also in the agreement, NetJets retains the right to repurchase the aircraft interest after five years, or to repossess the interest in the event of default, such as not paying NetJets its fees. (Purchase Agreement ¶ 6(c); ECF No. 103–3.) The owner agrees not to transfer its interest to a non-affiliate without the program manager's consent. (Id. ¶ 7.)

Participants also enter into an “Owners Agreement,” in which they agree to the terms of use for their jointly owned aircraft. In this document, the clients agree to an allotted number of hours that they may use the plane. (Noe Decl. ¶ 16; ECF No. 61–1.) If owners exceed their allotted number of hours, they are billed a different, higher rate. (Management Agreement at 11; ECF 103–3.) The participant also agrees that the aircraft will be used exclusively in the fractional ownership aircraft program. (Owners Agreement ¶ 3; ECF No. 103–1.)

Under a separately signed “Management Agreement,” participants...