Office Max, Inc. v. United States, No. 1:03CV961.

• Court: U.S. District Court — Northern District of Ohio
• Writing for the Court: Gaughan
• Citation: 309 F.Supp.2d 984
• Docket Number: No. 1:03CV961.
• Decision Date: 13 February 2004
• Parties: OFFICE MAX, INC., Plaintiff, v. UNITED STATES of America, Defendant.

309 F.Supp.2d 984 OFFICE MAX, INC., Plaintiff,
v.
UNITED STATES of America, Defendant. No. 1:03CV961. United States District Court, N.D. Ohio, Eastern Division. February 13, 2004.

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Stephan J. Schlegelmilch, Baker & Hostetler, Cleveland, OH, Henry D. Levine, Stephen J. Rosen, Levine, Blaszak, Block & Boothby, LLP, Washington, DC, for Plaintiff.

Alejandro L. Bertoldo, Washington, DC, for Defendant.

Memorandum of Opinion and Order

GAUGHAN, District Judge.

Introduction

This matter is before the Court upon (1) plaintiff OfficeMax, Inc.'s Motion for Summary Judgment (Doc. 15) and (2) defendant United States' Motion for Summary Judgment (Doc. 23). The issue presently before the Court is whether plaintiff OfficeMax is entitled to a refund of federal excise taxes remitted on certain long-distance telephone services. For the following reasons, the Court grants plaintiff's Motion for Summary Judgment and denies defendant's Motion for Summary Judgment.

Facts

Plaintiff OfficeMax, Inc. filed a Complaint in this Court on May 21, 2003, alleging that it was entitled to a refund of federal excise taxes paid for the years 1999 through 2001 for certain long-distance telephone services provided to it by MCI WorldCom Communications and MCI Telecommunications Corp. (collectively "MCI"). Plaintiff thereafter filed a First Amended Complaint on September 9, 2003, raising the same allegations and adding a request for refund for taxes paid for the year 2002.

The facts as alleged in plaintiff's First Amended Complaint are as follows. During the quarter ending March 31, 1999 through the quarter ending December 31, 2002, plaintiff OfficeMax purchased intrastate, interstate, and international long-distance telephone services from MCI. (First Am. Complt. at ¶ 9).¹ Apparently

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believing that these services constituted taxable long distance service under the Internal Revenue Code, MCI collected federal excise taxes from OfficeMax in the amount of $380,296.72 and remitted the taxes to the Internal Revenue Service. (First Am. Complt. at ¶ 10).

On April 6, 2002, plaintiff OfficeMax filed claims for refund of $284,525.31, which plaintiff claims represents the aggregate amount of federal excise taxes paid by OfficeMax for the years 1999, 2000 and 2001 on the long-distance telephone services provided by MCI. (First Am. Complt. at ¶ 11). Thereafter, on February 13, 2003, plaintiff filed claims for refund of $95,771.41, which plaintiff claims represents the aggregate amount of federal excise taxes paid by OfficeMax for the year 2002 with respect to the long-distance telephone services provided by MCI. (First Am. Complt. at ¶ 13).²

Plaintiff bases its claims for these refunds on the assertion that, with the exception of certain calls made to and from Mexico and within the state of Missouri, MCI's charges for the long-distance telephone services it provided to OfficeMax were always based on the duration of each individual call, the type of access provided (dedicated or switched),³ or the time of day in which the call was made. Plaintiff claims that distance was never a factor in determining the charges for these services. (First Am. Complt. at ¶ 19).

As such, plaintiff claims that these "non-distance sensitive services" do not constitute taxable long-distance services under Sections 4251 and 4252 of the Internal Revenue Code. (First Am. Complt. at ¶ 20). The Internal Revenue Service disagrees, and has refused to refund plaintiff OfficeMax's alleged overpayment.

The parties have filed cross Motions for Summary Judgment regarding the issue of whether the long-distance telephone service provided by MCI to plaintiff OfficeMax constitutes "toll telephone service" as defined in §§ 4251 and 4252 of the Internal Revenue Code, thus rendering it taxable.⁴ Defendant United States has requested oral argument. The Court finds that oral argument would not aid the Court in resolution of the parties' Motions.

Standard of Review

Summary Judgment is appropriate when no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (citing Fed.R.Civ.P. 56(c)); see also LaPointe v. UAW, Local 600, 8 F.3d 376, 378 (6th Cir.1993). The burden of showing the absence of any such genuine issues of material facts rests with the moving party:

[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits," if any, which it believes demonstrates the absence of a genuine issue of material fact.

Celotex, 477 U.S. at 323, 106 S.Ct. 2548 (citing Fed.R.Civ.P. 56(c)). A fact is "material only if its resolution will affect the

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outcome of the lawsuit." Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Once the moving party has satisfied its burden of proof, the burden then shifts to the nonmoving party. Federal Rule of Civil Procedure 56(e) provides:

When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of [his] pleadings, but [his response], by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is genuine issue for trial. If he does not respond, summary judgment, if appropriate, shall be entered against him.

The court must afford all reasonable inferences and construe the evidence in the light most favorable to the nonmoving party. Cox v. Kentucky Dep't. of Transp., 53 F.3d 146, 150 (6th Cir.1995) (citation omitted); see also United States v. Hodges X-Ray, Inc., 759 F.2d 557, 562 (6th Cir.1985). However, the nonmoving party may not simply rely on its pleadings, but must "produce evidence that results in a conflict of material fact to be solved by a jury." Cox, 53 F.3d at 150.

Summary judgment should be granted if a party who bears the burden of proof at trial does not establish an essential element of his case. Tolton v. American Biodyne, Inc., 48 F.3d 937, 941 (6th Cir.1995) (citing Celotex, 477 U.S. at 322, 106 S.Ct. 2548). Accordingly, "the mere existence of a scintilla of evidence in support of plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Copeland v. Machulis, 57 F.3d 476, 479 (6th Cir.1995) (quoting Anderson, 477 U.S. at 252, 106 S.Ct. 2505 (1986)). Moreover, if the evidence is "merely colorable" and not "significantly probative," the court may decide the legal issue and grant summary judgment. Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505 (citation omitted).

Discussion

As plaintiff's and defendant's Motions for Summary Judgment each relate to the same central legal issues, this Opinion will address the parties' Motions jointly.

Section 4251 of the Internal Revenue Code, 26 U.S.C. § 1 et seq. imposes a three percent excise tax on amounts paid for "communications services," which includes "toll telephone service." 26 U.S.C. § 4251(a)(1) and (b)(1).⁵ Section 4252(b) defines two types of "toll telephone service," as follows:

(b) Toll Telephone service. For purposes of this subchapter, the term "toll telephone service" means —

(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.

(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).

Plaintiff OfficeMax argues that the long-distance telephone service provided to it by MCI for the years 1999 — 2002 does not

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constitute "toll telephone service" as defined above because (1) the charges imposed on the service at issue did not vary with distance as required by the plain language of § 4252(b)(1); and (2) the service at issue was not flat-rated for unlimited usage as required by § 4252(b)(2).

Defendant United States argues principally that the long-distance telephone service at issue does constitute "toll telephone service" under § 4252(b)(1), relying heavily on the Internal Revenue Service's Communications; Offshore Radio Telephone Service; Satellite, 1979 WL 51192, Rev. Rul. 79-404 (1979) which interprets that statute to mean that a charge need not vary by distance but only by elapsed transmission time. Alternatively, defendant argues that plaintiff's service is taxable as either (1) unlimited communications within a specified area under § 4252(b)(2) or (2) "local telephone service" under § 4252(a).

This Opinion will address each of the parties' arguments in turn.

I. Section 4252(b)(1)

A. The Parties' Arguments

As set forth above, § 4252(b)(1) defines "toll telephone service" as including "a telephonic quality communication for which ... 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). Plaintiff OfficeMax maintains that the long-distance services provided to it by MCI do not fall within this definition because they are billed on a per-minute basis (i.e. elapsed transmission time) only and do not vary with distance.

Plaintiff illustrates this point by setting forth tables comparing MCI's rates for service within the state of...