Oshkosh Truck Corp. v. U.S.

• Decision Date: 12 September 1997
• Docket Number: No. 96-5092,96-5092
• Parties: -6408 OSHKOSH TRUCK CORPORATION, Plaintiff-Appellant, v. The UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1477

123 F.3d 1477

80 A.F.T.R.2d 97-6408

OSHKOSH TRUCK CORPORATION, Plaintiff-Appellant, v. The UNITED STATES, Defendant-Appellee.

No. 96-5092.

United States Court of Appeals Federal Circuit.

Sept. 12, 1997.

Kurt S. Meckstroth, Foley & Lardner, Milwaukee, WI, argued, for plaintiff-appellant. With him on brief were Timothy C. Frautschi and Kevin Martens.

Gilbert S. Rothenberg, Attorney, Tax Division, Department of Justice, Washington, DC, argued, for defendant-appellee. With him on brief were Loretta C. Argrett, Assistant Attorney General, and William J. Patton, Attorney, Appellate Staff.

Donald C. Alexander, Akin, Gump, Strauss, Hauer & Feld, L.L.P, Washington, DC, for amicus curiae. Of counsel on brief were Duane H. Pellervo and Michael Quigley.

Before MAYER, Circuit Judge, FRIEDMAN, Senior Circuit Judge, and CLEVENGER, Circuit Judge.

FRIEDMAN, Senior Circuit Judge:

The question in this case is whether the Internal Revenue Service (the Service) properly applied a regulation governing the federal excise tax on retail sales of certain automotive vehicles to trucks the appellant Oshkosh Truck Corporation (Oshkosh) sold directly to the United States. The Court of Federal Claims upheld the application of the regulation to those sales. We reverse and remand.

I.

A. Section 4051(a) of the Internal Revenue Code (the Code), 26 U.S.C.s 4051(a), imposes on the "first retail sale" of heavy duty trucks and trailers a federal excise tax of twelve percent of the amount for which the article is sold. The "first retail sale" is defined as "the first sale, for a purpose other than for resale or leasing in a long-term lease, after production, manufacture, or importation." 26 U.S.C. § 4052(a)(1) (1994).

In 1987, Congress amended section 4052 by adding sections 4052(b)(3) and 4052(b)(4). Section 4052(b)(4)(A) provides that in determining the price on which the tax is computed, there should be added to the sales price an amount reflecting "the presumed markup percentage determined under paragraph (3)(B)." 26 U.S.C.s 4052(b)(4)(A) (1994). In turn, section 4052(b)(3)(B) defines the "presumed mark-up percentage" as "the average markup percentage of retailers of articles of the type involved, as determined by the Secretary."

In Temporary Treasury Regulation § 145.4052-1, the Secretary determined that "a single presumed markup percentage of four percent has been established for most articles subject to section 4051." T.D. 8200, 1988-1 C.B. 351, 352. In subsection (d)(7)(ii) of the Regulation, captioned "Exceptions," the Secretary provided that the " 'presumed markup percentage' for trailers, semitrailers, and remanufactured automobile truck chassis and bodies and tractors shall be zero percent," id. at 355, since a "markup ... on these articles is not necessary to carry out the purpose of the section 4051 retail tax because retail sales of trailers and semitrailers are generally made by trailer manufacturers. Similarly, remanufactured trucks and tractors generally are not sold through an established retail distribution network." Id. at 352.

B.1. The facts in this case are largely undisputed. The Army requested proposals for specialized, high-cargo-capacity trucks, which it called Heavy Expanded Mobility Tactical Trucks (HEMT trucks). Oshkosh developed vehicles that met the government's requirements and, in competition with two other companies, was awarded contracts to manufacture five different body types of HEMT trucks. All of these contracts resulted from arms-length negotiations between Oshkosh and the United States.

Between October 1987 and December 1990, the tax period at issue, Oshkosh sold approximately 3600 HEMT trucks directly to the Army, not through retail dealers or agents, at prices ranging from approximately $105,000 to $213,000, and one such truck to Taiwan for $232,500.

2. For the taxable years April 1, 1987, through December 31, 1990, Oshkosh paid the twelve percent excise tax on the sale price of the HEMT trucks but not on the presumed markup. Upon audit, the Service determined that Oshkosh also should have paid on the presumed markup and assessed additional taxes and interest of $3,068,806.67. Oshkosh paid this amount and, after the Service disallowed a claim for refund, commenced the present action in the Court of Federal Claims. It contended that "[t]o the extent that the regulations promulgated by the Secretary ... require that a presumed markup greater than zero percent be applied to the sales by [Oshkosh] to the Department of the Army, the regulations are invalid" because

the statute and its legislative history provide that the presumed markup shall not apply to situations where the markup is not necessary to carry out the purpose of the statute, which is to impose the tax on a retail price as opposed to a wholesale or otherwise discounted price. The statute does not apply to [Oshkosh's] sales to the Department of the Army because the sales price of the vehicles was the retail price, not a wholesale or discounted price.

Oshkosh moved for summary judgment. The Court of Federal Claims, sua sponte, granted judgment for the United States. The court "agree[d] that Congress likely did not intend to cover such sales" but stated that "Congress gave the Secretary wide discretion to implement the law. The Secretary either overlooked plaintiff's circumstance or it was not brought to the Secretary's attention during rule-making. Plaintiff must seek relief from the Agency or from Congress." Stating that "Congress did not intend the presumptive mark-up to apply where the mark-up is unnecessary to carry out its purpose of imposing the excise tax on retail rather than wholesale or otherwise discounted prices," the court concluded:

Plaintiff's trucks may be similar to the exempted classes--i.e. trucks sold at retail prices and not available through an established retail distribution network. While we do not believe that a presumptive mark-up of HEMT [trucks] is necessary to achieve the purpose of the statute, Congress did not direct the Secretary to exclude all such vehicles. Instead, Congress delegated express authority to determine when the purposes of the statute are not served. The Agency perhaps should have exempted HEMT [trucks] from the regulation but it was not required to do so.

II

In providing for the presumed markup percentage in the 1987 amendments to section 4052, a major purpose of Congress was to close the loophole through which certain vehicle sales escaped the excise tax on the portion of the sales price attributable to the retail markup, which resulted when the manufacturer by-passed selling through a retail dealer and instead sold directly to the customer. H.R. Conf. Rep. No. 100-27, at 260-61 (1987). In that situation, the direct sale by the manufacturer was actually a retail sale, but that sale was given more favorable tax treatment than if the sale had been made through the usual retailer distribution. Congress therefore intended the presumptive mark-up rule to cover "all sales on which manufacturers or importers collect the ... retail excise tax." Id. at 260.

As provided in the House bill, the presumptive retail sales price rule is not to apply in situations identified in Treasury Department regulations where such a presumptive price is unnecessary to carry out the purpose of imposing tax based upon a retail, as opposed to wholesale or otherwise discounted, price. The conferees understand that certain sales of taxable vehicles are accomplished through the use of finance leases which reflect true retail sales prices. For example, a retail dealer may sell a taxable vehicle to a financing company who then leases the vehicle to the dealer, with the dealer entering into another lease with the ultimate user of the vehicle. The conferees do not intend that Id. at 261.

the Treasury Department apply the new presumptive retail sales price rule to such transactions if the lessor/seller establishes that the price to the ultimate user of the vehicle represents an arm's-length retail sales price.

As the Secretary summarized the congressional intent in adding the presumed markup percentage, the purpose was to "ensure that the tax base of most transactions considered to be taxable sales subject to section 4051 includes either an actual or a presumptive retail markup." T.D. 8200, 1988-1 C.B. 351, 352.

Consistent with that intent, the Secretary exempted "truck trailers, semitrailers and remanufactured trucks and tractors" from the four percent presumed markup as "not necessary to carry out the purpose of the section 4051 retail tax because retail sales of trailers and semitrailers are generally made by trailer manufacturers. Similarly, remanufactured trucks and tractors generally are not sold through an established retail distribution network." Id.

The reason that led the Secretary to exempt these four types of vehicles from the presumed markup--the markup was "not necessary to carry out the purpose of the section 4051 retail tax" because "retail sales of trailers and semitrailers are generally made by trailer manufacturers"--is equally applicable to Oshkosh's sales of the HEMT trucks to the United States. The trucks...