Reese Bros., Inc. v. U.S., No. 05-2135.

CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)
Writing for the CourtSmith
Citation447 F.3d 229
PartiesREESE BROTHERS, INC. v. UNITED STATES of America, Appellant.
Decision Date09 May 2006
Docket NumberNo. 05-2135.
447 F.3d 229
REESE BROTHERS, INC.
v.
UNITED STATES of America, Appellant.
No. 05-2135.
United States Court of Appeals, Third Circuit.
Argued January 27, 2006.
Decided May 9, 2006.

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COPYRIGHT MATERIAL OMITTED

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Stanley M. Stein, Feldstein, Grinberg, Stein & McKee, Pittsburgh, Pennsylvania, Stephen J. Rosen, Henry D. Levine (Argued), Levine, Blaszak, Block & Boothby, Washington, DC, for Appellee.

Robert W. Metzler, Teresa E. McLaughlin (Argued), United States Department of Justice, Tax Division, Washington, DC, for Appellant.

Before: RENDELL and SMITH, Circuit Judges, and IRENAS, District Judge.*

OPINION OF THE COURT

SMITH, Circuit Judge.


The question presented in this appeal is whether the federal communications excise tax set forth in 26 U.S.C. § 4251(a)(1) applies to long-distance telephone services that are priced based on a fixed per-minute, non-distance-sensitive rate. Based upon the plain language and structure of the statute, we conclude that it does not. The District Court granted summary judgment in favor of the taxpayer. We affirm.

I. Factual and Procedural Background

Taxpayer Reese Brothers, Inc. ("Reese Brothers") purchased intrastate, interstate, and international long-distance telephone services ("Reese Services") from LCI, Qwest, and MCI (collectively "Carriers") from the third quarter of 1998 through the first quarter of 2002. These Carriers charged Reese Brothers a fixed-per minute rate for in-state long-distance calls and different fixed-per minute rates for out-of-state and international long distance calls. The Carriers collected a three-percent federal communications excise tax from Reese Brothers and remitted it to the Internal Revenue Service ("IRS").

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On November 21, 2001, Reese Brothers filed a claim with the IRS, seeking a refund of $319,496.33 for the excise taxes that the Carriers collected and remitted between July 1, 1998 and June 30, 2001; it filed a second claim for a refund of $26,048.38 on August 2, 2002 for taxes collected for July 1, 2001 and March 31, 2002. Although the IRS apparently received these claims, it did not respond to them, and Reese Brothers filed suit in federal court on May 22, 2003. Reese Brothers subsequently moved for partial summary judgment on the issue of liability and the Government filed a cross-motion for summary judgment.

Reese Brothers argued that, pursuant to 26 U.S.C. § 4252(b)(1)—which defines "toll telephone services" as services "for which there is a toll charge that varies in amount with the distance and elapsed transmission time of each individual communication"—the federal communications excise tax applied only to long-distance services for which the charges vary by both distance and elapsed time. Because the charges for its long-distance services were based on a fixed per-minute rate, unrelated to distance, Reese Brothers claimed that the tax is inapplicable to the services provided by the Carriers.

The Government, by contrast, argued that the tax applies to charges that are based on either the distance or the elapsed time or both, and therefore, claimed that the Reese Services are taxable. The Government also offered two alternative bases for imposing the excise tax on the Reese Services. First, the Government suggested that if the Reese Services are not taxable under § 4252(b)(1), they should be considered "toll telephone services" under § 4252(b)(2), which defines such services as those "which entitle[] 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 calls to or from an area outside of the local service area. Second, it argued that in the event the Reese Services are not "toll telephone services" under any definition, they constitute "local telephone services" under § 4252(a).

Adopting the Report and Recommendation of a Magistrate Judge, the District Court granted Reese Brothers' motion with respect to liability and denied the Government's cross-motion. The parties agreed to the amount of overpayment and the District Court entered judgment on behalf of Reese Brothers in the amount of $335,213.96. The Government now appeals.

II. Jurisdiction and Standard of Review

This Court has appellate jurisdiction pursuant to 28 U.S.C. § 1291 and its review of a district court's order granting summary judgment is plenary. Camiolo v. State Farm Fire & Cas. Co., 334 F.3d 345, 354 (3d Cir.2003). We apply the standard set forth in Federal Rule of Civil Procedure 56(c) and therefore may affirm the district court's order if, when viewing the evidence in the light most favorable to the non-moving party, there is "no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). Questions of statutory interpretation are subject to de novo review. Fraser v. Nationwide Mut. Ins. Co., 352 F.3d 107, 113 (3d Cir.2003) (citation omitted).

III. Sections 4251 and 4252 of the Internal Revenue Code

Section 4251(a)(1) of the Internal Revenue Code provides for a tax on "communications services." As defined by the Code, "communications services" include

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"local telephone service," "toll telephone service," and "teletypewriter exchange service." 26 U.S.C. § 4251(b)(1). Section 4252 defines these three services. In relevant part, that section states:

(a) Local telephone service. For purposes of this subchapter, the term "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 part of such local telephone system, and

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

The term "local telephone service" does not include any service which is a "toll telephone service" or a "private communications service" as defined in subsections (b) and (d).

(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, 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.

(c) Teletypewriter exchange service.—For purposes of this subchapter, the term "teletypewriter exchange service" means the access from a teletypewriter or other data station to the teletypewriter exchange system of which such station is a part, and the privilege of intercommunication by such station with substantially all persons having teletypewriter or other data stations constituting a part of the same teletypewriter exchange system, to which the subscriber is entitled upon payment of a charge or charges (whether such charge or charges are determined as a flat periodic amount, on the basis of distance and elapsed transmission time, or in some other manner). The term "teletypewriter exchange service" does not include any service which is "local telephone service" as defined in subsection (a).

The District Court concluded that the Reese Services did not fall within any of the definitions set forth in § 4252. We agree.

The current definitions of "local telephone service," "toll telephone service," and "teletypewriter exchange service" were enacted by Congress in 1965 as part of the Excise Tax Reduction Act, which, among other things, reduced the telephone tax from ten percent to three percent. See Excise Tax Reduction Act of 1965, Pub.L. 89-44, 79 Stat. 136, 146 (1965). At that time, American Telephone and Telegraph Corporation (AT & T) had a monopoly on long-distance services in the United States. See Pearce Decl., App. at 156, ¶¶ 23, 25. It offered two types of long-distance—Message Telephone Service (MTS) and Wide Area Telephone Service (WATS)—as well as local and private line services. Id. at ¶¶ 17, 24, 26. MTS charges were based on the duration of the call, the distance that the call traveled, the time of day, and the day of the week. Id. at ¶ 17. The distance portion of the rate was determined by reference to "mileage bands," of which

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there were thirty.1 Id. Charges for WATS—a service which used a dedicated access line (for example, 800 numbers)—were based on a flat rate for unlimited calls. Id. The 1965 definition of "toll telephone service" in § 4252 replaced an earlier version which defined "toll telephone service" as a service "for which . . . there is a toll charge," and appears to reflect an effort by Congress to conform the definition to the long-distance pricing methods then in place. Compare Excise Tax Reduction Act of 1965, Pub.L. 89-44, 79 Stat. 136, 146 (1965), with Excise Tax Technical Changes Act of 1958, Pub.L. 85-859, 72 Stat. 1275, 1290 (1958).

Since then, however, AT & T has lost its monopoly status and long-distance billing methods have changed. Pearce Decl., App. at 159-162, ¶¶ 29-35. As a general rule, charges for long-distance telephone calls now are based only on the duration of the call, though there remain some intrastate long-distance services which are priced based on distance as well as time. Id.

On appeal, the Government offers three arguments which, if accepted, would warrant reversal of the District Court. The Government's first and primary contention is that the Reese Services are taxable under 26 U.S.C. § 4252(b)(1) as "toll telephone...

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54 practice notes
  • Cohen v. United States, No. 08-5088
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • July 1, 2011
    ...§ 4251. All held the tax inapplicable to long-distance rates calculated without reference to distance. Reese Bros., Inc. v. United States, 447 F.3d 229, 231 (3d Cir. 2006); Fortis, Inc. v. United States, 447 F.3d 190, 191 (2d Cir. 2006); Nat'l R.R. Passenger, 431 F.3d at 374; OfficeMax, Inc......
  • Swallows Holding, Ltd. v. C.I.R., No. 06-3388.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • February 15, 2008
    ...of a statute and to adopt that interpretation when it re-enacts a statute without change." Reese Bros., Inc. v. United States, 447 F.3d 229, 238 (3d Cir. 2006). Application of this doctrine is appropriate only when "an agency's statutory construction has been fully brought to the attention ......
  • Long-Distance Tel. Serv. Fed. Excise Tax Refund Litigation-Mdl 1798 v. United States, Nos. MDL 1798
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • July 2, 2014
    ...deeply awry.--------Notes: 1.Fortis, Inc. v. United States, 447 F.3d 190 (2d Cir.2006) (per curiam); Reese Bros., Inc. v. United States, 447 F.3d 229 (3d Cir.2006); Am. Bankers Ins. Grp. v. United States, 408 F.3d 1328 (11th Cir.2005); Nat'l R.R. Passenger Corp. v. United States, 431 F.3d 3......
  • Orabi v. Attorney Gen. of the United States, No. 12–4025.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • September 10, 2013
    ...expressed in the text of the statute,” we examine “the plain language of the relevant provision.” Reese Bros., Inc. v. United States, 447 F.3d 229, 235 (3d Cir.2006); see also Barnhart v. Sigmon Coal Co., 534 U.S. 438, 450, 122 S.Ct. 941, 151 L.Ed.2d 908 (2002) (instructing that the “first ......
  • Request a trial to view additional results
54 cases
  • Cohen v. United States, No. 08-5088
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • July 1, 2011
    ...§ 4251. All held the tax inapplicable to long-distance rates calculated without reference to distance. Reese Bros., Inc. v. United States, 447 F.3d 229, 231 (3d Cir. 2006); Fortis, Inc. v. United States, 447 F.3d 190, 191 (2d Cir. 2006); Nat'l R.R. Passenger, 431 F.3d at 374; OfficeMax, Inc......
  • Swallows Holding, Ltd. v. C.I.R., No. 06-3388.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • February 15, 2008
    ...of a statute and to adopt that interpretation when it re-enacts a statute without change." Reese Bros., Inc. v. United States, 447 F.3d 229, 238 (3d Cir. 2006). Application of this doctrine is appropriate only when "an agency's statutory construction has been fully brought to the attention ......
  • Long-Distance Tel. Serv. Fed. Excise Tax Refund Litigation-Mdl 1798 v. United States, Nos. MDL 1798
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • July 2, 2014
    ...deeply awry.--------Notes: 1.Fortis, Inc. v. United States, 447 F.3d 190 (2d Cir.2006) (per curiam); Reese Bros., Inc. v. United States, 447 F.3d 229 (3d Cir.2006); Am. Bankers Ins. Grp. v. United States, 408 F.3d 1328 (11th Cir.2005); Nat'l R.R. Passenger Corp. v. United States, 431 F.3d 3......
  • Orabi v. Attorney Gen. of the United States, No. 12–4025.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • September 10, 2013
    ...expressed in the text of the statute,” we examine “the plain language of the relevant provision.” Reese Bros., Inc. v. United States, 447 F.3d 229, 235 (3d Cir.2006); see also Barnhart v. Sigmon Coal Co., 534 U.S. 438, 450, 122 S.Ct. 941, 151 L.Ed.2d 908 (2002) (instructing that the “first ......
  • Request a trial to view additional results

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