Volvo Trucks of North America, Inc. v. U.S.

• Decision Date: 05 May 2004
• Docket Number: No. 03-1256.,03-1256.
• Citation: 367 F.3d 204
• Parties: VOLVO TRUCKS OF NORTH AMERICA, INCORPORATED, formerly known as Volvo GM Heavy Truck Corporation, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

367 F.3d 204

VOLVO TRUCKS OF NORTH AMERICA, INCORPORATED, formerly known as Volvo GM Heavy Truck Corporation, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 03-1256.

United States Court of Appeals, Fourth Circuit.

Argued: February 24, 2004.

Decided: May 5, 2004.

ARGUED:

Tamura D. Coffey, Wilson & Iseman, Winston-Salem, NC, for Appellant. Randolph L. Hutter, Tax Division, United States Department of Justice, Washington, D.C., for Appellee.

ON BRIEF:

G. Gray Wilson, J. Chad Bomar, Wilson & Iseman, Winston-Salem, NC, for Appellant. Eileen J. O'Connor, Assistant Attorney General, Richard Farber, Tax Division, United States Department of Justice, Washington, D.C., for Appellee.

Before WILKINSON, NIEMEYER, and DUNCAN, Circuit Judges.

Affirmed by published opinion. Judge Niemeyer wrote the opinion, in which Judge Wilkinson and Judge Duncan joined.

NIEMEYER, Circuit Judge:

Volvo Trucks of North America, Inc. commenced this action against the Internal Revenue Service ("IRS") to obtain an $856,226 refund of federal excise taxes paid under 26 U.S.C. § 4051(a) for heavy trucks that Volvo sold to its dealers during the 1989-91 period. Volvo claimed to be entitled to an exemption from the tax, but the IRS disallowed the exemption because Volvo failed to support its claim with the documentation required by Temporary Treasury Regulation § 145.4052-1 (1988).

Volvo contends (1) that Regulation § 145.4052-1 was an arbitrary and capricious regulation as promulgated and as applied; (2) that Volvo substantially complied with the regulation's requirements; and (3) that Volvo's noncompliance with the regulation was attributable to representations made by IRS agents and therefore that the IRS should be equitably estopped from disputing Volvo's refund request.

The district court dismissed Volvo's equitable estoppel claim under Federal Rule of Civil Procedure 12(b)(6), and it granted the IRS's motion for summary judgment on the other two claims. For the reasons that follow, we affirm.

I

Before 1983, the Internal Revenue Code imposed an excise tax on the first sale by a manufacturer or importer of heavy-duty trucks, but in 1983, Congress changed the law to impose the 12% tax on the value of the "first retail sale" of such trucks. 26 U.S.C. §§ 4051, 4052 (1983). Congress defined the "first retail sale" as "the first sale ... for a purpose other than for resale or leasing in a long-term lease." Id. § 4052(a)(1). Under this scheme, manufacturers and importers would be exempt from excise tax on trucks sold to their dealers for resale, and their dealers would pay the tax. For trucks that the dealers purchased for their own use, however, the manufacturer or the importer would have to pay the tax. Temporary Treasury Regulation § 145.4052-1 was promulgated in 1988 to provide the mechanism by which the IRS collected this tax.

Section 4052 authorized the IRS to promulgate regulations, directing the IRS to prescribe rules "similar to the rules of ... section 4222." 26 U.S.C. § 4052(d) (later amended by Pub.L. No. 105.34, § 1434(b)(1) (1997)). Under § 4222, which governs a different set of tax exemptions, taxpayers are required to register with the IRS before they can be eligible for the exemptions. Id. § 4222(a). In addition to the registration requirement, parties to sales governed by § 4222 must, as required by regulations promulgated under § 4222, also provide the IRS with a written statement establishing the nontaxable nature of each sale. 26 C.F.R. §§ 48.4222(a)(1)(c), 48.4221-1(c). Acting on § 4052's instruction to use § 4222 as a guide in establishing regulations for § 4052, the IRS promulgated Temporary Treasury Regulation 26 C.F.R. § 145.4052-1 (1988).

Regulation § 145.4052-1(a) provided that in order for a manufacturer-seller to be exempt from the excise tax imposed under § 4051, both the manufacturer-seller and the dealer-purchaser had to be registered with the IRS. In addition, the manufacturer-seller must have obtained from the dealer-purchaser a signed certificate that included the dealer's registration number and indicated that the transaction was for resale or long-term lease.

Volvo Trucks of North America, Inc. ("Volvo"), a manufacturer of heavy trucks and truck parts, responded to this regulation by instructing each of its franchised dealers to register with the IRS and to provide Volvo with exemption certificates that indicated the dealer's registration number and that listed the trucks purchased for resale. Two such dealers, Atlas Engine Rebuilders, Inc. ("Atlas") and Alaska Sales and Service, Inc. ("Alaska"), sent Volvo certificates with the phrase "Applied For" in the field reserved for its IRS registration number, indicating that they had applied for but not yet received a registration number for the relevant period. Another dealer, Alameda Truck Center, Inc. ("Alameda"), never supplied Volvo with a certificate. There is evidence that despite their failure to produce the certificates to Volvo, Alaska and Alameda had in fact registered with the IRS.

In 1991, the IRS began two excise tax audits of Volvo, one covering the period 1989-90 and the second covering 1990-91. At the end of the audits, the IRS assessed Volvo with over $2.1 million in excise taxes and penalties to cover those sales transactions that it had with dealers for which Volvo had not produced completed dealer certifications. Volvo paid the assessed amount and pursued administrative appeals. During this administrative process, the IRS refunded taxes to Volvo for transactions where the IRS could confirm that the dealer had paid the excise tax, even if the dealer had not properly registered and had not properly certified the transaction. As a result of this process, Volvo's liability for excise taxes was reduced from over $2.1 million to $856,226.08. Volvo commenced this action seeking a refund of this remaining amount.

In its complaint, Volvo contends (1) that Temporary Treasury Regulation § 145.4052-1 was invalid because it was an arbitrary and capricious regulation; (2) that Volvo substantially complied with Regulation § 145.4052-1; and (3) that the IRS should in any event be equitably estopped from enforcing the regulation because, during the administrative process, IRS made representations on which Volvo relied in failing to produce the required documentation. With respect to the equitable estoppel claim, Volvo alleged that IRS agents told Volvo that it did not need to have exemption certificates, but the IRS later changed its position; that IRS agents told Volvo that exemption certificates would apply retroactively but then denied their retroactive effect; and that IRS agents told Volvo that the IRS would accept affidavits in lieu of certifications but then refused to accept affidavits.

The district court granted the IRS's motion for summary judgment on Volvo's first two claims relating to Regulation § 145.4052-1 and Volvo's compliance with it, and it granted the IRS's motion to dismiss the third claim relating to equitable estoppel on the ground that Volvo failed to state a claim upon which relief could be granted. This appeal followed.

II

Volvo contends first that the promulgation of Temporary Treasury Regulation § 145.4052-1 was an invalid exercise of the IRS's rule-making authority. More particularly, Volvo argues that (1) Regulation § 145.4052-1 was inconsistent with 26 U.S.C. § 4052, which authorized the regulation; (2) the regulation was inconsistent with congressional intent; (3) the IRS failed to consider the possibility of double-taxation in promulgating the regulation; and (4) the regulation was not "uniformly or literally applied" in all circumstances. We address these arguments seriatum.

On Volvo's first argument that the regulation was inconsistent with the statute, we conclude that the regulation was not only consistent with the plain language of the statute, but it was explicitly contemplated by the statute. In § 4052, Congress authorized the IRS to promulgate regulations "similar to the rules of ... section 4222." 26 U.S.C. § 4052(d)(2). Section 4222 requires that all parties to a sale be registered with the IRS as a condition to receiving the tax exemptions that are detailed in § 4221. In addition, the regulations promulgated under §§ 4221 and 4222 require that purchasers provide sellers with written statements that include their IRS registration numbers and the nontaxable purpose for which the items were purchased. 26 C.F.R. §§ 48.4222(a)-(1)(c), 48.4221-1(c). Thus, when Congress specifically instructed the IRS in § 4052 to promulgate regulations similar to those in § 4222, it directed the Commissioner to impose registration and certification requirements in connection with sales covered by § 4052.

The Commissioner did just that. When the IRS promulgated Temporary Treasury Regulation § 145.4052-1, it was only complying with the explicit requirements of § 4052. As with § 4221 and its implementing regulations, the IRS required with respect to § 4052 that manufacturer-sellers and dealer-purchasers be registered with the IRS under § 4222 and that the manufacturers obtain exemption certificates containing statements from the dealer-purchasers that the trucks being sold were for resale or long-term leasing. Even if § 4052 had not explicitly authorized such a regulatory scheme, however, Regulation § 145.4052-1 would have been a reasonable promulgation designed to verify that the excise tax had been paid by the dealer before exempting the manufacturer. It therefore would undoubtedly have been within the IRS's authority.

As for Volvo's argument that the regulation violated congressional intent, there is little need to address this point further because, as already noted, the IRS received explicit authority to promulgate the regulation. Moreover, Congress' intent to authorize such a regulation is manifested by the fact that in later changing the language of § 4052, Congress, albeit a different Cong...