Western Waste Indus. & Subsidiaries v. Comm'r of Internal Revenue
| Decision Date | 13 April 1995 |
| Docket Number | No. 12169–92. |
| Citation | 104 T.C. No. 23,104 T.C. 472 |
| Parties | WESTERN WASTE INDUSTRIES AND SUBSIDIARIES, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
By statutory notice of deficiency dated March 6, 1992, respondent determined a deficiency in petitioners' Federal corporate income tax for the taxable year ending June 30, 1988, in the amount of $150,123. Pursuant to the provisions of section 48.4041–7, Manufacturers & Retailers Excise Tax Regs., respondent contends that petitioners are not entitled to an income tax credit under section 34 in respect of excise tax imposed by section 4041(a)(1) on fuel used by petitioners' vehicles that have a single motor and a power takeoff unit to power the vehicles' internal hydraulic system and that are operated both on and off the nation's highways. See infra pp. 9–10 and note 3. Petitioners assert that they are entitled to a fuel credit for the fuel consumed by their diesel-powered highway vehicles, which are registered for highway use in the States where they operate, and that section 48.4041–7, Manufacturers & Retailers Excise Tax Regs., is an invalid interpretative regulation that improperly imposes restrictions and limitations on petitioners' right to claim a fuel credit for the nonpropulsion operations of their vehicles.
Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the year in issue, and Rule references are to the Tax Court Rules of Practice and Procedure.
This case was submitted fully stipulated pursuant to Rule 122. The stipulation of facts and attached exhibits are incorporated by this reference and are found accordingly. Petitioners are a consolidated group. Western Waste Industries, the parent corporation, was incorporated and has its headquarters in California. Petitioners constitute a leading integrated solid waste management company providing collection, recycling, composting, and disposal services. Western Waste Industries owns all the stock of two subsidiaries, Western Waste Industries of Texas and Western Waste Industries of Florida, which are located in Texas and Florida, respectively.
Petitioners operate various trucks in their refuse collection business. Some of these trucks operate completely off the nation's highways (Off-road Vehicles), while other trucks operate both on and off the nation's highways (On-road Vehicles). Substantially all of petitioners' On-road Vehicles are powered by diesel fuel; however, petitioners employ a few gasoline-powered vehicles in limited access areas.1 The parties have agreed that this Court's determinations as to diesel-powered vehicles shall be deemed applicable to both the diesel- and gasoline-powered vehicles.
Petitioners claimed a credit for Federal tax paid on gasoline and special fuels in the amount of $225,350 for its taxable year ending June 30, 1988. Respondent disallowed the fuel credit claimed by petitioners; instead, respondent allowed a deduction of $220,863 for additional fuel expenses. As a result of these adjustments, respondent further determined that the environmental tax credit claimed on petitioners' return had to be reduced by $133. Respondent now concedes that petitioners are entitled to fuel credits claimed by petitioners' landfill group in the amount of $4,487 for diesel fuel consumed by Off-road Vehicles at a landfill site. Respondent also concedes that the fuel consumed by petitioners' Off-road Vehicles is not subject to tax, and, accordingly, that petitioners are entitled to a credit of $5,921, which constitutes the tax attributable to such vehicles. The remaining amount to the credit, $214,942 ($225,350—$4,487—$5,921), is in dispute.2
All of the On-road Vehicles in question were registered for highway use in the States in which they operate. Petitioners' On-road Vehicles were powered by a single motor from fuel that was stored in a single tank. The parties dispute whether petitioners are entitled to claim a credit for the gasoline and/or diesel fuel used by these On-road Vehicles, which are equipped with one motor, when their so-called power takeoff units are in operation. These power takeoff units, which are powered by the vehicle motor, activate the vehicle's hydraulic system, which performs refuse industry tasks, including, but not limited to the following: Raising and emptying containers, and compacting and ejecting refuse. An On-road Vehicle may only be driven minimally while its power takeoff unit is engaged. The parties have stipulated that since the early 1970's, manufacturers of vehicles have stopped producing standard vehicles that contain a separate motor to power the vehicles' special equipment.
Petitioners allege that section 48.4041–7, Manufacturers & Retailers Excise Tax Regs. (the Regulation), is an interpretative regulation that is invalid as it improperly imposes additional requirements on the incidence of taxation of diesel fuel. Specifically, petitioners contend that the Regulation is invalid because: (1) Congress intended section 4041(a)(1) to tax only diesel fuel used “for the propulsion of” a registered highway vehicle; (2) section 4041 and its legislative history do not mention the Regulation's bright-line distinction between single-motor and dual-motor vehicles; (3) the Commissioner has vacillated in interpreting section 4041(a)(1); certain amendments to the Regulation, which were not accompanied by corresponding changes in the underlying statute, demonstrate the Commissioner's attempts to administratively rewrite section 4041; (4) the Regulation is an interpretative regulation, which is inconsistent with section 4041; (5) the amendment by section 202(b) of the Airport and Airway Revenue Act of 1970, Pub.L. 91–258, 84 Stat. 238, was not intended to make a substantive change in section 4041; and (6) some States allow petitioners to claim a credit for the portion of the fuel used to power the power takeoff units of single-motor vehicles.
Respondent contends that the Regulation constitutes a valid and reasonable interpretation of section 4041. Specifically, respondent asserts that the Regulation is valid because: (1) Section 4041(a)(1) imposes an excise tax on diesel fuel sold to an operator of a diesel-powered highway vehicle “for use as a fuel in such vehicle”; (2) a credit is allowed for the tax imposed by section 4041 on diesel fuel that is put to an “off-highway business use”, as defined in section 6421(e)(2)(A); (3) under section 6421(e)(2)(A), the use of fuel in a highway vehicle that is registered (or required to be registered) for highway use under the laws of any State does not constitute “off-highway business use”; (4) the Regulation, which was originally promulgated 34 years ago, harmonizes with the plain language, origin, and purpose of section 4041(a)(1) and related sections of the Code; and (5) whether or not a State allows relief from tax on fuel is irrelevant with respect to the validity of the Regulation.
We agree with respondent. For the reasons stated below, we hold that section 48.4041–7, Manufacturers & Retailers Excise Tax Regs., constitutes a valid exercise of the Secretary's regulatory authority.
Treasury regulations are not to be rejected unless they are unreasonable and plainly inconsistent with the revenue statutes. Bingler v. Johnson, 394 U.S. 741, 750–751 (1969); Cramer v. Commissioner, 101 T.C. 225, 247 (1993). Treasury regulations are entitled to considerable weight; however, the Secretary may not usurp the authority of Congress by adding restrictions to a statute which are not there. United States v. Marett, 325 F.2d 28 (5th Cir.1963); Jackson Family Foundation v. Commissioner, 97 T.C. 534 (1991), affd. 15 F.3d 917 (9th Cir.1994); Stephenson Trust v. Commissioner, 81 T.C. 283, 288 (1983); Durbin Paper Stock Co. v. Commissioner, 80 T.C. 252, 256–257 (1983); Estate of Boeshore v. Commissioner, 78 T.C. 523, 527 (1982); see Washington v. Commissioner, 77 T.C. 656 (1981), affd. 692 F.2d 128 (D.C.Cir.1982). Petitioners bear the burden of proving that respondent's determinations set forth in the notice of deficiency are incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
In determining whether a particular regulation carries out the congressional mandate in a proper manner, we look to see whether the regulation harmonizes with the plain language of the statute, its origin, and its purpose. United States v. Vogel Fertilizer Co., 455 U.S. 16 (1982); Durbin Paper Stock Co. v. Commissioner, supra at 257. We note at the outset that the Secretary does not enjoy a specific grant of authority to promulgate regulations under section 4041. Accordingly, the Regulation in question is an interpretative regulation promulgated by the Secretary pursuant to the general grant of authority provided in section 7805(a). Interpretative regulations, although entitled to respect, are entitled to less judicial deference than that given to legislative regulations promulgated pursuant to a specific grant of authority. United States v. Vogel Fertilizer Co., supra at 24; Phillips Petroleum Co. v. Commissioner, 97 T.C. 30, 34 (1991). As the Supreme Court has explained: “Because Congress has delegated to the Commissioner the power to promulgate ‘all needful rules and regulations for the enforcement of [the Internal Revenue Code],’ 26 U.S.C. § 7805(a), we must defer to his regulatory interpretations of the [Internal Revenue] Code so long as they are reasonable.” Cottage Sav. Association v. Commissioner, 499 U.S. 554, 560–561 (1991) (quoting National Muffler Dealers Association, Inc. v. United States, 440 U.S. 472, 476–477 (1979)); Commissioner v. Portland Cement Co., 450 U.S. 156, 169 (1981) ().
In National Muffler Dealers Association, Inc. v. United States, supra, the Supreme Court stated that, in...
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...and plainly inconsistent with the revenue statutes. Rotenberry v. Commissioner, 847 F.2d 229 (5th Cir.1988); Western Waste Indus. & Subs. v. Commissioner, 104 T.C. 472 (1995). The initial phase of an analysis considering the validity of a Treasury regulation generally requires the determina......