Worldwide Equip. Inc v. U.S.A

• Decision Date: 17 May 2010
• Docket Number: No. 08-5950.,08-5950.
• Citation: 605 F.3d 319
• Parties: WORLDWIDE EQUIPMENT, INC., Plaintiff/Counterclaim Defendant-Appellant,v.UNITED STATES of America, Defendant/Counterclaim Plaintiff-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

605 F.3d 319

WORLDWIDE EQUIPMENT, INC., Plaintiff/Counterclaim Defendant-Appellant,v.UNITED STATES of America, Defendant/Counterclaim Plaintiff-Appellee.

No. 08-5950.

United States Court of Appeals, Sixth Circuit.

Argued: April 29, 2009.

Decided and Filed: May 17, 2010.

ARGUED: James E. Burke, Jr., Keating, Muething & Klekamp, Cincinnati, Ohio, for Appellant. Bethany B. Hauser, United States Department of Justice, Washington, D.C., for Appellee. ON BRIEF: James E. Burke, Jr., Sue A. Erhart, Brenna L. Penrose, Keating, Muething & Klekamp, Cincinnati, Ohio, for Appellant. Bethany B. Hauser, Richard Farber, United States Department of Justice, Washington, D.C., for Appellee. Richard H.C. Clay, Dinsmore & Shohl, Louisville, Kentucky, Emily Fritts Whitty, Morris & Player, Louisville, Kentucky, Mark H. Sidman, Rose-Michele Nardi, Sandra B. Vipond, Weiner, Brodsky, Sidman & Kider, Washington, D.C., for Amici Curiae.

Before: MERRITT, COOK, and WHITE, Circuit Judges.

WHITE, J., delivered the opinion of the court, in which COOK, J., joined. MERRITT, J. (pp. 332-33), delivered a separate dissenting opinion.

OPINION

HELENE N. WHITE, Circuit Judge.

Plaintiff Worldwide Equipment, Inc. (Worldwide), a heavy-truck dealer and authorized distributor of Mack Trucks, serves the coal-mining industry in Kentucky, Tennessee, West Virginia and Virginia, and is required to collect a federal retail excise tax (FRET) on the sale of certain trucks. Worldwide filed this suit for a refund of $119,302 in heavy-truck excise taxes it paid the IRS for the first quarter of 2004, related to the sale of eight Model RD888SX coal-hauler dump trucks. Defendant Government counterclaimed for $1,149,140.59 in excise taxes claimed to be due for the period from 1999 to early 2003. The Government sought summary judgment on both the claim and counterclaim. The district court granted the Government's motion on both claims. We vacate the grant of summary judgment and remand for further proceedings.

I.

A

Neither party challenges the district court's statement of underlying facts:

Plaintiff Worldwide Equipment is a heavy truck dealer with headquarters in Prestonburg, Kentucky. (Doc. # 47-1 at 2). It has facilities and conducts business in Kentucky, West Virginia, Tennessee, and Ohio. ( Id.) The vehicle at issue in this case is a Mack Trucks, Inc. (“Mack”) RD888SX. By way of explaining why Worldwide is responsible for the federal excise tax imposed by the Internal Revenue Service (“IRS”), Worldwide provides:

Worldwide is a heavy truck dealer and as such, a “Form 637 filer.” This means that Worldwide purchases complete or incomplete new truck chassis from an original manufacturer, such as Mack, without paying federal excise tax. When Worldwide sells a completed new truck or an incomplete chassis to a retail customer, it has the responsibility for determining whether the 12% excise tax is due, and if it is, charging, collecting and remitting the tax to the IRS along with a Form 720 (Federal Excise Tax Return). While Worldwide, like most dealers, passes the excise tax on to its customers, Worldwide is the party required by law to collect the excise tax.

(Doc. # 47-1 at 5 (footnotes omitted)). With respect to the RD888SX, Plaintiff states:

Worldwide adopted a practice of requiring its customers to sign a written statement attesting that the RD888SX Coal Hauler they were purchasing from Worldwide would be operated as an off-highway vehicle. If the customer refused to sign this statement, or Worldwide believed that the customer intended to operate the vehicle on public highways, it collected, reported and remitted excise tax-even though the vehicle was still illegal to operate on public highways.

(Doc. # 47-1 at 13 (footnote and internal citation omitted)).

The RD888SX first came to the attention of the IRS during a 1999 investigation into whether a particular Bridgestone/Firestone tire should be subject to excise tax. (Doc. # 48-2 at 14). The IRS ultimately determined that the RD888SX was subject to excise tax. On or before July 24, 2001, the IRS notified Plaintiff that it was opening an investigation into Plaintiff's 1999 tax returns because Plaintiff had not paid federal retail excise taxes (FRET) for certain RD888SX sales. (Doc. # 48-2 at 22). [A footnote here states “During the relevant period (from 1999 to 2004), Plaintiff sold approximately 200 RD888SXs total. (48-2 at 16).”] Plaintiff argued that the IRS assessment was erroneous. This argument was “initially rejected in 2003, and again in 2004 after plaintiff had availed itself of internal Service administrative appeal procedures.” ( Id.). Plaintiff paid the excise tax on eight vehicles sold to a single customer, James C. Justice Cos. Plaintiff then filed a complaint for the refund of the FRET paid ($119,302). Defendant filed a counterclaim for $1,149,140 for taxes assessed upon at-issue vehicles sold since 1999 [from 1999 through the first quarter of 2003, about 90 vehicles] for which no FRET had been paid.

B

The Internal Revenue Code, 26 U.S.C. § 4051(a),¹ imposes a 12% tax on the first retail sale of any heavy-truck chassis or body weighing over 33,000 pounds if the chassis or body is sold for use as a component part of a “highway vehicle.” “Highway vehicle” is defined as:

* * * any self-propelled vehicle, or any trailer or semitrailer, designed to perform a function of transporting a load over public highways, whether or not also designed to perform other functions, but does not include a vehicle described in paragraph (d)(2) of this section.... [26 C.F.R. § 48.4061(a)-1(d).]

The § (d)(2) exception at issue in this case is the off-highway vehicle exception, which provides:

(ii) Certain vehicles specially designed for offhighway transportation. A self-propelled vehicle, or a trailer or semitrailer, is not a highway vehicle if it is (A) specially designed for the primary function of transporting a particular type of load other than over the public highway in connection with a ... mining ... operation[ ] and (B) if by reason of such special design, the use of such vehicle to transport such load over the public highways is substantially limited or substantially impaired. For purposes of applying the rule of (B) of this subdivision, account may be taken of whether the vehicle may travel at regular highway speeds, requires a special permit for highway use, is overweight, overheight or overwidth for regular use, and any other relevant considerations [26 C.F.R. § 48.4061(a)-1(d)(2)(ii).]

A vehicle's taxability is determined by application of an ex ante analysis that examines a vehicle's intended primary design. See Dillon Ranch Supply v. United States, 652 F.2d 873, 881 (9th Cir.1981) (noting that “[t]he test for taxability under § 4061(a) is primary design, not primary use, under both the old [pre-1977] and new Treasury Regulations ... [A] use test would be unworkable since there would be no way of knowing how a given article would be used by the consumer at the time of sale.”); see also Freightliner of Grand Rapids v. United States, 351 F.Supp.2d 718, 728 (W.D.Mich.2004) (noting that “because the taxability of a vehicle [under 26 U.S.C. § 4501 see id. at 720 n. 1] must be determined at the time of the first retail sale, an actual use standard is unworkable.”)

C

The Government's motion for summary judgment argued that the RD888SX was not specially designed for the primary function of transporting a load other than over the public highway because it was designed to be “a dual-use on/off highway vehicle,” and because it was not specially designed to transport a particular type of load. The district court agreed that the exception does not apply:

Whether the RD888SX satisfies the off-highway exception's special design test is a close call. It would seem that the vehicle's primary purpose is, indeed, the hauling of coal. However, this hauling entails transport of the coal from mine site to tipple, which often entails travel over the public highways. Thus, while specific components of the RD888SX may have been modified to improve its ability to operate in the Appalachian coal region, it does not satisfy the requirement that it be “specially designed for the primary function of transporting a particular type of load other than over the public highway.” 26 C.F.R. § 48.4061(a)-1(d)(2)(ii)(A) (emphasis added). Rather, the RD888SX's ability to transport coal over public roadways is as important to its role in the coal industry as its sturdier design features which make it better suited for work in the Appalachian coal fields. Use of the RD888SX on the public highways can hardly be considered “merely incidental,” since, in most cases, one must travel over the public roads to transport coal from mine face to tipple. [Footnote 4 here states “While some mines have on-site tipples, most do not. (Pigman Decl. ¶¶ 6-7).”]

* * *

Taken as a whole, the record evidence suggests that the RD888SX is not a special off-highway design. Rather, it is a dual use (on/off highway) vehicle that may be licensed and that complies with applicable Federal Motor Vehicle Safety Standards....

D

Worldwide raises three objections to the district court's opinion: 1) that the court failed to properly apply the summary judgment standard; 2) that the court applied an incorrect legal standard when analyzing the “special design” test, in that Worldwide need only show that the primary function of the RD888SX was the transport of coal off-road; and 3) that the court misconstrued several key pieces of evidence, thereby making assumptions of fact that were not supported by the record. In essence, Worldwide challenges the district court's conclusion that, as a matter of law, the RD888SX did not meet the special design prong of the off-highway vehicle exception.

This court reviews de novo a district court's grant of summary judgment. Sherwin-Williams Co. v. United States, 403 F.3d 793, 795 (6th Cir.2005). Summary judgment is properly granted “if the pleadings, the...