Worldwide Equipment v. U.S.

• Decision Date: 29 February 2008
• Docket Number: Civil Action No. 04-451-DLB.
• Parties: WORLDWIDE EQUIPMENT, Plaintiff v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of Kentucky

546 F.Supp.2d 459

WORLDWIDE EQUIPMENT, Plaintiff v. UNITED STATES of America, Defendant.

Civil Action No. 04-451-DLB.

United States District Court, E.D. Kentucky, Southern Division.

February 29, 2008.

J. Neal Gardner, Jamie Michael Ramsey, Richard L. Creighton, Jr., Keating, Muething & Klekamp, PLLC, Cincinnati, OH, for Plaintiff.

Joseph E. Hunsader, Michael Joseph Martineau, U.S. Department of Justice-Tax Division, Washington, DC, for Defendant.

MEMORANDUM OPINION AND ORDER

DAVID L. BUNNING, District Judge.

This matter is before the court on the parties' cross motions for summary judgment. (Doc. # 47, 48). Both parties have filed responses and replies. (Doc. # 49, 50, 51, 53). For the reasons that follow, Plaintiffs motion for summary judgment (Doc. # 47) is hereby denied. Defendant's motion for summary judgment (Doc. # 48) is hereby granted as to both the original complaint and the issue of liability on the counterclaim. However, the matter will be referred to Magistrate Judge Edward B. Atkins to determine damages on the counterclaim.

I. Introduction

This is a tax refund action brought by Plaintiff Worldwide Equipment against Defendant United States of America, to which Defendant has filed a counterclaim, seeking further tax payments from Plaintiff. This Court has jurisdiction based on 28 U.S.C. § 1346(a)(1) & (c).

II. Background

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, 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 Plaintiffs 1999 excise tax returns because Plaintiff had not paid federal retail excise taxes (FRET) for certain RD888SX sales. (Doc. # 48-2 at 22).¹ 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 for which no FRET had been paid.²

III. Standard of Review

A. Tax Refund Suits

In tax refund suits, IRS assessments enjoy a "presumption of correctness." Liquid Asphalt Systems, Inc. v. United States, 555 F.Supp. 1100, 1102 (W.D.Mo.1982) (citing Welch v. Helvering, 290 U.S. 111, 115, 54 S.Ct. 8, 78 L.Ed. 212 (1933)). Thus, "[t]he taxpayer must prove by a preponderance of the evidence both that it has overpaid tax and the amount of the overpayment." Id. (citing Helvering v. Taylor, 293 U.S. 507, 514, 55 S.Ct. 287, 79 L.Ed. 623 (1935); United States v. Janis, 428 U.S. 433, 440, 96 S.Ct. 3021, 49 L.Ed.2d 1046 (1976)). The burden is on the taxpayer even in cases, such as the one now before the Court, where the United States has filed a counterclaim for the unpaid balance of the tax assessments. Sinder v. United States, 655 F.2d 729, 731 (6th Cir.1981). "[T]he burden on the taxpayer is not merely a burden of producing evidence; it is a burden of persuasion by the preponderance of the evidence that the assessment is not correct. Only if that is shown must the government show, on its counterclaim, what the correct assessment is." Id. Furthermore, "[e]xemptions from taxation are to be strictly construed and not easily expanded." Liquid Asphalt, 555 F.Supp. at 1102 (citing Heiner v. Colonial Trust Co., 275 U.S. 232, 235, 48 S.Ct. 65, 72 L.Ed. 256 (1927); Bingler v. Johnson, 394 U.S. 741, 752, 89 S.Ct. 1439, 22 L.Ed.2d 695 (1969); Comm'r v. Jacobson, 336 U.S. 28, 49, 69 S.Ct. 358, 93 L.Ed. 477 (1949)).

B. Summary Judgment

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A dispute over a material fact cannot be "genuine" unless a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The court must "view the evidence and draw all reasonable inferences therefrom in the light most favorable to the non-moving party." Little v. BP Exploration & Oil Co., 265 F.3d 357, 361 (6th Cir.2001).

Once the movant has met its initial burden of establishing that summary judgment may be appropriate as a matter of law, the non-movant cannot rest on its pleadings but must instead demonstrate that there is a genuine issue for trial. See Celotex, 477 U.S. at 324, 106 S.Ct. 2548. "The nonmoving party must do more than simply show that there is some metaphysical doubt as to the material facts, it must present significant probative evidence in support of its complaint to defeat the motion for summary judgment." Expert Masonry, Inc. v. Boone County, 440 F.3d 336, 341 (6th Cir.2006). If a reasonable jury could not return a verdict for the nonmoving party based on the evidence construed in its favor, summary judgment should be granted to movant. See Burchett v. Kiefer, 310 F.3d 937, 942 (6th Cir.2002).

IV. Analysis

The applicable provision of the Internal Revenue Code imposes a 12% excise tax on the first retail sale of heavy truck chassis and bodies. 26 U.S.C. § 4051(a). Pursuant to the applicable federal regulation at 26 C.F.R. § 48.4061(a)-1(a)(2), such truck chassis and bodies are subject to excise tax "only if ... sold for use as a component part of a highway vehicle." "[T]he term 'highway vehicle' means 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." 26 C.F.R. § 48.4061(a)-1(d)(1).³ However, the regulation goes on to say that the concept of a "highway vehicle" does not include vehicles described in paragraph (d)(2) of the section. Id. Paragraph (d)(2) lists three exceptions to the definition of "highway vehicles." 26 C.F.R. § 48.4061(a)-1(d)(2)(i), (ii), & (iii). Relevant to this matter, 26 C.F.R; § 48.4061(a)-1(d)(2)(ii) provides for an off-highway vehicle exception to the 12% FRET. It provides in pertinent part:

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 construction, manufacturing, processing, farming, mining, drilling, timbering, or operation similar to any one of the foregoing enumerated options, 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.

Id. (emphasis added) Thus, resolution of this matter turns on a determination of whether the RD888SX satisfies the "special design" and "substantial impairment" tests, thereby qualifying as an off-highway vehicle exempt from the 12% excise tax.

Taxability is to be determined ex ante in an objective manner taking into consideration a particular vehicle model. See Dillon Ranch Supply v. United States, 652 F.2d 873, 881 (9th Cir.1981) (holding that the "test for taxability ... is primary design, not primary use"). Taxability does not turn on a purchaser's ex post actual use of the vehicle. See Freightliner of Grand Rapids v. United States, 351 F.Supp.2d 718, 727-28 (W.D.Mich.2004) (concluding that an actual use standard would be "unworkable"). Actual highway use is not required for a vehicle to be subject to excise tax....