Yellow Freight System, Inc. v. U.S.

• Decision Date: 15 June 1976
• Docket Number: No. 75-1670,75-1670
• Citation: 538 F.2d 790
• Parties: 76-2 USTC P 9478 YELLOW FREIGHT SYSTEM, INC., Appellee, v. UNITED STATES of America, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 790

538 F.2d 790

76-2 USTC P 9478

YELLOW FREIGHT SYSTEM, INC., Appellee, v. UNITED STATES of America, Appellant.

No. 75-1670.

United States Court of Appeals Eighth Circuit.

Submitted March 10, 1976.

Decided June 15, 1976.

William A. Whitledge, Tax Div., Dept. of Justice, Washington, D. C., for appellant; Bert C. Hurn, U. S. Atty., Scott P. Crampton, Asst. Atty. Gen., and Gilbert E. Andrews, Jr. and Gary R. Allen, Attys., Tax Div., Dept. of Justice, Washington, D. C., on brief.

George E. Gibson, Kansas City, Mo., for appellee; Reece A. Gardner and Sheryl B. Etling, Kansas City, Mo., on brief.

Before LAY, ROSS and STEPHENSON, Circuit Judges.

ROSS, Circuit Judge.

This suit was brought by Yellow Freight System, Incorporated (hereinafter taxpayer) against the United States to recover federal income taxes and assessed interest in the amount of $203,498.76 for the taxable years 1963, 1964, 1965 and 1966. The controlling issue on this appeal is whether certain docks, dock additions and inspection lanes, constructed by the taxpayer in the years at issue, are investment credit properties within the meaning of section 48(a)(1)(B) of the Internal Revenue Code, 26 U.S.C. § 48(a)(1)(B) (1970), as amended, 26 U.S.C. § 48(a)(1)(B) (Supp. IV, 1974) (hereinafter § 48(a)(1)(B)). ¹ Resolution of this issue depends on whether the structures are "buildings" under § 48(a)(1)(B) and thus ineligible for the investment credit. The court below held that the structures are not buildings and entered judgment in favor of the taxpayer. ² We reverse.

I.

The investment credit provisions of the Code, 26 U.S.C. §§ 38 et seq., allow a credit with respect to certain qualified investments in depreciable property. At all times relevant to this lawsuit, the credit was allowable in an amount equal to seven percent of any qualified investment under § 46(a)(1). ³ Section 48(a) of the Code defines the property, termed "section 38 property," which qualifies for the investment credit. During the years in question, § 48(a)(1) read as follows:

(a) Section 38 property.

(1) In general. Except as provided in this subsection, the term "section 38 property" means

(A) tangible personal property, or

(B) other tangible property (not including a building and its structural components ) but only if such property

(i) is used as an integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services, or

(ii) constitutes a research or storage facility used in connection with any of the activities referred to in clause (i), or

(C) * * *.

Such term includes only property with respect to which depreciation (or amortization in lieu of depreciation) is allowable and having a useful life (determined as of the time such property is placed in service) of 4 years or more. (Emphasis supplied.)

In the years 1963 through 1966, Yellow Freight caused to be constructed thirteen docks, nine dock additions and four inspection lane facilities. In each instance the taxpayer claimed, and the government denied, an investment credit for these facilities, the cost of which varied from a low of $6,599.77 to a high of $530,487.89.

The parties stipulated that the properties in question qualified for the full investment credit in all particulars except one. The structures at issue were, when constructed, and are now, "other tangible property" under § 48(a)(1) (B). Depreciation was allowable with respect to the properties when each was constructed and each had a useful life of eight years or more for purposes of computing depreciation under § 167 of the Code. The properties were at all relevant times used by the taxpayer as an integral part of furnishing transportation services under § 48(a)(1)(B)(i). The only remaining question then, and the point upon which the Service denied the credit in each instance, is whether the structures are "buildings" which are ineligible for the credit.

Taxpayer is a common carrier of general freight operating in interstate commerce. The company hauls general freight by motor truck over ICC certified routes in Arizona, California, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Missouri, New Mexico, Ohio, Oklahoma and Texas. Taxpayer uses terminals along these routes in order to expedite the transfer of freight.

The transportation services which taxpayer provides are divided into the following four categories: outbound service, inbound service, break bulk operations and interline operations. In performing its outbound service, taxpayer's trucks pick up goods from a customer within the commercial zone which a terminal serves. Freight is taken by truck to the terminal and transferred to an outbound long-haul trailer for delivery to other destination cities. Inbound service is the opposite of outbound service. Long-haul trailers arrive at a terminal carrying freight destined for customers in the commercial zone served by such terminal. Freight is transferred to other trucks which deliver it to the customers within the commercial zone. Break bulk operations, which take place in Albuquerque, Baxter Springs (Kansas), Dallas, Indianapolis and St. Louis, involve the transfer of freight from inbound long-haul trailers to outbound long-haul trailers. Interline operations involve freight which is transferred from a trailer of another carrier to outbound trailers of the taxpayer.

The method of freight transfer is similar in each case. An arriving vehicle is backed up to a dock stall. The freight is unloaded and moved by forklift or cart to another dock stall where the freight is loaded into other trailers. ⁴

Functionally, the docks at issue facilitate the movement of freight from inbound to outbound transportation vehicles. They provide a flat loading and unloading area under protective cover which is readily accessible to incoming and outgoing vehicles. The number of employees who work on the docks varies from a maximum of 80 full time employees per 8 hour shift at the St. Louis dock to a minimum of 5 part time employees per 8 hour shift at the Davenport dock. The average number of trucks loaded and unloaded per day at the docks varies from eleven at Sandusky and Tucson to three hundred at St. Louis.

Structurally, the docks are rectangular in appearance. The dimensions vary. The smallest in Waco, Texas is 40' x 40' x 17' 10 . The largest in St. Louis is 81' x 757' x 21' 2 . The dock platforms consist of a concrete slab, normally six inches thick, which is raised approximately four feet off the ground to a height suitable for access to truck beds. The slabs are generally supported by concrete perimeter foundation walls and dirt or other filling material. ⁵ Each dock has a preengineered metal roof supported by eleven to twelve foot steel columns placed at twenty-two foot intervals along the length of the structure. Roof support crossbeams are placed over each laterally opposed pair of columns. Roof framing members, consisting of six inch deep steel purlins, run longitudinally on top of the crossbeams at five to six foot spacings. Roof sheeting is attached to the top of the purlins and forms the roof. The roof typically extends eight feet beyond the dock in order to provide cover for vehicles while loading and unloading takes place.

The office building at each of the terminals adjoins the dock. At most of the terminals, the office floor is contained within the same perimeter foundation walls that surround the dock. At most of the terminals, the dock roof extends as one continuous unit over the office building. Thus the docks and office buildings typically share the same roof and foundation.

None of the docks at issue are enclosed within walls. The docks which operate twenty-four hours a day, seven days a week (Indianapolis, Dallas and St. Louis) are open at all times and have no doors. All other docks have sectional overhead doors for each stall which are raised during working hours and lowered during nonworking hours.

There are a number of electrical outlets on each dock. All (except the St. Louis dock) are equipped with overhead fluorescent lighting and half of the docks have telephones. Most have spotlights used to illuminate the inside of trailers being loaded or unloaded. None have air conditioning. Only three docks (Davenport, St. Louis and Waco) have heaters. There are no restroom facilities on the docks (except at Indianapolis) and, during the time at issue, none had lunchroom facilities.

At trial, the government offered the expert testimony of Charles Kahn, Professor of Architecture and Dean of the School of Architecture and Urban Design at the University of Kansas, and William Lucas, also a Professor of Architecture and Urban Design at Kansas University. Kahn and Lucas viewed a film depicting the Detroit and St. Louis terminals, selected by the parties as typical of those at issue. Both Kahn and Lucas visited the Kansas City terminal which taxpayer characterized as typical of the dock structures. They also viewed selected architectural and engineering drawings of a number of the facilities in question.

Both concluded that the docks are "buildings" in the architectural sense of the term. Kahn stated that the dock structures are buildings in both the technical and operational sense. He indicated that the structures are neither uniquely designed nor uniquely functional. They were, according to Kahn, constructed with standard building elements and preengineered components and could be converted to a variety of other uses with a minimum of structural and building material changes. ⁶ The evidence offered by Lucas corroborated Kahn's conclusion. This expert evidence was essentially uncontroverted by the taxpayer.

The inspection lanes are located at taxpayer's breakpoint terminals (Albuquerque, Baxter Springs, Indianapolis and St. Louis). They serve to expedite the fueling, cleansing and inspection for safety and roadability of long-haul...