United States Court of Appeals
For the First Circuit
No. 08-2535
HOSTAR MARINE TRANSPORT SYSTEMS, INC.,
Plaintiff, Appellant,
v.
UNITED STATES,
DEPARTMENT OF INTERNAL REVENUE SERVICE,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Lynch, Chief Judge,
Torruella and Howard, Circuit Judges.
Timothy J. Burke, with whom Burke & Associates, was on brief
for appellant.
Bridget M. Rowan, Attorney, Tax Division, Department of
Justice, with whom John A. DiCicco, Acting Assistant Attorney
General, Kenneth L. Greene, Attorney, Tax Division, and of counsel
Michael K. Loucks, United States Attorney, were on brief for
appellee.
January 7, 2010
TORRUELLA, Circuit Judge. This is an appeal from a
denial of a tax refund. The taxpayer, Hostar Marine Transportation
Systems, Inc. ("Hostar"), a manufacturer of hydraulic boat
trailers, seeks a refund of federal excise taxes in the amount of
$2,861.30 plus interest. The United States counterclaimed for
$195,773 plus interest on Hostar's as yet unpaid taxes.
The United States District Court for the District of
Massachusetts granted the United States' (1) motion to dismiss
Hostar's claim to have suffered a violation of due process,
(2) motion for summary judgment on Hostar's claim that it was
erroneously assessed the taxes, and (3) motion for summary judgment
on the United States' counterclaim. On appeal, Hostar challenges
each of the district court's rulings. After careful consideration,
we affirm those rulings.
I. Background
We outline the statutes, facts, and procedural history
relevant to the issues on appeal in this case.1 The issues on
appeal are whether Hostar's hydraulic boat trailers (1) qualify as
"semitrailers" or "truck trailers" for purposes of section 4051 of
the Internal Revenue Code ("I.R.C."); (2) qualify for the exclusion
1
For more information, see the decisions below: Hostar Marine
Transp. Sys., Inc. v. United States (Hostar I), No. 05-10111-DPW,
2005 U.S. Dist. LEXIS 10938 (D. Mass. May 26, 2005); Hostar Marine
Transp. Sys., Inc. v. United States (Hostar II), No. 06-10834-DPW,
2008 U.S. Dist. LEXIS 43800 (D. Mass. June 3, 2008); Hostar Marine
Transp. Sys., Inc. v. United States (Hostar III), No. 06-10834-DPW,
2008 U.S. Dist. LEXIS 82671 (D. Mass. Oct. 16, 2008).
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provided in section 4051(a)(3) of the I.R.C. concerning gross
vehicle weight ("GVW"); and (3) qualify for the exception provided
in 26 C.F.R. § 48.4061(a)-1(d)(2)(ii) concerning "[c]ertain
vehicles specially designed for offhighway transportation."
A. Statutes: I.R.C. § 4051 and 26 C.F.R. § 48.4061(a)-1
1. I.R.C. § 4051
Section 4051(a) of the I.R.C., concerning the imposition
of tax on heavy trucks and trailers sold at retail, imposes "on the
first retail sale . . . a tax of 12 percent of the amount for which
the [applicable truck trailer and semitrailer chassis and bodies
are] so sold." I.R.C. §§ 4051(a)(1)(C)-(D). One district court
has described the general purpose of this excise tax as follows:
to ensure that those entities which enjoy the
use of the public roads pay for their upkeep.
To put it differently, the tax forces those
entities that cause the most damage to the
public roads, and often benefit economically
the most from them, to pay for the
consequences of their use.
Worldwide Equip. v. United States, 546 F. Supp. 2d 459, 468 (E.D.
Ky. 2008).
2. Exclusion Concerning Gross Vehicle Weight
Section 4051 of the I.R.C. lists exclusions from this
tax. The exclusion at issue on appeal in this case is the
following: "The tax . . . shall not apply to truck trailer and
semitrailer chassis and bodies, suitable for use with a trailer or
semitrailer which has a [GVW] of 26,000 pounds or less (as
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determined under regulations prescribed by the Secretary [of the
Treasury])." I.R.C. § 4051(a)(3).
The GVW is defined in the Treasury Regulations.
According to these regulations:
For purposes of this section[,] the term
"gross vehicle weight" means the maximum total
weight of a loaded vehicle. Except as
otherwise provided . . ., such maximum total
weight shall be the [GVW] rating of the
article as specified by the manufacturer or
established by the seller of the completed
article, unless the [IRS] Commissioner finds
that such rating is unreasonable in light of
the facts and circumstances in a particular
case.
26 C.F.R. § 145.4051-1(e)(3).
3. Exception Concerning Offhighway Transportation
Beyond the explicit exclusions section 4051 of the I.R.C.
itself lists, the Treasury Regulations include certain limits and
exceptions to this excise tax. The exception at issue on appeal in
this case applies to "[c]ertain vehicles specially designed for
offhighway transportation." 26 C.F.R. § 48.4061(a)-1(d)(2)(ii).
That exception requires that the vehicle meet two criteria. The
vehicle must satisfy a design test, in that it must be "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 operations . . . ." Id. To qualify for the exception
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to this excise tax, the vehicle must also satisfy a use test, in
that, "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." Id.
B. Facts
Hostar reports that it manufactures four models of
hydraulic boat trailers (HPT, HST, HSTY, and HHT), three of which
(HPT, HST, and HHT) are capable of on-road use and one of which
(HSTY) is not.
1. Hostar's Competitors
Hostar states that it has competitors in the United
States and Canada that also manufacture hydraulic boat trailers.
Hostar alleges, however, that it is the only such manufacturer
whose trailers have been determined by the IRS not to qualify for
exemption pursuant to Treasury Regulations §§ 48.4061(a)-1(d)(2)(i)
and 48.4061(a)-1(d)(2)(ii). This alleged disparate treatment is
central to Hostar's claim to have suffered a violation of due
process.
2. Purpose of Hostar's Trailers
Hostar describes the purposes of hydraulic boat trailers
as being "to launch and retrieve boats from the water, to move
boats into and out of repair facilities and paint booths, to move
them about the boat yard, yacht club, marina or boat leadership,
and to set boats on keel blocking and boat stands for winter
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storage." Hostar claims that "[t]he main function or purpose of a
hydraulic trailer is not that of highway transporting." Rather,
Hostar asserts, "[t]he primary function of Hostar's Hydraulic Boat
Trailers is for use in boat yards and rarely on the highway due to
the cost and highly specialized nature of the equipment." Hostar
has provided affidavits from its customers that Hostar claims
"establish that Hostar's trailers are used in boatyards and rarely
on the highway."
3. Design of Hostar's Trailers
Hostar states that hydraulic boat trailers are
constructed with "stub axles," which attach a single wheel to the
trailer, as opposed to "through axles," which are more common,
attach two wheels to the trailer, and are used on highway transport
trailers. Hostar asserts that the design of the stub axle, which
features an "open-center," "enables the operations of ramp
launching, retrieving[,] and setting a boat on the ground, in a
repair facility or in a storage building" but renders these types
of axles vulnerable to "extraordinary wear and tear on the
highway."
Hostar reports that it does not build "lowboy" trailers.
Hostar states that almost all transporting of boats on highways is
accomplished on such trailers. In contrast to hydraulic boat
trailers, "lowboy" trailers have "through axles" (instead of "stub
axles"), a full bed or cross beams (as opposed to an open center
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design), no hydraulic components, are not submersible, and are
similar to trailers used for moving construction equipment.
4. Gross Vehicle Weight of Hostar's Trailers
At the time of sale (between 1994 and 1996), according to
Hostar's own documentation (through both the Vehicle Identification
Numbers and the Certificates of Origin), each of Hostar's fourteen
trailers at issue in this case had a GVW exceeding 26,000 pounds.
The trailers' GVWs thus precluded the exclusion from the tax
assessed pursuant to section 4051(a) of the I.R.C. at issue on
appeal in this case. See supra Part I(A)(2). On November 18,
1998, an unknown entity revised all of the Certificates of Origin
for these fourteen trailers to reflect lower GVWs. Eight of the
trailers then reflected GVWs below 26,000 pounds and the remaining
six reflected GVWs still in excess of 26,000 pounds.
C. Procedural History
1. IRS Assessment
Between January 7, 1994 and December 31, 1996, Hostar
sold the fourteen trailers at issue in this case. Between
April 1997 and October 1997, an IRS revenue agent audited Hostar.
On or about May 18, 2000, pursuant to section 4051(a) of the
I.R.C., the IRS assessed excise taxes against Hostar with respect
to the sale of the fourteen boat trailers and notified Hostar such
payments were due. See Hostar I, 2005 U.S. Dist. LEXIS 10938, at
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*2. In January and June 2001, the I.R.S. applied overpayment
credits to Hostar's tax assessments totaling $271.11. Id. at *3.
2. Hostar I
Hostar declined to pay the tax assessed against any of
its hydraulic boat trailers before submitting its first complaint
in this matter. On May 26, 2005, the U.S. District Court for the
District of Massachusetts granted the United States' motion to
dismiss (1) Hostar's request for a refund of $271.11 plus interest
and a declaration that the twelve percent excise tax assessed
against it pursuant to 26 U.S.C. § 4051(a) is exempted by I.R.S.
regulations and (2) Hostar's request for abatement of the tax
because of an alleged violation of due process. Id. at *1. The
district court determined that it had no jurisdiction over the
question of whether an excise tax was due until after Hostar paid
the tax. Id. at *4-5. The district court noted jurisdiction would
be conferred on the court if Hostar paid tax on a minimum of one
trailer for one quarter. Id. at *5 n.1. The district court
further determined that Hostar's allegation of suffering a
violation of due process was equally unavailing because Hostar had
named the wrong defendant and insufficiently pled a Bivens action.
Id. at *9-12. Finally, the district court noted that its decision
to grant the United States' motion to dismiss was further bolstered
by the fact that Hostar exceeded the statute of limitation in
filing its complaint. Id. at *15-16.
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3. Hostar's 2005 Complaint
Hostar did not appeal the district court's decision in
Hostar I. Rather, on or about April 26, 2005, Hostar paid the IRS
the tax assessed on the sale of one boat trailer and filed a claim
for a refund of the paid sum. See Hostar II, 2008 U.S. Dist. LEXIS
43800, at *4.
On May 9, 2006, Hostar filed in the U.S. District Court
for the District of Massachusetts a complaint against the United
States. Asserting its rights under 26 U.S.C. § 7422(a) (providing
for civil actions for refunds concerning, inter alia, "internal
revenue tax alleged to have been erroneously or illegally assessed
or collected"), Hostar claimed that it had been erroneously
assessed the excise tax pursuant to section 4051(a) of the I.R.C.2
Hostar alleged two counts. In Count I, Hostar claimed that the tax
assessment was erroneous because, pursuant to Treasury Regulations
§§ 48.4061(a)-1(d)(2)(i) and 48.4061(a)-1(d)(2)(ii), its hydraulic
boat trailers were exempted from the tax. In Count II, Hostar
claimed that it suffered a violation of due process because the
United States, in an unjustifiable and discriminatory violation of
its duty of consistency, assessed the tax only against Hostar
despite knowing that some of Hostar's competitors in the United
2
Hostar's complaint stated that the portion of the I.R.C.
pursuant to which it has been assessed excise tax is "4061(a)." It
is clear from the complaint and Hostar's brief on appeal, however,
that Hostar meant to write "4051(a)." Section 4061 of the I.R.C.
was repealed in 1984.
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States and Canada also manufacture hydraulic boat trailers. Hostar
requested judgment against the United States in the amount of
$2,861.30 plus statutory interest and an abatement of the
assessment against it.
4. The Government's 2006 Answer and Counterclaim
By June 20, 2006, Hostar had still not paid the
outstanding tax the IRS assessed on Hostar's hydraulic boat
trailers in 2000. Including interest and penalties, the United
States calculated that Hostar then owed $122,664.76.
On July 17, 2006, the United States filed its answer,
which the United States amended on July 31, 2006 to include a
counterclaim. The United States demanded judgment dismissing
Hostar's action and granting to the United States its costs. The
United States stated that, despite the notices and demands it sent
Hostar, Hostar had refused or neglected to pay in full excise taxes
on its sale of hydraulic boat trailers assessed in 2000 for tax
periods between 1994 and 1996. The United States thus asserted a
counterclaim against Hostar demanding judgment in favor of the
United States in the amount of $195,773.71 plus interest and other
statutory additions accruing from and after June 26, 2006.
Contrary to the single trailer on which Hostar paid an excise tax
and for which it claimed a refund, the United States ultimately
asserted that fourteen trailers were at issue in this case.
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5. The Government's 2007 Motion to Dismiss and
Hostar II
On May 18, 2007, the United States filed a motion to
dismiss, with prejudice, Count II of Hostar's complaint, concerning
the violation of due process Hostar alleged it suffered. The
United States provided three grounds for its requested dismissal.
First, the United States claimed that Hostar was precluded by
collateral estoppel from relitigating this issue because the same
cause of action was dismissed in a previous action between Hostar
and the United States. Hostar II, 2008 U.S. Dist. LEXIS 43800, at
*5; see also Hostar I, 2005 U.S. Dist. LEXIS 10938, at *16.
Second, the United States claimed that the district court lacked
jurisdiction over Count II because the United States had not waived
its sovereign immunity. Third, the United States claimed that
Hostar's allegation that it was entitled to relief from this tax
because other taxpayers had not paid their taxes failed to state a
claim as a matter of law, pursuant to Fed. R. Civ. P. 12(b)(6). On
June 3, 2008, the district court, concluding that Hostar had failed
to state a due process claim upon which relief can be granted,
dismissed Count II of Hostar's complaint. Hostar II, 2008 U.S.
Dist. LEXIS 43800, at *17. The district court noted that, unlike
in Hostar I, the court had jurisdiction in Hostar II because Hostar
had paid the tax assessed on one trailer. Id. at *5-6.
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6. The Government's 2008 Motion for Summary
Judgment and Hostar III
On June 30, 2008, the United States filed a motion for
summary judgment on both Count I of Hostar's complaint, concerning
the tax Hostar alleged it was erroneously assessed, and also on the
United States' counterclaim. On October 16, 2008, the district
court, concluding that Hostar "failed to show that the IRS
wrongfully or incorrectly assessed the excise tax on Hostar boat
trailers for the period of March 31, 1994 to December 31, 1996,"
granted the United States' motion for summary judgment on both
Count I of Hostar's claim and also on the United States'
counterclaim. Hostar III, 2008 U.S. Dist. LEXIS 82671, at *23-24.
The following day the clerk entered judgment in favor of the United
States for $223,554.32 with post-judgment interest.
On December 2, 2008, Hostar timely filed a notice of
appeal to this court concerning the district court's final
judgments from June 3 (concerning dismissal) and October 17, 2008
(concerning summary judgment).
II. Discussion
A. Standard / Scope of Review
Our standard / scope of review is the same -- de novo --
for all issues on appeal in this case:
We review de novo the district court's grant
of a motion to dismiss under Fed. R. Civ. P.
12(b)(6), accepting as true all well-pleaded
facts in the complaint and drawing all
reasonable inferences in the plaintiffs'
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favor. To survive a motion to dismiss, a
complaint must contain sufficient factual
matter, accepted as true, to state a claim to
relief that is plausible on its face.
We also review de novo the district court's
grant of summary judgment, drawing all
reasonable inferences in favor of the non-
moving party while ignoring conclusory
allegations, improbable inferences, and
unsupported speculation. For review of both
summary judgment and dismissal under Rule
12(b)(6), we may affirm on any basis apparent
in the record.
Sutliffe v. Epping Sch. Dist., 584 F.3d 314, 325 (1st Cir. 2009)
(internal citations and quotation marks omitted).
In tax refund suits, assessments by the IRS Commissioner
have "the support of a presumption of correctness." Welch v.
Helvering, 290 U.S. 111, 115 (1933). Thus, "taxpayers bear the
burden of proving that a tax deficiency assessment is erroneous."
Delaney v. Comm'r, 99 F.3d 20, 23 (1st Cir. 1996). We are also
mindful of "the principle that exemptions from taxation are to be
construed narrowly." Bingler v. Johnson, 394 U.S. 741, 751-52
(1969).
B. Solvency
Hostar contends that it is undisputed that Hostar would
go out of business if subjected to the excise tax. The United
States responds that, because only a relatively narrow subset of
Hostar's trailers is subject to excise taxes under section 4501 of
the I.R.C., Hostar's contention is "improper and belied by the
record." Hostar has offered no factual support for its contention,
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nor has it identified any case law that holds that the effect an
excise tax would have on a taxpayer should factor into whether the
taxpayer is subjected to the excise tax. We therefore consider
this issue waived. United States v. Bongiorno, 106 F.3d 1027, 1034
(1st Cir. 1997) ("We have steadfastly deemed waived issues raised
on appeal in a perfunctory manner, not accompanied by developed
argumentation.").
C. Hostar's Due Process Claim Based on Purported
"Disparate Treatment"
Hostar argues that the IRS has treated differently two
groups: Canadian manufacturers who are competitors and American
competitors. Hostar asserts that there is a general principle that
"the [IRS] has a duty to act consistently and cannot treat
similarly situated taxpayers disparately." See Int'l Bus. Machs.
Corp. v. United States (IBM), 343 F.2d 914 (Ct. Cl. 1965) and Sirbo
Holdings, Inc. v. Comm'r (Sirbo I), 476 F.2d 981 (2d Cir. 1973).
In other words, Hostar contends, "the United States is required to
treat all of the taxpayers in the same manner." Because similarly
situated manufacturers of boat trailers were not subject to the
section 4051 tax, Hostar argues that the district court erred when
it dismissed Hostar's claim that the United States improperly
discriminated against it in assessing the tax against Hostar.
When describing "similarly situated" manufacturers,
Hostar identifies both Canadian and domestic competitors that it
claims were not subjected to the disputed tax. As to Canadian
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competitors, we do not accept any argument that domestic and
foreign corporations are "similarly situated" and so there can be
no claims of discrimination in violation of the Due Process Clause.
As to American competitors, Hostar argues only arbitrary treatment,
purportedly in violation of the Due Process Clause. As support for
this argument, Hostar cites language from the Court of Claims'
decision in IBM and from Justice Frankfurter's concurrence in
United States v. Kaiser. See IBM, 343 F.2d at 920 ("Equality of
treatment is so dominant in our understanding of justice that
discretion, where it is allowed a role, must pay the strictest
heed."); United States v. Kaiser, 363 U.S. 299, 308 (1960)
(Frankfurter, J., concurring) ("The [IRS] Commissioner cannot tax
one and not tax another without some rational basis for the
difference. And so, assuming the correctness of the principle of
'equality,' it can be an independent ground of decision that the
Commissioner has been inconsistent, without much concern for
whether we should hold as an original matter that the position the
Commissioner now seeks to sustain is wrong."). We address that
claim. Hostar also cites two Tax Court memoranda to bolster its
claim, even though it acknowledges that these memoranda apply to
limitations on the IRS Commissioner's discretion in offering
settlement terms to taxpayers, not to the IRS Commissioner's
assessment of taxes. See Elghanian v. Comm'r, T.C. Memo. 2005-37,
2005 Tax Ct. Memo LEXIS 34, at *27-28 (U.S. Tax Ct. 2005) ("Tax
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laws must be applied as uniformly as possible. However, the [IRS]
Commissioner is not required to offer a settlement to one taxpayer
consistent with that offered to other similarly situated taxpayers,
absent proof that a taxpayer has been singled out for adverse
treatment based on impermissible considerations such as race or
religion, and absent contractual agreements to the contrary."
(internal citation omitted)); Stewart v. Comm'r, T.C. Memo. 2005-
212, 2005 Tax Ct. Memo LEXIS 212, at *8-9 (U.S. Tax Ct. 2005) ("Our
responsibility as a Court is to apply the law to the facts of the
case before us; how the Commissioner treated other taxpayers is
generally irrelevant in making that determination, absent proof
that a taxpayer has been singled out for adverse treatment based on
impermissible considerations such as race, religion, or other
arbitrary classification, and absent contractual agreements to the
contrary . . . ." (internal citations omitted)).
It has been said, as Hostar asserts, that the IRS has a
duty to act consistently toward similarly situated taxpayers.
Sirbo I, 476 F.2d at 987 ("[T]he Commissioner [of the IRS] has a
duty of consistency toward similarly situated taxpayers . . . .");
Bunce v. United States, 28 Fed. Cl. 500, 508 (1993) (observing that
the IRS has a "duty to treat similarly situated taxpayers
consistently").
However, even "accepting as true all well-pleaded facts"
in Hostar's complaint and "drawing all reasonable inferences in"
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Hostar's favor, Hostar's claimed suffering of a violation of due
process does not withstand our de novo review. The goal of
treating similarly situated taxpayers consistently is general, not
strict. The Tax Court's statement that tax laws must be applied as
uniformly "as possible" indicates that the tax laws do not need to
be strictly applied uniformly. Contrary to Hostar's assertion, the
courts, including the Second Circuit, the Tax Court, the Court of
Claims, and the Court of Federal Claims, have not, in fact,
prohibited the IRS from treating similarly situated taxpayers
disparately. We agree with these courts' reasoning, as described
below.
The Second Circuit declared as far back as 1975 that,
"[w]hile even-handed treatment should be the [IRS] Commissioner's
goal, perfection in the administration of such vast
responsibilities cannot be expected." Sirbo Holdings, Inc. v.
Comm'r (Sirbo II), 509 F.2d 1220, 1222 (2d Cir. 1975) (internal
citation omitted).
The Tax Court similarly declared around the same time
that:
It has long been the position of this Court
that our responsibility is to apply the law to
the facts of the case before us and determine
the tax liability of the parties before us;
how the Commissioner may have treated other
taxpayers has generally been considered
irrelevant in making that determination.
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Davis v. Comm'r, 65 T.C. 1014, 1022 (1976). Four years later, the
Tax Court noted this "well-established position of this Court,"
while observing that there could be exceptions: "It is conceivable,
however, that there may be situations where a taxpayer should be
accorded some relief if he were selected for audit on a
constitutionally impermissible criterion although such situations
are extremely rare." Penn-Field Indus., Inc. v. Comm'r, 74 T.C.
720, 722 (1980).
The Court of Claims also has determined that, despite the
likelihood that the IRS had taxed similarly situated individuals
differently, "[d]isparate treatment, however, is not a valid basis
for a tax refund. A failure of the IRS to assess deficiencies
against some taxpayers does not preclude an assessment against
other taxpayers." Ray v. United States, 25 Cl. Ct. 535, 541
(1992).
Finally, the Court of Federal Claims likewise has ruled
that:
The mere fact that another taxpayer has been
treated differently from the plaintiff does
not establish the plaintiff's entitlement.
The fact that all taxpayers or all areas of
the tax law cannot be dealt with by the
Internal Revenue Service with equal vigor and
that there thus may be some taxpayers who
avoid paying the tax cannot serve to release
all other taxpayers from the obligation. The
Commissioner's failure to assess deficiencies
against some taxpayers who owe additional tax
does not preclude the Commissioner from
assessing deficiencies against other taxpayers
who admittedly owe additional taxes on the
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same type of income. A taxpayer cannot
premise its right to an exemption by showing
that others have been treated more generously,
leniently or even erroneously by the IRS. The
fact that there may be some taxpayers who have
avoided paying a tax does not relieve other
similarly situated taxpayers from paying their
taxes.
City of Galveston, Texas v. United States, 33 Fed. Cl. 685, 707-08
(1995).
Moreover, Hostar's reliance on IBM is misplaced. The IBM
ruling has been limited by subsequent courts to cases involving
private rulings, which were at issue in IBM but not in the instant
case. We agree with the Eleventh Circuit, for example, which
recognized that "courts have placed limits on the equality
principle" in cases similar to IBM, citing the example that
"taxpayers who have not requested or received private letter
rulings from the IRS will not succeed on a claim of discriminatory
treatment because other taxpayers have received private letter
rulings on the tax consequences of the same activities." Baker v.
United States, 748 F.2d 1465, 1469 n.9 (11th Cir. 1984).
Despite the goal of consistency in treatment, the IRS is
not prohibited from treating such taxpayers disparately. Rather
than being a strict, definitive requirement, the principle of
achieving parity in taxing similarly situated taxpayers is merely
aspirational. Dicta in a concurring Supreme Court opinion from
five decades ago, Kaiser, 363 U.S. at 308, which itself seemed to
hedge its position (by using the conditional language of "assuming"
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a principle to be true), is not sufficient to overcome this view.
Moreover, we believe that the IRS has good reason to retain this
flexibility. As the district court noted:
There are practical considerations which
counsel in favor of limiting litigation
regarding the general duty of consistency in
the enforcement of taxes. A broadly
enforceable duty could give rise to
distracting disputes not over whether a tax is
applicable, but rather over the management of
an administrative and enforcement agency.
Moreover, there is the prospect for
competitive mischief if, as here, a tax refund
plaintiff seeks broad discovery, on the
grounds of a disparate enforcement theory,
regarding its competitor's financial and
commercial information both from the IRS and
from a third party with whom it competes.
Hostar II, 2008 U.S. Dist. LEXIS 43800, at *16.
Hostar has not overcome what we find to be the IRS's
prerogative to tax it but not its competitors. Thus, we affirm the
district court's grant of the United States' motion to dismiss
Hostar's claim to have suffered a violation of due process.
D. Hostar's Erroneous Assessment Claim
Having established that the IRS's alleged differential
tax treatment of Hostar and its American competitors did not
constitute discrimination in violation of the Due Process Clause,
we now apply the law to the facts of the case before us to
determine whether the tax was properly assessed against Hostar. We
conclude that the tax was properly assessed against Hostar because
Hostar's hydraulic boat trailers (1) do qualify as "semitrailers"
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or "truck trailers" for purposes of section 4051 of the I.R.C.;
(2) do not qualify for the exclusion provided in section 4051(a)(3)
of the I.R.C. concerning GVW; and (3) do not qualify for the
exception provided in 26 C.F.R. § 48.4061(a)-1(d)(2)(ii) concerning
"[c]ertain vehicles specially designed for offhighway
transportation." Accordingly, we affirm the district court's grant
of the United States' motion for summary judgment on Hostar's
claimed exemption from the section 4051 tax excised and the
district court's grant of the United States' motion for summary
judgment on the United States' counterclaim.
1. I.R.C. § 4051 - Definitions of "Semitrailer"
and "Truck trailer"
Noting that the drafters of the I.R.C. could have but did
not define the terms "semitrailer" and "truck trailer," Hostar
argues that the district court erred in finding as a matter of law
that Hostar's boat trailers are semitrailers and truck trailers for
the purposes of section 4051 of the I.R.C.
In construing the terms of a statute, we accord the text
its plain and ordinary meaning. See In Re Pharm. Indus. Average
Wholesale Price Litig., 582 F.3d 156, 168 (1st Cir. 2009). Where
a phrase is not defined in a statute itself, we can look to the
dictionary for clarification of the plain meaning of the words.
Taing v. Napolitano, 567 F.3d 19, 25 (1st Cir. 2009).
"Semitrailer" is defined as "a freight trailer that when attached
is supported at its forward end by the fifth wheel device of the
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truck tractor,"3 and "truck trailer" is defined as "a nonautomotive
freight vehicle to be drawn by a motortruck." Webster's Third New
International Dictionary Unabridged 2065, 2454 (2002).4 We agree
with the district court's observation that "Hostar's trailers
attach to a motor vehicle and carry boats, which are a type of
freight." Hostar III, 2008 U.S. Dist. LEXIS 82671, at *10. As can
be seen in photographs found in the record, Hostar's boat trailers
are semitrailers because they are supported at their forward end by
the truck tractor. Hostar's citation to a Wikipedia entry on
"semitrailer," which does not list boat trailers, is not
inconsistent because the entry's illustrations are merely examples
and not exhaustive. Like the district court, we therefore find
that Hostar's hydraulic boat trailers are "semitrailers" and "truck
trailers" for the purposes of section 4051 of the I.R.C.
3
According to a deposition on October 31, 2007, from Dwight
Stimson, III, a Hostar executive, the "fifth wheel" here does not,
in fact, refer to a fifth wheel but rather the connection point on
the tow vehicle.
4
The same dictionary defines "trailer" as, most relevant to the
sense used in this case, "a nonautomotive highway or industrial-
plant vehicle designed to be hauled (as by a tractor, motortruck,
or passenger automobile)." Webster's Third New International
Dictionary Unabridged 2424. That dictionary also defines
"automotive" as "containing within itself the means of propulsion"
or "of, relating to, or concerned with vehicles or machines that
propel themselves (as automobiles, trucks, airplanes, motorboats)."
Id. at 148.
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2. I.R.C. § 4051(a)(3) - Exclusion for Gross
Vehicle Weight
An unknown entity amended the recorded GVWs of the
fourteen trailers after Hostar sold the trailers and the IRS
conducted its audit of them. The district court found that there
was no demonstration of "a genuine issue of fact for trial as to
whether the trailers at issue were exempt from taxation" where
Hostar presented the revised GVW measurements for the majority of
its hydraulic boat trailers at issue in this case. Id. at *23.
On appeal, Hostar argues that "the District Court's
conclusion was unreasonable and improper fact finding in light of
the substantial facts which were in evidence which are contrary to
those found by the Court." Specifically, Hostar contends that the
district court erred not only in considering the fact that the
United States "could find nothing wrong with the second series of
[GVW] calculations" but also by choosing to ignore Hostar's "clear
statements."
Although we find no error with the amended GVWs, the
original GVW records still stand, meaning that none of Hostar's
fourteen hydraulic boat trailers at issue in this case are excluded
from the excise tax imposed by section 4051 of the I.R.C. As
discussed below, according to the Treasury Regulations, the
inconsistent records of the GVWs must be resolved in favor of the
original, higher weight, as specified by Hostar itself.
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First, the Treasury Regulations provide that the GVW is
"specified by" Hostar, the "manufacturer or . . . seller of the"
hydraulic boat trailers at issue in this case, "unless the [IRS]
Commissioner finds that such rating is unreasonable in light of the
facts and circumstances in a particular case." See 26 C.F.R.
§ 145.4051-1(e)(3)(i). Second, the Treasury Regulations provide
that inconsistencies in GVW measurements should be resolved in
favor of the highest weight. Id. § 145.4051-1(e)(3)(iv) (Where
there are inconsistencies in GVW ratings, "the highest of such
ratings will be considered to be the seller's [GVW] rating
specified or established for purposes of the tax imposed by section
4051(a)(1)."); see also Merhow Indus. v. United States, 517 F.
Supp. 1221, 1227-28 (N.D. Ind. 1981).
We thus conclude that between the two sets of GVW ratings
-- the higher one from the time of the sale and the lower one from
after both the sale and the IRS audit -- the former set is properly
considered to be the GVWs at issue in this case.
3. 26 C.F.R. § 48.4061(a)-1(d)(2)(ii) -
Exception for "Certain vehicles specially
designed for offhighway transportation"
Hostar argues that the district court erred when it
concluded "that Hostar has failed to demonstrate a genuine issue of
fact as to whether its boat trailers qualify for the off-highway
transportation exception to the excise tax." Hostar III, 2008 U.S.
Dist. LEXIS 82671, at *20. Hostar maintains that its hydraulic
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boat trailers qualify under both parts of this exception,
concerning (a) special design and (b) substantially limited /
impaired use.
a. Special Design
Hostar's hydraulic boat trailers are not, as the Treasury
Regulations require to qualify for the off-highway transportation
exception, "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 operations." See 26
C.F.R. § 48.4061(a)-1(d)(2)(ii).
We find that, as another circuit court has held, "[t]he
test for taxability under [§ 4051(a)(1)] is primary design, not
primary use . . . . Indeed 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." Dillon Ranch Supply v.
United States, 652 F.2d 873, 881 (9th Cir. 1981). Accordingly, in
considering this prong of the off-highway transportation exception,
we must evaluate the design of Hostar's hydraulic boat trailers;
their use is irrelevant.
Hostar's trailers do exhibit some special design
features, but those features either are irrelevant to their on-
versus off-highway function or else support their on-highway
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function. Among other things, the trailers contain open-center
frames, hydraulic components, and stub axles. We find no evidence
in the record that the trailers are fitted with these special
design features because of the roads on which they are carried,
whether they are on- or off-highway, and not simply because of the
trailers' particular cargo, boats. Other features found on the
trailers emphatically point towards their special design for on-
highway transportation. For example, Hostar designed its hydraulic
boat trailers to be compliant with U.S. Department of
Transportation (DOT) regulations for highway use. According to the
2007 Stimson deposition, Hostar intentionally manufactured the
trailers at issue in this case to feature DOT-required braking
systems (brakes on all wheels), lighting systems (red stop tail and
turn lights at the rear of the frame as well as amber clearance
lights on the side of the frame), tires (radial tires capable of
being used on a highway), tire ratings, and wheel coverings (that
protect debris from flying up and damaging a boat bottom). The
trailers, despite their weights and loads, also can travel at
normal highway speeds.
Furthermore, there is evidence that Hostar's trailers are
designed for transporting boats on public highways, even if the
trailers can also transport boats on private roadways. Hostar's
own promotional literature, the significance of which Hostar
unpersuasively attempts to limit by calling it "puffing," describes
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its hydraulic boat trailers as on/off-highway vehicles. For
example, one such brochure is entitled "Hostar Hydraulic Trailers
for Highway and Yard" and lists "Haulers" as the first type of
intended operation. The brochure goes on to note that Hostar's HPT
Series of trailers is "known for its highway tracking ability";
that its HST Series of trailers is "for . . . highway . . .
transporting"; and that its HHT Series of trailers are "highway
trailers for road tractors . . . [and the f]irst choice of
professional haulers." The brochure specifies that only one type
of Hostar trailer, the HSTY Series, is "for yard use only," and it
is that series of Hostar trailers that was not subject to excise
taxes pursuant to section 4051(a) of the I.R.C.
In addition to Hostar's advertising materials, the
company's own invoices emphasize the ability of the trailers to
function outside boatyards. Invoices for thirteen of the fourteen
trailers at issue in this case indicate the trailers' weight
capacities "over the road" as distinct from "in the yard," and the
fourteenth invoice only notes the capacity "over the road."
Where other courts have considered similar dual use
vehicles, they have also found the vehicles not to qualify for the
special design component of this exception. See Worldwide Equip.,
546 F. Supp. 2d at 464 (concluding that a Mack Trucks, Inc. RD888SX
coal hauler does not satisfy the off-highway vehicle exception's
"special design" test because its "ability to transport coal over
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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").
Hostar claims that affidavits from its customers
establish that Hostar's trailers are "rarely" used on the highway.
See supra Part I(A)(2)(b). However, the use of Hostar's trailers
is irrelevant to determining whether the trailers satisfy the
special design prong of the off-highway transportation exception.
In any case, our analysis of those customer affidavits refute
Hostar's claim. In the affidavits, owners of Hostar's hydraulic
boat trailers were asked, inter alia, what percentage "of trailer
use has been and is in off-highway work." One respondent replied
"10%," two replied "80%," one replied "85%," and one replied "98%."
With the majority of responses indicating that the percentage of
trailer use that has been and is in on-highway work is between
fifteen and ninety percent, we do not agree that the affidavits
support Hostar's contention. Rather, we find that the affidavits
suggest that a significant amount of trailer use by most owners of
Hostar trailers has been and is in on-highway work. But even if
the use of Hostar's trailers was not so clearly in significant part
for on-highway use, the design of Hostar's trailers would remain,
in part, for such use and would be the determining factor for
whether the "special design" test is met.
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We find no evidence that Hostar's hydraulic boat trailers
are specially and primarily designed for off-highway use. We thus
find that Hostar's hydraulic boat trailers are not "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 operations." We therefore do not need to reach the
question of whether Hostar's trailers transport boats "in
connection with" any of the enumerated or similar operations.
b. Substantially Limited / Impaired Use
To satisfy the "substantially limited or substantially
impaired" prong of the off-highway transportation exception, the
use of a vehicle to transport loads over the public highways must
be so limited or impaired by reason of its special design. See 26
C.F.R. § 48.4061(a)-1(d)(2)(ii). As we found that Hostar's
hydraulic boat trailers fail to satisfy the special design required
in the first prong of the exception, it therefore follows that the
trailers cannot be "substantially limited or substantially
impaired" "by reason of such special design." See also Worldwide
Equip., 546 F. Supp. 2d at 468.
III. Conclusion
We are not persuaded that Hostar has met its burden of
proving that the IRS Commissioner's presumptively correct
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assessment of the excise tax pursuant to section 4051 of the I.R.C.
was wrong. For the reasons stated above, then, we affirm the
district court's grant of (1) the United States' motion to dismiss
Hostar's due process claim, (2) the United States' motion for
summary judgment on Hostar's claimed exemption from the tax excised
pursuant to section 4051 of the I.R.C., and (3) the United States'
motion for summary judgment on the United States' counterclaim.
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