FITZGERALD TRUCK PARTS AND SALES, LLC, Plаintiff-Appellee, v. UNITED STATES OF AMERICA, Defendant-Appellant.
No. 24-5078
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
Decided and Filed: March 31, 2025
RECOMMENDED FOR PUBLICATION Pursuant to Sixth Circuit I.O.P. 32.1(b) File Name: 25a0072p.06. Argued: October 31, 2024.
Before: BATCHELDER, STRANCH, and READLER, Circuit Judges.
COUNSEL
ARGUED: Douglas C. Rennie, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellant. Kendall C. Jones, EVERSHEDS SUTHERLAND (US) LLP, Washington, D.C., for Appellee. ON BRIEF: Douglas C. Rennie, Michael J. Haungs, UNITED
OPINION
READLER, Circuit Judge. For years, Fitzgerald Truck Parts & Sales, LLC built and sold highway tractors by installing old engines and transmissions from third-party salvage yards into otherwise new tractors. Ordinarily, the sale of a newly manufactured tractor triggers a 12% excise tax. See
We agree with Fitzgerald that
I.
Beginning in 1989, Fitzgerald built and sold “glider tractors” using repaired engines, repaired transmissions, and “glider kits.” Each glider kit contained a “set of unassembled new parts” that, when installed with other new or used components, formed a functional large-scale highway tractor. Rev. Rul. 86-130, 1986-2 C.B. 179. For Fitzgerald, these kits “essentially” constituted “new tractor[s] . . . missing the engine and transmission.” R. 208, PageID#16766. That meant they included a cab, chassis, axles, and wheels, among other new parts. In its early years, Fitzgerald combined glider kits with old engines and transmissions that the company itself extracted from recently purchased, second-hand tractors. Over time, however, it increasingly forewent acquiring ownership of these “salvaged” tractors, and instead began buying used engines and transmissions alone for their assembly into new glider kits. That latter practice gave rise to the issues contested in this appeal. Between 2012 and 2017, Fitzgerald built glider tractors using old engines and old transmissions. Those used items were delivered by salvage yards, which had dismantled the components from worn and wrecked tractors. Following delivery, Fitzgerald would typically remanufacture the engines in-house and send the transmissions to a third party to do the same. Due to these partially outsourced operations, Fitzgerald often did not receive title to, nor did it know the vehicle identification numbers of, the salvaged tractors. And at least some of
Through this process, Fitzgerald restored and sold 12,830 tractors. Each one facially triggered a corresponding sales tax. Specifically,
Like many provisions in the Tax Code, however,
(f) Certain repairs and modifications not treated as manufacture
(1) In general
An article described in section 4051(a)(1) shall not be treated as manufactured or produced solely by reason of repairs or modifications to the article (including any modification which changes the transportation function of the article or restores a wrecked article to a functional condition) if the cost of suсh repairs and modifications does not exceed 75 percent of the retail price of a comparable new article.
The government took issue with this position. Across two assessments, the IRS determined that Fitzgerald‘s sales triggered
The government moved for judgment as a matter of law and a new trial. It argued
II.
We review de novo the district court‘s legal conclusions, including matters of statutory interpretation. Johnson v. United States, 64 F.4th 715, 721 (6th Cir. 2023). We do the same as to the district court‘s ruling on the government‘s motion for judgment as a matter of law, viewing the evidence “in the light most favorable to” Fitzgerald, “the party against whom the motion [wa]s made,” and giving Fitzgerald “the benefit of all reasonable inferences.” K & T Enters., Inc. v. Zurich Ins., 97 F.3d 171, 175-76 (6th Cir. 1996). By contrast, we review the denial of a motion for a new trial for an abuse of discretion, which occurs whеn a district court “improperly applies the law[] or uses an erroneous legal standard.” Mike‘s Train House, Inc. v. Lionel, L.L.C., 472 F.3d 398, 405 (6th Cir. 2006) (citation omitted). Employing these standards, we agree with the district court that Fitzgerald‘s operations qualified for the safe harbor in
A. Begin with Fitzgerald‘s eligibility for
We agree with Fitzgerald that they do not. The company‘s reused engines and transmissions originally derived from once-functional tractors sold or donated to salvage yards. Those vehicles, when new, were “[t]ractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer,” id.
True, such extensive changes to the tractors—extracting their engines and transmissions for installation into otherwise new vehicles—exceed the traditional understanding of “repair” and “modify,” terms that typically accommodate only incremental
That conclusion may sweep broadly, but the result here is in line with thrust of the statute. The 75% threshold itself implies the existence of repairs and modifications totaling three-fourths of a comparable new tractor‘s price. Had Congress intended this exemption for only middling changes, it would have picked a lower number. See Walters v. Metro. Educ. Enters., 519 U.S. 202, 209 (1997) (holding that laws “must be interpreted, if possible, to give each word some operative effect“). Likewise, the safе harbor encompasses modifications that “change[] the transportation function of the article or restore[] a wrecked article to a functional condition,”
Before the safe harbor‘s enactment, we note, courts routinely engaged in an open-ended inquiry into whether changes to an existing tractor qualified as “production, manufacture, or importation” of a new vehicle to determine whether it was exempt from аn excise tax on its first retail sale. See, e.g., Boise Nat‘l Leasing, Inc. v. United States, 389 F.2d 633, 636 (9th Cir. 1968) (approving qualitative test that considered extent and nature of changes to vehicle); Ruan Fin. Corp. v. United States, 976 F.2d 452, 455 (8th Cir. 1992) (affirming district court‘s application of test from Boise). Now,
B. We are not the first to do so. In Schneider National Leasing, Inc. v. United States, 11 F.4th 548 (7th Cir. 2021), the Seventh Circuit addressed whether a trucking company qualified for
The Seventh Circuit thought otherwise. Section
That reasoning applies with equal force here. As in Schneider, Fitzgerald conducted tractor restorations that, while facially extensive, nevertheless fell below the 75% threshold in
The government nevertheless points out another distinction: whereas Fitzgerald purchased engines and transmissions from third-party salvage yards, Schneider refurbished portions of its own fleet. That fact matters, says the government, in view of a pair of technical advice memoranda issued after a 1991 revenue ruling that established an IRS-created predecessor to
Based on the language of the statute, we decline the invitation. Consider its source. Technical advice memoranda “have no precedential value to parties other than the taxpayer they are issued to.” Downs, Inc. v. Comm‘r, 307 F.3d 423, 429 (6th Cir. 2002). Nor can we accept the government‘s suggestion that Congress looked to these documents when enacting the safe harbor. Whereas the IRS infers that Congress tacitly endorsed the agency‘s earlier guidance when codifying
Even if we set aside these fundamental flaws in the IRS‘s position, the IRS reads its memoranda in a way that makes the two difficult to reconcile with each other, let alone with the statute that purportedly incorporated them. The guidance documents seemingly tease out legal relevance in the number of salvaged tractors from which the taxpayer extracts second-hand parts, not in tractor ownership itself. According to the memoranda, a taxpayer may claim an exemption for tractors with reused engines alone but may not claim an exemption for tractors with reused engines and transmissions if those parts each came from a different salvaged tractor. Compare I.R.S. Tech. Adv. Mem. 93-33-007 (“The used components of the worn tractors were not intermingled, that is, the engine, transmission, and axles of a particular tractor were combined with a glider kit . . . .“), with I.R.S. Tech. Adv. Mem. 92-38-008 (“The taxpayer fabricated a truck tractor by combining a newly-purchased glider kit . . . with other new parts and certain salvaged parts . . . from two truck tractors thаt were originally built by different manufacturers.“). That is an unusual way to read
As the government portrays things, because Fitzgerald bought engines and transmissions from salvage yards after those parts had been extracted from donated tractors, the acquired parts were detached from any identifiable tractor. That characterization, however, is in tension with the fact that both parties recognize that the used engines and trаnsmissions had all previously been part of functional tractors. Equally true, even if, as the government stresses, Fitzgerald did not secure title to these trucks before their dismantling,
At a surface level, it is perhaps fair to say (as does the government) that Fitzgerald simply paid salvage yards for standalone engines and transmissions. In practice, however, the salvaging and subsequent refurbishment together reflected one process for purposes of the excise tax and its safe harbor. And that process began with salvaged tractors; that is, “self-propelled vehicle[s] . . . designed to perform a function of transporting a load over public highways“—the very definition of “article” endorsed by the government.
C. Besides factually distinguishing Schneider, the government offers a laundry list of reasons that, in its view, justify departing from that case on its merits. None persuade us.
Plain Meaning. The government first tries its hand at plain meaning. It reads the terms “repair[]” and “modification[],” as used in the safe harbor, to carry a “connotation of increment or limitation.” Appellant Br. 43 (quoting MCI Telecomms. Corp. v. Am. Tel. & Tel. Co., 512 U.S. 218, 225 (1994)). With this understanding in mind, the government argues that the installation of an old engine into a new glider kit far eclipses the mere repair or modification of the salvaged tractor from which the engine derived.
Its point is misplaced for several reasons. Most notably, as explained earlier,
The Whole-Text Canon. Reminding us that we must construe statutory text as a whole, the government next directs us to
Not so. For one thing, the government‘s position raises more questions than it purports to answer. Chief among them, at what point does the reuse of “individual” components suffice to render
The Absurdity Doctrine. The government next points to a seeming loophole in Fitzgerald‘s reading of
Legislative History. The government also posits that its statutory reading is consistent with the conference committee‘s report on
The “Strict” Construction of Exemptions. Lastly, the government relies on a familiar friend in tax jurisprudence: the statement that “exemptions from taxation are to be construed narrowly.” Wilson v. United States, 588 F.2d 1168, 1171 (6th Cir. 1978) (quotation marks and citations omitted)). It is fair at the outset to question the assertion‘s pedigree, as “many Supreme Court cases denying an exemption make no mention of this rule, and even some cases granting an exemption ignore it.” Scalia & Garner, supra, at 359; see also id. (labeling the presumption a “false notion” and endorsing precedent that ignores it). At any rate, even when taking thе point at face value, Fitzgerald has met the allegedly strict burden to justify exemption. As explained above, the company‘s operations land within the plain language of
III.
A. Section
This provision too informs today‘s resolution, as it requires us to ask about the origin of the used engines and transmissions Fitzgerald purchased from salvage yards. Record evidence suggests that the salvage yards received at least some of their tractors from government agencies and municipalities as well as sellers who had originally bought the vehicles in Mexico and Canada. Those tractors would not have been taxable when new, says the government, because
By and large, we agree with the government. Walking through these statutory commands, begin with
Precedent confirms this conclusion. In CenTra, Inc. v. United States, 953 F.2d 1051 (6th Cir. 1992), we interpreted “taxable sale” in
Of course,
Whether we approach this issue through first principles or case law, the outcome is the same: to escape
At this juncture, Fitzgerald has not done so. Again, the record reflects that at least some of the salvaged tractors acquired by Fitzgerald were likely first sold in foreign countries or to state and local governments. Fitzgerald alleges that the government gave no “credible evidence” that these tractors first derived from tax-exempt sales. But beyond disregarding the government‘s numerous citations to that exact kind of evidence, Fitzgerald has implicitly shirked its burden of proof. “[T]axes paid are rightly collected upon assessments correctly made by the Commissioner, and in a suit to recover them the burden rests upon the taxpayer to prove all the facts necessary to establish the illegality of the collection.” Niles Bement Pond Co. v. United States, 281 U.S. 357, 361 (1930). With Fitzgerald having failed to do so, we cannot affirm the wholesale exemption of all 12,830 of the company‘s tractor sales without further factfinding.
B. Fitzgerald resists the government‘s reading of
Forfeiture. First up are procedural matters. According to Fitzgerald, the government failed to preserve its argument under
Even then, Fitzgerald continues, the government committed a second forfeiture, this time by making a different argument on appeal than it did in district court. Before us, says Fitzgerald, the government argues that “taxable” means “the tax had to be ‘payable,‘” whereas in district court the government argued that “tаxable” means “previously taxed.” The record citations relied upon by Fitzgerald, however, reflect the government stating that Fitzgerald could prove the inapplicability of
Plain Meaning. Turning to the merits, Fitzgerald asserts that the plain text of
Fitzgerald‘s narrow interpretation of the Tax Code fails to consider its cross-references. As explained above,
Even the plain meaning of
Fitzgerald‘s reading of
Statutory Purpose. Fitzgerald next contests the purpose behind
Ironically, Fitzgerald, after criticizing any reliance on congressional intent, asserts that the government‘s reading “produce[s] unintended results” and “create[s] unintended taxpayer burdens” in enabling repeated taxation of certain trucks. That criticism warrants some context. In CenTra, we held thаt the sale of a used truck can nevertheless constitute its “first retail sale” when a tax-paying entity buys or leases the truck from a tax-exempt original owner. See 953 F.3d at 1056. If that truck is later repaired, however,
Agency Procedure. Fitzgerald closes with a virtual Hail Mary. In its view, the IRS violated its “duty” to inform taxpayers of the interaction between the safe harbor and
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Because the statute sets out a bright-line, 75% threshold for articles that were capable of being taxed when new, we reverse the judgment of the district court and remand for proceedings consistent with this opinion.