REESE BROTHERS, INC. v. UNITED STATES OF AMERICA, Appellant
No. 05-2135
United States Court of Appeals for the Third Circuit
May 9, 2006
2006 Decisions. Paper 1006.
Precedential
5-9-2006
Reese Bros Inc v. USA
Precedential or Non-Precedential: Precedential
Docket No. 05-2135
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Recommended Citation
“Reese Bros Inc v. USA” (2006). 2006 Decisions. Paper 1006. http://digitalcommons.law.villanova.edu/thirdcircuit_2006/1006
PRECEDENTIAL OPINION
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
No. 05-2135
REESE BROTHERS, INC.
v.
UNITED STATES OF AMERICA, Appellant
On Appeal from the United States District Court For the Western District of Pennsylvania (D.C. Civil Action No. 03-cv-00745) District Judge: The Honorable Terrence F. McVerry
Argued on January 27, 2006
BEFORE: RENDELL and SMITH, Circuit Judges, and IRENAS, District Judge*
(Opinion Filed: May 9, 2006)
Stephen J. Rosen Henry D. Levine (Argued) Levine, Blaszak, Block & Boothby 2001 L Street, N.W. Suite 900 Washington, DC 20036 Counsel for Appellee
Robert W. Metzler Teresa E. McLaughlin (Argued) United States Department of Justice Tax Division P.O. Box 502 Washington, DC 20044 Counsel for Appellant
OPINION OF THE COURT
SMITH, Circuit Judge.
The question presented in this appeal is whether the federal communications excise tax set forth in
I. Factual and Procedural Background
Taxpayer Reese Brothers, Inc. (“Reese Brothers“) purchased intrastate, interstate, and international long-distance telephone services (“Reese Services“) from LCI, Qwest, and MCI (collectively “Carriers“) from the third quarter of 1998 through the first quarter of 2002. These Carriers charged Reese Brothers a fixed-per minute rate for in-state long-distance calls and different fixed-per minute rates for out-of-state and international long distance calls. The Carriers collected a three-percent federal communications excise tax from Reese Brothers and remitted it to the Internal Revenue Service (“IRS“).
Reese Brothers argued that, pursuant to
The Government, by contrast, argued that the tax applies to charges that are based on either the distance or the elapsed time or both, and therefore, claimed that the Reese Services are taxable. The Government also offered two alternative bases for imposing the excise tax on the Reese Services. First, the Government suggested that if the Reese Services are not taxable under
Adopting the Report and Recommendation of a Magistrate Judge, the District Court granted Reese Brothers’ motion with respect to liability and denied the Government‘s cross-motion. The parties agreed to the amount of overpayment and the District Court entered judgment on behalf of Reese Brothers in the amount of $335,213.96. The Government now appeals.
II. Jurisdiction and Standard of Review
This Court has appellate jurisdiction pursuant to
III. Sections 4251 and 4252 of the Internal Revenue Code
(a) Local telephone service. For purposes of this subchapter, the term “local telephone service” means–
(1) the access to a local telephone system, and the privilege of telephonic quality communication with substantially all persons having telephone or radio telephone stations constituting a part of such local telephone system, and
(2) any facility or service provided in connection with a service described in paragraph (1).
The term “local telephone service” does not include any service which is a “toll telephone service” or a “private communications service” as defined in subsections (b) and (d).
(b) Toll telephone service. For purposes of this subchapter, the term “toll telephone service” means–
(1) a telephonic quality communication for which (A) there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication and (B) the charge is paid within the United States, and
(2) a service which entitles the subscriber, upon payment of a periodic charge (determined as a flat amount or upon the basis of total elapsed transmission time), to the privilege of an unlimited number of telephonic communications to or from all or a substantial portion of the persons having telephone or radio telephone stations in a specified area which is outside the local telephone system area in which the station provided with this service is located.
(c) Teletypewriter exchange service.–For purposes of this subchapter, the term “teletypewriter exchange service” means the access from a teletypewriter or other data station to the teletypewriter exchange system of which such station is a part, and the privilege of intercommunication by such station with substantially all persons having teletypewriter or other data stations constituting a part of the same teletypewriter exchange system, to which the subscriber is entitled upon payment of a charge or charges (whether such charge or charges are determined as a flat periodic amount, on the basis of distance and elapsed transmission time, or in some other manner). The term “teletypewriter exchange service” does not include any service which is “local telephone service” as defined in subsection (a).
The District Court concluded that the Reese Services did not fall within any of the definitions set forth in
The current definitions of “local telephone service,” “toll telephone service,” and “teletypewriter exchange service” were enacted by Congress in 1965 as part of the Excise Tax Reduction Act, which, among other things, reduced the telephone tax from ten percent to three percent. See
Since then, however, AT&T has lost its monopoly status and long-distance billing methods have changed. Pearce Decl., App. at 159-162, ¶¶ 29-35. As a general rule, charges for long distance telephone calls now are based only on the duration of the call, though there remain some intrastate long-distance services which are priced based on distance as well as time. Id.
On appeal, the Government offers three arguments which, if accepted, would warrant reversal of the District Court. The Government‘s first and primary contention is that the Reese Services are taxable under
Recently, four other courts of appeals–the Second, Sixth, Eleventh, and District of Columbia circuits–have considered the meaning of
A. “Toll Telephone Services” Under Section 4252(b)(1)
“Toll telephone services” are defined in
1. The Meaning of the Word “And”
Our role in interpreting a statute is to give effect to Congress’ intent. Rosenberg v. XM Ventures, 274 F.3d 137, 141 (3d Cir. 2001) (citations omitted). Because we presume that Congress’ intent is most clearly expressed in the text of the statute, we begin our analysis with an examination of the plain language of the relevant provision. Id.
Section 4252(b)(1) requires that the toll charge vary in amount with distance and elapsed time of each individual communication “and” that the charge be paid within the United States. Both sides of this “and“. . . must be satisfied for the telephone service to be taxable. . . . At times, however, Congress used the word differently. Take 4251: it defines “communications services” as “local telephone service, toll telephone service, and teletypewriter exchange service.” No one doubts the disjunctive (or cumulative) nature of this usage because these definitions of the services in 4252 are generally mutually exclusive and because no service exists that can satisfy all three definitions at once. Section 4252 likewise uses “and” to connect a list of alternative definitions found in 4252(b)(1) and (b)(2). Here, too, no one contests that a “toll charge which varies in amount with the distance and elapsed transmission time of each individual communication,“. . . cannot simultaneously be a “periodic charge (determined as a flat amount or upon the basis of total elapsed transmission time) [for] the privilege of an unlimited number of telephonic communications.”
The usual meaning of the word “and,” however, is conjunctive, and “unless
The Supreme Court addressed and rejected an analogous argument in Iselin v. United States, 270 U.S. 245 (1926). At
issue in that case was a Revenue Act provision which imposed a tax on the sale of theater tickets sold at places other than a ticket box office. The amount of the tax was based on the difference between the “established price” at the ticket office and the actual sale price. The taxpayer, Georgine Iselin, as a stockholder in the producing company, held a license to a designated theater box and sold the license to use her box to forty-seven of the season‘s seventy performances. Iselin argued that because the tickets she sold did not have an “established price,” they were not taxable under the Revenue Act. The Government, by contrast, argued:
that Congress clearly intended to tax all sales of tickets; that there is in the section no indication of intention to exempt from the tax any sale of tickets or any resale at a profit; that the receipts here taxed are in character substantially similar to those specifically described in paragraph 3; that this general purpose of Congress should be given effect, so as to reach any case within the aim of the legislation; and the act should, therefore, be extended by construction to cover this case.
The Iselin Court rejected the Government‘s argument, declining to expand the statute‘s reach. It explained:
It may be assumed that Congress did not purpose to exempt from taxation this class of tickets. But the act contains no provision referring to tickets of the character here involved; and there is no general provision in the act under which classes of tickets not enumerated are subjected to a tax.
Id. Likewise, in this case, the express language of the statute–understood in its ordinary sense–does not include communications which are based only on elapsed time and whether they are interstate, intrastate, or international. Following the Supreme Court‘s analysis in Iselin, we will therefore decline to extend the scope of
We also note that Congress clearly understood how to draft a more expansive definition if it so chose. For example, in defining “teletypewriter exchange service,”
Reading the statute as a whole, we conclude that “and” is used in its conjunctive sense in
2. The Effect of Revenue Ruling 79-404
The Government also contends that Revenue Ruling 79-404, in which the IRS determined that a ship-to-shore satellite service for which charges were based on the elapsed time of the transmission alone nevertheless satisfied the definition of “toll telephone service,” is entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 .S. 837 (1984), and United States v. Mead Corp., 533 U.S. 218 (2001). It therefore argues that the agency‘s construction should dictate the outcome of this case. Because we conclude that the language of
In Revenue Ruling 79-404, the IRS acknowledged that “literally, the [ship-to-shore] service provided in this case does not come within the definition of . . . ‘toll telephone service’ . . . because the charge for the service does not vary with distance and therefore does not meet the requirement of section 4252(b)(1).” Rev. Rul. 79-404, 1979 C.B. 382. Nevertheless, it concluded:
The service in this case is essentially “toll telephone service” as described in section 4252(b)(1) of the Code, even though the charge for calls between remote maritime stations and stations in the United States vary with elapsed transmission time only. The toll charges described in section 4252(b)(1), that vary in amount with both distance and elapsed transmission time of the individual communication, reflect Congress’ understanding of how the charges for long distance calls were computed at the time the section was enacted. The intent of the statute would be frustrated if a new type of service otherwise within such intent were held to be nontaxable merely because charges for it are determined in a manner which is not within the literal language of the statute.
Id. at 383. The Government relies on Mead, arguing that although revenue rulings are not subject to notice and comment, they nevertheless should be entitled to Chevron deference because Congress intended to grant the IRS the power to make rules with the “force of law” and Revenue Ruling 79-404 “was promulgated in the exercise of that authority.” Appellant‘s Br. at 46 (citing United States v. Mead Corp., 533 U.S. 218, 226-27 (2001)).
In Geisinger Health Plan v. Commissioner, 985 F.2d 1210, 1216 (3d Cir. 1993), this Court explained that although “revenue rulings are entitled to great deference, . . . courts may disregard them if they conflict with the statute they purport to
Under Chevron, the court must first determine whether the congressional intent is clear. If the intent is clear, the inquiry ends; the court and agency “must give effect to the unambiguously expressed intent of Congress.” Chevron U.S.A., Inc., 467 U.S. at 843-44.
Accordingly, because we hold that § 4252(b)(1) is clear and directly answers the question here, the inquiry ends; we need not give deference to Revenue Ruling 79-404. Moreover, we need not determine the proper level of deference to be given Revenue Ruling 79-404.
Am. Bankers, 408 F.3d at 1335 (citations omitted); see also Amtrak, 431 F.3d at 379 (“Even if we were to afford Chevron deference to the ruling, we could not let stand an agency decision that deviates from the statute‘s unambiguous meaning.“); OfficeMax, 428 F.3d at 595 (“Even if this circuit gave Chevron deference to revenue rulings, which it does not, this revenue ruling would not clear step one of the Chevron test“) (citations omitted). As discussed above, we conclude that the meaning of the phrase “varies in amount with distance and elapsed transmission time” is clear from the context of
3. The Legislative Reenactment Doctrine
Even if Revenue Ruling 79-404 is not entitled to deference under Chevron and Mead, the Government contends that the Ruling is nevertheless entitled to “especially great weight” under the legislative reenactment doctrine, because Congress has reenacted the statute several times since the Revenue Ruling was issued in 1979. Appellant‘s Br. at 50.
Pursuant to the legislative re-enactment doctrine, Congress is “presumed to be aware of an administrative or judicial interpretation of a statute and to adopt that interpretation when it re-enacts a statute without change.” Lorillard v. Pons, 434 U.S. 575, 580 (1978) (citations omitted). As the Court recognized in United States v. Rutherford, 442 U.S. 544, 554 n.10 (1979), however, “it may not always be realistic to infer approval of judicial or administrative interpretation from congressional silence alone.” Nevertheless, “once an agency‘s statutory construction has been ‘fully brought to the attention of the public and the Congress,’ and the latter has not sought to alter that interpretation although it has amended the statute in other respects, then presumably the legislative intent has been correctly discerned.” Id.; see also North Haven Bd. of Educ. v. Bell, 456 U.S. 512, 535 (1982). In this case, the Government points to legislative history in which the Congress seems to equate “toll telephone service” with “long-distance,” but fails to identify any evidence that Congress was aware of Revenue Ruling 79-404. We therefore cannot find that the construction has been “fully brought to the
4. The Meaning of the Word “Distance”
Finally, with respect to the application of
According to the Government, “distance” means “the quality or state of being distant or spatially remote,” and therefore, a charge need not vary directly with linear distance to meet the definition in
B. “Toll Telephone Services” Under Section 4252(b)(2)
Having concluded that the Reese Services are not “toll telephone services” under
Given the context of the provision, the Government‘s reading is an implausible
We agree with Reese Brothers’ contention that section 4252(b)(2) describes a toll service for which the customer pays either a fixed dollar amount per month for an unlimited number of calls, or a fixed dollar amount per month for a fixed number of minutes or hours of use without regard to the number of calls placed. Under this view, the Reese Services do not meet the definition set forth in
C. “Local Telephone Services Under Section 4252(a)
Finally, the Government urges this Court to conclude that the Reese Services are “local telephone services” under the definition provided in
(1) the access to a local telephone system, and the privilege of telephonic quality with substantially all persons having telephone or radio telephone stations constituting a part of such local telephone system, and
(2) any facility or service provided in connection with a service described in paragraph (1). The term “local telephone service” does not include any service which is a “toll telephone service” or a “private communication service” as defined in subsection (b) and (d).
Local networks are indeed used to some extent to carry long-distance call traffic and, in connection with its long distance services, Reese Brothers had “access” to various local telephone services. However, as the Sixth Circuit pointed out, “the definition
We note also that, rather than creating a residual category, the final sentence in
IV. Conclusion
Based upon the plain language and structure of
Supreme Court‘s analysis in Iselin, and that of our sister circuits in Fortis, OfficeMax, American Bankers, and Amtrak, we decline to do so. We will therefore AFFIRM the judgment of the District Court.