SUNOCO, INC., Plaintiff, v. The UNITED STATES, Defendant.
No. 15-587T
United States Court of Federal Claims.
November 22, 2016
129 Fed. Cl. 322
WHEELER, Judge.
Tax Incentives for Alcohol Fuel Blends; Alcohol Fuel Mixture Credit; 26 U.S.C. §§ 6426, 6427; 26 U.S.C. § 87; Excise Tax; Cost of Goods Sold; Highway Trust Fund.
Turning to plaintiffs’ trademark infringement claims, plaintiffs fail to make, or provide any evidence that could be construed as making specific allegations that anyone infringed on their “The You Talk Two Phone” trademark other than the general statement in plaintiffs’ February 23, 2013 letter to President Obama, that AT&T, Language Line, CyraCom, and the federal government engaged in “a willfully ignored global and domestic infringement on intellectual property!“. Claims for trademark infringement are governed by the Lanham Act,
or that “its injury was ‘inherently unknowable’ at the accrual date.” See Martinez v. United States, 333 F.3d at 1319 (quoting Welcker v. United States, 752 F.2d at 1580). Such an argument also would fail in this case as there is evidence in the submissions to the court that plaintiffs actually were aware of the existence of the alleged in-
CONCLUSION
Plaintiffs have failed to show that the requirements of RCFC 25(a) for the substitution of a proper party have been met. Plaintiffs’ September 12, 2016 and October 3, 2016 “MOTION[S] TO RETAIN THE ESTATE OF MARK JOSEPH SACCHETTI,” therefore, are DENIED. Plaintiffs’ claims for patent infringement are barred by the statute of limitations, and this court lacks jurisdiction to hear plaintiffs’ trademark infringement claims. The motions to dismiss filed by the United States and the third-party defendant CyraCom International, Inc., therefore, are GRANTED. Plaintiffs’ complaint is DISMISSED. The clerk shall enter JUDGMENT consistent with this opinion.
IT IS SO ORDERED.
fringement over six years prior to filing their complaint. Plaintiffs indicate in their motion for assignment of pro bono counsel that, in “the year 2008,” John Sacchetti “fell over in shock” after seeing two “CYRACOM-BLUE, DUAL-HANDSET[S]” while in the hospital.
OPINION AND ORDER
WHEELER, Judge.
Plaintiff Sunoco, Inc. brought this action against the Government to recover federal income tax refunds totaling over $300 million. Pending before the Court are (1) the Government‘s motion for judgment on the pleadings pursuant to Rule 12(c) of the Court of Federal Claims (“RCFC“), and (2) Sunoco‘s cross-motion for partial summary judgment pursuant to RCFC 56.
This is a case of first impression, and Sunoco‘s argument turns exclusively on statutory interpretation. As a fuel producer that blends ethanol into its fuel, Sunoco was entitled to claim the Alcohol Fuel Mixture Credit (“Mixture Credit“), set out in
The question central to this case is whether a taxpayer like Sunoco must include its net excise tax liability in its cost of goods sold—with a reduction for the Mixture Credit—or whether the taxpayer may include its gross excise tax liability in its cost of goods sold. The latter interpretation (Sunoco‘s argument) treats the Mixture Credit as a tax-free payment of Sunoco‘s excise tax liability, and would significantly reduce Sunoco‘s income tax liability because it would increase Sunoco‘s cost of goods sold.
The Government argues that Sunoco‘s interpretation would result in a windfall that Congress did not intend. It cites the Mixture Credit‘s plain language and legislative history to show that Congress intended to replace the previous excise tax exemption for alcohol mixtures with an “equivalent benefit,” rather than a significantly larger combined excise and income tax incentive. Sunoco reads the same statutory language and legislative history to reach the opposite conclusion.
Though the statutes at issue are not crystal clear, the Court ultimately finds the Government‘s interpretation more persuasive. The Court holds that the Mixture Credit must be treated first as a reduction of the taxpayer‘s excise tax liability, with any remaining Mixture Credit amount treated as tax-free payment. Had Congress intended, as Sunoco argues, to drastically increase the tax incentives fuel producers receive from blending alcohol into their fuels, one would expect to see at least some inkling of this intent in the legislative history or the Internal Revenue Code. No such inkling appears. Therefore, Sunoco cannot claim that it overpaid its income taxes because it correctly used its net excise taxes paid in calculating its cost of goods sold. The Government‘s motion for judgment on the pleadings is GRANTED, and Sunoco‘s cross-motion for partial summary judgment is DENIED.
Background
The few material facts in this case are not in dispute. Sunoco filed its complaint on June 10, 2015, seeking a tax refund of over $300 million for the tax years 2005-2008. See Compl., Dkt. No. 1. In all of the tax years at issue, Sunoco blended ethanol into its fuel and thereby qualified for the Mixture Credit. Compl. ¶ 11. Sunoco thus paid a reduced excise tax and reduced its cost of goods sold by the amount of the Mixture Credit for all
On February 12, 2016, the Government moved for judgment on the pleadings pursuant to RCFC 12(c), arguing that the correct tax treatment of the Mixture Credit means Sunoco‘s claims must fail as a matter of law. See Dkt. No. 18. Sunoco responded on April 13, 2016, with a cross-motion for partial summary judgment under RCFC 56 as to the Government‘s liability. Dkt. No. 22. On June 20, 2016, the Government filed its response in opposition to Sunoco‘s cross-motion, see Dkt. No. 27, and Sunoco filed its reply on July 19, 2016. See Dkt. No. 33. The Court heard oral argument on the parties’ motions on November 3, 2016.
Additionally, the Court already has decided that the IRS interpretation of the Mixture Credit‘s tax treatment, as shown in IRS Notice 2015-56, is not entitled to Skidmore deference for purposes of resolving the parties’ motions. See Sunoco, Inc. v. United States, 128 Fed.Cl. 345, 347-48 (2016). The Court found that no deference was appropriate because (1) the IRS issued Notice 2015-56 after litigation in this case had begun, (2) the Notice cited no authority for its interpretation of the Mixture Credit‘s tax treatment, and (3) the Notice was inconsistent with prior unofficial IRS advice. Id. Therefore, while the Court will consider the Government‘s interpretation of the Mixture Credit‘s tax treatment, the Court will not give deference to that interpretation.
Discussion
A. Standard of Review
A party may move for judgment on the pleadings pursuant to RCFC 12(c) “after the pleadings are closed[,] but early enough not to delay trial.” If a party presents and the Court accepts materials outside the pleadings, then the Court must decide the motion as a motion for summary judgment under RCFC 56. RCFC 12(d). Sunoco has presented materials outside the pleadings here; however, as shown below, the Court finds that it is possible to resolve the single legal issue on the face of Sunoco‘s complaint without resorting to factual materials outside the pleadings. Therefore, the court will decide the pending cross-motions under RCFC 12(c) rather than RCFC 56.
When deciding a motion for judgment on the pleadings under RCFC 12(c), the Court applies substantially the same test that it would on a motion to dismiss for failure to state a claim under RCFC 12(b)(6). Sikorsky Aircraft Corp. v. United States, 122 Fed.Cl. 711, 719 (2015). Under RCFC 12(b)(6), a complaint fails to state a claim upon which relief may be granted “when the facts asserted by the claimant do not entitle [the claimant] to a legal remedy.” Briseno v. United States, 83 Fed.Cl. 630, 632 (2008) (citation omitted). The Court also must construe allegations in the complaint favorably to the plaintiff. See Extreme Coatings, Inc. v. United States, 109 Fed.Cl. 450, 453 (2013). Still, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted)).
B. Sunoco‘s Refund Claims Fail as a Matter of Law.
The tax treatment of the Mixture Credit is the sole legal question in this case. To that end, it is helpful to keep a few basic principles of tax law in mind while analyzing Sunoco‘s claims. First, Sunoco was required to pay excise taxes during the relevant period. Excise taxes are imposed on sellers of commodities like fuel, see Cook v. United States, 86 F.3d 1095, 1098 (Fed. Cir. 1996), cert. denied, 519 U.S. 932 (1996), and are set out in
Second, a taxpayer‘s excise taxes under
So, if the Mixture Credit is interpreted as a reduction of excise tax liability, then the taxpayer‘s income tax liability would increase as a result of that reduction. The Government interprets the Mixture Credit in this way. However, if the Mixture Credit does not affect the taxpayer‘s excise tax liability—as Sunoco argues—then the taxpayer‘s income tax liability would decrease. Both parties cite the relevant statutes’ language, the tax exemption that preceded the Mixture Credit, legislative history, and case law to support their positions. All of these pieces are necessary to evaluate the Mixture Credit‘s tax treatment, and the Court will address each piece in turn.
1. The Language of the Mixture Credit Statutes Does not Resolve the Parties’ Dispute.
The Court first must examine the text of the relevant statutes themselves, and “must construe [the] statute[s], if at all possible, to give effect and meaning to all [their] terms.” Splane v. West, 216 F.3d 1058, 1068 (Fed. Cir. 2000) (citation omitted). The dispute in this case centers on §§ 6426(a) and 6427(e).
When a taxpayer‘s Mixture Credit amount is higher than the taxpayer‘s
(1) If any person produces a mixture described in section 6426 in such person‘s trade or business, the Secretary shall pay (without interest) to such person an amount equal to the alcohol fuel mixture credit . . . with respect to such mixture.
* * *
(3) No amount shall be payable under paragraph (1) or (2) with respect to any mixture or alternative fuel with respect to which an amount is allowed as a credit under section 6426.
Under the Government‘s interpretation,
Sunoco rejects the Government‘s bifurcation approach to the Mixture Credit. It contends that these statutes, taken together, mean that the Mixture Credit can only be construed as a single tax-free payment of the taxpayer‘s excise tax liability. It cites the “payment” language in
The statute‘s language supports both parties’ interpretations. First, the phrase “credit
The specific reference to
Second, both parties have advanced plausible arguments as to the payment mechanism described in
2. The Legislative History Favors the Government‘s Position.
a. Congress Created the Mixture Credit to Replenish the Highway Trust Fund.
A clearer picture of the Mixture Credit‘s tax treatment begins to emerge in its legislative history. Congress enacted the Mixture Credit as part of the American Jobs Creation Act of 2004 (“AJCA“), Pub. L. 108-357, 118 Stat. 1418, 1469, § 301. In doing so, Congress created a new tax incentive that replaced a preexisting excise tax exemption for alcohol fuel mixtures. Before the Mixture Credit, two linked tax incentives existed for fuel producers that blended alcohol into their fuel. First,
The AJCA replaced the reduced excise tax rates for alcohol fuel mixtures in
And therein lies a key issue in interpreting the Mixture Credit: in reality, the full tax rates were not imposed. In
Why would Congress go to such lengths to create this legal fiction? As the Government notes, Congress primarily wanted to replenish the Highway Trust Fund. See Def. Mot.
Taxpayers like Sunoco are construed as having paid their full excise taxes for purposes of the Highway Trust Fund; however, the legislative history is silent on the Mixture Credit‘s income tax implications. At first blush, there are two passages that could support Sunoco‘s reading of the statute. First, the Conference Report states:
In lieu of the reduced excise tax rates, the provision provides that the alcohol mixture credit provided under section 40 may be applied against section 4081 excise tax liability . . . . The credit is treated as a payment of the taxpayer‘s tax liability received at the time of the taxable event.
H.R. Rep. No. 108-755, at 304 (2004) (Conf. Rep.). Sunoco argues that the “payment” language shows congressional intent to treat the Mixture Credit as a non-taxable payment, rather than a reduction in excise tax liability. This is certainly the case from the vantage point of the Highway Trust Fund because of the legal fiction described above; however, the passage also states that the credit must be “applied against” the section 4081 excise tax liability. At most, then, this passage is neutral on the Mixture Credit‘s tax treatment because it uses language similar to
Both Sunoco and the Government also point to a second passage:
To the extent the alcohol fuel mixture credit exceeds any section 4081 liability of a person, the Secretary is to pay such person an amount equal to the alcohol fuel mixture credit with respect to such mixture. Thus, if the person has no section 4081 liability, the credit is totally refundable. These payments are intended to provide an equivalent benefit to replace the partial exemption for fuels to be blended with alcohol and alcohol fuels being repealed by the provision. Similar rules apply to the biodiesel fuel mixture credit.
If claims for payment are not paid within 45 days, the claim is to be paid with interest. The provision also provides that in the case of an electronic claim, if such claim is not paid within 20 days, the claim is to be paid with interest. If claims are filed electronically, the claimant may make a claim for less than $200. The Secretary is to describe the electronic format for filing claims by December 31, 2004.
H.R. Rep. No. 108-755, at 308 (2004) (Conf. Rep.).
This passage is neutral on the issue in this case at best, and nonsensical at worst. The Government cites the “equivalent benefit” language in this and other similar passages to show that Congress wanted to create a
Construing the passage more generously—as Sunoco does—the Court is more inclined to believe Congress meant that payments under
To summarize, the legislative history shows that, to replenish the Highway Trust Fund, Congress chose to upend the preexisting reduced excise tax rates and replace them with a legal fiction through which the full rates were imposed. However, the legislative history does not make the logical leap Sunoco asks of it because it does not carry the legal fiction applicable to the Highway Trust Fund over to individual alcohol fuel blenders’ income tax deductions.
b. The Legislative History Does not Support the Increased Subsidy Called For by Sunoco‘s Interpretation.
The Conference Report is silent on the—to put it mildly—interesting side-effects that either interpretation of the Mixture Credit creates. Under the Government‘s bifurcation approach, any Mixture Credit amount that is used to reduce a taxpayer‘s excise tax liability becomes subject to income tax, but any Mixture Credit amount that exceeds the taxpayer‘s excise tax liability is not subject to income tax. If this seems odd, remember the see-saw described above: any decrease in excise tax liability is mirrored by a corresponding increase in gross income, which is subject to income tax. This result is puzzling because taxpayers without excise tax liability, who previously received no benefit whatsoever under the lowered excise tax rates for alcohol fuel blenders, now receive the Mixture Credit tax-free. On the other hand, taxpayers with excise tax liability (like Sunoco), who did receive tax benefits under the prior tax regime, have their Mixture Credits taxed as income.
Sunoco‘s approach also has consequences. It would increase the subsidy to alcohol fuel blenders by about thirty-five percent over the subsidy that the preexisting lower excise tax rates conferred. See Def. Resp. Br. at 10, Dkt. No. 27. Such a drastic increase would have drastic effects. Sunoco is only one major alcohol fuel blender in the United States, and it is claiming a refund of over $300 million for four tax years. Therefore, if Sunoco were entitled to this subsidy, then similarly situated blenders could claim refunds totaling billions of dollars.
Though the Conference Report addresses neither of these effects, the Joint Committee on Taxation computed the Mixture Credit‘s budgetary effects. It found that the “excise tax credit (in lieu of reduced tax rate on gasoline) to certain blenders of alcohol fuel
3. Analogous Cases Favor the Government‘s Interpretation.
First, the Court agrees with the Government‘s argument that the Mixture Credit‘s effect on a taxpayer‘s cost of goods sold should resemble the effect of a manufacturer‘s rebate. A manufacturer‘s rebate “that a taxpayer receives on goods that it purchased for resale is not, itself, an item of gross income but, instead, is treated as a reduction in the cost of goods sold.” Affiliated Foods, Inc. v. Comm‘r, 128 T.C. 62, 80 (2007). For example, the IRS once found that “a cash rebate paid to an automobile dealer should be treated as a reduction in the cost of the automobile purchased;” in other words, the automobile dealer could not claim the full cost of the automobile in its cost of goods sold. Rev. Rul. 84-41, 1984-1 C.B. 130 (1984). The Mixture Credit is like a manufacturer‘s rebate in that it reduces the amount of money the taxpayer actually is required to pay out of its own pocket. This reduction happens in the real world (despite the legal fiction applicable to the Highway Trust Fund), so it logically follows that the reduction should be reflected in the taxpayer‘s cost of goods sold. Thus, the Mixture Credit, like a manufacturer‘s rebate, should reduce a taxpayer‘s cost of goods sold and increase the taxpayer‘s gross income.
Second, while no case addresses a tax credit identical to the Mixture Credit, cases acknowledge that tax credits may be bifurcated as the Government suggests.5 For example, in Maines v. Commissioner, 144 T.C. 123 (2015), the Tax Court found that a state‘s tax credit first reduced the taxpayer‘s state tax liability before it generated a payment to the taxpayer. See id. at 136. The portion of the credit that reduced the taxpayer‘s liability was not subject to federal income tax, but the portion the state paid in cash as a refund to the taxpayer was. Id. Similarly, the IRS previously has bifurcated a tax credit according to the credit‘s function. In Revenue Ruling 79-315, the state tax refund at issue was treated as gross income to the extent it was not “credited against unpaid 1978 tax.” 1979-2 C.B. 27 (1979). Functionally, this approach also divides a tax credit into two distinct parts: a reduction of state tax liability (non-taxable) and a cash payment (taxable). Sunoco rightly notes that these cases involve state law tax credits. Further, the Mixture Credit produces the opposite of the results in both cases: the refundable part of the Mixture Credit is not taxed, and the part that reduces
4. Canons of Statutory Construction do not Support Sunoco‘s Argument.
Sunoco cites the well-established construction canon of expressio unius est exclusio alterius, or “the expression of the one is the exclusion of the other,” to support its case. This maxim means that if Congress includes certain related items in a statute but does not include other items in the same category, it intentionally excludes those other items. See Ventas, Inc. v. United States, 381 F.3d 1156, 1161 (Fed. Cir. 2004). This canon, Sunoco argues, applies here because
While this argument at first appears persuasive, the Government correctly notes that there was a good reason for Congress to include the
5. The Ambiguity in the Relevant Statutes Counsels Against Allowing Sunoco to Deduct its Gross Excise Tax Liability from Gross Income.
On a fundamental level, courts expect Congress to speak unequivocally when it intends to confer tax benefits on the scale Sunoco suggests. Tax credits like the Mixture Credit “are a matter of legislative grace, and taxpayers bear the burden of clearly showing that they are entitled to them.” Schumacher v. United States, 931 F.2d 650, 652 (10th Cir. 1991) (citing New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934)). In fact, when the Supreme Court has considered exemptions from taxation, it has used the “settled principle that exemptions from taxation are not to be implied; they must be unambiguously proved.” United States v. Wells Fargo Bank, 485 U.S. 351, 354 (1988) (citations omitted); see also Bank of Commerce v. Tennessee, 161 U.S. 134, 146 (1896) (“Taxes being the sole means by which sovereignties can maintain their existence, any claim [by a person] to be exempt from the full payment of his share of taxes on any portion of his
Conclusion
Congress created the Mixture Credit because it wanted to replenish the Highway Trust Fund. The ambiguity at the center of this case is the collateral damage of that effort. While Sunoco can be forgiven for seeing in that ambiguity an opportunity for a large tax incentive, the Mixture Credit‘s legislative history, related case law, and policy considerations counsel against accepting Sunoco‘s interpretation. Therefore, the Government‘s motion for judgment on the pleadings is GRANTED, and Sunoco‘s cross-motion for partial summary judgment is DENIED. The Clerk is directed to dismiss this case with prejudice under RCFC 12(c).7 No costs.
IT IS SO ORDERED.
THOMAS C. WHEELER
Judge