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Schneider National Leasing Inc. v. United States

United States District Court, E.D. Wisconsin

July 23, 2019

SCHNEIDER NATIONAL LEASING, INC., Plaintiff and Counterclaim Defendant,
v.
UNITED STATES OF AMERICA, Defendant and Counterclaim Plaintiff.

          ORDER GRANTING-IN-PART AND DENYING-IN-PART UNITED STATES' MOTION FOR PARTIAL SUMMARY JUDGMENT

          William C. Griesbach, United States District Court Chief Judge

         This matter is before the court on the United States' motion for partial summary judgment. On May 12, 2017, Schneider National Leasing, Inc. (Schneider Leasing), a Nevada corporation and wholly owned subsidiary of Schneider National, Inc. (Schneider) with its principal place of business located in Green Bay, Wisconsin, brought this action against the United States after the Internal Revenue Service (IRS) denied Schneider Leasing's November 2016 claim for refund seeking the recovery of $157, 683.64 in federal excise taxes paid in 2016 and the abatement of the remainder of the taxes and interest assessed against it in July of 2016. On August 16, 2017, the United States filed a counterclaim seeking to reduce the unpaid balance of the July 2016 assessments against Schneider Leasing, plus interest and costs, to judgment. The court has jurisdiction over Schneider Leasing's claim pursuant to I.R.C. § 7422 and 28 U.S.C. § 1346(a)(1), and over the United States' counterclaim pursuant to I.R.C. § 7402, 28 U.S.C. § 1340, and 28 U.S.C. § 1345. For the reasons that follow, the motion will be granted-in-part and denied-in-part.

         BACKGROUND

         Schneider Leasing's business is centered around the leasing of truck tractors and trailers to Schneider. The tax periods at issue in this action are 12 quarterly periods beginning with the quarter ending March 31, 2011, and ending with the quarter ending December 31, 2013. During these tax periods, Schneider Leasing arranged for 982 of its truck tractors to undergo what it describes as a refurbishment process. Schneider Leasing referred to these truck tractors as donor tractors, and had previously paid federal excise taxes under I.R.C. § 4051 on its purchase of the donor tractors.

         Schneider Leasing also purchased 982 glider kits in connection with the refurbishment process and did not pay federal excise taxes under I.R.C. § 4051 on its purchase of the glider kits. The glider kits Schneider Leasing purchased contained new or re-manufactured parts for Freightliner Columbia tractors. Each glider kit purchased by Schneider Leasing included, at a minimum, a cab, chassis, radiator, front axle, front suspension, front wheels, front brakes, brake system, and trailer connections. Of the glider kits purchased by Schneider Leasing, 912 were “powered” glider kits that also included a re-manufactured engine, and 70 were “non-powered” glider kits that did not include an engine. As part of the refurbishment process, Schneider Leasing arranged for transportation of both the donor tractors and the glider kits to outfitter facilities where the outfitters' employees performed certain physical work on them. Schneider Leasing then leased the 982 refurbished tractors to affiliates of Schneider under long-term leases within the meaning of I.R.C. § 4052(e). All of the 982 refurbished tractors were of the kind chiefly used for highway transportation in combination with a trailer or semitrailer and did not qualify for the tax exclusion in I.R.C. § 4051(a)(4).

         Schneider Leasing is obligated to file IRS Form 720, Quarterly Federal Excise Tax Return, on a quarterly basis to report, among other things, any federal excise taxes due under I.R.C. § 4051. During the relevant tax periods, Schneider Leasing did not report or pay taxes for the 982 refurbished tractors because it determined that it did not owe any federal excise taxes under I.R.C. § 4051. On July 25, 2016, after concluding its excise tax examination, the IRS assessed additional I.R.C. § 4051 excise taxes of $9, 387, 403.73, plus interest, against Schneider Leasing with respect to 976 of the 982 refurbished tractors. On August 4, 2016, Schneider Leasing paid the assessed additional excise tax and interest for 12 of the 976 refurbished tractors-one for each of the tax periods at issue.

         In November of 2016, Schneider Leasing filed with the IRS a claim for refund of $157, 683.64-the amount of tax and interest it paid on August 4, 2016. On December 28, 2016, the IRS denied Schneider Leasing's claim for refund. Schneider Leasing then proceeded to timely file this action on May 12, 2017, seeking the recovery of the excise tax and interest that it paid on August 4, 2016, and the abatement of the remainder of the July 25, 2016 assessments of taxes and interest against it. The United States timely filed its counterclaim on August 16, 2017, seeking to have the unpaid balance of the July 25, 2016 assessment, plus interest and costs, reduced to judgment.

         LEGAL STANDARD

         Summary judgment should be granted when the moving party shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). In other words, the time and expense of the parties and the court should not be wasted on a trial when there are no material facts in dispute, one party is entitled to judgment on those facts, and thus there is nothing to try. In deciding a motion for summary judgment, all reasonable inferences are construed in favor of the nonmoving party. Foley v. City of Lafayette, 359 F.3d 925, 928 (7th Cir. 2004). The party opposing the motion for summary judgment must “submit evidentiary materials that set forth specific facts showing that there is a genuine issue for trial.” Siegel v. Shell Oil Co., 612 F.3d 932, 937 (7th Cir. 2010) (quoted source and internal quotation marks omitted). “The nonmoving party must do more than simply show that there is some metaphysical doubt as to the material facts.” Id. Summary judgment is properly entered against a party “who fails to make a showing sufficient to establish the existence of an element essential to the party's case, and on which that party will bear the burden of proof at trial.” Parent v. Home Depot U.S.A., Inc., 694 F.3d 919, 922 (7th Cir. 2012) (internal quotation marks omitted) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)).

         ANALYSIS

         The focal point of this case is the interpretation and application of I.R.C. § 4052(f), which states

[a]n 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 such repairs and modifications does not exceed 75 percent of the retail price of a comparable new article.

26 U.S.C. § 4052(f). The United States contends that § 4052(f) does not apply to the 912 donor tractors that were refurbished utilizing powered glider kits because no articles were repaired or modified within the meaning of I.R.C. § 4052(f). Even if § 4052(f) were to apply to those 912 tractors, the United States contends that, at least for some of those tractors, the cost of any repairs and modifications exceeded 75 percent of the retail price of a comparable new article, thus rendering them subject to the I.R.C. § 4051 excise tax upon use or leasing by Schneider Leasing. Regarding the 70 donor tractors that were refurbished utilizing non-powered glider kits, the United States' position is that for 64 of those tractors the cost of repairs and modifications exceeded 75 percent, similarly rendering them subject to the § 4051 excise tax. Schneider Leasing, relying on Revenue Ruling 91-27, contends that the refurbishment process constitutes a “repair” or “modification” of each donor tractor within the meaning of I.R.C. § 4052(f) and that the repairs and modifications to the donor tractors cannot be treated as manufacturing or producing new tractors because the cost of such repairs and modifications did not exceed 75 percent of the retail price of a comparable new article.

         In its motion for partial summary judgment, the United States asks the court to resolve three questions regarding the ...


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