The Internal Revenue Code imposes excise taxes on certain types of goods and services. For example, there are retail excise taxes on certain fuels, and on heavy trucks and trailers. I.R.C. §§ 4041, 4051. There are manufacturer’s excise taxes that are imposed on a variety of products, including fishing rods and firearms. I.R.C. §§ 4161(a), 4181. Excise taxes are also imposed upon communications services and on air passenger and air freight services. I.R.C. §§ 4251, 4261, 4271.
These taxes are actually born by the purchaser, and that creates a complication: If the entity collecting the tax seeks a refund, the federal government could also be subject to duplicate claims from the purchasers who actually paid the tax. To avoid this problem, the refund procedures for excise taxes build in protection for the government; for example, the refund statute applicable to retail and manufacturer’s excise taxes requires a claimant to establish its right to a claim by demonstrating that it did not collect the tax, that it has repaid the tax to the purchaser, or that it has obtained the purchaser’s consent to make the refund claim. I.R.C. § 6416(a). Similar requirements apply to refund claims for communications services, air passenger and air freight services. I.R.C. § 6415(a) (permitting refund or credit where claimant “establishes, . . . , that he has repaid the amount of such tax to the person from whom he collected it, or obtains the consent of such person to the allowance of such credit or refund”).
What is unclear from the face of the two statutes is when the relevant proof or consents need to be provided:
- Are they required to be filed at the time the claim is made; or
- Are they simply conditions to payment that must be provided before a payment on the claim is made?
In 2015, a district court in Ohio issued a taxpayer-friendly decision that the requirements of section 6415(a) of the Code were not required to be met at the time a claim was presented; instead, they could be met prior to payment. NetJets Large Aircraft, Inc. v. United States, 80 F. Supp. 3d 743, 752 (S.D. Ohio 2015). Shortly after NetJets was decided, a district court in Texas reached the opposite conclusion, and that decision was affirmed last year. Bombardier Aero Corp. v. United States, 94 F. Supp. 3d 816 (N.D. Tex. 2015), aff’d, 831 F.3d 268, 273-74 (5th Cir. 2016).
With that divided authority in place under section 6415 of the Code, last month the Sixth Circuit issued an opinion in another excise tax case that was governed by section 6416 of the Code. Worldwide Equip. of Tenn. v. United States, No. 17-5031, 2017 U.S. App. LEXIS 23277 (6th Cir. Nov. 20, 2017). The taxpayer was a dealer for Mack Trucks, Inc., and it had sold heavy trucks that were designed to be used in coalfields. The relevant trucks were special “severe duty” models intended for off-road use. 2017 U.S. App. LEXIS 23277, *2.
The taxpayer collected tax from its customers and paid the taxes to the United States Treasury; it then filed refund claims asserting that the trucks were exempt because they were for off-road use. Although section 6416(a) of the Code called for it to file consents from its customers with its refund claims, it failed to do so. Id. at *3-*4. The IRS requested that the taxpayer file the consents, but it again failed to do so. Ultimately, the IRS denied the refund claim on the basis that the trucks did not qualify for an exemption; the taxpayer’s failure to provide consents played no role in the disposition of its refund claim. Id. at *4.
The taxpayer then brought a refund action in district court, and its procedural history is interesting. The taxpayer moved for summary judgment; the government opposed the summary judgment motion based on the substantive scope of the exemption from the tax, and it also moved to dismiss for lack of subject matter jurisdiction because the taxpayer had failed to supply the consents from its customers. Id. at *4-*5. The district court concluded that there were issues of fact that precluded summary judgment, and it held that the taxpayer was not required to file the consents with the IRS. Consequently, it denied both motions. Id. at *5.
The government subsequently renewed its jurisdictional motion prior to trial, relying upon two cases, United States v. Jefferson Electric Manufacturing Co., 291 U.S. 386 (1934), and United States v. Standard Oil Co., 158 F. 2d 126 (6th Cir. 1946). See Worldwide Equipment, 2017 U.S. App. LEXIS 23277 at *6. The district court was persuaded and ruled that section 6416 required the filing of the consents with the IRS during administrative proceedings. Id. The failure to provide the consents meant that the taxpayer’s refund claims were not “duly filed” with the IRS, which deprived the district court of jurisdiction. Id. As a consequence, the district court granted the government’s motion to dismiss.
Last month, the Sixth Circuit disposed of the taxpayer’s appeal in fairly short order. First, it held that Jefferson Electric and Standard Oil “establish that the statutory prohibition against unjust enrichment of excise tax refund claimants imposes a substantive limitation on a taxpayer’s right to a refund.” Id. at *8-*9 (citing Jefferson Electric, 291 U.S. at 395; Standard Oil, 158 F.2d at 128). Further, the court held that the two cases establish that it was the taxpayer’s burden to prove that it was the proper recipient of a refund both before the IRS and in court. Id. at *9.
Since the taxpayer had not filed any consents, it sought to argue that Jefferson Electric and Standard Oil were not controlling because of the specific language of section 6416. The Court of Appeals was not persuaded: “The provisions addressed in Jefferson Electric and Standard Oil are direct antecedents of § 6416(a) and these earlier versions of the prohibition against unjust enrichment were not materially different from the current one.” Id. at *11.
While Worldwide Equipment was decided under section 6416 of the Code, its rationale strongly suggests that the same result would occur in a case involving excise taxes on services that was brought under section 6415, thereby calling into question the viability of any argument that refund claims for excise taxes need not include consents from customers to the extent that the claimant did not absorb the excise tax.
Perhaps there are arguments for treating section 6415 differently from 6416 that are rooted in statutory history, but given the similarity between the two provisions, it would be hard to recommend that a refund claimant not include customer consents with their refund claim to the extent practicable. The argument that the issue can be dealt with later appears to be much harder to sustain in light of Worldwide Equipment.