the gasoline, requiring that the gasoline be purchased for exclusive State use.
In support of its claim for payment under section 6421(c), the State calculated the number of miles that its employees travelled in their own automobiles while conducting State business from 1985 to the present.
Using a "per gallon estimate derived from statistics compiled by the United States Environmental Protection Agency (EPA)" and other public agencies, the State indirectly calculates the number of gallons that its employees consumed in their own automobiles while conducting the State's business. The State then calculates the amount of the excise tax that it hopes to recoup by applying the rates incorporated into section 6421(c) to the number of gallons consumed. Using this method, the State has unsuccessfully sought payments under section 6421(c) since July, 1988.
The United States, through its Internal Revenue Service (IRS), refused to make the payment, reasoning that when the State reimburses its employees for the gas that they consumed while on State business, the gasoline has not been sold to a State exclusively for State purposes within the meaning of 26 U.S.C. § 6421(c). The United States amplifies its position in its memoranda in support of the instant motion to dismiss.
The United States argues that the statute authorizes payments to the State only when gasoline is sold to the State for the "exclusive use" of the State and contends that the sale and the exclusive State purpose for the sale must be contemporaneous. It is not enough, under the construction of the Code that the United States propounds, for an employee of the State to purchase gasoline for her own private purposes (for example, in anticipation of a holiday excursion) but thereafter consume the gasoline for State purposes (for example, when an emergency requires her to drive her car from Albany to Buffalo on State business). The fact that the gasoline is ultimately used exclusively for State purposes is irrelevant to the United States; under the statute, the gasoline must be purchased for the exclusive use of the State. Thus, the fact that the gasoline is actually used for State purposes will not bring the transaction within the purview of section 6421(c). The exclusive State use is a necessary but not a sufficient condition to payment under section 6421(c).
The State, however, denigrates the United States's construction as an overly technical reading of section 6421(c) and argues for a more practical construction that would permit the State to recover the excise tax attributable to any gasoline consumed by the State, irrespective of the circumstances surrounding the sale of the gasoline.
It is not clear what documentation the United States would require a State to submit in support of a claim under section 6421. Although there is some squabbling in the papers about the unreasonableness of an IRS regulation that supposedly requires the State to present exemption certificates to the retailer at the time of the sale, it does not appear that the United States requires such exemption certificates, or as noted above, that section 4221(a) even applies to the manufacturers excise tax on gasoline. In its Reply Brief, the United States agrees with the State that "the continuation of the exemption certificate requirement would make no sense at all."
The court concludes that the exemption certificate issue is a red herring.
Although section 4221(a)(4) does not provide relief from the gasoline excise tax, the United States relies on the regulations interpreting that section when it considers requests for payment under section 6421(c). See 26 C.F.R. § 48.4221-1 et seq.; Rev. Rul. 73-542, 1973-2 C.B. 341 (adopting in relevant part and superseding Rev. Rul. 138, 1953-2 C.B. 432)("if the employees and officers are paid on a per diem or per mile basis, the sales of gasoline to them are not considered to be sales for the exclusive use of a State").
This is probably because section 4221(a)(4), like 6421(c), contemplates a sale to a State or local government exclusively for governmental purposes. In addition, the Secretary has prescribed regulations implementing section 6421 that clearly require documentation of the purchase of the gasoline, not simply the consumption. See 26 C.F.R. § 48.6421-0 et seq. & § 48.6421-7.
Unfortunately, the Secretary has not amended the regulations since the major revisions to the Code that took place in 1986, including the addition of section 6421(c). Nevertheless, the regulations embody the Secretary's interpretation of section 4221(a)(4), an interpretation that reveals an emphasis on the sale of the gasoline (and the purpose of the sale) rather than merely the consumption of the gasoline. The State challenges the Secretary's interpretation as unreasonable because, according to the State, it frustrates Congress's purpose of providing relief from the manufacturers excise tax on gasoline. Instead, the State contends that its per mile reimbursement approach is more reasonable because it provides for greater reimbursement.
The court agrees with the interpretation of the Code that the United States propounds because the language of the applicable sections plainly requires a "sale" --and not merely consumption-- for governmental purposes. For example, the predicate for payment under section 6421(c) is a "sale," in this case to the State of New York: "If gasoline is sold to any person for any purpose described in paragraph (2), (3), (4), or (5) of section 4221(a) . . ." See 26 U.S.C. § 6421(c). Significantly, Congress did not say "if gasoline is consumed or used by any person" etc. Indeed, Congress knew how to distinguish between the "sale" and "use" of gasoline, and it explicitly did so by stating that (for statute of limitations purposes) "gasoline shall be treated as used for a purpose referred to in subsection (c) when it is sold for such a purpose." See 26 U.S.C. § 6421(d).
The language of section 6421(c) provides further support for the Secretary's emphasis on the sale of the gasoline by directing the Secretary to make the payment to "such person." The only "such person" in section 6421(c) is the person to whom gasoline is sold, here the State of New York. Congress again focuses on the sale when it provides the formula for calculating the payment: the Secretary must multiply the number of gallons of gasoline "so sold" by the applicable rate.
In short, Congress took pains to emphasize the importance of the sale under section 6421(c). And Congress likely had good reason for so limiting the payment under section 6421(c) in this manner, given the ubiquitous use of gasoline and the potential demands on the Treasury. Sales, as opposed to consumption, are more likely to produce documentation that would facilitate the administration of the payments and, thereby, protect the Federal fisc from potentially limitless demands. Regulations that mirror the statute by similarly emphasizing the sale are not unreasonable even though they limit or hamper the State's ability to avoid the effects of an excise tax on all gasoline consumed. Congress evidently intended such a limitation and the court cannot fault the Secretary for adhering to that limitation.
This reading of the statute and the applicable regulations convinces the court that the State cannot state a claim under 26 U.S.C. § 6421(c) for payments based on its per mile reimbursement of its employees who travel in their own automobiles on State business because such per mile reimbursement does not constitute a sale "to a State or local government for the exclusive use of a State or local government."
Cf. Rev. Rul. 73-542, 1973-2 C.B. 341.
Per mile reimbursement documentation that fails to illuminate the circumstances surrounding the sale of gasoline and the exclusivity of the State's use of that gasoline will not support a claim under section 6421(c).
Accordingly, the court hereby grants the motion to dismiss, but does so with leave to replead within 60 days after the entry of this order. See Branum v. Clark, 927 F.2d 698 (2d Cir. 1991)(leave to amend should generally accompany first dismissal).
IT IS SO ORDERED.
CON. G. CHOLAKIS, JUDGE
UNITED STATES DISTRICT COURT
DATED: Albany, New York
May 6, 1994
JUDGEMENT IN A CIVIL CASE
Decision by Court. This action came to trial or hearing before the Court. The issues have been tried or heard and a decision has been rendered.
IT IS ORDERED AND ADJUDGED that Honorable Con. G. Cholakis, U.S. District Judge, granting defendant's motion to dismiss with leave to replead within 60 days after entry of the Memorandum Decision and Order dated May 6, 1994, and that no further pleading having been filed with the Court, judgment shall enter dismissing the complaint