The opinion of the court was delivered by: NICKERSON
NICKERSON, District Judge:
Plaintiff Janus Petroleum Company, Inc. ("Janus"), a wholesale distributor of gasoline, brought this action against the United States under section 7422 of the Internal Revenue Code (the "Code"), 26 U.S.C. § 7422, seeking a credit or refund of alleged overpayments of federal gasoline excise taxes for the quarters ending March 31, June 30, and September 30 of 1989.
Janus claims jurisdiction pursuant to 28 U.S.C. § 1346 (a)(1), giving the court jurisdiction in an action against the United States for "recovery" of any tax alleged to have been erroneously or illegally assessed or "collected." Plaintiff moves for summary judgment, and defendant cross-moves for partial summary judgment. The case raises an issue the government says is of first impression.
The following facts are undisputed. In the first three quarters of 1989 Janus bought gasoline from various suppliers. Janus says the amount of the federal excise sales tax on gasoline was included in the price it paid these suppliers. Janus later sold some of the gasoline to the City of New York (the "City"), which is exempt from the tax.
On October 19, 1989, Janus filed with the Internal Revenue Service (the "Service") three claims for refund of alleged overpayments in 1989, $ 125,080.98 in the first quarter, $ 279,603.87 in the second, and $ 9,512.37 in the third, attributable to tax exempt sales to the City. The Service denied the claims because Janus had not shown that the upstream suppliers liable for the tax had paid the Service. Janus then claimed the same alleged overpayments as tax credits against federal gasoline excise taxes it incurred in 1990 and 1991. The Service disallowed these credits and assessed a deficiency.
To put the case in context requires a brief review of the recent history of the federal gasoline excise tax. Before 1988, the Code imposed the tax on the sale of gasoline by an importer or "producer," see § 4081, but exempted a sale by one "producer" to another provided that other producer registered with the Service under § 4101. "Producer" was defined in § 4082 to include "wholesale distributors."
Because wholesale distributors generally did register as producers, the tax was typically deferred until they sold gasoline to a retail gas station. A registered wholesale distributor could sell tax-free to state and local governments but had to pay the tax on sales to commercial customers. See § 4221(a).
These earlier provisions led to the evasion of huge amounts of tax revenues. Because the Service had a hard time tracking gasoline after its removal from terminals, dishonest wholesale distributors would tell their customers they were registered for tax-free purchases, invoice those customers for the amount of tax allegedly payable to the Service by the wholesale distributor, and then dissolve or disappear before the Service could catch up with them. See United States v. Musacchia, 900 F.2d 493, 495-96 (2d Cir. 1990), cert. denied, 501 U.S. 1250, 115 L. Ed. 2d 1052, 111 S. Ct. 2887, (1991) (describing a typical "daisy chain" scheme for evading the tax). The United States was robbed of literally multimillions of dollars of dollars. See H.R. Rep. No. 127, 103d Cong., 1st Sess. (1993), 1993 WL 209639, at 73 (citing estimates that gasoline excise tax evasion has resulted in losses of between $ 250 million and and more than $ 1 billion since 1986).
To minimize such unscrupulous schemes, the Tax Reform Act of 1986 (the "1986 Act") amended the Code to move the point of taxation upstream as of 1988. See H.R. Rep. No. 391 (II), 100th Cong., 1st Sess. (1987), reprinted in 1987 U.S.C.C.A.N. 2313-378, 2313-1177. Beginning in that year, § 4081(a)(1) imposed a single tax on the earlier of the removal of gasoline from a terminal or its sale by a refiner, importer, or terminal operator.
Further legislation was passed in 1990 in order to try to prevent continued evasion. See H.R. Rep. No. 247, 101st Cong., 1st Sess. (1989), reprinted in 1989 U.S.C.C.A.N. 1906, 2794. ...