The government appealed only the second finding. The Tenth Circuit held that the Flow Boy design was such that its over-the-highway use was substantially impaired, and affirmed the refund of the excise taxes. Flow Boy, Inc. v. United States, 1984 WL 15513 (10th Cir. January 20, 1984).
In his affidavit, Richard Sheridan, General Manager of Gateway, outlined how Gateway started selling the CB-4000 units in 1990, and originally added the FET to the selling price. Item 4, Ex. E, ¶ 4. Gateway was then advised by Dan Hill & Associates, the Flow Boy manufacturer, that "the CB-4000 units were not subject to the federal excise tax since such units were identical in all major respects to the Flow Boy Live Bottom Semi-Trailer model ST-1000 (ST-1000) which units had been held to be nontaxable by the Tenth Circuit Court of Appeals in Flow Boy, Inc. v. United States." Id.
On August 1, 1995, Gateway filed FET refund claims for various taxable quarters, based on the Flow Boy holding. See Flow Boy, Inc. v. United States, 1984 WL 15513 (10th Cir. January 20, 1984). On April 18, 1997, the IRS notified Gateway that Gateway's claims for refund would be denied in full. Id. ¶ 6. In the fall of 1998, Gateway was informed by Dan Hill & Associates that the IRS had approved and granted excise tax refunds on CB-4000 units to Dan Hill and a number of other Flow Boy distributors, including Critzer Equipment Co. of Spokane, Washington, The McLean Company of Cleveland, Ohio, and Ranchers Supply Co. of Lamar, Colorado. Id. ¶ 7. Gateway also learned that these distributors passed the excise tax refunds to end-users in 22 different states, including three end-users in New York.*fn10 Id. ¶¶ 8, 9.
Through the office of New York Senator Charles Schumer, Gateway requested that the IRS reverse its denial of Gateway's request for excise tax refunds. Item 4, Ex. F. Following a November 16, 1999 meeting, the IRS Assistant Chief Counsel denied the request in a letter to Senator Schumer. Item 4, Ex. G. The letter stated that the IRS believed Flow Boy had been wrongly decided; that the "administrative settlements" that the Senator referred to in his letter of November 24, 1999, Item 4, Ex. F, did not reflect IRS policy; and that the IRS's effort to gain a circuit split so that the case may be taken to the Supreme Court is an important avenue for the IRS to pursue when it believes a case has been wrongly decided. Item 4, Ex. G.
Gateway continued to add excise taxes to the CB-4000 units it sold.*fn11 It asserted that having to add the 12 percent FET provides its competitors with an unfair advantage, since other Flow Boy distributors can sell the unit for $5,160.00 less, and its non-Flow Boy competitor, Red River,*fn12 does not charge excise tax on its model. Item 4, Ex. E, ¶¶ 13, 14; Item 52, p. 54. Mr. Sheridan also asserted that since April 1983, Gateway had not added FET to the ST-1000 units it had sold, despite being audited twice by the IRS. Id. ¶ 16.
David Griffis, Executive Vice President of Dan Hill & Associates, submitted an affidavit in support of Gateway's fairness argument. Item 4, Ex. H. He stated that he was present when the excise tax field auditor from the IRS District Office in Oklahoma City, John S. Munholland, inspected the Flow Boy manufacturing operation on April 29, 1996. The auditor determined that the CB-4000 units were not subject to the FET. Id. ¶ 7. The report of this audit examination prompted the refunds to Flow Boy Mfg. for 16 taxable quarters, from March 31, 1992 to December 31, 1995. The refunds were passed on to end users in 22 states. Id. ¶ 8.
Harold Rogers also submitted an affidavit in support of Gateway's fairness argument, noting that he had prepared claims for FET refunds regarding all CB-4000 units sold by Flow Boy to three other distributors (Critzer, Ranchers, and McLean) for the years 1992 to1995. Item 4, Ex. I, ¶ 8. All claims were allowed in full by the IRS. Id. ¶ 9. He also prepared Flow Boy Mfg.'s refund claims which were allowed for that same period. Id. ¶ 11. Mr. Rogers attached as exhibits to his affidavit IRS documents pertaining to Critzer Equipment, McLean Company, and Ranchers Supply Co. indicating the FET refunds. Id. Exs. J-M, O. On the Excise Tax Examination Changes and Consent to Assessment and Collection Form for Critzer Equipment Co., the IRS had written, "[t]he tax periods shown above are corrected to reflect the determination that the eight (8) Flow Boy [CB-4000] trailers involved in your claims for refund and identified on attached consent form have been found to be non-taxable equipment used in construction." Id. Ex. J. Appended as Exhibit O to Rogers' Affidavit was a Notice of Adjustment relating to the refunds the IRS issued Ziegler, Inc. in accordance with a settlement agreement in the case of Ziegler, Inc. v. United States, D-Iowa., 4-97-CV-10242, dismissed with prejudice.
Also included in the exhibits to Rogers' affidavit were two letters (Id. Exs. N and P) from the Albany, New York IRS Appeals Office to Contractors Sales Co. of Albany, which Mr. Rogers characterized as the IRS's agreement to settle the IRS cases against Contractors "by conceding 80% of the excise tax [on the ST-1000 and the CB-4000 respectively] to Contractors." Id. Ex. I, ¶ 15, 18.
I. Standard for Summary Judgment
Rule 56(c) of the Federal Rules of Civil Procedure provides that a motion for summary judgment shall be granted if the pleadings and supplemental evidentiary materials "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." A dispute regarding a material fact is genuine "`if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Morales v. Quintel Entertainment, Inc., 249 F.3d 115, 121 (2d Cir. 2001) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986)). Under the rule, the burden is on the moving party to inform the court of the basis for its motion and to demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). After the moving party has carried its burden, the non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). "[T]he non-moving party must come forward with `specific facts showing that there is a genuine issue for trial.'" Id. at 587 (quoting Fed.R.Civ.P. 56(e)). The object of summary judgment "is to discover whether one side has no real support for its version of the facts. . . ." Community of Roquefort v. William Faehndrich, Inc., 303 F.2d 494, 498 (2d Cir. 1962).
At issue in this action is whether the design and use of the CB-4000 subject it to the federal excise tax. The Internal Revenue Code provides that a tax of 12 percent on the first retail sale of truck-trailer and semitrailer bodies must be charged. 26 U.S.C. § 4051(D). A highway vehicle is defined in 26 C.F.R. § 48.4061(a)-1(d) as "any self-propelled vehicle, or any trailer or semitrailer, designed to perform a function of transporting a load over public highways, whether or not also designed to perform other functins [sic], but does not include a vehicle described in paragraph (d)(2) of this section." Paragraph (d)(2), entitled "exceptions," provides:
(ii) Certain vehicles specially designed for
offhighway transportation. A self-propelled vehicle,
or a trailer or semitrailer, is not a highway vehicle
if it is (A) specially designed for the primary
function of transporting a particular type of load
other than over the public highway in connection with
a construction . . . operation . . ., and (B) if by
reason of such special design, the use of such vehicle
to transport such load over the public highways is
substantially limited or substantially impaired. For
purposes of applying the rule of (B) of this
subdivision, account may be taken of whether the
vehicle may travel at regular highway speeds, requires
a special permit for highway use, is overweight,
overheight or overwidth for regular use, and any other
such relevant considerations.