(CN) – A Kentucky coal truck dealer can challenge more than $1 million in excise taxes on the sale of its coal-hauling dump trucks, the 6th Circuit ruled.
On a 2-1 vote, the federal appeals court in Cincinnati vacated a ruling for the government in its tax clash with Worldwide Equipment, a heavy truck dealer and distributor of Mack Trucks.
Worldwide said the IRS owed it a refund of $119,302 from the retail excise taxes it paid on the sale of eight dump trucks in 2008. The government counterclaimed for about $1.15 million in excise taxes allegedly owed from 1999 to early 2003.
The IRS collects the 12 percent tax on the first sale of any heavy truck chassis or body that’s sold for use in a “highway vehicle.”
Worldwide said the coal-hauling dump trucks are off-highway vehicles, which aren’t subject to the tax.
U.S. District Judge David Bunning ruled for the government on both the refund claim and the counterclaim, but the 6th Circuit reversed.
“Worldwide presented extensive evidence demonstrating the existence of a factual dispute regarding whether the [dump truck] was designed for the primary function of transporting coal other than over the public highways,” Judge Helene White wrote.
Summary judgment for the government was not appropriate, she said.
In a dissenting opinion, Judge Gilbert Merritt said the dispute turns on whether Worldwide’s trucks fall under an exception for heavy trucks that are specially designed for off-highway use and are “substantially impaired” from using public highways because of that design.
“Worldwide persuaded the majority that it fell under the exception by slight of hand,” Merritt wrote.
He said the company’s attorneys focused on whether the trucks were specially designed for off-highway use, causing the court “to ignore the second factor.”
“That the trucks were not substantially impaired from using public roads was clearly established” by Worldwide trucks’ routine use of Interstates, Merritt wrote (original emphasis).
“The companies use the trucks to haul coal from mine face to tipple, a process which almost always involves travel over the Interstate and other roads,” he wrote. “The tax applies to ‘heavy trucks’ because of the special damage that they cause to public roadways.”