Fitzgerald Truck Parts and Sales, LLC v. United States

The government seeks to impose the Internal Revenue Code’s new highway tractor excise tax on a small business that repaired worn or wrecked tractors. Safe harbor statute 26 U.S.C. § 4052(f) treats a repaired article (including highway tractors) as not manufactured and not taxable as a new article under 26 U.S.C. § 4051(a)(1) if: (1) the repair cost does not exceed 75 percent of the cost of a comparable new article; and (2) the repaired article, when new, was taxable under § 4051(a) which lists the types of articles subject to tax on the first retail sale. The Sixth Circuit held the first safe harbor requirement was met, but not the second. The court found if some of the repaired tractors were originally sold when new to buyers exempt from tax under 26 U.S.C. § 4221 (which is not referenced in §§ 4051(a) or 4052(f)(2)), then the requirement that the repaired article must have been taxable under § 4051 when new was not met. The safe harbor does not reference taxable events, but the court held that an article qualifies as a “taxable article” only if tax was actually imposed on its initial sale. The question presented is: 1. The term “taxable article” or its equivalent are used repeatedly as a term of art throughout the tax code, case law, and Internal Revenue Service guidance to refer to items subject to tax. Did the Sixth Circuit misinterpret “taxable article” in holding that the § 4052(f) safe harbor cannot apply if the sale of the repaired article when new was to a tax-exempt buyer? (i)