On Appeal from the United States District Court For the Western District of Pennsylvania (D.C. Civil Action No. 03-cv-00745) District Judge: The Honorable Terrence F. McVerry.
The opinion of the court was delivered by: Smith, Circuit Judge.
Argued on January 27, 2006
BEFORE: RENDELL and SMITH, Circuit Judges, and IRENAS, District Judge*fn1
The question presented in this appeal is whether the federal communications excise tax set forth in 26 U.S.C. § 4251(a)(1) applies to long-distance telephone services that are priced based on a fixed per-minute, non-distance-sensitive rate. Based upon the plain language and structure of the statute, we conclude that it does not. The District Court granted summary judgment in favor of the taxpayer. We affirm.
I. Factual and Procedural Background
Taxpayer Reese Brothers, Inc. ("Reese Brothers") purchased intrastate, interstate, and international long-distance telephone services ("Reese Services") from LCI, Qwest, and MCI (collectively "Carriers") from the third quarter of 1998 through the first quarter of 2002. These Carriers charged Reese Brothers a fixed-per minute rate for in-state long-distance calls and different fixed-per minute rates for out-of-state and international long distance calls. The Carriers collected a three-percent federal communications excise tax from Reese Brothers and remitted it to the Internal Revenue Service ("IRS").
On November 21, 2001, Reese Brothers filed a claim with the IRS, seeking a refund of $319,496.33 for the excise taxes that the Carriers collected and remitted between July 1, 1998 and June 30, 2001; it filed a second claim for a refund of $26,048.38 on August 2, 2002 for taxes collected for July 1, 2001 and March 31, 2002. Although the IRS apparently received these claims, it did not respond to them, and Reese Brothers filed suit in federal court on May 22, 2003. Reese Brothers subsequently moved for partial summary judgment on the issue of liability and the Government filed a cross-motion for summary judgment.
Reese Brothers argued that, pursuant to 26 U.S.C. § 4252(b)(1)--which defines "toll telephone services" as services "for which there is a toll charge that varies in amount with the distance and elapsed transmission time of each individual communication"--the federal communications excise tax applied only to long-distance services for which the charges vary by both distance and elapsed time. Because the charges for its long-distance services were based on a fixed per-minute rate, unrelated to distance, Reese Brothers claimed that the tax is inapplicable to the services provided by the Carriers.
The Government, by contrast, argued that the tax applies to charges that are based on either the distance or the elapsed time or both, and therefore, claimed that the Reese Services are taxable. The Government also offered two alternative bases for imposing the excise tax on the Reese Services. First, the Government suggested that if the Reese Services are not taxable under § 4252(b)(1), they should be considered "toll telephone services" under § 4252(b)(2), which defines such services as those "which entitle the subscriber, upon payment of a periodic charge (determined as a flat amount or upon the basis of total elapsed transmission time), to the privilege of an unlimited number" of calls to or from an area outside of the local service area. Second, it argued that in the event the Reese Services are not "toll telephone services" under any definition, they constitute "local telephone services" under § 4252(a).
Adopting the Report and Recommendation of a Magistrate Judge, the District Court granted Reese Brothers' motion with respect to liability and denied the Government's cross-motion. The parties agreed to the amount of overpayment and the District Court entered judgment on behalf of Reese Brothers in the amount of $335,213.96. The Government now appeals.
II. Jurisdiction and Standard of Review
This Court has appellate jurisdiction pursuant to 28 U.S.C. § 1291and its review of a district court's order granting summary judgment is plenary. Camiolo v. State Farm Fire & Cas. Co., 334 F.3d 345, 354 (3d Cir. 2003). We apply the standard set forth in Federal Rule of Civil Procedure 56(c) and therefore may affirm the district court's order if, when viewing the evidence in the light most favorable to the non-moving party, there is "no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). Questions of statutory interpretation are subject to de novo review. Fraser v. Nationwide Mut. Ins. Co., 352 F.3d 107, 113 (3d Cir. 2003) (citation omitted).
III. Sections 4251 and 4252 of the Internal Revenue Code
Section 4251(a)(1) of the Internal Revenue Code provides for a tax on "communications services." As defined by the Code, "communications services" include "local telephone service," "toll telephone service," and "teletypewriter exchange service." 26 U.S.C. § 4251(b)(1). Section 4252 defines these three services. In relevant part, that section states:
(a) Local telephone service. For purposes of this subchapter, the term "local telephone service" means--
(1) the access to a local telephone system, and the privilege of telephonic quality communication with substantially all persons having telephone or radio telephone stations constituting part of such local telephone system, and
(2) any facility or service provided in connection with a service described in paragraph(1).
The term "local telephone service" does not include any service which is a "toll telephone service" or a "private communications service" ...