Edgeworth Client Prevails on Appeal in the 7th Circuit

Edgeworth Economics Partner Dr. George G. Korenko was retained by counsel for Schneider National Leasing, Inc. (“SNL”) in a lawsuit brought against the U.S. seeking a refund of its partial payment of federal excise taxes and the abatement of unpaid assessments on 976 truck tractors.  Schneider Leasing claimed that these truck tractors, which were refurbished using “glider kits,” were eligible for a safe harbor. The U.S. denied that the safe harbor applied.

Section 4051 of the Internal Revenue Code imposes a 12 percent tax on the first retail sale of a truck tractor used for highway transportation in combination with a trailer or semitrailer. However, Section 4052(f) exempts from the tax repairs or modifications “if the cost of such repairs and modifications does not exceed 75 percent of the retail price of a comparable new article.” Dr. Korenko testified in Federal District Court that retail prices from the “Truck Blue Book” provided appropriate benchmark retail prices. He also testified it would be inappropriate to use SNL’s own purchase price for truck tractors as a benchmark retail price because SNL purchased directly from the manufacturer at prices substantially lower than the industry retail price. 

The Seventh Circuit found that “the price Schneider paid was closer to a wholesale price, because the company purchased 61 Cascadia tractors in bulk directly from the manufacturer rather than through a distributor or dealer.” In its opinion, it disagreed with the IRS position that the retail price was the price Schneider actually paid for bulk purchases of new tractors. Rather, it concluded that the retail price “is the price at which a comparable tractor could be acquired in the open market,” which could be determined by consulting the Truck Blue Book.

The Court subsequently issued a judgment in favor of SNL, ruling that it was entitled to a tax refund plus statutory interest.