MUELLER CONCRETE CONSTRUCTION, INC. (2009) (O) (ST)

Topic Code: V039 Vehicles Used in Interstate Commerce          Document Reference: 09300117

Iowa Department of Inspections and Appeals

Administrative Hearings Division

Wallace State Office Building

502 East 9^th Street, 3^rd Floor

In the Matter of:                                                      )

)           DIA No. 09DORFC015       

MUELLER CONCRETE CONSTR.  CO.               )

245 Business Park Drive                                         )           (Rev. Docket No. 08-30-2-1227)

P. O. Box 918                                                             )          

Postville, IA  52162-0918                                       )

)

v.                                                                                 )

)           PROPOSED DECISION

Iowa Department of Revenue.                               )          

)

Statement of the Case

This case arises from a Protest filed by Mueller Concrete Construction Company (the taxpayer) on September 8, 2008.  The taxpayer challenges action by the Iowa Department of Revenue on July 29, 2008 denying the taxpayer’s request for refund of vehicle use tax.  

The department conducted a use tax audit which resulted in the department assessing the taxpayer additional use tax, penalty, and interest for four trucks purchased by the taxpayer in 2006.  On May 20, 2008 the taxpayer paid the assessment in full, $10,197.26 including penalty and interest, and filed a refund claim for the total amount paid for each of the four vehicles.  The department denied the taxpayer’s refund requests and this protest followed. 

The taxpayer seeks refund of the $10,197.26 plus interest from the date of payment, and reimbursement of $500.00 in accounting fees charged for investigation and administrative and litigation costs.  The department denies that the taxpayer is entitled to the requested relief.  

In its Answer to the protest the department notes that in a related matter, the agency has asked the taxpayer to repay the agency $1,805.00 use tax paid on a 2006 Chevrolet Model C6500 Dump Truck (VIN 1GBJ6C1376F403805) which the department erroneously refunded.  The protestor included information about this truck and the refund at pages 20 – 27 of the exhibits.  Reference to this transaction is also included in the department’s closing brief.  

A contested case hearing was held by telephone conference call on September 1, 2009. Assistant Attorney General Valencia McCown appeared representing the department.   Chief Financial Officer Betty Mueller appeared for the taxpayer.  The taxpayer submitted written argument and proposed exhibits, labeled as pages 1 through 225, which were admitted into the record without objection. The department’s exhibit A – a listing of Mueller Concrete truck purchases identified as taxable taken from the agency’s audit report – was also admitted into the record. 

Betty Mueller testified for the taxpayer and was cross-examined.  The parties agreed that there were no significant factual disputes.  The department requested and was granted an opportunity to file a written closing statement.  The taxpayer was allowed to file a response.  Arguments were received and the record closed on September 15, 2009.   

Findings of Fact

The issue in this case whether trucks owned by Mueller Concrete Construction Company qualify for an exemptions from the vehicle use tax established by Iowa Code section 423.6(12).  The operative facts are not in dispute.  Mueller Concrete performs construction work, primarily the building of tower sites.  The business operation is centered in Iowa, but a significant portion of the company’s work is in neighboring Midwestern states.  Mueller uses its trucks in interstate commerce and the department does not contest the assertion that more than 25% of their mileage is accrued in states other than Iowa. 

Mueller Concrete has registered its trucks through the International Registration Plan (IRP) since 1979.  The IRP is a reciprocity agreement among jurisdictions of the United States and Canada that provides for payment of license fees on the basis of fleet miles operated in the various jurisdictions.  Iowa and all contiguous states participate in the IRP.  (Taxpayer exhibits at p. 176)

The agreement and implementing statutes provide for the apportionment of vehicle registration fees imposed on commercial vehicles between the jurisdictions in which the vehicle operates.  Fees are paid to the various jurisdictions in which the fleet operates, but only one license plate and one cab card is issued by a base jurisdiction.  A covered fleet vehicle – known as an apportionable vehicle – is registered and may be operated within Iowa and across jurisdictional lines.  (See Taxpayer exhibits at pp.  45-169, 176) 

Subject to listed exceptions which are not applicable here, the IRP defines “apportionable vehicle” as

“any vehicle . . . [that is] used or intended for use in two or more member jurisdictions that allocate or proportionally register vehicles and is . . . designed, used or maintained primarily for the transportation of property and:

1.      is a power unit having two axles and a gross vehicle weight or registered gross vehicle weight in excess of 26,000 pounds . . .; or

2.      is a power unit having three or more axles, regardless of weight; or

3.      is used in combination, when the weight of such combination exceeds 26,000 pounds . . . gross vehicle weight.

(Taxpayer exhibits at p.  57)  “Trucks and truck tractors, and combinations of vehicles having a gross weight of 26,000 pounds . . . or less . . . may be proportionally registered at the option of the registrant.”  Id.  Combination of vehicles means “a power unit used in combination with [a trailer or] trailers . . .” (Id. at p. 66)   When registration fees are paid on a combination apportionable vehicle the power unit and trailer are registered as a unit.  No IRP member jurisdiction may require the registrant of power units to separately register trailers, semitrailers, or auxiliary aides.  (Id. at p. 75)  The IRP declared gross vehicle weight is the total “unladen weight of the vehicle or combination of vehicles plus the maximum load to be carried on the vehicle for which registration fees have been paid.”  (Id.  at p. 66)

Only one – “base” - jurisdiction may issue the registration plate and cab card for a vehicle.  Under the terms of the IRP, “cab card” means “a registration issued by the base jurisdiction for a vehicle of an apportioned fleet that identifies the vehicle, the registrant, the jurisdictions for which the vehicle is apportioned, the plate number, the registered weight by jurisdiction, and any other necessary information.”  (Taxpayer exhibits at pp. 66, 78-79)   “The weight for which the vehicle is registered must be listed on the face of the registration cab card so that enforcement personnel can know whether a vehicle is operating in excess of its registered weight.”  Id. 

Iowa is the base jurisdiction for Mueller Concrete.  The Iowa department of transportation processes IRP proportional registrations for the state.  Mueller has registered each of the trucks at issue here through the IRP process for use in Iowa, Illinois, Minnesota, Missouri, North Dakota, Nebraska, South Dakota, and Wisconsin.  The trucks are registered for use in combination with trailers.  The declared gross vehicle weight at which each unit is registered to operate in each state is listed on the vehicle cab card for the vehicle.  The declared gross vehicle weights for the subject trucks range from 28,000 to 52,000 pounds.  (Taxpayer exhibits at pp.  24, 30, 34, 38, & 42)

In 2006, when the trucks were purchased, Iowa Code section 423.5 (2005) imposed a use tax at the rate of 5% of the purchase price of vehicles subject to the issuance of a certificate of title.  Mueller claimed exemption from use tax, pursuant to Iowa Code subsection 423.6(12), because the vehicles were registered or operated under [Iowa Code] chapter 326,  used “substantially in interstate commerce” and “registered for a gross weight of thirteen tons or more.”  

The department audited Mueller Concrete for vehicle use tax compliance in February of 2008.  Although the declared gross vehicle weight used for IRP registration of each subject trucks exceeds 13 tons, the department determined that the 4 truck purchased in 2006 were not eligible for the use tax exemption because the GVWR of each truck was less than 13 tons or 26,000 pounds.  The GVWR is “the weight specified by the manufacturer as the loaded weight of a single vehicle.”  Iowa Code section 321.1(29)(c). The parties agree that each of the trucks has a “gross vehicle weight rating” (GVWR) of less than 26,000 pounds or 13 tons. 

Mueller Concrete paid the assessed use tax ($8,500.28) and penalty and interest ($1,696.98) and filed refund claims for the amount paid for each vehicle.  (Taxpayer’s exhibits at pp. 28-43)  The department denied the refund claims and this protest followed. 

Mueller purchased a dump truck, Unit # 24, while the audit was in process.  Use tax was paid after the purchase and a claim for refund was filed on February 29, 2008.  The refund was paid by warrant issued to Mueller on March 27, 2009.  (Taxpayer’s exhibits at pp. 21-27)  The department later determined that the refund was paid in error because the GVWR of this vehicle was less than 13 tons. The department has requested repayment of the refunded tax to resolve the error.  (Taxpayer’s exhibits at p. 7) 

Conclusions of Law

The use tax established by Iowa Code chapter 423 is intended to compliment sales tax “by removing a buyer’s temptation to purchase goods out of state to avoid payment of a sales tax.  As the name suggests, the tax is on the use of such good in Iowa, not their purchase.”  Associates Leasing, Inc. v. Iowa State Dep’t of Revenue and Fin., 456 N.W.2d 210, 211 (Iowa 1990). 

The sales and use statutes contain a number of exemptions.  See Iowa Code §§ 423.3, 423.6 (2005) .^[1] These exemptions “are construed strictly with all doubts resolved in favor of taxation.”  Iowa AG Constr. Co., Inc. v. Iowa State Bd. of Tax Review, 723 N.W.2d 167, 174 (Iowa 2006), citing Dial Corp. v. Iota Dep’t of Revenue and Fin., 634 N.W.2d 643, 646 (Iowa 2001); see also Ranniger v. Iowa Dep’t. of Revenue, 746 N.W.2d 267, 269 (Iowa 2008) (Iowa law requires that “exclusions from taxation be ‘construed strictly against the taxpayer and liberally in favor of the taxing body’”).  A taxpayer “seeking an exemption bears the burden of proving its entitlement.”  Dial Corp., 634 N.W.2d at 646.

Here, the taxpayer challenges the department’s interpretation and application of the following exemption from the vehicle use tax:   

Vehicles registered or operated under chapter 326 and used substantially in interstate commerce . . ..  For purposes of this subsection, ‘substantially in interstate commerce’ means a minimum of twenty-five percent of the miles operated by the vehicle accrues in states other than Iowa.  This subsection applies only to vehicles which are registered for a gross weight of thirteen tons or more.

For purposes of this subsection, trailers and semitrailers registered or operated under chapter 326 are deemed to be used substantially in interstate commerce and to be registered for a gross weight of thirteen tones or more.

Iowa Code § 423.6(12). ^[2] 

The parties disagree regarding interpretation of the weight requirement.  The taxpayer asserts that the exemption should be applied to a pick-up truck which is used to pull a trailer in interstate commerce if the vehicle combination is registered under the IRP and the IRP apportioned cab card authorizes the truck and trailer to operate in interstate commerce with a combined weight exceeding 13 tons.  The department asserts that the exemption applies only if the Gross Vehicle Weight Rating (GVWR) of the truck, the loaded weight of a truck without the trailer – as documented on the truck title – is at least 13 tons.

The outcome of this case turns on interpretation of the phrase “registered for a gross weight of thirteen tons or more.”  The director of the department of revenue is given authority to prescribe all rules necessary and advisable for the administration of chapter 423.  Iowa Code §§ 422.68(1); 423.42(1).   Deference is given to the agency’s interpretation of this statute through administrative rules.  Iowa AG Constr. Co., 723 N.W.2d at 173.  But the department has not attempted to further define the meaning of the phrase “registered for a gross weight of thirteen tons or more.”  The primary rule implementing 423.6(12) provides

Exemption for vehicles used in interstate commerce.  Trailers and semitrailers used initially in Iowa on or after July 1, 1986, and registered under Iowa Code chapter 326, are exempt from tax. . . .

   For trailer and semitrailers registered under Iowa Code chapter 326 and initially used in Iowa between July 1, 1985 and June 30, 1986, inclusive, and for any other vehicles registered under chapter 326, including those purchased for lease, and truck and road tractors, a use tax is not to be imposed provided that the vehicle is used in interstate commerce, accrues at least 25 percent of its mileage outside of Iowa and is registered for a gross weight of 13 tons or more.

 701 Iowa Admin. Code [IAC] 32.4.  A second rule referencing chapter 326 cross-references to rule 32.4 for “details regarding vehicles registered under Iowa Code chapter 326 and in interstate commerce.”  701 IAC 32.10. 

The department’s argument relies largely upon the definitions within Iowa Code chapter 321.  Subsection 321.1(29)(a) defines gross weight as “the empty weight of a vehicle plus the maximum load to be carried by the vehicle.” Subsection 321.1(29)(c) defines “gross vehicle weight rating” to mean “the weight specified by the manufacturer as the loaded weight of a single vehicle.”  The definition of “combination of vehicles” includes “a group consisting of a motor vehicle and one or more trailers . . . which are coupled or fastened together for the purpose of being moved on the highways as a unit.”  Iowa Code § 321.1(9).  And “combined gross weight” is a defined as “the gross weight of a combination of vehicles.”  Iowa Code § 321.1(10)(a). 

The gross weight of the taxpayer’s trucks without the trailers is less than 26,000 pounds - even when the trucks are fully loaded.  The trucks qualified as apportionable vehicles under the IRP because they were used in combination with trailers and the combination weight exceeded 26,000 pounds.  The use tax exemption refers to the vehicles “registered for a gross weight of 13 tons or more,” not vehicles “registered for a combined gross weight of 13 tons or more.” The department argues that because the terms “gross weight” and “combined gross weight” have different definitions under chapter 321, the exemption applies only when an individual vehicle exceeds the 13 ton weight threshold. 

The department acknowledges that because the trucks were registered under the IRP as combination vehicles, the gross weight of the individual trucks is not indicated in the registration.  They then turn to the manufacturer’s gross vehicle weight rating, as shown on the truck titles, to determine whether the trucks qualify for the exemption.  From the agency’s perspective, the fact that the vehicles in question are apportioned vehicles registered under the IRP for a combined gross weight greater that 13 tons is irrelevant. 

Each provision of a statute must be interpreted in context, with careful consideration given to the purpose of the statutory provision and its relationship to other statutes.  See Dubuque Casino Belle, Inc. v. Bair, 562 N.W.2d 605, 607  (Iowa 1997), citing Ashland Oil, Inc. v. Iowa Dep’t of Revenue, 452 N.W.2d 162, 164 (Iowa 1990).  I believe the department analysis is inconsistent with the plain language and context of the subsection 423.6(12) exemption.  Eligibility for the exemption hinges upon the weight for which a vehicle is registered, not upon the gross vehicle weight rating listed on the vehicle title.  

Vehicles which are registered under chapter 326 are registered by the department of transportation, pursuant to chapter 326 and the terms of the IRP.   The registration fee for a truck under Iowa’s vehicle registration system is based on the combined gross weight of the vehicle or combination of vehicles.  Iowa Code § 321.122(1).   Under the IRP the cab card is the vehicle registration.  A single cab card is issued for an apportionable vehicle – even if the vehicle is composed of a power unit and a trailer and the registered weight for the vehicle is listed on the card.

The subsection 423.6(12) exemption applies to “vehicles registered or operated under chapter 326 . . . which are registered for a gross weight of thirteen tons or more.”  Each of the trucks owned by Mueller Concrete is registered under the IRP in combination with a trailer.  Under the IRP definitions, each combination unit is an apportionable vehicle.  The combined gross weight of the unit is the gross weight for which the vehicle is registered.

The department sought payment of use tax, interest, and penalty for four trucks purchased by Mueller during 2006.  The gross weight for which each truck is registered as listed on the cab card / registration receipt for the truck exceeds 26,000 pounds or 13 tons.  The department erred in assessing use tax on the trucks and denying the taxpayers requests for refund of the use tax, interest, and penalty collected by the department for these vehicles. 

The department’s denial of the refund request made by Mueller Concrete Construction Company is reversed.  The department shall refund the use tax, penalty, and interest paid for the four trucks at issue here ($10,197.26) and pay any interest required by law.

Issued this 18^th day of December, 2009.

Christie J. Scase

Administrative Law Judge      

cc:       Assistant Attorney General - Valencia Voyd McCown