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National Railroad Passenger Corp. v. United States

September 20, 2004


The opinion of the court was delivered by: Rosemary M. Collyer United States District Judge


When a defined term in the Internal Revenue Code ("Code"), 26 U.S.C. § 1 et seq., fails to keep pace with technological advances and other changes in the commercial world, may the Internal Revenue Service ("IRS") nonetheless construe the Code to levy a tax arguably envisioned by Congress? This case concerns the proper interpretation and implementation of a federal excise tax on communications services. Finding that Congress meant what it plainly said in 1965, the Court concludes that only Congress, and not the IRS on its own, may update the statutory text. The motion for summary judgment filed by the United States ("IRS") will be denied and the National Railroad Passenger Corporation's ("Amtrak") motion for summary judgment will be granted.


Section 4251 of the Code imposes a three-percent excise tax on "communications services," which include "local telephone service" and "toll telephone service."*fn1 26 U.S.C. § 4251(b)(1). "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 a part of such local telephone system, and

(2) any facility or service provided in connection with a service described in paragraph (1).

Id. § 4252(a). Specifically excluded from this definition is "any service which is a 'toll telephone service' or a 'private communication service'...." Id. The Code describes "toll telephone service" as:

(1) a telephonic quality communication for which (A) there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication and (B) the charge is paid within the United States, and

(2) a service which entitles 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 telephonic communications to or from all or a substantial portion of the persons having telephone or radio telephone stations in a specified area which is outside the local telephone system area in which the station provided with this service is located.

Id. § 4252(b). Section 4253(f) provides that "[n]o tax shall be imposed under section 4251 on the amount paid for any toll telephone service described in section 4252(b)(2) to the extent that the amount so paid is for use by a common carrier...." Id. § 4253(f). It is undisputed that Amtrak is a common carrier for purposes of § 4253(f).

By statute, Amtrak is tasked to "provide intercity and commuter rail passenger transportation that completely develops the potential of modern rail transportation to meet the intercity and commuter passenger transportation needs of the United States." 49 U.S.C. § 24101(b). "Amtrak serves more than 500 stations in 46 states over more than 22,000 route miles." Pl.'s Mot. at 3. In fiscal year 2002, Amtrak transported approximately 23.4 million passengers utilizing its rail services. The United States, through the Department of Transportation, owns 100% of Amtrak's preferred stock.

In April 2002, Amtrak paid federal communications excise taxes to the IRS in the amount of $86,103.28, and timely filed a Form 720, Quarterly Federal Excise Tax Return, for the first quarter of the 2002 calendar taxable year. On May 17, 2002, Amtrak submitted to the IRS a claim for refund of the full amount of excise taxes it had paid in the previous month. This claim satisfied the requirements of §§ 6532 and 7422 of the Code. The IRS has neither allowed nor denied Amtrak's claim for refund. Amtrak filed this civil action after waiting six months from the filing of its claim.

Amtrak's federal communications excise taxes for the first quarter of 2002 were calculated based on the sums that Amtrak paid to International Business Machines Corporation ("IBM") during that time period for providing the following four types of telecommunications services: (i) domestic inbound toll-free dedicated service; (ii) Canada inbound toll-free service; (iii) domestic inbound "Switched" or "Ready-Line" service; and (iv) virtual network service (collectively, "Amtrak's telecommunications services").*fn2 IBM's monthly bills to Amtrak for January, February, and March 2002 reflect separate charges for each of these four telecommunications services. Amtrak's monthly toll charges were determined by multiplying the aggregate number of resource units, i.e., number of minutes, for a particular service by the specific rate that applied to that service - that is, monthly charge for each service = aggregate monthly resource units ...

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