Prefabricated Home Builder Argues 'Toters' Not Subject to Excise Tax

TABLE OF AUTHORITIES

ARGUMENT AND AUTHORITIES

I. Overview: What kind of tractor is taxable under Internal Revenue Code § 4051(a)(1)(E)?

II. Only the kind of tractor used in combination with a trailer or semitrailer is subject to excise tax under Code § 4051(a)(1)(E).

V. Even if there were room for an agency construction, the temporary interpretive treasury regulation, as interpreted, is not reasonable, has no power to persuade, and is invalid.

CONCLUSION

CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMITATION

*Ann Jackson Family Found. v. Commissioner, 15 F.3d 917, 920 (9th Cir. 1994)

Atlantic Mut. Ins. Co. v. Commissioner, 523 U.S. 382, 387 (1998)

Boeing Co. v. United States, 537 U.S. __, 123 S. Ct. 1099, 1111-1112 (2003)

Brown Express, Inc. v. United States, 607 F.2d 695, 702 (5th Cir. 1979)

Brown v. Gardner, 513 U.S. 115, 121 (1994)

Chevron, U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837, 842-43 (1984)

Copeland v. Commissioner, 290 F.3d 326, 334 (5th Cir. 2002)

Cottage Sav. Ass'n. v. Commissioner, 499 U.S. 554, 560-561 (1991)

Florida Fruit & Vegetable Ass'n v. Brock, 771 F.2d 1455, 1460 (11th Cir. 1985)

Goodson-Todman Enters. v. Commissioner, 784 F.2d 66, 74 (2d Cir. 1986)

Haas v. Commissioner, 31 F.3d 1081, 1087 (11th Cir. 1994)

Heimmermann v. First Union Mortgage Corp., 305 F.3d 1257 (11th Cir. 2002), petition for cert. filed, 71 U.S.L.W. 3640 (U.S. March 25, 2003) (No. 02-1432)

Home Group, Inc. v. Commissioner, 91 T.C. 265, 272 (1988), aff'd, 875 F.2d 377 (2d Cir. 1989)

Hughes Int'l Sales Corp. v. Commissioner, 100 T.C. 293, 305 (1993)

Iglesias v. United States, 848 F.2d 362, 366-367 (2d Cir. 1988)

*Landmark Legal Found. v. I.R.S., 267 F.3d 1132, 1136 (D.C. Cir. 2001)

Limited, Inc. v. Commissioner, 286 F.3d 324, 333-34 (6th Cir. 2002)

Lorillard v. Pons, 434 U.S. 575, 580-81 (1978)

Mobil Oil Corp. v. Dept. of Energy, 610 F.2d 796, 803 (Temp. Emer. Ct. App. 1979)

Nalle v. Commissioner, 997 F.2d 1134, 1138-39 (5th Cir. 1993)

Professional Equities, Inc. v. Commissioner, 89 T.C. 165, 175 n.13 (1987)

Tax Analysts v. I.R.S., 215 F.Supp.2d 192, 198 (D.D.C. 2002)

*U.S. Freightways Corp. v. Commissioner, 270 F.3d 1137, 1141 (7th Cir. 2001)

*U.S. Steel Corp. v. EPA, 595 F.2d 207, 214 (5th Cir. 1979)

*United States v. Mead, 533 U.S. 218 (2001)

United States v. Vogel Fertilizer Co., 455 U.S. 16, 24 (1982)

Walton v. Commissioner, 115 T.C. 589, 598-599 (2000)

Statutes and Rules

12 U.S.C. 2617

Administrative Procedure Act ("APA") § 533(b)(3)(B)

APA §553(b)(3)(A) & (B)

Internal Revenue Code of 1986 (26 U.S.C.)

Code § 121

Code § 163(h)(2)(D)

Code § 25

Code § 4051

Code § 4051(a)

Code § 4051(a)(1)(E)

Code § 4051(b)

Code § 4053

Code § 4061

Code § 4061(a)

Code § 4061(a)(1)

Code § 4061(a)(1)(E)

Code § 42

Code § 43

Code § 7805(a)

Code § 7805(e)

O.C.G.A. § 11-2-401(2)

Regulations

Temp. Treas. Reg. § 145.4051-1(e)(1)

Temp. Treas. Reg. § 145.4052-1(a)(6)

Temp. Treas. Reg. § 145.4051-1(e)(1)(i)

Temp. Treas. Reg. § 145.4051-1(e)(1)(ii)

Treas. Reg. 1.25-1T(b)(11)

Treas. Reg. 48.4061(a)-3(c)

Treas. Reg. 48.4221-1(b)(3)

Treas. Reg. §145.4051-1(a)(1)(iii)

Miscellaneous

1 Mertens Law of Fed. Income Tax § 1:11 (2002)

2 Am. Jur. 2d Administrative Law § 166 (2002)

H.R. Conf. Rep. No. 97-987 (1982), reprinted in 1982 U.S.C.C.A.N. 3692, 3761

H.R. Rep. No. 75-1860 at 67 (1938), reprinted in 1939-1 C.B. (Pt.2), 728, 776

National Manufactured Housing Construction and Safety Standards Act of 1974

Senate Committee on the Judiciary, S. Doc. No. 248, 79th Congr., 2d Sess. 200, 258 (1946)

T.D. 6648, 1963-1 C.B. 197

T.D. 7882, April 4, 1983, 1983-2 C.B. 274

Taxpayer Rights and Excise Tax Collection Procedures, S. Rep. No. 309, 100th Cong., 2d Sess. 11 (1988)

Webster's Third New Int'l Dictionary, 2368 (1986)

[1] What kind of tractor is taxable under Internal Revenue Code of 1986 ("Code") (26 U.S.C.) § 4051(a)(1)(E)? Congress wrote a clear and precise answer to this question: "Tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer." As admitted by the Government, "Horton's toters, of course, do not 'chiefly' tow trailers or semitrailers; in fact they never tow these articles." (Gov't. Br., 18.)

[2] Congress saw no ambiguity in the words used in Code § 4051(a) and made no specific delegation of authority to Treasury to interpret or implement those provisions. This is in direct contrast with Code § 4051(b) where Congress made a specific delegation of authority for Treasury to issue regulations with respect to the excise tax on parts and accessories. Code § 4051(b) actually begins, "Under regulations prescribed by the Secretary --." No such delegation of authority was needed or made with respect to the excise tax provision at issue in this case.

[3] Likewise, the legislative history supports Horton's straightforward reading of Code § 4051(a)(1)(E). The 1932 legislation imposed an excise tax on trucks and truck bodies, but excluded all tractors from the excise tax.¹ The 1938 legislation extended the excise tax to certain trailers and semitrailers. As described in the legislative history, Congress intended to impose the tax on trailers and semitrailer chassis and bodies "which contain the load" and on tractors that haul freight in trailers or semitrailers and "are in competition with truck manufacturers." (emphasis added). H.R. REP. NO. 75-1860 at 67 (1938), reprinted in 1939-1 C.B. (Pt.2), 728, 776. Horton is in the housing business, not the freight business. Horton's homes are not in competition with trailers or semitrailers, and its toters are not in competition with trucks or tractors that are used in combination with trailers and semitrailers.

[4] The Conference Committee Report accompanying the 1982 legislation reaffirms Congress' intent to tax tractors engaged in hauling freight, and states the following:

[6] While tomorrow Congress could theoretically expand the tax to include Horton's manufactured homes and its toters, it would be Congress' sole prerogative to levy such taxes. In reality, there are many valid policy reasons for not extending excise taxes to Horton's manufactured homes, including the following:

[8] There is no ambiguity in the statute or legislative history. Congress' intent was clearly reflected in both. The final regulations promulgated in 1962 under predecessor Code § 4061(a)(1) identified no ambiguity in the statutory language. The final regulations simply repeated the words of the statute because no further interpretation was needed. T.D. 6648, 1963-1 C.B. 197, 200.

[9] Any ambiguity is a relatively recent phenomenon created by Treasury and the IRS itself. The ambiguity was created in 1983, when Treasury issued "rushed up" temporary regulations to deal with the transition from taxes paid by a manufacturer under Code § 4061 to taxes paid by a dealer under Code § 4051. T.D. 7882, 1983-1 C.B. 274. Treasury used the "good cause" exception to implement those temporary regulations without the cleansing notice-and-comment procedure ordinarily required by APA § 553(b)(3)(A) & (B). Temp. Treas. Reg. § 145.4051-1(e)(1)(i) of that regulation created the conflict that gave rise to this case: "The term 'tractor' means a highway vehicle primarily designed to tow a vehicle, such as a trailer or semitrailer, but does not carry cargo on the same chassis as the engine. " (emphasis added). Contrast that with the opening paragraph of the regulation, Treas. Reg. § 145.4051-1(a)(1)(iii) which omits the words, "such as."

[10] "Trailer" and "semitrailer" need no explanation, but what is a "vehicle such as a trailer or semitrailer"? Had Treasury promulgated that temporary regulation with formal notice and comment, the potential conflict between Temp. Treas. Reg. § 145.4051-1(e)(1)(i) on one hand and Temp. Treas. Reg. § 145.4051-11(a)(1)(iii) and the statute on the other hand could have been discussed. In addition, the inherent ambiguity of the words "such as" could have been explored. Did those words refer to physical characteristics of trailers and semitrailers, as the Government suggests, referring to both a manufactured home and trailer or semitrailer as a "large article" (Gov't. Br., p. 18), or did those words refer to function, that is, hauling freight? In light of the legislative history and purpose of Code § 4051(a)(1)(E), perhaps Treasury meant function.

[11] If Treasury had intended to broaden the excise tax beyond freight haulers to the manufactured housing industry, any objections could have been aired during a formal notice and comment period. The legal problems with Treasury extending the statute beyond the clear intent of Congress, as expressed in the statute and the legislative history, could have been pointed out and the policy and physical reasons for NOT taxing the manufactured housing industry could have been put forward. None of this happened because the regulations in issue were issued on an "emergency" basis without formal notice and comment and have remained temporary for 20 years without the legal, interpretive, or policy issues being addressed.

[12] The positions put forward by the Government in this case are merely expedient litigating positions and not policy decisions made by Congress or even clearly expressed by Treasury in any regulation. The Government's argument that "kind" is ambiguous in the context of this statute is a new argument invented solely for this Court to justify the position that the regulation in question is permitted, if not needed. The "kind" argument was not made in the court below and has not been articulated in any public IRS pronouncement. The Government cites no authority for its position and even admits that "it is not unreasonable to read the subsection as Horton has posited in its brief." (Gov't. Br., p.19.) Even the regulations the Government seeks to uphold do not split hairs over the interpretation of the word "kind." Indeed, there is nothing in the regulations that even hints at an interpretive problem lurking beneath the surface of that word. Even the expansive interpretation of the regulations argued by the Government in this case has not been consistently held. In a prior excise tax audit, the Government raised the issue of whether toters should be taxed, but the issue was ultimately conceded by the Government. (R: 66-45.) All this lends credence to Horton's view that the word "kind," as used in this statute, does not harbor any ambiguity.

[13] Because the words of the statute and intent of Congress are clear, and because the temporary regulation in question impermissibly expands that statute, the regulation is invalid. See e.g., Goodson-Todman Enters. v. Commissioner, 784 F.2d 66, 74 (2d Cir. 1986) (finding Commissioner's action in adding new categories of items excluded from the investment tax credit an unreasonable and invalid exercise of authority); Nalle v. Commissioner, 997 F.2d 1134, 1138-39 (5th Cir. 1993) (finding a final interpretive Treasury regulation invalid because "Congress crafted a detailed and reasonably precise means for determining eligibility for the tax credit. . . . [and the regulation in issue] 'purports to do no more than add a clarifying gloss on a term . . . that has already been defined with considerable specificity by Congress."' (citing United States v. Vogel Fertilizer Co., 455 U.S. 16, 24 (1982))).

[14] Additional reasons and authority for Horton's position are set out below.

II. Only the kind of tractor used in combination with a trailer or semitrailer is subject to excise tax under Code § 4051(a)(1)(E).

[15] The words of the statute are clear. There is no ambiguity in the kind of tractors subject to excise tax: Only "tractors of the kind chiefly used . . . in combination with a trailer or semitrailer" can be taxed.

[16] A. Words of a statute must be construed in the context in which they appear.Where a term is not specifically defined by Congress, courts must determine meaning by the context in which the word is used. Only one meaning of "kind" makes sense in the context of Code § 4051(a)(1)(E) because the word appears in the statute surrounded by various limiting words:

[18] The next limiting word, which immediately precedes "kind," is the definite article "the." In this case, "the" is "used as a function word to indicate that a following noun or noun equivalent refers to something that is unique or is thought of as unique or exists as only one at a time." WEBSTER'S THIRD NEW INT'L DICTIONARY, 2368 (1986). Congress did not say "tractors of a kind . . ." implying that an indefinite class of tractors were subject to tax, but rather "tractors of the kind . . . ." See Limited, Inc. v. Commissioner, 286 F.3d 324, 333-34 (6th Cir. 2002), for discussion of meaning of the article, "the" in context. For a comparison of the meaning of the definite article "the" and the indefinite article "a," see Haas v. Commissioner, 31 F.3d 1081, 1087 (11th Cir. 1994), observing that the article, "a" means "any."

[19] "Chiefly used"are the next words limiting the meaning of "kind." Together, "chiefly used" require a tractor to be used "principally" or "mainly" for a particular purpose in order to be taxable. WEBSTER'S, supra at 387. "For highway transportation in combination with a trailer or semitrailer" defines the purpose for which a tractor must be used to come within the ambit of the taxing statute. In the context of Code § 4051(a)(1)(E), the "kind" of tractor Congress intended to tax is clearly indicated and is limited to those "chiefly used in highway transportation in combination with a trailer or semitrailer."

[20] The Government's argument misses the mark. Even if the word "kind" were to mean "CATEGORY, CLASS," the class would still be limited to those "chiefly used in highway transportation in combination with a trailer or semitrailer" which, by the Government's own admission, Horton's toters are not.² Code § 4051(a)(1)(E) does not read, "tractors of a kind that tow large objects over the highways," nor does it say "tractors that share one or more traits with tractors that are used in combination with trailers or semitrailers." The statute does refer to "tractors of a kind chiefly used for highway transportation in combination with a trailer or semitrailer." Only by reading those limiting words, "in combination with a trailer or semitrailer" out of the statute could the Government prevail.

[21] Congress taxed trailer and semitrailer chassis and bodies and the vehicles that tow trailers and semitrailers. Congress did not tax manufactured homes and no where intimated that the transport vehicles for manufactured homes were taxed either. In the context of Code § 4051(a), the Government's argument does not fit.

[22] B. If Congress had wanted to tax any tractor that towed a large article over the highways, it could have done so. The Government has focused its entire argument on the supposed ambiguity of the word, "kind," positing that the word means any vehicle with any traits or interests in common with tractors that chiefly tow trailers and semitrailers. The Government has selected two traits it says Horton's toters have in common with tractors that chiefly tow trailers and semitrailers: (i) both toter and semitrailer tractors have such short wheel bases that they are incapable of carrying their entire load on their own chassis, but both carry a portion of their load on their own chassis and (ii) the chief purpose of both toters and semitrailer tractors is to "tow a large article" over the highways. (Gov't. Br., p. 18.)

[23] There are many traits toters do not share with semitrailer tractors, both physical and functional -- most notably, the inability of toters to physically or legally tow either commercial trailers or semitrailers! (R: 66-26, 80, 115-116, 186-187, 208.) Toters have wheel bases that are too short to mount a fifth wheel required to tow a semitrailer. (R: 66-71, 100, 116, 187.) The design of the toters precludes them from towing trailers, because they would not have traction necessary to pull or brake a trailer. (R: 66-117.) They have brakes for straight truck application and so do not have the valves or plumbing necessary to connect to the air brakes on a trailer or semitrailer.(R: 66-71-74, 112.) The toters, are not large or heavy enough to be used in combination with commercial trailers or semitrailers. (R: 66-31, 209.) They have gross vehicle weights of less than 33,000 pounds. (R: 55, Ex. A-6 ¶ 33; R: 66-88.) The toters carry some cargo relating to the manufactured homes on the toter chassis. (R: 66-33, 34, 109.) The toters do not haul freight since the manufactured homes do not themselves carry people or property over the roads. (R: 66-40.) The toters are classified by the manufacturer as a straight trucks, a truck with straight truck brakes. (R: 55, Ex. A-6 ¶ 29; R: 66-81, 108.) No equipment was added that was appropriate or required of a tractor. (R: 66-114.)

[24] According to the Government, the superficial characteristic that toters share with semitrailer tractors is the ability to tow a large article with a portion of the weight of the article resting on the chassis of the tractor or toter. This common trait is characteristic of a "class" of vehicles that includes both toters and semitrailer tractors,and who knows what else? There is no limit to the application of that idea.

III. The addition of the words "such as" in Temp. Treas. Reg. § 40511(e)(1)(i) impermissibly go beyond the clear meaning of the statute and add ambiguity.

[25] While the statute clearly defines the class of tractors subject to the excise tax, the regulations go beyond that defined class. Trailers and semitrailers are clearly understood terms, but what is a "vehicle such as a trailer or semitrailer"? No where does the Code or Treasury Regulations intimate that a manufactured home is a "vehicle such as a trailer or semitrailer," and, of course, the Government agrees that a manufactured home is not a "trailer or semitrailer." Elsewhere, Treasury has recognized that a manufactured home is a residence and has distinguished manufactured homes from campers and recreational vehicles. See e.g., Treas. Reg. 1.25- 1T(b)(11). In fact, Code § 4053, providing exemptions from the tax imposed by Code § 4051, recognized the same dichotomy, specifically exempting self propelled motor homes and house trailers, but finding no need to exempt manufactured homes, since manufactured homes are NOT trailers or semitrailers. As written, the regulation introduces uncertainty into an otherwise clear taxing provision.

[26] The mischief of the regulation is not limited to the first sentence. Indeed, the regulations are riddled with uncertainties. For example, the presumption that vehicles equipped with air brakes are presumed to be tractors. Busses, dump trucks, concrete mixers and refrigerated trucks are typically equipped with air brakes, as are many vehicles generally classified as trucks. (R: 74-75.) Horton's toters are equipped with brakes for straight truck application that could not be connected to or used with brakes on a trailer or semitrailer. (R: 66-73-74, 80, 109-l12, 187-188.) Does that presumption clarify or confuse the issue of taxability? The same problems attend the presumptions under Temp. Treas. Reg. § 145.4051-1(e)(1)(ii).

[27] Treasury has managed to take a perfectly clear statute and, in haste, turn it into a morass. The purpose of interpretive regulations is NOT to expand the incidence of the tax, but to give guidance. The temporary regulations in question do little more than trap the unwary and spawn litigation.

IV. Since the statute is clear, the temporary regulation at issue is unnecessary. When, as here, the statute is clear, there is no need or room for agency construction. As the Supreme Court has stated:

[29] The Government discounts the history of the Code section in question, which has remained unchanged in the statute for some 65 years. It first appeared in the 1938 excise tax in the predecessor Code § 4061(a)(1)(E) exactly as it appears today in Code § 4051(a)(1)(E): "Tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer." When Congress changed Code § 4061(a) from a tax imposed on "manufacture" to one imposed on "the first retail sale" under Code § 4051(a), Congress looked at the very taxing provision at issue and made no changes other than to the time of imposition of the tax. At the time that change was made in 1982, final Treas. Reg. § 48.4061(a)-3(c), which mirrored the words of the Code had been in effect for 20 years, yet no change to the statute was made and the legislative history indicates no intention to broaden the tax to include tractors not specifically mentioned in the statute. Particularly where Congress changes some words in a provision, but leaves others unchanged, "Congress is presumed to be aware of an administrative or judicial interpretation of a statute and to adopt that interpretation when it re-enacts a statute without change. . . ." Lorillard v. Pons, 434 U.S. 575, 580-81 (1978), cited with approval in Boeing Co. v. United States, 537 U.S. __, 123 S. Ct. 1099, 1111-1112 (2003) (holding that, " [t]he fact that Congress did not legislatively override" the regulation in question that had been in effect for seven years "serves as persuasive evidence that Congress regarded that regulation as a correct implementation of its intent.").

[30] Although Congress subsequently extended the life of the excise tax, it has not substantively reconsidered Code § 4051(a) since 1982. The temporary regulation in question was issued in haste after the 1982 legislation. As in Brown v. Gardner, "the record of congressional discussion preceding reenactment makes no reference to the . . . regulation, and there is no other evidence to suggest that Congress was even aware of the . . . interpretative position. In such circumstances we consider the. . . re-enactment to be without significance. " Brown v. Gardner, 513 U.S. 115, 121 (1994).

V. Even if there were room for an agency construction, the temporary interpretive treasury regulation, as interpreted, is not reasonable, has no power to persuade, and is invalid.

[31] A. Temp. Treas. Reg. § 145.4051-1(e)(1)(i) is an interpretive and not a legislative regulation. When regulations are issued under specific direction, they are "legislative" regulations and have the force of law. An example of a legislative regulation is contained in Code § 4051(b), imposing tax on the separate purchase of truck and trailer parts. That section begins, "Under regulations prescribed by the Secretary." Such a legislative regulation must be upheld unless it is manifestly contrary to the intent and words of the statute. Chevron, U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. at 844. However, Treasury's latitude in issuing even legislative regulations is not boundless, and in recent years courts have been ready to invalidate legislative Treasury regulations when they went out of bounds.³

[32] Legislative regulations draw their authority from a specific direction of Congress, such as was given in Code § 4051(b) ("Under regulations prescribed by the secretary . . . . "). The regulation in question is an interpretive regulation, NOT a legislative regulation. The authority to issue "Interpretive" regulations comes from Code § 7805(a), and not from any specific direction of Congress. "A court will scrutinize a[n interpretive] Regulation's fidelity to the overall statutory framework and legislative history because an interpretive Regulation is not a statute and its creator, the Treasury Department, is not Congress." 1 MERTENS LAW OF FED. INCOME TAX § 1:11 (2002).

[33] "Interpretative regulations . . . are entitled to less judicial deference than are those issued pursuant to a specific grant of authority." Ann Jackson Family Found. v. Commissioner, 15 F. 3d 917, 920 (9th Cir. 1994) (striking down a final interpretive treasury regulation). An interpretive regulation is given deference only if it is a "reasonable interpretation made by the administrator of an agency." (emphasis added). Chevron, U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. at 844; Atlantic Mut. Ins. Co. v. Commissioner, 523 U.S. 382, 387 (1998), citing Cottage Sav. Ass'n. v. Commissioner, 499 U.S. 554, 560-561 (1991); Boeing Co. v. United States, 537 U.S.__, 123 S.Ct. at 1107, also citing Cottage Sav. Ass'n. v. Commissioner.

[34] Courts have invalidated final interpretive treasury regulations in circumstances similar to the instant case. See Hughes Int'l Sales Corp. v. Commissioner, 100 T.C. 293, 305 (1993) (where the "legislative history directly undercuts" the regulation); Home Group, Inc. v. Commissioner, 91 T.C. 265, 272 (1988), aff'd, 875 F.2d 377 (2d Cir. 1989) (where a sentence of the regulation was at odds with the statute and the preceding portion of the regulation; Nalle v. Commissioner, 997 F.2d at 1139 (where the statute was reasonably precise); Iglesias v. United States, 848 F.2d 362, 366-367 (2d Cir. 1988) (where a regulation altered the scope of the statute); Walton v. Commissioner, 115 T.C. 589, 598-599 (2000) (where legislative history provided guidance).

B. The temporary regulation in issue is due no more deference than its power to persuade.

[35] 1. The Government's position in this case is only an interpretation of the temporary interpretive regulation. The Government argued that "manufactured homes" are "highway vehicles such as trailers or semitrailers," but nowhere does the regulation in issue mention "manufactured homes." The Government's position is an interpretation of an interpretation that should be accorded no more weight than any other litigating position. This interpretation was not developed in "in a notice-and-comment rulemaking, a formal agency adjudication, or in [any] other procedure meeting the prerequisites for Chevron deference . . . ."Accordingly, its views deserve "no more than the weight derived from their 'power to persuade."' Landmark Legal Found. v. I.R.S., 267 F.3d 1132, 1136 (D.C. Cir. 2001), citing United States v. Mead, 533 U.S. 218 (2001). See also, Professional Equities, Inc. v. Commissioner, 89 T.C. 165, 175 n.13 (1987) (finding against the Government's where it was confused as to the proper application of its own temporary regulation).

[36] 2. The regulation in question was issued without notice-and-comment required by the APA. The temporary regulation in question was issued under the "good cause" exception to the Administrative Procedure Act ("APA") § 533(b)(3)(B). According to the regulation preamble, the regulation was issued because "Immediate guidance" was needed and it was "impracticable" to comply with notice-and-comment procedures. T.D. 7882, 1983-1 C.B. 274. Treasury did not point to an emergency prohibiting the use of notice- and comment. If there had been a need for immediate guidance, it was limited to the changes made by the 1982 legislation. There was certainly no urgency with respect to a provision that had been in effect for 45 years. The Government admits that "the object of the tax did not change." (Gov't. Br., p. 13.)

[37] The "good cause" exception applies only "in situations of emergency or necessity" and "is not an escape clause" from the otherwise required notice-and comment procedures. SENATE COMMITTEE ON THE JUDICIARY, S.Doc. No. 248, 79th Congr., 2d Sess. 200, 258 (1946). The exception does not apply where an agency only asserts a need for "immediate guidance." See Mobil Oil Corp. v. Dept. of Energy, 610 F.2d 796, 803 (Temp. Emer. Ct. App. 1979) ("a desire to provide immediate guidance, without more, does not suffice for good cause . . . . [A]n exception to the notice requirement would be created that would swallow the rule."); U.S. Steel Corp. v. EPA, 595 F.2d 207, 214 (5th Cir. 1979). See also, Brown Express, Inc. v. United States, 607 F.2d 695, 702 (5th Cir. 1979) (holding that whether a regulation for another APA exemption should turn on whether the proposed regulation was one of general applicability that "has a substantial impact on the regulated industry, or an important class of the members . . . ." The regulation in question adversely affects the entire manufactured housing industry and should have been issued with notice-and-comment. See also, Florida Fruit & Vegetable Assn v. Brock, 771 F.2d 1455, 1460 (11th Cir. 1985) (invalidating piece-rate regulation because the Department of Labor failed to provide adequate notice and opportunity to comment upon a regulation).

[38] By the Government's own admission, the regulation was issued in haste, and has remained unedited and unfinalized for 20 years. (Gov't. Br., p. 13.) Congress banned this type of agency laxness in 1988 by requiring that temporary regulations be issued as proposed regulations, thus allowing for notice and comment, and provided that temporary regulations lapse after three years.⁴ The Senate Finance Committee Report to the 1988 Taxpayer Bill of Rights explained the need for the restriction on temporary regulations as follows:

[39] 3. Mead applies in this case. The government implies that United States v. Mead, 533 U.S. 218 (2001) does not have any bearing in the tax area, and if it does, it only applies to "less formal decisions of the Internal Revenue Service, such as revenue rulings and procedures . . . " (Gov't Brief, p. 23). Contrary to the government's assertion, Mead has been applied to Treasury regulations. See U.S. Freightways Corp. v. Commissioner, 270 F.3d 1137,1141 (7th Cir. 2001) (concluding that "[a]fter Mead, we know that we give full deference under Chevron . . . only to regulations that were promulgated with full notice-and-comment or comparable formalities."); Tax Analysts v. I.R.S., 215 F.Supp.2d 192, 198 (D.D.C.2002) ("[R]egulations must be made in a 'notice-and-comment rulemaking or formal adjudication'. . .").

[40] 4. Heimmermann is distinguishable from this case and does not support the Government's position. The Government cites Heimmermann v. First Union Mortgage Corp., 305 F.3d 1257 (11th Cir.2002), petition for cert. filed, 71 U.S.L.W. 3640 (U.S. March 25, 2003) (No. 02-1432) for the proposition that a regulation issued without notice-and-comment deserves Chevron deference. However, the HUD Statement of Operating Procedures in Heimmermann was found by this Court to be a mere clarification of existing law, and logically such a rule would not have had a substantial impact. Such is not the case where, as here, the regulation had a substantial impact on the manufactured housing industry. In this case, the lack of notice-and-comment thwarted the purposes for the APA without justification. See 2 Am. Jur. 2d Administrative Law § 166 (2002) (summarizing the purposes of the APA.)

[41] In addition, Heimmermann involved a specific delegation of authority for HUD to interpret one chapter comprising 14 sections of the Real Estate Settlement Procedures ("RESPA"). 12 U.S.C. 2617. Contrast that provision to Code § 7805(a) providing general authority for Treasury to issue interpretive regulations for the entire Internal Revenue Code with thousands of sections. Because of the specificity of the delegation. of authority to HUD, the HUD Statement of Policy in Heimmermann is closer to a legislative regulation which deserves a higher level of deference.

[42] Finally, in Heimmermann, the Statement of Policy specifically addressed the point at issue in that case, whereas the temporary regulation in this case does not mention manufactured homes. The Government's litigating position, which is merely an interpretation of an interpretation, should not be entitled to Chevron deference. At best, the position is limited to its power to persuade. See discussion at page 20-21, supra.

VI. Irrespective of the validity of the regulation in issue, Horton is not liable for the excise tax.

[43] The excise tax under Code § 4051(a) is generally due on the "first retail sale" of the article. The dealer is normally liable for the tax. (Horton's Orig. Br., p. 28.) Assuming that Horton's toters are subject to the tax, the dealer, LJL would generally have been the responsible party. The Government does not dispute this.

[44] The Government argues that the facts in this case fall under an exception because the sale from LJL to Horton took place when the vehicles were not taxable. However, this view is contrary to the very argument the Government has put forward to sustain its litigating position. According to the Government, Horton's toters are taxable because they share a trait with tractors that are used with trailers and semi trailers. They "have such a short wheel base that they are incapable of carrying their entire intended load on their own chassis, but both carry a portion of their load on their own chassis." (Gov't. Br. p. 18.) The function of the vehicles as toters was known to LJL when it ordered the vehicles from the manufacturer, and their ultra short wheel base was determined when the vehicles were manufactured. (R: 66-71, 80.) Thus, if toters are taxable under the Government's reading of the statute and regulations, they were taxable when sold by LJL to Horton, whenever that sale may have occurred.⁵

[45] If, however, the Government is correct that the timing of the sale from LJL to Horton determines the liability for tax, then the Government is wrong about the timing. The sale took place under O.C.G.A. § 11-2-401(2) when LJL completed all its obligations relating to delivery of the trucks to Horton, including the final dealer inspection and warranty. At that time LJL was paid for the vehicle, and endorsed over the certificate of title to Horton. (R: 66-31, 83-85.) The sale from LJL to Horton did not take place until LJL had completed those steps and satisfied its obligations as dealer. At that time, there is no question that the toters were physically capable of transporting manufactured homes, and if any tax was due, LJL was liable.

[46] The Government further argues that Horton gave "nontractor exemption certificates" to LJL thereby exonerating LJL from the tax. (Gov't. Br., p. 35.) There was one certificate in existence that was undated and had no list of vehicles attached. Such certificate may or may not have been given in connection with the toters in issue in this case. (Gov't. Ex. 38.) However, both LJL and Horton were aware of the equipment that Kingsley-Fisher installed on the vehicles and both believed such equipment was not "tractor" equipment. Both parties knew the equipment was specialized for the purpose of transporting manufactured homes and not suited for towing trailers or semitrailers and believed no tax was due. (R: 66-44-45, 80.) The court below made no findings with respect to this certificate, and with good reason.

[47] The certificate that Horton gave to LJL was not a certificate under Temp. Treas. Reg. § 145.4052-1(a)(6), as stated by the Government on p. 32 of its Brief. Rather, the wording on the certificate given by Horton is taken from the last sentence of Temp. Treas. Reg. § 145.4051-1(e)(1) (the regulation at issue in this case), which merely provides that an incomplete chassis will be treated as a truck if the purchaser certifies that the vehicle will not be equipped as a tractor. This provision is starkly different from the certificate under Temp. Treas. Reg. § 145.4052-1(a)(6) or Treas. Reg. 48.4221-1(b)(3) and leaves unanswered all the questions as to whether such a certificate shifts the tax burden from the dealer to the purchaser, whether the certificate must be taken in good faith, and whether either or both the buyer and seller must be registered. This comparison highlights yet another ambiguity of the hastily and poorly drafted Temp. Treas. Reg. § 145.4051-1(e)(1).

1. Exclusive of the exempted portions, the Reply Brief of Horton Homes, Inc. contains 6,622 words.

2. The Reply Brief has been prepared in proportionally spaced typeface using Times New Roman 14 pt font in text and footnotes produced by Corel WordPerfect 8.0 software.

3. Upon request, the undersigned Counsel will provide an electronic version of this Reply Brief and/or a copy of the Corel WordPerfect 8.0 printout to the Court. Undersigned Counsel understands that a material misrepresentation in completing the Certificate, or circumvention of the type/volume limits in Fed. R. App. P. 32(A)(7), may result in the Court's striking the Reply Brief and imposing sanctions against the person who signed it.

1. Exclusive of the exempted portions, the Reply Brief of Horton Homes, Inc. contains 6,622 words.

2. The Reply Brief has been prepared in proportionally spaced typeface using Times New Roman 14 pt font in text and footnotes produced by Corel WordPerfect 8.0 software.

3. Upon request, the undersigned Counsel will provide an electronic version of this Reply Brief and/or a copy of the Corel WordPerfect 8.0 printout to the Court. Undersigned Counsel understands that a material misrepresentation in completing the Certificate, or circumvention of the type/volume limits in Fed. R. App. P. 32(A)(7), may result in the Court's striking the Reply Brief and imposing sanctions against the person who signed it.

²The speciousness of the Government's argument is apparent when applied in reverse. Assume that Congress inserted the words "of the kind" into the statute because it wanted to broaden the kinds of tractors subject to the excise tax to include not only tractors used with trailers and semitrailers, but also those used with manufactured homes. Then Congress could have written that the excise tax was imposed on, "Tractors of the kind chiefly used for highway transportation in combination with a manufactured home" and accomplished that result. No one would have supposed that trailers and semitrailers were included in the category of "manufactured homes" because they are functionally distinct.

³See e.g., City of Tuscon, Ariz. v. Commissioner, 820 F.2d 1283, 1290 (D.C. Cir. 1987) (invalidating a final legislative regulation, where the interpretation of "the disputed regulation stretches the language of [the Code] beyond the breaking point. . . ."); Phillips Petroleum Co. v. Commissioner 97 T.C. 30, 34 (1991), aff'd per curiam, 70 F.3d 1282 (10th Cir. 1992) (invalidating a final legislative regulation because "a regulation which exceeds its congressionally mandated scope of authority and is 'plainly inconsistent with the revenue statutes,'cannot be sustained." (citations omitted)); Rite Aid Corp. v. United States, 255 F.3d 1357, 1359 (Fed. Cir. 2001) (invalidating final legislative Treas. Reg. § 1.1502-20 stating: that a regulation "is manifestly contrary to the statute if it is outside the scope of authority delegated under the statute."); Goodson-Todman Enters. v. Commissioner, 784 F.2d at 74 (2d Cir. 1986) (invalidating a final legislative regulation because "It is thus apparent that the deference paid to Treasury regulations is not boundless. The Commissioner's interpretation of the Code is subject to review by the courts, whose 'duty . . . is to find that interpretation which can most fairly be said to be imbedded in the statute, in the sense of being most harmonious with its scheme and with the general purposes that Congress manifested."' (citation omitted))

⁴Code § 7805(e) is effective for temporary regulations issued after November 20, 1988.

⁵Had LJL paid Kingsley-Fisher for the conversion and Horton then paid LJL for the finished vehicle, there would be no dispute that LJL was liable for any tax. The result should be no different in this case because Horton wrote the check to Kingsley-Fisher. LJL specially ordered the vehicles to be used as toters and LJL knew the vehicles had no other use.