Schneider National Leasing Inc v. United States ( 2021 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 20-3354
SCHNEIDER NATIONAL LEASING, INC.,
Plaintiff-Appellant,
v.
UNITED STATES OF AMERICA,
Defendant-Appellee.
____________________
Appeal from the United States District Court for the
Eastern District of Wisconsin.
No. 1:17-cv-00672 — William C. Griesbach, Judge.
____________________
ARGUED MAY 13, 2021 — DECIDED AUGUST 25, 2021
____________________
Before SYKES, Chief Judge, and SCUDDER and KIRSCH, Circuit
Judges.
SCUDDER, Circuit Judge. This appeal presents two questions
of first impression concerning a federal excise tax on heavy
trucks and the scope of a statutory safe harbor. The answer
affects whether Schneider National Leasing, a large trucking
company, can take advantage of the safe harbor for repairs
and modifications, codified in 26 U.S.C. § 4052(f)(1), to avoid
paying a 12% excise tax on 976 tractors it overhauled from
2 No. 20-3354
2011 to 2013. The district court held a bench trial, determined
that the degree of refurbishing in question constituted the
manufacture of new trucks rather than repairs or modifica-
tions, and therefore concluded the safe harbor did not apply.
We see the application of the statutory language differently
and reverse.
I
We begin with the statutory framework and then turn to
whether Schneider National Leasing’s overhaul of nearly
1,000 highway tractors fell within the safe harbor from the
federal excise tax.
A
Congress has taxed the sale of trucks by manufacturers,
producers, and importers for over 100 years. See War Revenue
Act of 1917, Pub. L. No. 65–50, § 600(a), 40 Stat. 300, 316. The
current iteration of this excise tax, enacted as part of the High-
way Revenue Act of 1982, resides in 26 U.S.C. § 4051. See Pub.
L. No. 97–424, § 512, 96 Stat. 2168, 2174–75. The statute im-
poses the excise tax in these terms:
There is hereby imposed on the first retail sale of the
following articles (including in each case parts or ac-
cessories sold on or in connection therewith or with the
sale thereof) a tax of 12 percent of the amount for
which the article is so sold:
…
(E) Tractors of the kind chiefly used for highway trans-
portation in combination with a trailer or semitrailer.
26 U.S.C. § 4051(a)(1).
No. 20-3354 3
In a neighboring provision, § 4052, Congress provides def-
initions and rules that clarify the contours of the tax. Section
4052(a) defines “first retail sale” to mean “the first sale, for a
purpose other than for resale or leasing in a long-term lease,
after production, manufacture, or importation.” Id.
§ 4052(a)(1). Congress likewise considered both the lease of an
“article” by the manufacturer and the use of “an article taxa-
ble under section 4051 before the first retail sale” to constitute
sales subject to the 12% tax. See id. § 4052(a)(2) (referencing 26
U.S.C. § 4217); § 4052(a)(3). The statute further makes plain
that a highway semi-tractor qualifies as an “article.” See id.
§ 4051(a)(1)(E).
What this all means in nontechnical terms is that a com-
pany that manufactures a big rig semi-tractor and then sells,
leases, or uses the tractor, incurs a 12% tax on the first sale or
lease. The IRS requires a company like the taxpayer here,
Schneider National Leasing, to file a Form 720 on a quarterly
basis to report any federal excise taxes due.
Front and center in this appeal is the safe harbor, also in
§ 4052, that Congress adopted in 1997 to permit companies to
repair or modify tractors they already own (and which have
already been taxed) without triggering the 12% excise tax
anew. See Taxpayer Relief Act of 1997, Pub. L. No. 105–34,
§ 1434, 111 Stat. 788 (1997). This safe harbor provision—titled
“Certain repairs and modifications not treated as manufac-
ture”—provides:
An article described in section 4051(a)(1) shall not be
treated as manufactured or produced solely by reason
of repairs or modifications to the article (including any
modification which changes the transportation func-
tion of the article or restores a wrecked article to a
4 No. 20-3354
functional condition) if the cost of such repairs and
modifications does not exceed 75 percent of the retail
price of a comparable new article.
26 U.S.C. § 4052(f)(1).
Notice how Congress drafted the safe harbor. Recall that
the underlying excise tax applies to the “first retail sale” of an
“article” like a tractor, which means “the first sale … after pro-
duction, manufacture, or importation.” Id. §§ 4051(a)(1),
4052(a)(1). The safe harbor establishes that some changes to a
tractor do not qualify as “manufacture” or “production”—the
consequence being that a company can lease, sell, or use that
tractor without the transaction constituting a “first retail sale”
because it has not occurred “after production, manufacture,
or importation.” Id. § 4052(a)(1); (f)(1). The 12% excise tax
only applies to “the first retail sale,” so without “manufac-
ture” or “production,” no tax liability is triggered.
Note, too, that Congress made the safe harbor conditional.
By its terms, § 4052(f)(1) provides that a tractor that has been
repaired or modified is not subject to the 12% tax if, and only
if, the cost of those repairs or modifications is less than or
equal to 75% of the price of a comparable new tractor.
Complicating matters is the absence in the excise tax and
the safe harbor of any definition of the terms “repairs,” “mod-
ifications,” or “retail price of a comparable new article.” Nor
has the IRS promulgated any implementing regulations de-
fining these terms. Much of this appeal hinges on the meaning
(and limits) of these terms.
B
Schneider National Leasing purchases truck tractors and
trailers and leases them to its parent company, Schneider
No. 20-3354 5
National, Inc., one of the nation’s largest trucking companies.
At any one time, Schneider National Leasing owns several
thousand tractors and tens of thousands of trailers and con-
tainers. To keep up with demand from drivers for updated
rigs and to maintain the health of its fleet, the company pur-
chases more than 3,000 semi-tractors each year.
From 2011 through 2013, rather than retiring a large set of
older tractors and purchasing all new replacements, Schnei-
der took a different tack. It bought 61 new tractors, the
Freightliner Cascadia 125 model, but also decided to overhaul
982 of its existing tractors using new and refurbished parts
packaged together in so-called glider kits. This decision made
strategic business sense. For one, Schneider’s older tractors
were lighter and realized better fuel economy than newer
models subject to more stringent environmental regulations.
By refurbishing older models, Schneider could keep these
more fuel-efficient tractors in its fleet. For another, Schnei-
der’s tax advisors counseled that the company would have to
pay the 12% excise tax if it bought new tractors but could
avoid the tax by refurbishing tractors in the existing fleet.
Following this advice, Schneider purchased 982 glider
kits—bundled assemblies of new and remanufactured tractor
components—from Daimler Trucks North America LLC. At a
minimum, each glider kit came with a cab, chassis, radiator,
front axle, front suspension, front wheels, front tires, front
brakes, brake system, and trailer connections. 912 of these kits
were so-called powered glider kits because they included a
remanufactured engine. Daimler assembled these parts to-
gether, as shown below, in a manner resembling a tractor cab
and chassis and shipped the kits to Schneider’s outfitters.
6 No. 20-3354
Supp. App. 3; Richard K. Lattanzio & Sean Lowry, Cong. Rsch. Serv.,
R45286, Glider Kit, Engine, and Vehicle Regulations (Aug. 10, 2018).
Schneider contracted with third-party outfitters to per-
form the refurbishments from January 2011 to December
2013. That process entailed the outfitters matching Schnei-
der’s old tractors with a glider kit and combining the parts to
create overhauled tractors. The refurbishing process generally
involved dismantling the old tractors, stripping non-usable
parts, reassembling the reusable components of the old trac-
tor with the glider kit parts, and giving the rebuilt tractor a
new vehicle identification number matching the serial num-
ber on the glider kit. The precise parts from the old tractors
that were combined with each glider kit varied, but in many
instances the outfitter reused the transmission, driveline, rear
axle, rear suspension, and rear wheel hubs—and sometimes
the fuel tank, fifth wheel, and rear brakes—in the refurbished
tractors. Schneider sent the old engines to Daimler in ex-
change for a rebate on the refurbished engines included in the
glider kits. Whatever components of the old tractors that re-
mained were either kept as replacement parts for future re-
pairs or sold for salvage value.
Schneider had paid the 12% excise tax when it first pur-
chased these 982 trucks as required by 26 U.S.C. § 4051(a)(1).
No. 20-3354 7
But the company did not pay the excise tax on any of the 982
refurbished tractors. Rather, Schneider invoked the safe har-
bor in § 4052(f)(1) for repairs or modifications and took the
position that the overhauled tractors were exempt from the
excise tax.
The IRS disagreed, determining that only six of the 982 to-
tal tractors qualified for the safe harbor. In the Service’s view,
Schneider triggered the 12% excise tax obligation in
§ 4051(a)(1) upon leasing these “articles”—“tractors of the
kind chiefly used for highway transportation”—to its parent
company, an action that the statute treats as a “first retail sale”
of an article. 26 U.S.C. § 4051(a)(1); see id. § 4052(a)(2). The IRS
concluded that the safe harbor in § 4052(f)(1) could not shield
912 of the overhauled tractors—those that received new en-
gines—because the refurbishment process using powered
glider kits exceeded permissible “repairs or modifications”
and instead resulted in the manufacture of new “articles.” In
more technical terms, no existing “articles” had been “re-
paired or modified,” so the safe harbor did not apply.
The IRS found the safe harbor unsatisfied for an alterna-
tive reason. Even if the refurbished tractors qualified as hav-
ing been repaired or modified, the Service determined that the
cost of repairs exceeded 75% of the retail value of a compara-
ble new tractor, disqualifying nearly all of Schneider’s refur-
bished tractors from § 4052(f)(1)’s protection. In the end, then,
the IRS denied Schneider the safe harbor and assessed the
company $9,387,403.73 plus interest in unpaid excise tax over
12 quarterly periods from January 1, 2011 through December
31, 2013.
Schneider paid the excise tax on 12 tractors—one for each
quarterly tax period at issue—and then filed an
8 No. 20-3354
administrative claim for a refund of that amount. The IRS de-
nied the refund claim, paving the way for Schneider to pursue
a tax refund action in federal court.
In May 2017 Schneider initiated a federal lawsuit pursuant
to 26 U.S.C. § 7422(a) and 28 U.S.C. § 1346(a)(1) asserting that
the IRS erroneously assessed excise taxes on its refurbished
tractors. Schneider’s complaint sought a refund of the
$157,683.64 it paid in excise taxes for the 12 tractors and an
abatement of the full amount of the IRS’s tax assessment. For
its part, the government maintained that the safe harbor did
not apply and filed a counterclaim to reduce to judgment the
unpaid balance of the full tax assessment.
C
Schneider and the government stipulated to nearly all per-
tinent facts and the district court held a one-day bench trial in
February 2020 on the remaining issues. By the time of the trial,
the government conceded that the safe harbor applied to 64
of Schneider’s refurbished tractors—those upgraded using
non-powered glider kits that did not contain engines—if the
cost of repairs fell below the 75% limit in § 4052(f)(1). That left
two issues for the district court to resolve: first, whether the
safe harbor applied to Schneider’s 912 tractors refurbished us-
ing powered glider kits (containing remanufactured engines);
and second, how to measure “the retail price of a comparable
new article” as those terms are used in § 4052(f)(1) to deter-
mine the 75% threshold.
The district court began with the text of § 4052(f)(1). Con-
gress provided that a tractor “shall not be treated as manufac-
tured or produced” (and thus not subject to the excise tax)
“solely by reason of repairs or modifications to the article …
No. 20-3354 9
if the cost of such repairs or modifications does not exceed 75
percent of the retail price of a comparable new article.” 26
U.S.C. § 4052(f)(1). This language, the district court reasoned,
established a two-step process for qualifying for the safe har-
bor. Schneider first had to show that it made “repairs or mod-
ifications” to specific tractors, and only then did the safe har-
bor require an assessment of whether the cost of those repairs
or modifications exceeded the 75% limit. Put another way, the
district court read § 4052(f)(1) to require a threshold determi-
nation of whether the taxpayer’s refurbishing was so exten-
sive to cross the line of “repairs and modifications” and in-
stead constitute an act of manufacturing.
With respect to the 912 powered glider kits, the district
court concluded Schneider could not satisfy the first step. The
safe harbor, the court reasoned, did not encompass situations
where a company combines a glider kit with only a few parts
from a used tractor, resulting in the creation of an effectively
new tractor. The district court did not explain its understand-
ing of the terms “repairs or modifications,” nor did it offer
guidance about how many repairs can be made, or how ex-
tensively a tractor can be modified, before the changes qualify
as the manufacture of a new tractor. Instead, the court looked
at the facts and determined that Schneider’s refurbishments
using powered glider kits resembled the creation of new trac-
tors—not repairs or modifications to existing tractors. The
safe harbor therefore did not apply, so Schneider owed the
12% excise tax on these 912 tractors.
The remaining question concerned the meaning in the safe
harbor of “the retail price of a comparable new article,” the
benchmark for the 75% limit on the cost of repairs and modi-
fications. The district court agreed with the government’s
10 No. 20-3354
view that the term “retail price” in § 4052(f)(1) referred to the
price paid at the first retail sale—meaning, the price that
Schneider actually paid (net of any discounts) for comparable
new tractors, rather than the industry retail price on the open
market.
After ruling in the government’s favor on both issues, the
district court instructed the parties to calculate the total
amount that Schneider owed to the IRS. The court entered fi-
nal judgment one month later, ordering Schneider to pay
$9,017,513.15 in unpaid excise taxes plus interest and costs.
Schneider now appeals.
II
As in any statutory interpretation dispute, the “proper
starting point lies in a careful examination of the ordinary
meaning and structure of the law itself.” Food Mktg. Inst. v.
Argus Leader Media, 139 S. Ct. 2356, 2364 (2019). Once more,
Congress established the safe harbor in these terms:
An article described in section 4051(a)(1) shall not be
treated as manufactured or produced solely by reason
of repairs or modifications to the article (including any
modification which changes the transportation func-
tion of the article or restores a wrecked article to a func-
tional condition) if the cost of such repairs and modifi-
cations does not exceed 75 percent of the retail price of
a comparable new article.
26 U.S.C. § 4052(f)(1).
Our own examination of this language leads us to two
conclusions: first, the safe harbor does not contemplate a
measurement for “repairs or modifications” apart from the
No. 20-3354 11
75% test Congress expressly incorporated into the statutory
text; and second, the appropriate measurement for the “retail
price of a comparable new article” is the market price in ordi-
nary, arms-length transactions.
A
Several initial observations are plain from the text of
§ 4052(f)(1). To begin, the safe harbor instructs that something
otherwise constituting an act of manufacturing “shall not be
treated as manufacture[]” for the purpose of assessing excise
tax liability. 26 U.S.C. § 4052(f)(1) (emphasis added). Con-
gress designed the boundaries of this safe harbor by defin-
ing—or perhaps deeming—what shall not be considered man-
ufacture: “repairs or modifications” made to an article that do
not exceed in cost “75 percent of the retail price of a compara-
ble new article.” Id.Although the statute does not explicitly define “repairs or
modifications,” it gives some meaning to these terms by offer-
ing a parenthetical to confirm what those terms include. The
“repairs or modifications” within the safe harbor, Congress
made clear, “includ[e] any modification which changes the
transportation function of the article or restores a wrecked ar-
ticle to a functional condition.” Id. The word “including” is a
broadening term of illustration, informing us that the uni-
verse of “repairs or modifications” covered by the safe harbor
goes beyond the two examples provided. See Hammer v.
United States Dep't of Health & Hum. Servs., 905 F.3d 517, 527
(7th Cir. 2018); Antonin Scalia & Bryan A. Garner, Reading Law
132 (2012); see also Fed. Land Bank of St. Paul v. Bismarck Lumber
Co., 314 U.S. 95, 99–100 (1941) (according significance to Con-
gress’s use of the term “including” in a tax statute and apply-
ing a broad construction).
12 No. 20-3354
The substance of the parenthetical also confirms the broad
sweep of “repairs or modifications.” We know from the par-
enthetical that a tractor that has been wrecked can be restored
to working condition without the refurbishing constituting
the manufacture of a new tractor, so long as the cost of resto-
ration falls below the 75% threshold. See § 4052(f)(1). A trac-
tor, for example, might sustain major damage in a head-on
collision and require a new engine and cab (perhaps bundled
in a powered glider kit) to be restored to working condition.
The parenthetical in § 4052(f)(1) confirms that such a large-
scale “repair” can qualify for the safe harbor so long as the
cost does not exceed the 75% limit.
We also know from the parenthetical that “repairs or mod-
ifications” encompass alterations “which change[] the trans-
portation function of the article.” Id. Thus, a company that
takes a tractor in good working order and changes its trans-
portation function, by, for example, converting it into a
wrecker vehicle with a crane, or altering it from a straight
truck (with the trailer attached to the cab) to a truck tractor
(pulling a load on a separate semitrailer), can also qualify for
the safe harbor if the modifications meet the 75% condition.
These examples demonstrate that “repairs or modifica-
tions” can be extensive and substantial, and yet still qualify
for the safe harbor if they satisfy the 75% test. The limiting
condition for the safe harbor’s protection, then, is not found
in definitions of “repairs or modifications” versus “manufac-
ture,” but rather derives from the 75% threshold.
The conditionality of the safe harbor works in the other
direction as well. Some repairs and modifications will be sig-
nificant enough to constitute manufacture of a tractor subject
to the 12% tax—when the cost of repairs surpasses the 75%
No. 20-3354 13
limit. See id. Suppose, for example, that the cost of upgrading
a worn tractor (with over one million miles) with a top-of-the-
line engine costs 80% of the retail price of a comparable new
tractor. There is no question that the safe harbor would not
apply—not because an engine replacement cannot be a “re-
pair,” but instead because the cost of that alteration exceeds
75% of a comparable new article.
The takeaways are clear. Congress’s establishment of the
75% limit as a condition for qualifying for the safe harbor
means that the question whether a repair or a manufacture
occurred is not answered by looking at what replacement
parts—which ones or how many—were used as part of refur-
bishing. What marks the line between “repairs or modifica-
tions” and “manufacture” is the 75% cost measurement. That
Schneider elected to refurbish its tractors using powered
glider kits does not disqualify those tractors from the safe har-
bor. What would disqualify them, though, is if the cost of re-
furbishments exceeds 75% of the retail price of a comparable
tractor.
B
The government begs to differ with these conclusions.
First, it urges us to focus on the reality of what Schneider’s
refurbishment process looked like: a used tractor was disman-
tled, a few parts were recovered and combined with ones
from a new glider kit, and any components left behind were
scrapped. In practical terms, the government contends,
Schneider’s process resembled the production of a new trac-
tor, and calling it a repair or modification is to read absurdity
into the statute.
14 No. 20-3354
At one level we agree. No doubt the terms “repair” and
“modification” have distinct meanings and are not one and
the same as “manufacture.” Compare Repair, MERRIAM-
WEBSTER’S COLLEGIATE DICTIONARY 991 (10th ed. 1994) (defin-
ing “repair” as “to restore by replacing a part or putting to-
gether what is torn or broken; to restore to a sound or healthy
state”), Repair, BLACK’S LAW DICTIONARY 1553 (11th ed. 2019)
(defining the noun “repair” as “[t]he process of restoring
something that has been subjected to decay, waste, injury, or
partial destruction, dilapidation, etc.”), Modification,
MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY 748 (defining
“modification” as “the making of a limited change in some-
thing”), and Modification, BLACK’S LAW DICTIONARY 1203
(meaning a “change to something; an alteration or amend-
ment”), with Manufacture, MERRIAM-WEBSTER’S COLLEGIATE
DICTIONARY 709 (defining the noun “manufacture” as “some-
thing made from raw materials by hand or by machinery” and
the verb form as “to make into a product suitable for use”),
and Manufacture, BLACK’S LAW DICTIONARY 1154 (meaning a
“thing that is made or built by a human being (or by a ma-
chine), as distinguished from something that is a product of
nature”).
But we cannot interpret these words divorced from the
statute, so any initial intuition that the terms bear distinct
meanings must account for how Congress used them in the
text of § 4052(f)(1) itself. See Parker Drilling Mgmt. Servs., Ltd.
v. Newton, 139 S. Ct. 1881, 1888 (2019) (emphasizing that “the
words of a statute must be read in their context and with a
view to their place in the overall statutory scheme” (quoting
Roberts v. Sea-Land Servs., Inc., 566 U.S. 93, 101 (2012)).
No. 20-3354 15
By its terms, § 4052(f)(1) tells us that some, but not neces-
sarily all, “repairs” may be so extensive that they result in new
“manufacture.” The safe harbor then directs us not to define
what does (and does not) constitute “manufacture” with qual-
itative standards. Rather, the statute provides a quantitative
test based on cost, precisely the type of definitive and me-
chanical assessment emblematic of a tax safe harbor. Taken in
context, then, the term “repair” includes restoring and refur-
bishing an older tractor, including by using a glider kit—so
long as the taxpayer stays within the 75% test.
What most stands out from the government’s position is
what is missing. The government offers no principled test (for
that matter, no test of any kind) for deciding when changes to
a tractor cross the line from repairs to new manufacture—it
only insists that the facts here fall on the manufacturing side
of the line. Such an undefined standard offers no standard at
all, and indeed is antithetical to the nature of a safe harbor,
which is intended to offer clear and certain guidance to tax-
payers. See Asher v. Baxter Int'l Inc., 377 F.3d 727, 729 (7th Cir.
2004), as amended (Sept. 3, 2004) (recognizing that ambiguity
in the meaning of a statutory requirement to claim a safe har-
bor is problematic because, “[u]nless it is possible to give a
concrete and reliable answer, the harbor is not ‘safe’”); see also
Carter v. Welles-Bowen Realty, Inc., 736 F.3d 722, 729 (6th Cir.
2013) (emphasizing that Congress enacted a safe harbor to
eliminate legal uncertainty and used “precision in defining
the boundaries,” and rejecting an interpretation that “would
reintroduce much of the uncertainty the safe harbor meant to
eliminate”).
What the government too discounts is that Congress pre-
scribed the dividing line through a measurement of cost, not
16 No. 20-3354
on some less-than-objective assessment of whether the over-
hauling and refurbishing process visually resembled the cre-
ation of a new tractor. The best reading is that the safe harbor
itself supplies the demarcation between repairs and manufac-
ture through this 75% limit on the cost of modifications and
repairs. That interpretation gives effect to the conditional way
Congress chose to write the safe harbor.
The government fares no better in its alternate argument
that the critical limiting term in the statute is the phrase “the
article.” The safe harbor instructs that “[a]n article described
in section 4051(a)(1) shall not be treated as manufactured or
produced solely by reason of repairs or modifications to the
article.” 26 U.S.C. § 4052(f)(1) (emphasis added). Congress’s
use of the definitive “the,” the government contends, de-
mands that the same identifiable article exist before and after
the repairs or modifications. True enough, the safe harbor
speaks in terms of a single article. But § 4052(f)(1) does not
contemplate an assessment—separate and apart from the 75%
test—of whether the refurbishments are so fundamental that
the core identity of the original article is lost and a new article
comes into existence.
Here, too, the government offers no test for determining
whether the same identifiable article survived the refurbish-
ment process. When pressed at oral argument, the govern-
ment posited that the immutable core of a single, identifiable
tractor is comprised of the parts that make it a self-propelled
vehicle. But this position finds no basis in the language of
§ 4052(f)(1) or its implementing regulations. And the statu-
tory text contradicts the government’s view. We know from
the statute that a wrecked tractor needing a replacement en-
gine is a circumstance within the safe harbor, so long as the
No. 20-3354 17
cost of the overhauled or new engine fell under the 75% limit.
Congress did not limit the safe harbor’s application to repairs
and modifications that affect only ancillary components out-
side of the powertrain that propels the vehicle.
The government’s inability to offer any competing inter-
pretation of the terms “repairs” and “modifications” is telling.
Only one part of the statute addresses how many changes to
a tractor are too many to constitute mere repair and thus re-
sult in the manufacture of a new tractor: the 75% limit on the
cost of repairs. The plain text of the safe harbor does not con-
template any measurement apart from this 75% test.
C
Our construction and interpretation of § 4052(f)(1) find re-
inforcement in historical context, which reveals that the IRS
has long recognized that the safe harbor applies to refurbish-
ments that extend a worn tractor’s useful life.
Before Congress first proposed a statutory safe harbor, the
task of determining whether modifications to a tractor quali-
fied as the manufacture of a new vehicle triggering the excise
tax fell to the courts, with the analysis proceeding on a case-
by-case basis. See, e.g., Ruan Fin. Corp. v. United States, 976 F.2d
452, 455 (8th Cir. 1992); Boise Nat. Leasing, Inc. v. United States,
389 F.2d 633, 634 (9th Cir. 1968).
In Boise National Leasing, for example, the Ninth Circuit ap-
proved a qualitative test that involved looking at the extent
and nature of changes to a vehicle to decide whether they
crossed the line from repair to manufacturing. See 389 F.2d at
636. The court acknowledged that the “dismantling of an old
truck, with a repairing, reconditioning, replacing of some
parts, and a reassembling of the truck elements” might not
18 No. 20-3354
“constitute the manufacturing of another truck.” Id. But mod-
ifications did qualify as manufacture when “what was done
constituted on its form, substance, and result, not a repairing
or reconditioning of the old truck structures or entities with
an incidental replacement of some existing part or parts
thereof, but the creating of other structural assemblies and
functional entities.” Id. at 635. If that reasoning sounds famil-
iar, it is because it parallels the government’s position here.
But Congress moved away from this qualitative approach
in 1988, when a committee first proposed a bright-line safe
harbor set at the 75% cost mark for repairs or modifications
that extended a vehicle’s useful life. See H.R. 4333, 100th
Cong. (1988). The proposal failed, but the IRS reacted in 1991
by adopting the congressional committee’s proposed safe har-
bor in Revenue Ruling 91-27. The advisory ruling considered
two distinct scenarios: one involving a “worn” vehicle that is
extensively restored to extend its useful life, and the other in-
volving a “wrecked” vehicle that incurred damage after a col-
lision and required extensive repairs to restore it to a func-
tional condition. See Rev. Rul. 91-27, 1991-1 C.B. 192. In the
former situation only—where restorations extend the useful
life of a worn tractor, even through the use of a glider kit—the
IRS expressly instructed that no excise tax would apply if the
cost of restoration did not exceed 75% of the price of a com-
parable new vehicle. See id. (explaining that “[t]his holding
will also apply in cases where the owner uses a glider kit to
repair the vehicle, so long as the cost of the repair does not
exceed 75 percent of the price of a comparable new vehicle”).
As the IRS itself recognized, this Revenue Ruling replaced the
subjective, fact-specific approach characterized in Boise Na-
tional Leasing with a bright-line rule set at 75% of the cost of a
comparable new vehicle. See id.No. 20-3354 19
Both parties agree (and the government further confirmed
during oral argument) that when Congress enacted
§ 4052(f)(1) six years later, it codified the IRS’s safe harbor in
the Tax Code and also extended eligibility to two other cate-
gories of modifications—for wrecked articles and changes in
transportation function. There is no evidence that Congress,
by expressly identifying wrecked articles and changes in
function in the parenthetical within the text of § 4052(f)(1), al-
tered the preexisting, IRS-recognized safe harbor protection
for a worn vehicle that has been extensively restored to extend
its useful life. As we see it, Schneider’s use of powered glider
kits to refurbish 912 tractors were refurbishments to extend
the useful life of worn tractors, the precise scenario addressed
in Revenue Ruling 91-27 that carried through in Congress’s
enactment of § 4052(f)(1).
Right to it, then, whether Schneider’s refurbishments re-
sembled manufacturing as a practical matter is not dispositive
to the applicability of the safe harbor. Section 4052(f)(1) itself
provides that what otherwise might look like the manufacture
of a new tractor “shall not be treated as manufacture[]” when
the taxpayer complies with the 75% cost limitation. The dis-
trict court erred in concluding otherwise.
III
Remember, though, that it is not enough that Schneider’s
refurbishments using glider kits constituted repairs or modi-
fications. The safe harbor is conditional, and only exempts re-
paired tractors from the excise tax “if the cost of such repairs
and modifications does not exceed 75 percent of the retail
price of a comparable new article.” 26 U.S.C. § 4052(f)(1). The
parties agree on what tractor model is a comparable new arti-
cle—the Freightliner Cascadia 125 tractor—but disagree on
20 No. 20-3354
the meaning of “retail price.” The answer matters because
75% of that “retail price” establishes the ceiling for the cost of
repairs and modifications that can be performed without trig-
gering the excise tax.
Schneider contends that “retail price” means the price at
which products are sold to consumers in small quantities in
the open market. The company offered expert testimony at
the bench trial that a resource called the Truck Blue Book pro-
vides retail price information by aggregating data from actual
transactions to determine the ordinary price paid by consum-
ers in the open market. The government, on the other hand,
asserts that “retail price” reflects the price the taxpayer actu-
ally paid for comparable tractors, including any discount off
the market price. Here, the price Schneider paid was closer to
a wholesale price, because the company purchased 61 Cas-
cadia tractors in bulk directly from the manufacturer rather
than through a distributor or dealer.
Congress did not define the “retail price of a comparable
new article” in the § 4052(f)(1) safe harbor. Nor do the imple-
menting regulations supply any definition. Regardless, Con-
gress elected to use the term “retail price,” and we “ordinarily
assume, ‘absent a clearly expressed legislative intention to the
contrary,’ that ‘the legislative purpose is expressed by the or-
dinary meaning of the words used.’” Jam v. Int'l Fin. Corp., 139
S. Ct. 759, 769 (2019) (quoting Am. Tobacco Co. v. Patterson, 456
U.S. 63, 68 (1982)).
The plain meaning of the noun “retail” is “the sale of com-
modities or goods in small quantities to ultimate consumers,”
and the adjective form of “retail” means “of, relating to, or
engaged in the sale of commodities at retail.” Retail, MERRIAM-
WEBSTER’S COLLEGIATE DICTIONARY 999; see also Retail,
No. 20-3354 21
BLACK’S LAW DICTIONARY 1573 (defining retail as “[t]he sale of
goods or commodities to ultimate consumers, as opposed to
the sale for further distribution or processing”). We also know
that the term “price” is “the amount of money given or set as
consideration for the sale of a specified thing.” Price,
MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY 924; see also
Price, BLACK’S LAW DICTIONARY 1439 (defining price as “[t]he
amount of money or other consideration asked for or given in
exchange for something else; the cost at which something is
bought or sold”).
Reading the two words together, then, “retail price” re-
flects the amount at which an article is sold in individual,
arms-length transactions to end consumers on the open mar-
ket. Accord Oshkosh Truck Corp. v. United States, 123 F.3d 1477,
1480 (Fed. Cir. 1997) (“When a manufacturer sells directly to
the end-user, i.e. at a retail sale, the price at which it sells is the
‘retail price’ as that is the price at which these items are being
sold in the marketplace.”).
This construction finds reinforcement in the fact that Con-
gress used different language in other parts of the excise tax
statute when referring to the price the taxpayer actually paid.
In the provision imposing the excise tax, § 4051(a)(1), Con-
gress specifically directed that the tax be imposed on “the
amount for which the article is so sold.” Yet the safe harbor
uses the term “retail price” and not “price paid” or “cost
paid.” If Congress had intended to set the benchmark for the
75% calculation in the safe harbor at the price that the tax-
payer actually paid for comparable tractors—for Schneider,
an amount closer to wholesale prices—it could have instead
referenced “the amount for which a comparable new article is
so sold.” But the safe harbor includes the term “retail,” and
22 No. 20-3354
we must assume Congress intended each word of the statute
to have meaning. See Parker Drilling Mgmt. Servs., 139 S. Ct. at
1890 (reiterating the “‘cardinal principle’ of interpretation
that courts ‘must give effect, if possible, to every clause and
word of a statute’” (quoting Loughrin v. United States, 573 U.S.
351, 358 (2014)); Scalia & Garner, Reading Law 174 (emphasiz-
ing the same point).
The broader context in which the safe harbor operates fur-
ther reinforces our interpretation of “retail price.” See Merit
Mgmt. Grp., LP v. FTI Consulting, Inc., 138 S. Ct. 883, 893 (2018)
(explaining that statutory context can be probative). The pro-
vision imposing the excise tax, § 4051(a)(1), is written in terms
of single transactions of individual articles, and the safe har-
bor in § 4052(f)(1) likewise concerns repairs made to discrete
articles. The safe harbor envisions a scenario where the owner
of a used tractor has a choice to make, and decides to under-
take “repairs or modifications” to an existing tractor instead
of purchasing a new one at “retail.” The plain import of this
framework, crafted in terms of a single transaction, is that the
relevant comparator is the price of a single comparable tractor
in the open market. Neither the safe harbor (in § 4052(f)(1)),
nor the provision imposing the tax (in § 4051(a)(1)), contem-
plates a metric for the maximum permitted cost of “repairs
and modifications” that differs for large versus small trucking
companies, or for bulk versus individual purchases.
The government’s contrary position would leave practical
questions unanswered. Schneider happened to have pur-
chased comparable tractors during the tax periods at issue, so
we know the price it actually paid for the Cascadia tractors.
But that will not always be so. In the precise situation contem-
plated by the safe harbor—where a company chooses to
No. 20-3354 23
modify or repair a worn or wrecked tractor instead of pur-
chasing a new one—the taxpayer would necessarily need to
look at the price paid by other buyers in the open market by,
for example, consulting the Truck Blue Book.
Another aspect of the government’s position warrants a
response. By the government’s reading, the term “retail price”
must refer to the price paid at the “first retail sale” as that term
is defined in § 4052(a)(1). Here, the “first retail sale” of the
comparable Cascadia tractors occurred when Schneider pur-
chased them from Daimler during the relevant tax years. The
government therefore takes the position that the discounted
price Schneider paid in this “retail sale” should supply the
“retail price of a comparable new article” when assessing the
safe harbor. Not so in our view.
We do not read the statutory language in § 4052(f)(1) to
impose such a price matching requirement. Yes, we generally
presume that identical words used in different parts of the
same statute bear the same meaning. See Henson v. Santander
Consumer USA Inc., 137 S. Ct. 1718, 1722 (2017). But the obser-
vation that the word “retail” appears in both the safe harbor
and the provision imposing the tax does not convince us that
the “retail price of a comparable new article” in the safe har-
bor must be fixed at what that same taxpayer would pay if they
bought the comparable tractor in a “first retail sale.”
Congress used the term “retail” in various places through-
out the statute. See, e.g., § 4051(a)(1) (imposing the tax on the
“first retail sale”); § 4052(b)(2) (instructing that where an arti-
cle is sold at less than fair market price, the tax shall be calcu-
lated “on the price for which similar articles are sold at retail
in the ordinary course of trade”); § 4052(a)(3)(C) (providing
that, when use is treated as the first sale, the “tax shall be
24 No. 20-3354
computed on the price at which similar articles are sold at re-
tail in the ordinary course of trade”); § 4052(b)(3)(B) (defining
a presumed markup percentage as “the average markup per-
centage of retailers of the articles of the type involved”);
§ 4052(b)(4)(B)(ii) (providing an exception for a “permanent
retail establishment”). These provisions show that Congress
sometimes used the term “retail” as a noun and other times
as an adjective. But, contrary to the government’s insistence,
we cannot conclude that in each instance Congress meant the
taxpayer’s precise purchase and the price it actually paid. The
question before us is not as easily answered as the govern-
ment would have it.
The “fundamental canon of statutory construction”—that
“unless otherwise defined, words will be interpreted as tak-
ing their ordinary, contemporary, common meaning”—re-
solves this issue. Sandifer v. U.S. Steel Corp., 571 U.S. 220, 227
(2014) (quoting Perrin v. United States, 444 U.S. 37, 42 (1979)).
The statute offers no definition for the “retail price of a com-
parable new article,” so we presume that the ordinary mean-
ing of the language expresses Congress’s intent. See Park 'N
Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 194 (1985). What
that means here is that the “retail price” referred to in
§ 4052(f)(1) is the price at which a comparable tractor could
be acquired in the open market. Our determination necessi-
tates a new assessment by the district court of whether the
cost of Schneider’s refurbishments exceeded 75% of the “retail
price of a comparable new article.” 26 U.S.C. § 4052(f)(1).
For these reasons, we REVERSE and REMAND for further
proceedings consistent with this opinion.