Iowa 80 Group v. Internal Revenue

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 04-2826
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Iowa 80 Group, Inc., and subsidiaries, *
formerly known as Iowa 80 Truckstop, *
Inc. and Subsidiaries, *
*
Appellant, * Appeal from the United States
* District Court for the
v. * Southern District of Iowa.
*
Internal Revenue Service, *
*
Appellee. *
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Submitted: February 14, 2005
Filed: May 4, 2005
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Before LOKEN, Chief Judge, RILEY, and SMITH, Circuit Judges.
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SMITH, Circuit Judge.
Iowa 80 Group, Inc., ("Iowa 80") once again appeals the district court's
summary judgment order finding that its truckstop facilities failed to qualify as "retail
motor fuels outlets," and, thus, were not entitled to a fifteen-year depreciation
schedule. In the first appeal, we concluded that Iowa 80's facilities failed to meet the
gross-revenues test, but remanded to the district court for consideration of whether
the facilities qualified under a floor-space test. See IA 80 Group, Inc. and
Subsidiaries v. United States, 347 F.3d 1067 (8th Cir. 2003). On remand, the district
court1 concluded that Iowa 80's facilities failed to meet the floor-space test and
granted summary judgment in favor of the government. We affirm.
I. Background2
Iowa 80 operates multi-building truckstops in Walcott, Iowa, and Joplin,
Missouri. The Internal Revenue Service ("IRS") has categorized these facilities as
retail convenience stores, which are generally depreciable over thirty years. However,
facilities that meet the requirement of a "retail motor fuels outlet" are entitled to a
more favorable fifteen-year depreciation. Iowa 80 filed an amended tax return
claiming that it was a "retail motor fuels outlet" and sought the more favorable
fifteen-year depreciation. The IRS rejected Iowa 80's claim, and Iowa 80 then filed
a refund suit in district court. The district court granted summary judgment in favor
of the IRS and Iowa 80 appealed.
In the first appeal, we affirmed the district court's determination that Iowa 80's
truckstops failed to meet the gross-revenues test for treatment as a "retail motor fuels
outlet." IA 80 Group, Inc. and Subsidiaries v. United States, 347 F.3d 1067 (8th Cir.
2003). However, because the district court erred in applying the doctrine of variance,
we remanded the case to determine whether the truckstops could meet the floor space
test used to confer status as a "retail motor fuels outlet." Id. To meet the floor space
requirement, Iowa 80 had to show that fifty-percent of the floor space in its buildings
were "devoted to petroleum marketing activity." See IRS Coordinated Issue Paper on
1
The Honorable Robert W. Pratt., United States District Judge for the Southern
District of Iowa.
2
We set forth a more fact detailed factual recitation in Iowa 80's first appeal.
See IA 80 Group, Inc. and Subsidiaries v. United States, 347 F.3d 1067 (8th Cir.
2003).
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Convenience Stores (March 1, 1995); see also IA 80 Group, 347 F.3d at 1071; S. Rep.
No. 104-281 (1996), reprinted at 1996 U.S.C.C.A.N. 1489.
Iowa 80's experts calculated the total square footage of the Walcott truckstop
building at 50,528 square feet. Under the fifty-percent floor space requirement, Iowa
80 needed to show that at least 25,264 square feet of the structure were "devoted to
petroleum marketing activity." Iowa 80 submitted the following as areas in the
Walcott building as devoted to petroleum marketing:
Chrome Shop / Trucker Store: 10,136
First Floor Restrooms: 2,354
Video Game Room: 379
Counters for Gasoline Cashier: 1,313
Storage Area: 502
Trucker Store Offices: 292
Stairs: 158
Corridor: 311
Second Floor (showers, TV Lounge,
movie theater, phone rooms,
and office space): 11,573
Total: 27,018
At the Joplin truckstop, Iowa 80 calculated the total square footage of the subject
building at 18,560 square feet. Thus, Iowa 80 needed to show that 9,280 square feet
of the structure were "devoted to petroleum marketing activity." Iowa 80 submitted
the following areas in the Joplin building as devoted to petroleum marketing:
Trucker Store: 5,307
Game Room, Showers, TV Lounge: 3,526
Restrooms: 570
Phones, corridor: 966
Entry hallway: 915
Total: 11,284
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Through summary judgment proceedings, the district court interpreted the
statutory phrase "devoted to petroleum marketing activity" and excluded the second
floor of the Walcott building from space that could be used to meet the fifty-percent
rule. Similarly, the district court excluded the game room, showers, and TV lounge
in the Joplin building. As such, the district court ruled that Iowa 80 failed to meet the
floor-space test and granted summary judgment in favor of the United States.
II. Discussion
Traditionally, we review the grant of summary judgment de novo. N. Natural
Gas Co. v. Iowa Util. Bd., 377 F.3d 817, 820 (8th Cir. 2004). Summary judgment is
appropriate if the record, viewed in a light most favorable to the non-moving party,
contains no questions of material fact and demonstrates that the moving party is
entitled to judgment as a matter of law. Kincaid v. City of Omaha, 378 F.3d 799, 803
(8th Cir. 2004); see also Fed. R. Civ. P. 56(c). We afford the non-moving party the
benefit of all reasonable inferences to be drawn from the record. Tlamka v. Serrell,
244 F.3d 628, 632 (8th Cir. 2001). The moving party bears the burden of showing
both the absence of a genuine issue of material fact and an entitlement to judgment
as a matter of law. Kincaid, 378 F.3d at 803–04 (8th Cir. 2004); see also Fed. R. Civ.
P. 56(c). Once the moving party has met its burden, the non-moving party may not
rest on the allegations of his pleadings, but must set forth specific facts, by affidavit
or other evidence, showing that a genuine issue of material fact exists. Kincaid, 378
F.3d at 804 (8th Cir. 2004); see also Fed. R. Civ. P. 56(e).
We also review de novo the district court's interpretation of a statute. Watson
v. Ray, 192 F.3d 1153, 1155–56 (8th Cir. 1999). "Our objective in interpreting a
federal statute is to give effect to the intent of Congress." Id. (citation omitted). In tax
refund cases, our traditional standard of review is extended. "In this taxpayer refund
case, the ultimate question for our determination is whether Iowa 80 has overpaid its
tax. Iowa 80 carries the burden of proving that the United States has money which
belongs to [it]. In order to sustain its burden, Iowa 80 must prove that the initial
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determination of the IRS was wrong." IA 80 Group, 347 F.3d at 1071(internal
citations and quotation omitted).
By way of background, Iowa 80 bases its claim for accelerated depreciation on
26 U.S.C. § 168(e)(3)(E)(iii). Section 168(e)(3)(E)(iii) allows "any section 1250
property which is a retail motor fuels outlet (whether or not food or other convenience
items are sold at the outlet)" to claim a fifteen-year depreciation schedule. Rev. Proc.
87-56, 1987-2 C.B. 674, 686, sets forth the class lives to be used when computing
depreciation allowances under § 168. Asset class 57.1, entitled "Distributive Trades
and Services--Billboard, Service Station Buildings and Petroleum Marketing Land
Improvements," assigns a 15-year recovery period to:
section 1250 assets, including service station buildings and depreciable land
improvements, whether section 1245 property or section 1250 property, used
in the marketing of petroleum and petroleum products, but not including any
of these facilities related to petroleum and natural gas trunk pipelines. Includes
car wash buildings and related land improvements. Includes billboards,
whether such assets are section 1245 property or section 1250 property.
Excludes all other land improvements, buildings and structural components as
defined in section 1.48-1(e) of the regulations.
(Emphasis added). A taxpayer may establish that its facility is a retail motor fuels
outlet used in the marketing of petroleum and petroleum products using either the
gross-revenue test or the floor-space test. IA 80 Group, 347 F.3d at 1071; see also S.
Rep. No. 104-281 (1996), reprinted at 1996 U.S.C.C.A.N. 1489. In the previous
appeal, we held that Iowa 80's facilities failed the gross revenues test. IA 80 Group,
347 F.3d at 1071.
At issue in this case is application of the floor-space test. According to the
language of the senate report, a structure falls in Asset Class 57.1 under the floor-
space test when "50 percent or more of the floor space in the property is devoted to
petroleum marketing sales." S. Rep. 104-281 (1996). Furthermore, Congress directed
that the "determination of whether [a taxpayer meets the floor-space test] will be
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made pursuant to the recent Coordinated Issue Paper." S. Rep. No. 104-281 (1996),
reprinted at 1996 U.S.C.C.A.N. 1489. The paper referred to by the senate is the
coordinated issue paper released on March 1, 1995.3 Accordingly, our analysis of the
floor-space test must be guided by the 1995 Coordinated Issue Paper ("95 CIP").
The 95 CIP framed the issue as "[w]hether gas station convenience store (C-
Store) buildings and truckstop structures are Asset Class 57.1 . . . ." Thus, it is clear
that the 95 CIP specifically covers truckstop structures, such as those at issue in this
case. However, the 95 CIP neither describes "typical truckstop features," nor does it
describe how truckstop floor space is to be calculated. Instead, the 95 CIP describes
how C-Store buildings are structured and treated with respect to Asset Class 57.1.
With respect to a C-Store, the 95 CIP explains that "facilities such as counters relating
to the sale of gasoline dispensed from pump islands, as well as automobile supplies
such as oil, anti-freeze, and window-washer fluid" are "devoted to the marketing of
petroleum products." Other areas, those not devoted to the marketing of petroleum
products, are described by the 95 CIP to include "office area, storage, restrooms, food
preparation, walk-in cooler, general sales areas, and, in some cases, seating for
customers." The 95 CIP also noted that no services relating to the maintenance of
automobiles or trucks are located at the C-Store.
The 95 CIP further explains that "[a]djacent carwash buildings are accepted as
Asset Class 57.1 property, as are associated land improvements used for the
marketing of petroleum products such as pump islands and canopies." The 95 CIP
takes the position that structures "primarily used to sell convenience items and not to
3
Prior to the enactment of 26 U.S.C. § 168(e)(3)(E)(iii), the IRS viewed the
gross-revenue test and floor-space test as a conjunctive two-prong test. See IRS
Coordinated Issue Paper on Convenience Stores (March 1, 1995). On April 2, 1997,
the IRS issued a revised Coordinated Issue Paper to formally adopt Congress'
sentiments that the test be disjunctive. See IRS Coordinated Issue Paper on
Convenience Stores (April 2, 1997). However, Congress has never directed that the
revised coordinated paper be used to determine whether a building passes the floor-
space test.
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market petroleum products" are "fully adaptable retail building[s] that compete with
other convenience stores and small grocery stores, [and, t]herefore, [are] not
includible in Asset Class 57.1"4 We conclude that the 95 CIP compares the services
or goods provided at a structure with other similar markets to determine the status of
the structure under Asset Class 57.1. Similarly, the 97 CIP conceives a traditional
service station as the guidepost for determining Asset Class 57.1. According to the
95 and 97 papers, features typically associated with traditional service stations
include service bays, tire changing and repair facilities, and car lifts.
We recognize that commerce evolves and that a "traditional service station,"
or in this case a "traditional truckstop," will likely change with competitive marketing
practices. However, Congress has demonstrated its ability to change the applicable
testing mechanisms as a CIP becomes outdated. Indeed, the 95 CIP explains that the
fifty-percent test was developed to "take into consideration the changes that have
occurred in the petroleum marketing business over the years." To this extent,
Congress and the IRS have recognized that "traditional" will change with time.
Congress is better equipped than our court to modify market-based tests in this area.
Accordingly, we will confine our review to those concepts stated in the 95 CIP
specifically referenced by Congress in enacting 26 U.S.C. § 168(e)(3)(E)(iii).
The district court focused on the term "devoted" to determine whether the
designated floor space could be aggregated in favor of Iowa 80. Using a relatively
narrow definition, the district court concluded that "the floor space occupied by the
movie theater, arcade, restaurant, showers, laundromat, and TV lounge" were not
devoted to the marketing of petroleum products. We decline to adopt the single word
"devoted" as the touchstone of our analysis to the exclusion of the examples offered
4
This language, and other similar language, was removed in the 97 CIP without
comment. Nonetheless, both papers explain that a "C-Store does not possess any of
the traditional attributes of a service station and . . . is not a special purpose
structure."
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by the 95 CIP. However, we also decline to adopt Iowa 80's broad definition that
would essentially encompass anything tangentially related to marketing petroleum.
Iowa 80's position is that the services provided at its building are aimed to
attract the professional truck drivers to fuel at its facilities. As such, Iowa 80 contends
that those services are used to market petroleum. Iowa 80 explains that because
between 70% and 80% of its business is dependent on those services, the floor space
those services occupy are "devoted" to the marketing of petroleum. The import of
Iowa 80's argument would mean that any service provided at its facility that can be
said to "attract truckers" is a service devoted to the marketing of petroleum as
contemplated by Congress.
The proper inquiry, however, is a comparison of the services offered by Iowa
80 to the services provided at a traditional service station or other similar markets.
Thus, if the services are comparable with services provided at a traditional service
station, they can be included; whereas, services similar to other markets are excluded.
For example, the floor space in Iowa 80's trucker store, which sells truck parts and
maintenance items, is similar to floor space used to sell "automobile supplies such as
oil, anti-freeze, and window-washer fluid." IRS Coordinated Issue Paper on
Convenience Stores (March 1, 1995). Iowa 80 argues that its multipurpose structure
(excluded under Asset class 57.1) is comparable to a separate car wash building
(allowable under Asset class 57.1) under Asset 57.1 property classifications.
However, Iowa 80 has failed to sufficiently explain how inclusion of the carwash, a
special use structure, lends support to its argument. Iowa 80 argues that adjacent
carwash buildings are "an inducement in the marketing of petroleum products . . . ."
This inference may be rational, but it is not dispositive; the argument attempts to
replace the test adopted by Congress through the 95 CIP, services provided at a
traditional service station, with a test of convenience. We believe this standard goes
beyond what Congress intended with the enactment of 26 U.S.C. § 168(e)(3)(E)(iii).
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Employing a services-comparison standard, we conclude that the district court
properly determined that Iowa 80 failed to meet the fifty-percent floor-space test. The
floor space attributed to the movie theater, arcade, showers, laundromat, and TV
lounge are not features normally associated with a service station. Such spaces do not
approximate the types of facilities identified in the 95 CIP. Iowa 80 attempts to
supplement the square footage calculations submitted to the district court by
including floor space used in restaurants located at its two facilities. The 95 CIP
specifically excludes a "restaurant" from Asset Class 57.1. Once these areas are
removed from the aggregate floor-space, it is clear that Iowa 80 cannot meet the
floor-space test.5
For the reasons discussed above, we affirm the district court's grant of summary
judgment.
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5
Iowa 80 contends that certain floor space calculations are disputed creating
issues of material fact. The calculation discrepancies are negligible and, even viewed
in Iowa 80's favor, would not change the outcome of this case.
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