United States District Court, N.D. Illinois, Eastern Division
For Continental Air Transport Co Inc., an Illinois corporation, Plaintiff: Joseph P. Roddy, LEAD ATTORNEY, Eric P. VanderPloeg, Burke, Warren, MacKay & Serritella, P.C., Chicago, IL.
For United States of America, Defendant: Larry Steven Schifano, LEAD ATTORNEY, U.S. Dept. of Justice, Tax Division, Washington, DC; Lisa L. Bellamy, LEAD ATTORNEY, U.S. Department of Justice, Civil Tax Division, Washington, DC; Harpreet Kaur Chahal, United States Attorney's Office (NDIL), Chicago, IL.
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, United States District Judge.
Continental Air Transport, which operates a van shuttle service in Chicago, has sued the United States under 26 U.S.C. § 7422, alleging that it is entitled to a refund for taxes and penalties that it says the Internal Revenue Service wrongfully assessed for its gasoline usage. Continental has moved for summary judgment on its claims. The government has conceded the claim on penalties it assessed against Continental but has cross-moved for partial
summary judgment on Continental's refund claim. For the reasons stated below, the Court grants Continental's motion in part and denies it in part and denies the government's motion.
Continental is a transportation services company that ferries passengers primarily between downtown Chicago and the city's Midway and O'Hare airports under the name " Airport Express." It has modified its fifteen-passenger vans to include an aisle between seats and a luggage storage area, thus allowing up to ten passengers and their luggage. The company runs its vans along specified " routes," some of them color-coded. The Red Route from O'Hare, for example, has automatic stops at the Chicago Hilton and Palmer House hotels twice every hour, with scheduled stops at other nearby hotels and landmarks (such as Union Station) that occur only by reservation. See Pl.'s Ex. A-2 at 1. A traveler can make a reservation by phone, online, or through a hotel, choosing scheduled a pick-up time at a specific location.
In an affidavit, John McCarthy, Continental's president and part-owner, says there are three exceptions to the company's route / scheduled pick-up scheme. First, if a passenger requests a pick-up at a location not on one of Continental's routes, but near one of its automatic-stop hotels, Continental will pick up that passenger while traveling one of its assigned routes. McCarthy estimated such stops account for eight to eleven percent of passengers picked up along Continental's scheduled routes. Second, a group of six to ten passengers requiring transportation from a single hotel to one airport may get its own Continental van, which travels directly from the hotel to the airport without other stops. McCarthy said these trips " accounted for less than 1% of the total passengers transported" during the time period at issue here. Pl.'s Ex. A ¶ 38. Finally, Continental sometimes will shuttle a " small group between a Downtown hotel and some other location, like a sports or music venue." Id. ¶ 39. McCarthy estimated that such trips amounted to " less than .7%" of Continental's total passengers. Id.
Like anyone who buys gasoline, Continental pays federal excise taxes when it fills up the tanks in its vans. At the end of each quarter in 2008 and 2009, and after the first quarter of 2010, Continental filed refund claims with the IRS for the excise tax it paid. For each quarter in 2008 and 2009, the IRS paid the refund, but it began an audit of Continental in April 2010 for the period from 2008 through the first quarter of 2010. The IRS determined that Continental's vehicles did not qualify as " automobile buses," a prerequisite to receiving a gasoline excise tax refund from the government under 26 U.S.C. § 6421(b). The IRS report's conclusion stated: " Taxpayer is not entitled to the refund of excise taxes paid for gasoline fuel. The company does not use buses . . . ." Pl.'s Ex. D-2 at IRS000742. It sent Continental a letter assessing excise taxes of $152,305.81 and a penalty of $279,861.16 under 26 U.S.C. § 6675(a), which permits a double penalty for " excessive" tax claims.
After filing an unsuccessful protest with the IRS, Continental in September 2011 paid the taxes and penalties assessed for the quarter ending March 31, 2009: $14,403.66 in gasoline taxes and $28,807.32 in penalties. It then filed an amended excise tax return for that quarter, seeking a refund of the taxes and penalties it had just paid. A month later, in October 2011, the IRS sent Continental a check for $25,426.54; the ...