1989 U.S. Tax Ct. LEXIS 23">*23
Taxpayer operated a recycling business that involved purchasing, sorting, processing, and selling scrap metal and other solid wastes. In 1979 and 1980, taxpayer purchased transportation equipment that was used to transport scrap metal from collection sites to taxpayer's plant facilities and to transport the scrap material within and between taxpayer's plant facilities.
92 T.C. 307">*307 OPINION
Respondent determined deficiencies in petitioners' consolidated Federal income tax for their taxable year ending June 30, 1979, in the amount of $ 82,587. Respondent also disallowed various investment tax credits claimed on petitioners' consolidated Federal income tax return for their taxable year ending June 30, 1980, in the amount of $ 394,288, which credits were claimed as caryback credits to petitioners' 19791989 U.S. Tax Ct. LEXIS 23">*24 taxable year.
After settlement of some issues, the only issue remaining for decision is whether certain equipment purchased in 1979 and 1980 qualifies for energy tax credits as recycling 92 T.C. 307">*308 equipment under
Levin Metals Corp. (LMC) is a California corporation whose principal place of business is San Jose, California. The equipment at issue was purchased by LMC, and all issues relating to the other consolidated corporations have been settled.
Among its activities in 1979 and 1980, LMC operated a recycling business that involved purchasing, sorting, processing, and selling ferrous and nonferrous scrap metals and other solid wastes. In 1979 and 1980, LMC purchased and placed in 1989 U.S. Tax Ct. LEXIS 23">*25 service transportation equipment such as trucks, trailers, tractors, and piggyback rolloffs. A piggyback rolloff is a portable metal receptacle used for collecting scrap materials. The equipment LMC purchased was used to transport scrap metal from collection sites to LMC's plant facilities located in San Jose, Richmond, Redwood City, Sacramento, and Stockton, California, and to transport scrap metal within and between LMC's own facilities.
The parties have stipulated that in 1979, approximately 94 percent of the use of the transportation equipment involved transporting scrap metal within and between LMC's facilities and 6 percent of the use of the equipment involved transporting scrap metal from collection sites to LMC's facilities. In 1980, these respective figures were approximately 64 and 36 percent.
LMC's scrap metal business typically operated as follows. After acquisition at one of LMC's facilities (or at one of the off-premise collection sites and transportation to one of LMC's facilities), the scrap metal would be sorted or subjected to a recycling process, which commonly would include compaction, baling, chopping, and shredding. Thereafter, the scrap metal typically would1989 U.S. Tax Ct. LEXIS 23">*26 be transported to one of LMC's other facilities for further processing and for sale.
The parties have agreed that if LMC's transportation equipment qualifies as recycling equipment, LMC is entitled to additional energy tax credits in the amounts of $ 82,587 92 T.C. 307">*309 for its 1979 taxable year, and $ 73,481 for its 1980 taxable year.
During 1979 and 1980, in addition to the regular investment tax credits that were available under sections 38 and 48, an energy tax credit was available with respect to the acquisition costs of, among other things, certain statutorily defined recycling equipment.
(6) Recycling equipment. -- (A) In general. -- The term "recycling equipment" means any equipment which is used exclusively -- (i) to sort and prepare solid waste for recycling, or (ii) in the recycling of solid waste.
Petitioners argue that LMC's use of the equipment in question qualifies as a use of the equipment for sorting and/or preparing solid waste for recycling. Respondent argues that although LMC's use of the equipment for transportation of scrap metal may qualify as a partial use of the equipment for recycling or for sorting and preparing the scrap metal for recycling, the equipment also was used for the transportation of pre-recycled scrap metal from collection locations to LMC's plant facilities and to transport scrap metal that was in the process of being recycled from one of LMC's facilities to other LMC facilities. Respondent argues that such transportation uses do not qualify as a use of the equipment for recycling, nor for sorting or preparing the scrap metal for recycling, and, therefore, that LMC's transportation equipment was not used
1989 U.S. Tax Ct. LEXIS 23">*28 92 T.C. 307">*310
1989 U.S. Tax Ct. LEXIS 23">*29 The words "sorting" and "preparing" in their customary usage do not include transportation of solid waste material. The legislative history of
transportation equipment which is integrally related to the actual recycling equipment should also be eligible for the credit. This would include, for example, equipment to load solid waste into a sorting or preparation machine and also a conveyor belt system which transports the solid waste materials from separation equipment to another machine in the recycling process.
See also H. Rept. 95-496 (Part III) at 123 (1978), 1978-3 C.B. (Vol. 2) 185.
Petitioners argue that the failure of Congress to expressly incorporate into the statutory language of section 46(l)(6)(A) 92 T.C. 307">*311 the above limitation on transportation equipment indicates that Congress rejected this limitation. We disagree, and believe that the above explanation from the legislative history is a strong indication that Congress intended that transportation equipment used for the specified prohibited purposes would not qualify for energy tax credits (i.e., it would not be regarded as used for recycling, nor for sorting or preparing solid waste for recycling).
Accurately reflecting this legislative history and carrying out its mandate under section 38(b) 3 to promulgate regulations under sections 38 and 48, the Treasury in 1980 proposed, and in 1981 adopted,
* * * *
(4)
* * * *
(6)
Contrary to petitioners' argument, the above regulations do not improperly exclude transportation equipment from qualifying as energy property. The regulations accurately reflect the intent of Congress, and are a reasonable interpretation of the statutory provisions.
1989 U.S. Tax Ct. LEXIS 23">*32 Petitioners argue that if the regulations are found to be valid, they should not have retroactive effect with respect to equipment purchased prior to the promulgation in 1981. 92 T.C. 307">*312 Having concluded that under
For the reasons set forth above,
1. Unless otherwise indicated, all section references are to the Internal Revenue Code of 1954 as in effect during the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
2.
(B) Certain equipment not included. -- The term "recycling equipment" does not include -- (i) any equipment used in a process after the first marketable product is produced, or (ii) in the case of recycling iron or steel, any equipment used to reduce the waste to a molten state and in any process thereafter.↩
3. Sec. 38(b) provides as follows:
SEC. 38(b). Regulations. -- The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section and subpart B [which includes
