                                            MYLES LORENTZ, INC., PETITIONER v. COMMISSIONER                                          OF
                                                     INTERNAL REVENUE, RESPONDENT
                                                        Docket No. 2901–09.                    Filed January 25, 2012.

                                                   P used specialized but highway-legal trucks (known as
                                                ‘‘tractors’’) and ‘‘belly-dump’’ trailers in its business. P’s trac-
                                                tors operated most economically off highway. P’s tractors and
                                                trailers were modified for heavy use, but no legal or technical
                                                obstacles prevented P from driving either tractors or trailers
                                                on highways. P’s tractors could pull trailers other than the
                                                belly-dump trailers; likewise, P’s trailers could be moved by
                                                vehicles other than P’s tractors. Approximately 40 percent of
                                                P’s tractors’ mileage during the years in question occurred off
                                                highway. For tax years ending January 31, 2005, and January
                                                31, 2006, P claimed credits under I.R.C. secs. 34(a)(3) and
                                                6427(l)(1), for its tractors’ ‘‘nontaxable use’’, under the ‘‘off-
                                                highway business use’’ exception of I.R.C. sec. 6427(l)(2). R
                                                disallowed P’s credits. P stipulates that its tractors and
                                                trailers are ‘‘highway vehicles’’ under I.R.C. sec. 6421 per sec.
                                                48.4061(a)–1(d)(1), Manufacturers & Retailers Excise Tax
                                                Regs., but argues that the ‘‘special-design’’ and ‘‘substantial
                                                impair[ment]’’ exception of sec. 48.4061(a)–1(d)(2)(ii), Manu-
                                                facturers & Retailers Excise Tax Regs., applies, making them
                                                off-highway vehicles and the fuel they use off-highway cred-
                                                itable. Held: The tractors and trailers are not analyzed
                                                together for purposes of interpreting the term ‘‘vehicle’’. The
                                                plain language of sec. 48.4061(a)–1(d)(1), Manufacturers &
                                                Retailers Excise Tax Regs., and the fact that the tractors and
                                                trailers could each perform their designed functions paired
                                                with other vehicles indicate that tractors and trailers are each
                                                a distinct ‘‘vehicle’’ for purposes of the credit. Held, further,
                                                the tractors are not specially designed for off-highway use
                                                because, while ‘‘heavy duty’’ modifications allowed them to
                                                work off highway, they were in most respects identical to
                                                unmodified tractors used on highway and were not designed
                                                to transport a particular type of load. Held, further, the trac-
                                                tors are not substantially impaired with respect to on-high-
                                                way use because they could fit and operate on a highway at
                                                regular highway speeds. Held, further, for tax year ending
                                                January 31, 2005, P’s tractors do not qualify for the ‘‘off-high-
                                                way transportation’’ exception in sec. 48.4061(a)–1(d)(2)(ii),
                                                Manufacturers & Retailers Excise Tax Regs. Held, further, for

                                      40




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                                      (40)                 MYLES LORENTZ, INC. v. COMMISSIONER                                      41


                                                tax year ending January 31, 2006, I.R.C. sec. 7701(a)(48)
                                                defines ‘‘highway vehicle’’ even more narrowly such that P’s
                                                tractors do not constitute off-highway vehicles.

                                           Gordon P. Heinson, for petitioner.
                                           William R. Peck, for respondent.

                                                                                  OPINION

                                        HOLMES, Judge: The Code gives a credit for fuel taxes paid
                                      on diesel consumed in an ‘‘off-highway business use.’’ Myles
                                      Lorentz, Inc. (MLI), bought diesel for vehicles that it used in
                                      roadbuilding and mining, and which it moved from job to job.
                                      MLI is not claiming the credit for the fuel that its vehicles
                                      consume on highways, but it does want the credit for the fuel
                                      that they consume off public highways. Whether MLI gets the
                                      credit depends on exactly what vehicles we look at and
                                      whether those vehicles are ‘‘highway vehicles’’ under the
                                      Code and regulations.

                                                                                Background
                                         MLI is in the business of moving dirt, and it moves the dirt
                                      with a fleet of Mack trucks. These trucks are tractors, but
                                      not the kind driven by farmers: They are called tractors
                                      because they can pull other things. They are also the sort of
                                      vehicles that get alphanumeric designations that those in the
                                      trade recognize, but no one else would: MLI’s fleet had four
                                      RW713s, one TM600, and the rest a mix of RD690Ss and
                                      RD688Ss. 1 All these tractors were ‘‘heavy-duty’’; i.e., they
                                      had lower-than-normal gear ratios, and their suspensions,
                                      axles, gearboxes, and chassis assemblies had all been modi-
                                      fied to MLI’s specifications to give them extreme strength and
                                      power.
                                         MLI used these heavy tractors mainly to pull what are
                                      called ‘‘belly-dump’’ trailers—trailers that open at the bottom
                                      to dump their contents and that are hooked up to the fifth
                                      wheels of the tractors. MLI’s trailers could each hold approxi-
                                      mately 43 tons, and each had side panels made of steel to
                                      help hold their gargantuan loads. All of this would make the
                                      tractor-trailer combination a daunting thing for a mere pas-
                                        1 These numbers are drawn from MLI’s records for its tax year ending January 31, 2005. MLI

                                      didn’t give us much for the following year, but any subsequent change in the asset mix doesn’t
                                      upset our analysis.




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                                      senger car to meet on the road. When MLI needed to move
                                      these behemoths, it altered the trailers by adding mud flaps
                                      and removing the trailers’ steel side panels and ‘‘push
                                      bumpers’’—special bumpers that enable bulldozers to push
                                      them along when they’re used off highway.
                                         These tractor-trailers were not only heavy-duty but used
                                      heavily. MLI registered its fleet of tractors for use in 21
                                      states. In 2004 MLI drove them almost a million miles on and
                                      between projects in Minnesota, Wisconsin, North Dakota,
                                      Nebraska, and Oklahoma. In 2005 it used them in North
                                      Dakota, Kansas, and Colorado. A large part of this mileage
                                      was off road, but about 60 percent each year was on public
                                      highways. And the tractors did not rack up this mileage only
                                      while pulling fully loaded belly-dump trailers—MLI also used
                                      them either to haul the belly-dump trailers empty or to haul
                                      a completely different type of trailer that carried construc-
                                      tion-support equipment. Even when empty, though, a tractor-
                                      belly-dump-trailer combination weighed about 20 tons. Most
                                      states have limits on the weight of vehicles using their high-
                                      ways—many at 40 tons (though Nebraska allows around 47).
                                      Yet even if laden with the maximum permissible load, the
                                      tractors could maintain regular highway speeds. 2
                                         MLI claimed a credit on its returns for the diesel consumed
                                      in 2004 and 2005 by the tractors on projects that were
                                      entirely off highway: $24,409 for the tax year ending January
                                      31, 2005, and $12,967 for the year ending January 31, 2006.
                                      MLI did not claim a credit on either return for the fuel its
                                      vehicles used in projects which mixed off-highway use and
                                      on-highway use.
                                         The Commissioner disallowed the entire amount as a
                                      credit for both tax years in his notice of deficiency. 3 But he
                                      did determine that MLI should be allowed the amount as an
                                      increased deduction for total fuel expense. 4 MLI wants the
                                        2 Neither the height nor the width of the tractors or trailers prevented MLI from using them

                                      on highways.
                                        3 Our Court is one of limited jurisdiction, and we hear only those cases Congress tells us we

                                      can. See sec. 7442; Kluger v. Commissioner, 83 T.C. 309, 314 (1984). We don’t typically have
                                      jurisdiction over this type of excise tax, see sec. 6211(a), but the Commissioner here disallowed
                                      the section 34 credits that MLI claimed on its income-tax returns, and we do have jurisdiction
                                      to redetermine the deficiency that resulted from that disallowance.
                                        4 The Commissioner applied the total expense to the tax year ending in January 2006—he car-

                                      ried the tax-year-ending-in-January-2005 portion forward in the form of a net-operating-loss de-
                                      duction. This reduction of income also led to a redetermination of MLI’s domestic-production-
                                      activities deduction.




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                                      (40)                 MYLES LORENTZ, INC. v. COMMISSIONER                                       43


                                      greater benefit a tax credit would give it and, in challenging
                                      the notice of deficiency, now also asks us to allow it a credit
                                      for all the diesel its vehicles used while off highway, even on
                                      projects with mixed off-highway and on-highway use.
                                        We set the case for trial in St. Paul, but then MLI and the
                                      Commissioner submitted it for decision on fully stipulated
                                      facts under Rule 122. 5 MLI’s principal place of business was
                                      Minnesota when it filed its petition.

                                                                                 Discussion
                                         The Code taxes every gallon of diesel fuel that is to be used
                                      in the United States at a rate of 24.4 cents per gallon. 6 See
                                      sec. 4081(a)(2). If the government doesn’t get its money from
                                      the diesel producer, either the retailer or the consumer can
                                      be on the hook. See sec. 4041(a)(1)(A) and (B).
                                         But for the taxpayer whose vehicles use diesel off highway,
                                      there’s a potential break. Sections 34(a)(3) and 6427(l)(1) tell
                                      the Commissioner to credit the tax imposed to the diesel’s
                                      ultimate purchaser for each gallon of his ‘‘nontaxable use.’’ 7
                                      The Code lists several nontaxable uses, but the one driving
                                      this case is what section 6421(e)(2)(A) calls ‘‘off-highway
                                      business use.’’ See secs. 6427(l)(2), 4041(b)(1)(A), (C). Section
                                      6421(e) tells us that the first requirement for this credit is
                                      that a taxpayer be engaged in a trade or business or income-
                                      producing activity. No one disputes that MLI is. Section
                                      6421(e) then defines off-highway business use by saying what
                                      it’s not: It’s not fuel used in a ‘‘highway vehicle’’ that’s reg-
                                      istered, or that should be registered, for highway use.
                                         MLI admitted its vehicles were registered for highway use
                                      and didn’t deny that they fell within the general definition
                                      of a ‘‘highway vehicle’’—a highway vehicle is ‘‘any self-pro-
                                      pelled vehicle, or any trailer or semitrailer, designed to per-
                                      form a function of transporting a load over public highways,
                                         5 Unless otherwise noted, all section references are to the Internal Revenue Code as amended

                                      and in effect for each year at issue, and all Rule references are to the Tax Court Rules of Prac-
                                      tice and Procedure.
                                         6 This rate includes a 0.1-cent-per-gallon increase for the Leaking Underground Storage Tank

                                      Trust Fund (LUST tax). See secs. 4041(d)(1), 4081(a)(2)(B).
                                         7 In 2005 Congress enacted legislation that changed the amount of the credit a taxpayer could

                                      claim for diesel fuel used in a ‘‘nontaxable use.’’ See Energy Policy Act of 2005, Pub. L. No. 109–
                                      58, sec. 1362(b), 119 Stat. at 1059–60. For fuel used before October 1, 2005, taxpayers could
                                      claim a credit for the LUST tax, so the applicable rate was 24.4 cents per gallon; after Sep-
                                      tember 30, 2005, taxpayers could claim only a credit of 24.3 cents per gallon.




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                                      44                  138 UNITED STATES TAX COURT REPORTS                                       (40)


                                      whether or not also designed to perform other functions.’’ 8
                                      Sec. 48.4061(a)–1(d)(1), Manufacturers & Retailers Excise
                                      Tax Regs. (emphasis added). MLI steered us instead toward
                                      one of the exceptions to these general rules—the one for
                                      vehicles specially designed for off-highway transportation.
                                      See sec. 48.4061(a)–1(d)(2)(ii), Manufacturers & Retailers
                                      Excise Tax Regs. The off-highway exception has two require-
                                      ments:
                                         • Special Design—MLI’s vehicles must be specially
                                      designed for the primary function of transporting a par-
                                      ticular load (e.g., for mining or construction) other than on
                                      a public highway.
                                         • Substantial Impairment—The special design must also
                                      substantially limit or substantially impair the transport of
                                      such load over the public highways. Relevant factors include,
                                      but are not limited to, whether
                                         • the vehicle travels at highway speeds;
                                         • the vehicle requires a special permit for highway use; or
                                         • the vehicle is too heavy, too high, or too wide for regular
                                      use.
                                      See id.
                                         If MLI can drive over these two speed bumps with its argu-
                                      ment unrattled, it can claim the section 34(a)(3) credit for its
                                      tax year ending in 2005. But the regulation takes us only so
                                      far—relatively new section 7701(a)(48) applies to 2006. 9 And
                                      although Congress incorporated most of the regulation’s lan-
                                      guage into that section, it also made a few changes which
                                      may or may not turn out to be important.
                                         Because of this change in the law, we need to look at each
                                      year separately. But before we do that we have to answer a
                                      very important question common to both years—are the
                                      ‘‘vehicles’’ we’re supposed to classify the giant tractors by
                                      themselves, or the tractors in tandem with the belly-dump
                                      trailers? Once we do this, we can figure out whether the
                                         8 ‘‘[T]he term ‘public highway’ includes any road (whether a Federal highway, State highway,

                                      city street, or otherwise) in the United States which is not a private roadway.’’ Sec. 48.4061(a)–
                                      1(d)(1), Manufacturers & Retailers Excise Tax Regs.
                                         9 In 2004 Congress added paragraph 48 (defining off-highway vehicles) to section 7701(a) and

                                      made it apply for tax periods beginning after October 22, 2004. American Jobs Creation Act of
                                      2004, Pub. L. No. 108–357, sec. 852(a), (c)(2), 118 Stat. at 1609. Because MLI’s fiscal year runs
                                      through January, its tax year ending January 31, 2006, is the first to which section 7701(a)(48)
                                      applies.




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                                      (40)                 MYLES LORENTZ, INC. v. COMMISSIONER                                      45


                                      ‘‘vehicle’’ is specially designed for off-highway use by
                                      applying the regulation for MLI’s tax year ending in January
                                      2005 and then deciding if section 7701(a)(48) leads to a dif-
                                      ferent result for the tax year ending in January 2006.
                                      A. What Is a Vehicle?
                                        The parties agree that the regulation’s definition of ‘‘high-
                                      way vehicle’’ governs for both years. MLI, however, says its
                                      tractor-trailer combination is the ‘‘vehicle’’ we judge; the
                                      Commissioner argues that we should look at the tractors and
                                      trailers separately. The Commissioner has his reason: If the
                                      regulation applies separately to tractors and trailers, we
                                      need look only at the vehicle that uses diesel fuel—the
                                      tractor—and can ignore the design and use of the trailers.
                                        We look first to see if the regulation has some plain
                                      meaning. See Nat’l Educ. Ass’n v. Commissioner, 137 T.C.
                                      100, 111 (2011). This may not get us very far because the
                                      regulation defines a ‘‘vehicle’’ as consisting of ‘‘a chassis and
                                      a body * * * but does not include the vehicle’s load.’’ Sec.
                                      48.4061(a)–1(d)(1), Manufacturers & Retailers Excise Tax
                                      Regs. But the rest of the regulation is more helpful: ‘‘Exam-
                                      ples of vehicles * * * are * * * truck tractors, trailers, and
                                      semitrailers.’’ Id. It also defines ‘‘highway vehicle’’ as ‘‘any
                                      self-propelled vehicle, or any trailer or semitrailer, designed
                                      to perform a function of transporting a load over public high-
                                      ways.’’ Id. (emphasis added). And because the term ‘‘trans-
                                      port’’ includes the term ‘‘tow,’’ see id., we know that a high-
                                      way vehicle includes a self-propelled vehicle towing a load
                                      over public highways.
                                        We think this gives the Commissioner the better of the
                                      argument, and read the regulation like he does, as treating
                                      MLI’s tractors as vehicles separate from its belly-dump
                                      trailers. Both by definition and by example the regulation
                                      distinguishes the two (it uses the disjunctive ‘‘or’’), and it
                                      does not use a phrase such as ‘‘or a combination thereof.’’ See
                                      also Schlumberger Tech. Corp. v. United States, 55 Fed. Cl.
                                      203, 215 (2003) (‘‘Given the clear language of the regulation
                                      and the consistent case law, the court sees no reason to
                                      couple the tractor and trailer’’).
                                        MLI has failed to show that a belly-dump trailer that it
                                      hitches to a tractor becomes a single vehicle—in fact, the evi-




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                                      dence showed the contrary. The standard fifth wheel allows
                                      different kinds of trailers to be hitched to the same Mack
                                      tractor. (MLI actually hitched its tractors to trailers other
                                      than its belly-dump trailer when it needed to move construc-
                                      tion-support equipment to a job site.) And the belly-dump
                                      trailers had off-highway bumpers that enabled them to be
                                      pushed by still another type of vehicle—bulldozers. This
                                      leads us to find that MLI’s tractors and belly-dump trailers
                                      were separate vehicles. Since the tractors, not the trailers,
                                      consumed the diesel, they are what we will analyze. 10
                                      B. Tax Year Ending January 2005: The Regulation
                                         That we don’t find the tractor-trailer combination to be a
                                      single vehicle does not mean that the trailers are irrelevant
                                      to our analysis. For the first year at issue, we look to the
                                      regulation, and the first part of its definition of the off-high-
                                      way-vehicle exception requires that MLI’s tractors be ‘‘spe-
                                      cially designed for the primary function of transporting a
                                      particular type of load other than over the public highway in
                                      connection with a construction * * * [or] mining’’ operation.
                                      Sec. 48.4061(a)–1(d)(2)(ii), Manufacturers & Retailers Excise
                                      Tax Regs. Remember that ‘‘transportation’’ includes ‘‘towing’’,
                                      so if the tractors were specially designed for the primary
                                      function of towing belly-dump trailers (or even, as MLI
                                      argues, for moving construction or mining material in those
                                      trailers), MLI would have a good argument.
                                         We do not, however, find the design of MLI’s tractors to be
                                      special in this sense. Caselaw teaches us that the word ‘‘pri-
                                      mary’’ in the regulation does not mean ‘‘exclusive,’’ see World-
                                      wide Equip., Inc. v. United States, 605 F.3d 319, 324 (6th
                                      Cir. 2010), but instead something like ‘‘of first importance’’ or
                                      ‘‘principally’’, see Malat v. Riddell, 383 U.S. 569, 571–72
                                      (1966). While the context in which the word ‘‘primary’’ is
                                      used is important—Malat looked at section 1221—there is
                                      nothing in the regulation or section 7701(a)(48) that suggests
                                      ‘‘primary’’ means anything else in this context. See, e.g.,
                                      DeHaai v. Commissioner, T.C. Memo. 1989–127 (applying
                                         10 Why then would the exceptions under section 48.4061(a)–1, Manufacturers & Retailers Ex-

                                      cise Tax Regs., even list trailers, which by definition don’t burn fuel? Presumably because that
                                      definition also applies to section 4051’s heavy-vehicle retail tax, section 4071’s highway-vehicle-
                                      tires tax, and section 4481’s annual heavy-vehicle use tax. E.g., sec. 48.4061(a)–1(d)(4), Manufac-
                                      turers & Retailers Excise Tax Regs. Unlike the fuel excise tax, these taxes are not creditable
                                      under section 34.




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                                      (40)                 MYLES LORENTZ, INC. v. COMMISSIONER                                      47


                                      Malat to section 1.167(a)–1(a), Income Tax Regs.). With that
                                      meaning in mind, we look at the functions of the MLI trac-
                                      tors’ special design.
                                         The first thing we find is that the tractors were not spe-
                                      cially designed to primarily transport a particular type of
                                      load: They were not tailored to tow belly-dump trailers or, as
                                      MLI claims, even to transport construction and mining mate-
                                      rial. 11 They had a more general purpose—hauling very
                                      heavy loads—that allowed these tractors to pull a variety of
                                      different types of trailers (after all, the tractors had a
                                      standard fifth wheel) and the different types of loads that
                                      those trailers themselves could haul. The tractors had modi-
                                      fied suspensions, axles, gearboxes, chassis assemblies, and
                                      lower-than-normal gear ratios. The parties agree that these
                                      features made the tractors ‘‘heavy-duty,’’ but we can’t discern
                                      from the special design of these ‘‘heavy-duty’’ tractors that
                                      they were designed for a particular type of load. 12
                                         We find, moreover, that the tractors were not designed pri-
                                      marily for off-highway use. While the modifications allowed
                                      the tractors to work off highway, they also allowed those
                                      same tractors to haul loads, large or small, on a highway.
                                      The parties agreed that MLI’s modified tractors and the
                                      manufacturers’ unmodified tractors were otherwise identical.
                                      In particular, the manufacturers’ specifications for the trac-
                                      tors list the vehicles’ application as ‘‘Class A Highway,’’
                                      which is the same application that unmodified tractors have.
                                      We therefore find that the tractors weren’t designed for ‘‘the
                                      primary function of transporting a particular type of load
                                      other than over the public highway.’’
                                         Even if MLI had successfully avoided plowing into the spe-
                                      cial-design requirement of the exception, it would still have
                                      to show that ‘‘by reason of such special design, the use of
                                      such vehicle to transport such load over the public highways
                                      is substantially limited or substantially impaired.’’ Sec.
                                      48.4061(a)–1(d)(2)(ii), Manufacturers & Retailers Excise Tax
                                         11 Although MLI used the tractors primarily to haul belly-dump trailers, the special-design re-

                                      quirement tells us to look at design, not actual use. See, e.g., Worldwide Equip., Inc. v. United
                                      States, 605 F.3d 319, 325 (6th Cir. 2010).
                                         12 In a letter dated September 21, 2007, a Mack sales representative opined that Mack truck

                                      models CTP7 and RD686 were for construction use (but without stating how the ‘‘heavier’’ speci-
                                      fications were used in construction). These models were similar to the ones at issue. But even
                                      if we assumed the tractors’ primary function was for construction, that fact would still leave
                                      us without anything in the record about whether they were designed for a particular type of
                                      load.




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                                      Regs. For MLI’s tax year ending in January 2005, the gov-
                                      erning regulation required that the special design substan-
                                      tially limit or impair the vehicles’ use on highways. The regu-
                                      lation lists particular limits: Could the vehicles travel at
                                      normal highway speeds? Did they need a special permit to
                                      use the highways? Or were they too high or too wide or too
                                      heavy for regular highway use? See id. The substantial-
                                      limitation test would still be a problem because MLI has not
                                      shown that any of these limitations existed. 13
                                         The regulation does, however, allow us to consider ‘‘other
                                      relevant considerations,’’ and these are what MLI points to.
                                      For starters, it highlights a limitation with the belly-dump
                                      trailers: MLI needs to remove the push-bumpers and side
                                      panels and add mud flaps before it can use the trailers on
                                      the highway. We agree that changing those parts would limit
                                      the belly-dump trailer—but because of the way we define
                                      ‘‘vehicle’’, we look only to the special design of the tractors,
                                      not the trailers, and ask whether there’s any element of their
                                      design that substantially limits or impairs their highway use.
                                         MLI does make one argument that is on point. Since the
                                      tare weight 14 of the tractor-trailer combination is so great,
                                      it not only gets lower fuel mileage; it can’t carry as much
                                      cargo without exceeding state-imposed maximum-weight
                                      limits. This makes for a plausible argument that MLI’s trac-
                                      tors are economically inefficient for highway use, even if
                                      physically capable of it.
                                         MLI points to Flow Boy, Inc. v. United States, No. CIV–80–
                                      602–E, 1982 WL 1735 (W.D. Okla. Apr. 20, 1982), aff ’d, 1984
                                      WL 15513 (10th Cir. Jan. 20, 1984). 15 In Flow Boy, the
                                      vehicle looked a bit like a dump truck but discharged hot-mix
                                      asphalt via a conveyer belt rather than by gravity. The
                                      vehicle could travel at normal highway speeds, had acces-
                                      sories that permitted normal highway use, and was not too
                                      long, too wide, or too high. But the jury still found for the
                                      taxpayer, and that decision was affirmed on appeal. See Flow
                                        13 By MLI’s own admission, the same would be true for the tractor-trailer combination if that

                                      was the vehicle we looked at: MLI’s tractor-trailers did not require a special permit for highway
                                      use, could travel at normal highway speeds, and were not too high or too wide or too heavy
                                      for regular highway use.
                                        14 Tare weight is the weight of a vehicle without a load.
                                        15 The same Flow Boy semitrailer was at issue in J.H. Holland Co. v. United States, No. 75–

                                      1090–E, 1977 WL 1282 (W.D. Okla. Apr. 21, 1977) (applying the pre-1977 regulation), and a
                                      similar Flow Boy model swirled by in Gateway Equip. Corp. v. United States, 247 F. Supp. 2d
                                      299 (W.D.N.Y. 2003).




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                                      Boy, 1984 WL 15513, at *2. The logic: It would be illegal for
                                      the vehicle to travel on public highways at full capacity, and
                                      because the vehicle had to be loaded to full capacity to be
                                      profitable, it could not economically operate with a lighter
                                      legal load. Id.
                                         MLI’s modified tractors are heavier than unmodified trucks,
                                      and we agree that they are not as fuel efficient as unmodified
                                      tractors. We also agree that they will bump up against state
                                      weight limits carrying less cargo than unmodified tractors. A
                                      Mack sales representative made the same point in a letter in
                                      which he wrote that Mack’s modifications to the tractors
                                      made them ‘‘heavier and inefficient.’’
                                         But we can’t stop there, because in our reading the regula-
                                      tion requires more—it requires that the impairments or
                                      limitations be substantial, and here we find MLI’s argument
                                      fails. Consider first how Flow Boy is distinguishable: In Flow
                                      Boy, the vehicles would have been unprofitable if carrying
                                      anything other than a full load. Although MLI’s tractors, if
                                      fully loaded, could have gross weights of more than 60 tons,
                                      there’s no evidence in the record in this case that MLI needed
                                      the tractors to be fully loaded to turn a profit. See Fla. Power
                                      & Light Co. v. United States, 56 Fed. Cl. 328, 333 (2003)
                                      (distinguishing Flow Boy because additional costs attrib-
                                      utable to vehicles’ weight, speed, and fuel efficiency did not
                                      render public-highway operations unprofitable). 16
                                         We also don’t think that MLI’s tractors could have been all
                                      that limited. They did, after all, spend much of their time on
                                      public highways—almost 60 percent of all the miles traveled
                                      by the tractors when hauling the trailers was on public high-
                                      ways during its fiscal year ending in January 2005. 17 (MLI
                                      did not provide information for fiscal year 2006.) We there-
                                      fore find that the weight of the tractors was not a substantial
                                      limitation under the regulation.


                                         16 The court evaluating Flow Boy units in Gateway also found they had to be fully loaded to

                                      be profitable. Gateway, 247 F. Supp. 2d at 308. And at least one other court has read the regula-
                                      tion as focused on safety, not economic efficiency. See Schlumberger Tech. Corp. v. United States,
                                      55 Fed. Cl. 203, 222 (2003). But MLI didn’t argue that the weight of its tractors made them
                                      unsafe on public highways.
                                         17 Unlike the special-design test, the substantial-limitation test focuses on use, and we thus

                                      read the regulation as letting us analyze the particular use a taxpayer makes of his vehicles.




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                                      50                  138 UNITED STATES TAX COURT REPORTS                                       (40)


                                      C. Tax Year Ending January 2006: Effect of the New Section
                                        Like the regulation, section 7701(a)(48)(A)(i) looks to both
                                      a vehicle’s design and whether that design substantially
                                      limits or impairs its use on the public highways:
                                      A vehicle shall not be treated as a highway vehicle if such vehicle is spe-
                                      cially designed for the primary function of transporting a particular type
                                      of load other than over the public highway and because of this special
                                      design such vehicle’s capability to transport a load over the public highway
                                      is substantially limited or impaired. [Emphasis added.]

                                      Section 7701(a)(48)’s phrasing is different from the regulation
                                      in four ways:
                                         • the change of the phrase ‘‘such load’’ to the more general
                                      ‘‘a load’’;
                                         • ‘‘a vehicle’s design is determined solely on the basis of its
                                      physical characteristics,’’ sec. 7701(a)(48)(A)(ii);
                                         • the listed considerations for substantial limitation or
                                      impairment are now ‘‘the size of the vehicle, whether such
                                      vehicle is subject to the licensing, safety, and other require-
                                      ments applicable to highway vehicles, and whether such
                                      vehicle can transport a load at a sustained speed of at least
                                      25 miles per hour,’’ sec. 7701(a)(48)(A)(iii); and
                                         • the ability of a vehicle to ‘‘transport a greater load off
                                      the public highway than such vehicle is permitted to trans-
                                      port over the public highway’’ is immaterial, sec.
                                      7701(a)(48)(A)(iii).
                                         None of the differences between the statute and the regula-
                                      tion helps MLI. For example, if towing the belly-dump trailer
                                      over a public highway were to prove unprofitable for MLI and
                                      we were to find substantial limitation or impairment under
                                      the regulation, this factor alone would now not be enough
                                      under the statute. The change to ‘‘a load’’ from ‘‘such load’’
                                      means that we would have to take the additional step of
                                      evaluating the tractors’ efficiency when transporting, for
                                      example, another kind of trailer that could also be hooked to
                                      the tractors’ fifth wheels.
                                         Next, we read the phrase ‘‘a vehicle’s design is determined
                                      solely on the basis of its physical characteristics’’ to restrict
                                      us from looking at a vehicle’s actual use in deciding whether
                                      it was specially designed for a particular type of off-highway
                                      load. MLI’s use of the tractors to tow belly-dump trailers full




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                                      (40)                 MYLES LORENTZ, INC. v. COMMISSIONER                                      51


                                      of dirt and other material is now an inappropriate fact for us
                                      to consider because it goes beyond looking at only the phys-
                                      ical characteristics of the tractors.
                                         As for the substantial-limitation-or-impairment factors
                                      that the Code now lists, they are nearly the same as those
                                      in the old regulation, except that instead of describing
                                      whether MLI’s tractors may travel at regular highway speeds,
                                      we now may consider whether the tractors, with a load, can
                                      sustain speeds of 25 miles per hour on a public highway. We
                                      know that MLI’s tractors could travel at regular highway
                                      speeds while transporting a maximum load as permitted by
                                      state law. There’s no evidence that it can’t sustain that speed
                                      over any particular period of time, let alone sustain a speed
                                      of only 25 miles per hour.
                                         Finally, there’s no doubt that MLI’s tractors can haul more
                                      weight off a public highway than on one because their
                                      hauling capacity exceeds that which is permissible under
                                      state laws. The statute explicitly tells us this fact is now
                                      ‘‘immaterial’’.
                                         All of this means that, for MLI’s tractors, the statute is
                                      even less liberal than the regulation. And thus MLI’s argu-
                                      ments for the work its vehicles did in 2006 also fail.
                                                                           Decision will be entered for respondent.

                                                                               f




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