Vinal v. Peterson Mortuary, Inc.

• Decision Date: 30 December 1965
• Docket Number: No. 18064.,18064.
• Citation: 353 F.2d 814
• Parties: Richard P. VINAL and United States of America, Appellants, v. PETERSON MORTUARY, INC., Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

353 F.2d 814 (1965)

Richard P. VINAL and United States of America, Appellants, v. PETERSON MORTUARY, INC., Appellee.

No. 18064.

United States Court of Appeals Eighth Circuit.

December 30, 1965.

Robert A. Bernstein, Attorney, Tax Division, Dept. of Justice, Washington, D. C., John B. Jones, Jr., Acting Asst. Atty. Gen., and Lee A. Jackson, David O. Walter, Attorneys, Tax Div., Washington, D. C., and Theodore L. Richling, U. S. Atty., and Russel J. Blumenthal, Asst. U. S. Atty., Omaha, Neb., for appellants.

Eugene P. Welch, of Gross, Welch, Vinardi, Kauffman & Schatz, Omaha, Neb., for appellee.

Before VAN OOSTERHOUT and MEHAFFY, Circuit Judges, and VAN PELT, District Judge.

VAN OOSTERHOUT, Circuit Judge.

This is an appeal by Richard P. Vinal, District Director of Internal Revenue for Nebraska, and the United States from final judgment of the district court allowing taxpayer Peterson Mortuary, Inc., its claim for refund of excise taxes paid by it and denying the supplemental complaint in intervention filed by the United States for additional excise taxes arising out of the same transactions involved in the refund suit. The trial court's opinion is reported at 238 F.Supp. 346. Timely claim for refund of the taxes has been made. Jurisdiction exists in the trial court under 28 U.S.C.A. § 1340 and in this court under 28 U.S.C.A. § 1291.

Taxpayer is a Nebraska corporation engaged in the business of conducting funerals. The excise tax controversy arises out of the purchase by the taxpayer of two standard Chrysler automobiles from a local Nebraska dealer, title to each of which was taken in the taxpayer. Immediately after the purchases, taxpayer entered into contracts with Memphis Coach Company of Memphis, Tennessee, for the conversion of one of the automobiles into an ambulance and the other into a hearse. Such contracts called for extensive body changes involving the substitution of practically entirely new bodies. Memphis Coach furnished all the labor and materials needed to effect the conversion for an agreed price of $1870.25 for the ambulance and $4194.00 for the hearse. No manufacturer's excise tax has been paid by or assessed to Memphis Coach in respect to the work here involved. Memphis Coach is no longer in business, having been adjudged a bankrupt.

On July 30, 1962, taxpayer at the urging of the Government filed quarterly excise tax returns covering the foregoing transactions, making payment as follows:

                  First Quarter 1959
                    (ambulance)       Excise Tax ..  $177.03
                                      Interest ....    34.52
                                      Penalty  ....    44.26
                  First Quarter 1960  Excise Tax ..   399.40
                    (hearse)          Interest ....    53.92
                                      Penalty  ....    99.85
                

On June 28, 1963, subsequent to the commencement of the refund suit, the Commissioner assessed additional excise taxes and interest on the two transactions here involved in the amount of $434.37. He abated the penalty previously assessed and paid, leaving a balance due, after crediting the penalty, of $290.26.¹ The record does not show the basis upon which such assessment was made.

On September 11, 1964, the Commissioner assessed with respect to the same transactions further excise tax in the amount of $628.49. The basis of the additional assessment is stated as follows:

                                                                 Ambulance    Hearse
                  3.  Total cost                      13,007.25   5,370.25   7,637.00
                                                     __________   ________   ________
                  1.  Cost of units converted          6,943.00   3,500.00   3,443.00
                  2.  Add: Cost of conversion          6,064.25   1,870.25   4,194.00
                                                     ==========   ========   ========
                  5.  Total: Constructive price       14,307.98   5,907.28   8,400.70
                  6.  Federal excise tax, corrected    1,430.80     590.73     840.07
                                                        Total      3/31/59    3/31/60
                  4.  Add 10% profit                   1,300.73     537.03     763.70
                

It is the Government's claim that if the tax and interest previously paid is credited and the penalty paid is abated, and additional interest is added, the balance of the excise tax and interest owing is $918.75.

The tax statutes most pertinent to this appeal are §§ 4061 and 4218, I.R.C.1954, 26 U.S.C.A. §§ 4061, and 4218. Section 4061 establishes a manufacturer's excise tax on the sale of automobiles and provides that "a sale of an automobile * * * shall * * * be considered to be a sale of the chassis and of the body." Section 4218 provides that a person who manufactures an article subject to excise tax and uses it himself "shall be liable for tax under this chapter in the same manner as if such article was sold by him."

As properly stated by the trial court, the application of the excise tax statutes to the facts before us raises three basic questions: First, whether the alteration of the original automobiles was an act of manufacture, placing that activity within the purview of §§ 4061 and 4218; second, whether the taxpayer may be characterized as the manufacturer of the ambulance and the hearse in question within the meaning of the excise tax statutes; and third, providing that both preceding questions are answered affirmatively, should the tax levied be computed on the fair market value of a complete hearse and a complete ambulance or only on the additional expenditure for the conversion of each.

On the first issue, the trial court concludes:

"In any case, the ambulance and hearse are new and different articles in the eyes of this Court. It is eminently clear to us that there has been an act of manufacturing imposed in this instance." 238 F.Supp. 346, 349.

Such finding is not challenged by either party. In any event, such finding is supported by substantial evidence and not induced by any erroneous view of the law. It is in accord with revenue rulings. See Rev.Rul. 58-32, 1958-1 Cum.Bull. 391; Rev.Rul. 60-81, 1960-1 Cum.Bull. 506; Rev.Rul. 60-155, 1960-1 Cum.Bull. 410. At least one federal district court has adopted the same reasoning. Greyhound Rent-A-Car, Inc. v. United States, N.D.Ill., 63-2 U.S.T.C. 15505. See also United States v. Armature Rewinding Co., 8 Cir., 124 F.2d 589; United States v. Armature Exchange, 9 Cir., 116 F.2d 969; Masao Hirasuna v. McKenney, D. Hawaii, 135 F.Supp. 897, aff'd 9 Cir., 245 F.2d 98.

The basic issue in controversy is whether taxpayer is the manufacturer of the ambulance and hearse within the meaning of the term "manufacture" as used in the excise tax statutes. The Government insists taxpayer is the manufacturer. Taxpayer asserts that the Memphis Coach Company is the manufacturer. The trial court agreed with the taxpayer, concluding:

"We have no doubt that the taxpayer, a mortuary, never had any intention of manufacturing an ambulance or a hearse. It wanted a completed article. For whatever reason it felt controlling, the taxpayer elected the now questioned method of purchasing an ambulance and a hearse. Memphis was responsible for the end product. It performed its work at the request of the taxpayer, but all manufacturers perform this work to satisfy the demands of actual or potential customers. We are convinced that the Peterson Mortuary, Inc., under the circumstances presented to this court in this case, is not a manufacturer liable for an excise tax." 238 F. Supp. 346, 350.

In reaching such decision, the trial court relied upon our decision in United States v. Gamble-Skogmo, Inc., 8 Cir., 91 F.2d 372. We believe that Gamble-Skogmo was properly decided but that it is factually distinguishable from the instant case. In Gamble-Skogmo, a chain store operator contracted with a low bidder, Puffer-Hubbard, for the purchase of a year's supply of electric refrigerators for its retail outfits at a stated price per refrigerator. By reason of a series of unforeseen events, Gamble-Skogmo took a rather substantial financial and supervisory role in the fabrication of the refrigerators. A fact issue arose as to whether Gamble-Skogmo had purchased the freezing units for the refrigerators on its own account. We upheld the trial court's finding that Gamble-Skogmo did not buy the freezing units for itself. We stated:

"We think that the inference which the trial court drew from the evidence — namely, that the arrangement between the taxpayer, Puffer-Hubbard, and the Zerozone Corporation amounted to advancing to Puffer-Hubbard a sufficient amount to enable it to carry out its bid — was a permissible inference, and that the evidence did not compel that court to find that the taxpayer bought the freezing units for its own account and became the owner of them and merely employed Puffer-Hubbard to manufacture for it or assemble for it the complete refrigerators. * * *" 91 F.2d 372, 375.

We then observed:

"If the court below had found that the taxpayer purchased the units from the Zerozone Corporation for its own account, and the cabinets from Puffer-Hubbard, and employed Puffer-Hubbard to assemble the complete refrigerators, the taxpayer would have fallen within the definition of a manufacturer or producer; * * *" 91 F.2d 372, 376.

The statement last quoted is dictum. However, we believe it contains an accurate statement of the law applicable to the factual situation presented in the instant case.

Other cases in this area of the tax law support the propriety of the Gamble-Skogmo dictum as thus applied. In Carbon Steel Co. v. Lewellyn, 251 U.S. 501, 40 S.Ct. 283, 64 L.Ed. 375, taxpayer contracted to supply the British Government with a quantity of high explosive shells. The production of such munitions was an involved process for which taxpayer had neither all the necessary materials nor facilities. Taxpayer subcontracted many of the steps in the production process to other parties, in fact had the...