Worthington Pump & Machinery Corp. v. United States

Decision Date13 July 1954
Docket NumberNo. 50435.,50435.
Citation129 Ct. Cl. 87,122 F. Supp. 843
CourtU.S. Claims Court

Elliott Goldstein, Atlanta, Ga., for plaintiff. Edward E. Dorsey, B. D. Murphy, and Powell, Goldstein, Frazer & Murphy, Atlanta, Ga., were on the brief.

John A. Rees, Washington, D. C., with whom was H. Brian Holland, Asst. Atty. Gen., for defendant. Andrew D. Sharpe and Ellis N. Slack, Washington, D. C., were on the brief.

Before JONES, Chief Judge, and LITTLETON, WHITAKER, MADDEN and LARAMORE, Judges.

JONES, Chief Judge.

This is an action under the court's general jurisdiction to recover certain excise taxes erroneously collected.

During the period February 1946 through May 1947 the plaintiff sold certain air conditioning machines to the Delta Air Conditioning and Heating Company, hereafter referred to as Delta. Plaintiff had paid excise taxes on these units to the United States and in turn had billed to and collected the amount of these taxes from Delta. Later the Bureau of Internal Revenue ruled that the taxes had not been due at the time they were paid but rejected plaintiff's claim for refund.

Delta was engaged in selling air conditioning, heating and refrigeration units, both at wholesale and retail; some of the air conditioning units were sold plain, others were sold under contract prices that included both the unit and the service of installation. Installation was sometimes a rather complicated process and could include engineering, planning, sheet metal working, plumbing, carpentering and electrical services. It is as to units in this second classification that the plaintiff seeks to recover the tax.

The plaintiff alleges that Delta did not pass on to its customers the tax on units sold under installation contracts. To prove this plaintiff produced certain evidence relating to Delta's business operations. Delta was new in the air conditioning business and in order to attract customers adopted the policy of meeting or underbidding the lowest price of its competitors. The price was quoted without any advance knowledge of what the cost of executing the contract would be, with the exception of the cost of the tax-paid machine. A qualified accountant testified, on the basis of sampling a certain number of these contracts, that the costs, as subsequently computed, did exceed the contract price in a major portion of the jobs. He conceded, however, that some jobs were done at a profit. Although Delta sold these tax-paid machines over a period of two fiscal years, the accountant analyzed Delta's financial condition only for the fiscal year ending January 31, 1948. During the fiscal year 1948 Delta suffered a substantial net loss, particularly on its air conditioning operations where it amounted to 10.10 percent of air conditioning sales. However, only ten of the transactions on which plaintiff bases its claim occurred in the fiscal year 1948 and these involved an excise tax amounting to $767.23. Finally, the accountant made a comparison between Delta's average selling price on its average unit during the periods before and after the tax ceased being collected. He found that the average selling price was slightly lower when the tax was collected than when it was not.

Plaintiff in seeking to press its claim must fulfill all the statutory conditions which Congress has imposed in respect to it. The plaintiff is apparently suing to recover a tax levied on air conditioners under section 614 of the Revenue Act of 1942, 56 Stat. 978, 26 U.S.C. chapter 29, section 3405. In relation to refunds under chapter 29, section 3443 (d) provides:

"No overpayment of tax under this chapter shall be credited or refunded (otherwise than under subsection (a)), in pursuance of a court decision or otherwise, unless the person who paid the tax establishes, in accordance with regulations prescribed by the Commissioner with the approval of the Secretary, (1) that he has not included the tax in the price of the article with respect to which it was imposed, or collected the amount of tax from the vendee, or (2) that he has repaid the amount of the tax to the ultimate purchaser of the article, or unless he files with the Commissioner written consent of such ultimate purchaser to the allowance of the credit or refund."

The Commissioner has issued a regulation1 with respect to this subject which reads, in part, as follows:

"Sec. 316.94. Credits and refunds. — * * *
"* * * In all cases where a person overpays tax, no credit or refund shall be allowed (except as provided in the preceding paragraphs), whether in pursuance of a court decision or otherwise, unless the taxpayer files a sworn statement explaining satisfactorily the reason for claiming the credit or refund and establishing (1) that he has not included the tax in the price of the article with respect to which it was imposed, or collected the amount of tax from the vendee, or (2) that he has either repaid the amount of tax to the ultimate purchaser of the article or has secured the written consent of such ultimate purchaser to the allowance of the credit or refund. In the latter case the written consent of the ultimate purchaser must accompany the sworn statement filed with the credit or refund claim. For the purpose of the tax the `ultimate purchaser' is a person who purchases an article (1) for consumption, or (2) for use in the manufacture of other articles and not for resale in the form in which purchased. The statement supporting the credit or refund claim must also show whether any previous claim for credit or refund covering the amount involved, or any part thereof, has been filed with the collector or Commissioner."

The statute provides then that the plaintiff must either show that he himself has borne the burden of the tax or that he has repaid or obtained the consent of the "ultimate purchaser." The pleadings admit that the plaintiff did not itself bear the burden of the tax but was completely reimbursed by Delta. Nor has there been any allegation or proof that plaintiff has reimbursed anyone. Plaintiff's right to recover depends, therefore, on its being able to show that it filed with the Commissioner the "written consent of such ultimate purchaser to the allowance of the credit or refund."

There is in evidence a document from the files of the Bureau of Internal Revenue which indicates that the plaintiff has at least in form complied with the requirements of the statute. It is entitled "Affidavit of Ultimate Vendor" and, by Burton B. Goldstein, President, on behalf of Delta, consents to the allowance of a credit or refund to the plaintiff for taxes collected on the units which are here under discussion.

The main question to be decided is, therefore, whether or not Delta is an "ultimate purchaser" within the meaning of section 3443. The section first came into the law with the Revenue Act of 1932, 47 Stat. 169, where it appeared as section 621(d), 47 Stat. 268. The legislative history on this proviso is meager. The report of the Ways and Means Committee speaking of section 605(e) in the original bill said, at page 39:

"Subsection (e) is an important and just provision which will encourage agreements by taxpayers and discourage litigation. In many cases the tax will be passed on to consumers. No manufacturer or dealer should be permitted to recover an overpayment which in fact has been borne by the purchasers. Provision is therefore made against credit or refund of overpayments unless the taxpayer can show that he has not passed on the tax or that he has reimbursed the ultimate purchaser or obtained his consent." H.Rep. 708, 72d Cong., 1st Sess.

From this one may fairly conclude that Congress intended that only those persons who actually had to bear the tax should benefit by any refund the Treasury might make. Undoubtedly it was assumed that the "ultimate purchaser" would look to his own interest before he gave the consent required by the statute.

The court does not believe that Delta's installation services, extensive though they were, amounted to the use of plaintiff's units "in the manufacture of other articles and not for resale in the form in which purchased." But under our interpretation of the statute it always remains open for the plaintiff to show that it has the consent of the person who actually bore the tax.

So far as we are able to determine no prior cases have been reported where the taxpayer based his right to recover on an alleged consent of the ultimate purchaser. A number of cases have arisen under similar provisos of prior revenue acts and a statute providing for recovery of the unconstitutional processing tax levied in connection with the Agricultural Adjustment Act, 7 U.S.C.A. § 601 et seq. Cases under section 3443 of Title 26 U.S.C., supra, have involved principally the proviso that the plaintiff must not have "included the tax in the price of the article with respect to which it was imposed". This formula appears to have a broader meaning. In Luzier's, Inc. v. Nee, 8 Cir., 106 F.2d 130, 134, the court said, in regard to it:

"So here the plaintiff must not only show that it is entitled in equity and good conscience to recover against the Collector, but it must meet the statutory requirement and establish that it has not passed the tax on to the purchaser of its products, and as a corollary thereto, that it has borne the economic burdens of the tax and has not shifted the same to its customers. * *"

We think that a similar interpretation ought to govern that part of section 3443 which is in issue here.

To find out who bore the burden of tax involves a determination of fact. When this court considered a claim for refund under a similar provision of an earlier revenue act, it said, in Boyle Valve Co. v. United States, 38 F.2d 135, 137, 69 Ct.Cl. 129, 133-34:

"* * * The determination whether the tax was collected by the manufacturer directly or indirectly from the purchaser; that is, whether it

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