Armature Exchange v. United States

• Decision Date: 16 June 1939
• Docket Number: No. 8437-Y.,8437-Y.
• Citation: 28 F. Supp. 10
• Court: U.S. District Court — Southern District of California
• Parties: ARMATURE EXCHANGE, Inc., v. UNITED STATES.

28 F. Supp. 10

ARMATURE EXCHANGE, Inc., v. UNITED STATES.

No. 8437-Y.

District Court, S. D. California, Central Division.

June 16, 1939.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Darius F. Johnson, of Los Angeles, Cal., for plaintiff.

Ben Harrison, U. S. Atty., and Armond Jewell, Asst. U. S. Atty., both of Los Angeles, Cal.

YANKWICH, District Judge (after stating the facts as above).

In Section 606(c) of the Revenue Act of 1932, the Congress provided:

"There is hereby imposed upon the following articles, sold by the manufacturer, producer, or importer, a tax equivalent to the following percentages of the price for which so sold:

* * *

"(c) Parts or accessories (other than tires and inner tubes) for any of the articles enumerated in subsection (a) or (b), 2 per centum."

This is followed by certain definitions and enumerations of specific articles, which do not concern us.

The Government, in insisting that the tax on rewound armatures was collected rightfully, relies on the preamble of this subdivision, and mainly on the words "manufacturer" or "producer."

The verb "manufacture" is thus defined in Webster's Unabridged Dictionary, latest (1937) edition: "Manufacture. To make (wares or other products) by hand, by machinery, or by other agency; as, to manufacture cloth, nails, glass, et cetera."

A manufacturer, of course, is "one who manufactures. A factory operative. An employer of operatives in manufacturing; the owner of a manufactory."

The verb "produce" is almost synonymous with "manufacture." I think, in a certain sense, a thing may be produced, although it is not manufactured, because it may be the result of the assembling of various parts; but, ordinarily, the words are the same. The same dictionary gives this definition of "produce": "To give being or form to; to manufacture; make; as, he produces excellent pottery." And the definition of producer is "one who produces, brings forth, or generates."

The Internal Revenue Bureau, in Regulations 46, relating to excise taxes under the Revenue Act of 1932, gives a different interpretation to the word. Article 4, page 3 of the Regulations states: "As used in the Act, the term `producer' includes a person who produces a taxable article by processing, manipulating, or changing the form of an article, or produces a taxable article by combining or assembling two or more articles."

Doubts arising in the interpretation or the application of a taxing statute to a particular set of facts are resolved against the taxing body. Erskine v. United States, 9 Cir., 1936, 84 F.2d 690; Commissioner v. Bryson, 9 Cir., 1935, 79 F.2d 397, per Denman, J.; Miller v. Standard Nut Margarine Company, 1932, 284 U.S. 498, 52 S. Ct. 260, 76 L.Ed. 422; General Petroleum Corp. v. United States, D.C., 1938, 24 F. Supp. 285.

The problem, then, is whether a product, which has been known to the trade and has been on the market for over fifteen years and which is designated by the person who makes it as a "rebuilt armature", is taxable as a "manufactured" article. In a sense, of course, any transformation, resulting from the labor of man, may be considered manufacturing. And where, as in the Bankruptcy Act, 11 U.S.C.A. § 1 et seq., the legislative intent is to subject the largest group of persons or corporations to its provisions, courts have given to the word "manufacture" its broadest sense. Friday v. Hall & Kaul Co., 1910, 216 U.S. 449, 30 S.Ct. 261, 54 L.Ed. 562, 26 L.R.A.,N.S., 475.

However, in taxation statutes, it has been given its narrower meaning — that of production of articles for use from raw and prepared materials by giving them new forms, qualities and properties or combinations. This excludes repairing or processing aiming to complete an article or to restore it to its former condition. State v. J. J. Newman Lumber Company, 1912, 102 Miss. 802, 59 So. 923, 45 L.R.A.,N.S., 851; 4 Words and Phrases, Second Series, page 272; 6 Words and Phrases Third Series, page 707.

Thus in Hartranft v. Wiegmann, 1887, 121 U.S. 609, 615, 7 S.Ct. 1240, 1243, 30 L.Ed. 1012, the court held that persons engaged in the business of cleaning shells by acid and grinding them on an emery wheel and then etching them, sometimes by acid, so that they might be sold as ornaments, were not "manufacturers of shells", saying: "We are of opinion that the shells in question here were not manufactured, and appellees were not manufacturers of shells, within the sense of the statute imposing a duty of 35 per centum upon such manufactures, but were shells not manufactured, and fell under that designation in the free list. They were still shells. They had not been manufactured into a new and different article, having a distinctive name, character or use from that of a shell. The application of labor to an article, either by hand or by mechanism, does not make the article necessarily a manufactured article, within the meaning of that term as used in the tariff laws. Washing and scouring wool does not make the resulting wool a manufacture of wool. Cleaning and ginning cotton does not make the resulting cotton a manufacture of cotton." (Italics added)

Before a "manufacture" may be said to exist, the change made in an article must result in a new and different one. As said in Anheuser-Busch Ass'n v. United States, 1908, 207 U.S. 556, 562, 28 S.Ct. 204, 206, 52 L.Ed. 336: "The words of the statute are indeed so familiar in use and of meaning that they are confused by attempts at definition. Their first sense as used is fabrication or composition, — a new article is produced of which the imported material constitutes an ingredient or part. When we go further than this in explanation we are involved in refinements and in impracticable niceties. Manufacture implies a change, but every change is not manufacture, and yet every change in an article is the result of treatment, labor, and manipulation. But something more is necessary, as set forth and illustrated in Hartranft v. Wiegmann, 121 U.S. 609, 7 S.Ct. 1240, 30 L.Ed. 1012. There must be transformation; a new and different article must emerge, `having a distinctive name, character or use.'" (Italics added)

These cases have been followed consistently. The quotations just given were adopted by the Court, in 1931, in interpreting the word "manufacture" in the patent statute, in American Fruit Growers, Inc., v. Brogdex, 1931, 283 U.S. 1, 11, 12, 51 S. Ct. 328, 75 L.Ed. 801. And see, In re McKee, Cust. & Pat. App., 1935, 75 F.2d 636, 638.

Applying this principle, the following processes have been held, among others, not to constitute "manufacturing": Automobile repairing (Cate v. Connell, 1 Cir. 1909, 173 F. 445); house construction (In re Kingston Realty Co., 2 Cir. 1908, 160 F. 445); replacement of automobile bodies (Thurman v. Swisshelm, 7 Cir. 1929, 36 F.2d 350).

Instances of repairs or restorations of parts of automobiles, some of the type here involved, others of a different type, which have been declared not to amount to "manufacturing" are: Retreading tires, (Skinner Tire & Rubber Co. v. United States, D.C., 193...