Campbell v. Brown

• Decision Date: 14 June 1957
• Docket Number: No. 16462.,16462.
• Citation: 245 F.2d 662
• Parties: Ellis CAMPBELL, Jr., District Director of Internal Revenue at Dallas, Texas, Appellant, v. Lee R. BROWN, d/b/a Brown's Top and Seat Cover Co., Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

245 F.2d 662 (1957)

Ellis CAMPBELL, Jr., District Director of Internal Revenue at Dallas, Texas, Appellant, v. Lee R. BROWN, d/b/a Brown's Top and Seat Cover Co., Appellee.

No. 16462.

United States Court of Appeals Fifth Circuit.

June 14, 1957.

Walter R. Gelles, Lee A. Jackson, Attys., Charles K. Rice, Asst. Atty. Gen., Dept. of Justice, Washington, D. C., John C. Ford, Asst. U. S. Atty., Dallas, Tex., I. Henry Kutz, Atty., Dept. of Justice, Washington, D. C., Heard L. Floore, U. S. Atty., Fort Worth, Tex., for appellant.

Frank B. Appleman, Fort Worth, Tex., Weeks, Bird, Cannon & Appleman, Fort Worth, Tex., of counsel, for appellee.

Before HUTCHESON, Chief Judge, and JONES and BROWN, Circuit Judges.

JONES, Circuit Judge.

The appellee, Lee R. Brown, brought an action against Ellis Campbell, Jr., as District Director of Internal Revenue at Dallas, Texas, for the recovery of Federal excise taxes paid under 26 U.S.C.A., I. R.C.1939, § 3403. This statute imposed a percentage tax upon the sale price of automobiles, trucks, busses, highway tractors and trailers, and upon the sale price of automobile "parts or accessories", with certain exceptions not here applicable. It was stipulated that during the years 1952 through 1954, Brown owned and operated a business known as Brown's Top & Seat Cover Company. He did not have ready-made seat covers in stock. He kept on hand material of various types, qualities and colors which he purchased in bolts or rolls. The operation was thus described in the stipulation:

"The customer would choose his desired materials from the stock, and taxpayer would remove the automobile seats and backrests and place them on tables where he would measure the material to the seats and backrests of the customer\'s car, marking the material, then removing the material and cutting it to fit. In instances in which the seats or backrests could not be removed he would place the material on the seats or backrests of the customer\'s car, marking the same, and remove it to be cut. The several pieces would then be sewed together and a decorative piping sewed at the seams. The materials so sewed together would then be fastened to the seats and backrests of the automobile. The price to the customer was fixed by the price of the material, plus labor and overhead costs and a profit. The above described business is commonly referred to and known as the custom-made seat cover business."

It was also stipulated that if the operations of Brown were not subject to the manufacturer's excise tax he should recover $677.67, interest and costs; if he is subject to the tax and he has correctly computed it, then he is entitled to recover $215.57, with interest and costs; but if Brown is subject to the tax and the Commissioner's computation is correct, he is not entitled to recover. The district court gave judgment for Brown and stated as its reason:

"I feel that the tax as levied by the wording of the statute does not cover what we might call tailors engaged in the manufacture of seat covers. He doesn\'t have any stock, he is not classed as a manufacturer, he is a tailor and makes a garment to suit you. This man makes a seat cover for you. To cover him I think the statute would have to be explicit and it is not the purpose of the Court to extend the statute.

"I don\'t believe the statute covers it, so, the plaintiff would be entitled to recover."

As the district court held that Brown was not subject to the tax, it had no occasion to consider the method of computing the tax.

The pertinent Treasury Regulations are the following:

"The term `manufacturer\' includes a person who produces a taxable article from scrap, salvage, or junk material, as well as from new or raw material, (1) by processing, manipulating, or changing the form of an article, or (2) by combining or assembling two or more articles." Treas.Reg. 46 § 316.4(a).

"Under certain circumstances, as where a person manufactures or produces a taxable article for a person who furnishes materials and retains title thereto, the person for whom the taxable article is manufactured or produced, and not the person who actually manufactures or produces it, will be considered the manufacturer." Treas.Reg. 46 § 316.4(b).

"The term `parts or accessories\' for an automobile truck or other automobile chassis or body, taxable tractor, or motorcycle, includes (a) any article the primary use of which is to improve, repair, replace, or serve as a component part of such vehicle or article, (b) any article designed to be attached to or used in connection with such vehicle or article to add to its utility or ornamentation, and (c) any article the primary use of which is in connection with such vehicle or article whether or not essential to its operation or use." Treas.Reg. 46 § 316.55(a).

"The term `parts and accessories\' shall be understood to embrace all such articles as have reached such a stage of manufacture that they are commonly or commercially known as parts and accessories whether or not fitting operations are required in connection with installation. The term shall not be understood to embrace raw materials used in the manufacture of such articles." Treas. Reg. 46 § 316.55(b).

The type of transactions with which we are here concerned was the subject of a ruling effective August 18, 1952. We quote so much of this ruling as need have our attention:

"Section 3403(c) of the Code, as amended, imposes, effective November 1, 1951, a tax of 8 percent on the sale by the manufacturer of parts or accessories for vehicles taxable under subsections (a) and (b) of section 3403 of the Code, as amended, except that on and after April 1, 1954, the rate of tax shall be 5 percent. Seat covers for automobiles are considered to be parts or accessories within the meaning of section 3403(c) of the Code, as amended, and sales thereof by the manufacturer are subject to tax.

"The Bureau has issued rulings heretofore that the only circumstances under which the tax does not apply to sales of seat covers by a manufacturer, is where the seat covers are individually designed, cut, tailored, and fitted by the manufacturer to the automobile belonging to the person who contracts for the performance of such operation, and such person is the consumer of the seat covers. Such rulings provided, however, that the sale of seat covers, similarly produced, to a dealer in new or used automobiles is not a sale for consumption but one for resale, and that the tax attaches to the manufacturer\'s sale thereof.

"Upon reconsideration of the matter, the Bureau is now of the opinion that where a manufacturer furnishes the material and produces automobile seat covers for the consumer thereof, according to individual design and measurement, the sale by the manufacturer of such seat covers is taxable under section 3403(c) of the Code, as amended, regardless of whether they are intalled by the manufacturer or by other persons." S.T. 944, 1952-2 Cum.Bull. 255.

The appellee invokes the frequently declared rule of statutory construction that long continued interpretation by those charged with the administration of a law should not be overturned except for very cogent reasons and sustains his position by citing United States v. Leslie Salt Co., 350 U.S. 383, 76 S.Ct. 416, 100 L.Ed. 441. H...