District of Columbia v. Seven-Up Washington

• Decision Date: 14 January 1954
• Docket Number: No. 11704-11708.,11704-11708.
• Citation: 93 US App. DC 272,214 F.2d 197
• Parties: DISTRICT OF COLUMBIA v. SEVEN-UP WASHINGTON, Inc. DISTRICT OF COLUMBIA v. DR. PEPPER BOTTLING CO., OF WASHINGTON, D. C., Inc. DISTRICT OF COLUMBIA v. PEPSI-COLA BOTTLING CO. OF WASHINGTON. DISTRICT OF COLUMBIA v. PFAN. DISTRICT OF COLUMBIA v. ROCK CREEK GINGER ALE CO., Inc.
• Court: U.S. Court of Appeals — District of Columbia Circuit

93 US App. DC 272, 214 F.2d 197 (1954)

DISTRICT OF COLUMBIA v. SEVEN-UP WASHINGTON, Inc.

DISTRICT OF COLUMBIA v. DR. PEPPER BOTTLING CO., OF WASHINGTON, D. C., Inc.

DISTRICT OF COLUMBIA v. PEPSI-COLA BOTTLING CO. OF WASHINGTON.

DISTRICT OF COLUMBIA v. PFAN.

DISTRICT OF COLUMBIA v. ROCK CREEK GINGER ALE CO., Inc.

Nos. 11704-11708.

United States Court of Appeals District of Columbia Circuit.

Argued October 20, 1953.

Decided January 14, 1954.

Writ of Certiorari Denied June 1, 1954.

Mr. George C. Updegraff, Asst. Corp. Counsel for the Dist. of Columbia, with whom Messrs. Vernon E. West, Corp. Counsel, Chester H. Gray, Principal Asst. Corp. Counsel, and Harry L. Walker, Asst. Corp. Counsel, were on the brief, for petitioner.

Mr. Stephen G. Ingham, Washington, D. C., with whom Mr. William E. Furey, Washington, D. C., was on the brief, for respondents.

Before PRETTYMAN, BAZELON and FAHY, Circuit Judges.

Writ of Certiorari Denied June 1, 1954. See 74 S.Ct. 851.

FAHY, Circuit Judge.

The District of Columbia appeals from decisions of the District of Columbia Tax Court holding erroneous certain use tax assessments, measured by the amounts paid by respondents for bottles, cardboard cartons, and wooden cases bought new and used in their soft drink businesses.

The use, storage, or consumption of tangible personal property purchased outside but used within the District is subject to the use tax unless the purpose of the purchaser is to resell the same in the form received, or to use or incorporate it as a material or part of other property to be produced for sale by manufacturing, assembling, processing, or refining. District of Columbia Use Tax Act, 63 Stat. 124 et seq., §§ 47-2701.1 (a), 47-2702, D.C.Code 1951. See Hotels Statler Co. v. District of Columbia, 91 U.S.App.D.C. 122, 199 F.2d 172, and Briggs & Co. v. District of Columbia, 90 U.S.App.D.C. 404, 196 F.2d 241. Here the question is whether the Tax Court rightly concluded that the bottles, cartons, and cases were purchased for the purpose of resale in the form received, and therefore that the assessments were erroneous.¹

The court made findings of fact² which are undisputed and may be summarized as follows: Respondents have engaged in the District of Columbia in the manufacture, bottling, and sale of soft drinks. They sell and distribute the drinks, in cartons and wooden cases, to grocers and other distributors who in turn sell them to the ultimate consumers of the drinks. Some of the cases are divided into 24 sections, each section holding one bottle; others into 4 sections, each holding a cardboard carton of six bottles; and others into 12 sections, each containing one bottle.³ All bottles, cartons and cases during the relevant periods were marked with the name of the soft drink and many, in addition, carried the respective trademarks, slogans, or trade names of respondents. None bore any specific legend of ownership.⁴

The cost of the cases to respondents ranged from 83 cents to $1.03 apiece, of the bottles from 4 to over 5 cents, and of the cardboard cartons from 3 to 3½ cents. The total cost of each 24 bottle case thus varied from $1.79 to $2.23, without the cartons, and from $1.91 to $2.37 with them.⁵ A case of bottled drinks was sold by respondents to their customers at prices varying from $1.30 to $1.56, covering the fluid contents, bottles, case, and, if any, cartons. Though no agreement existed between respondents and their customers for return or repurchase of the containers, nevertheless it was understood respondents would pay or give credit of two cents for each empty case and each empty bottle returned, making a total of 50 cents for a case with 24 empty bottles.⁶ Nothing was paid for return of the cartons. Unless the empty bottles and cases were returned in large numbers respondents could not have remained in business, since the amounts they paid for the containers new were considerably more than they received for them when filled.⁷ The economic life of each respondent thus depended upon a continuous reuse of a large number of the same bottles and cases.

In filing returns for District personal property tax respondents listed a substantial amount for bottles and cases in the schedule of supplies, raw materials, and work in process. In its District income tax return Rock Creek charged against income, as a cost of goods sold, the cost of bottles and cases bought new during the year, and also the amounts paid customers upon return of bottles or cases. Seven-Up and Dr. Pepper charged as a cost of goods sold the difference between the cost of the cases and bottles new and the amount for which they claim they were sold to customers.⁸ No respondent, however, claimed depreciation.

These undisputed findings are followed in the Tax Court's decision by its conclusions of law, which the District does dispute. The court concluded that in distributing the soft drinks respondents sold the cases, bottles and cartons to their customers, to whom title passed without obligation on their part to return the articles but with an option to do so upon receipt of the amount understood to be paid upon such return. The court also concluded that all cases, bottles and cartons purchased new and those returned by customers were purchased by respondents for resale in the same form in which received and, therefore, that the assessments were erroneous under § 47-2701.1 (a), D.C.Code 1951.⁹

Our review is guided by § 47-2404(a), D.C.Code 1951, as amended, 66 Stat. 544 (1952).¹⁰ Our acceptance of the facts as found by the Tax Court does not require acceptance also of its conclusions of law. Regard for the special function and competence of the Tax Court does not warrant avoiding our responsibility of reaching a decision of our own as to the application of the law to the facts. Even if its ultimate conclusions, stated by the Tax Court to be conclusions of law, should be considered as factual they are not accepted by this court if we consider them to be clearly erroneous. Rule 52(a), Fed.R.Civ.P., 28 U.S.C.A.¹¹

Applying these principles, and having in mind that no question is presented as to the credibility of witnesses or the like, but only as to the ultimate conclusion to be drawn from accepted findings, we think the Tax Court erred in holding that purchases of the bottles and cases by respondents were for the purpose of resale to their customers. The purpose was to use them, not to resell them. Respondents are not in the business of selling bottles or cases but of using them as a means of marketing their soft drinks. We have seen that a charge is made, or a deposit required, for the containers, and that a high percentage of them are returned, whereupon a credit for the charge or deposit is given, or its amount is refunded in cash. We have seen also that this amount is much less than the value of the containers. If full value were charged, sale of the soft drinks themselves would be impeded because of the larger outlay required of purchasers. Yet the fact that some charge is made for the containers, with refund available, induces their return, because respondents' customers, like respondents, also are not in the business of buying and selling bottles and cases, but soft drinks. When we advert further to the fact that except for this constant return of bottles and cases the respondents' businesses could not survive, because the charge or deposit required for the containers is less than their cost, the true purpose of their purchase is apparent. It is to use and reuse them. Respondents do not purchase a wooden case for 83 cents and 24 empty bottles for 4 cents each, making a total of $1.79, to resell for $1.30 after filling them with their soft drink products.

We realize the force of the argument that if the transactions between respondents and their customers constitute sales of the containers, as held in a number of cases reviewed by the Tax Court, then the purchase of them by respondents is for resale. But the exclusionary provisions of § 47-2701.1(a) surely were not intended to apply merely because as between respondents and their customers a sale of the containers occurs. Use of them by respondents also occurs; and assuming that following such use a sale is made it is not one which necessarily relieves of the use tax. It is not a sale in any ordinary sense, whereby respondents' customers buy for their own purposes. As soon as feasible they resell to their customers, and, upon receiving back from them the empty containers, these are returned to respondents for further use. Thus the "sale" or "buying" aspect of the dealing between respondents and their customers is overshadowed by respondents' use. We must keep in mind that the statute does not provide that the tax shall not apply whenever there is a resale; it is only when the purpose of the purchase is to resell. The true purpose here is not to resell but to use, even if this use is made possible in part through the form of resale and repurchase. In fairness to the Congressional purpose we must view the situation as a whole, in its substance, and not restricted solely to its form. Corliss v. Bowers, 281 U.S. 376, 378, 50 S.Ct. 336, 74 L.Ed. 916; Commissioner of Internal Revenue v. Court Holding Co., 324 U.S. 331, 334, 65 S.Ct. 707, 89 L.Ed. 981; Helvering v. Tyler, 8 Cir., 111 F.2d 422, 426, affirmed 312 U.S. 657, 61 S.Ct. 729, 85 L.Ed. 1105. We conclude that respondents' dominant purpose in acquiring the bottles and cases was not to resell them but to secure their availability for recurring use in marketing their products and accordingly that the assessments for the use of the bottles and cases were valid. We are supported in this conclusion by the decisions in Gay v. Canada Dry Bottling Co. of Florida, Fla., 59 So.2d 788, and Owens-Illinois Pacific Coast Co. v. St. Bd. of Equalization, 1 P-H, Cal. State and Local Tax Service, ¶ 23,001. See also, Hotels Statler Co. v. District of Columbia, supra.¹² A contrary view...