Fromm Bros. v. United States

• Decision Date: 18 October 1940
• Docket Number: No. 40.,40.
• Citation: 35 F. Supp. 145
• Parties: FROMM BROS., Inc., v. UNITED STATES.
• Court: U.S. District Court — Western District of Wisconsin

35 F. Supp. 145

FROMM BROS., Inc., v. UNITED STATES.

No. 40.

District Court, W. D. Wisconsin.

October 18, 1940.

Bird, Smith, Okoneski & Puchner, of Wausau, Wis., and Brewster & Steiwer, of Washington, D. C., for plaintiff.

Samuel O. Clark, Jr., Asst. Atty. Gen., Andrew D. Sharpe and Thomas G. Carney, Sp. Assts. to Atty. Gen., and John J. Boyle, U. S. Atty., and Alvin M. Loverud, Asst. U. S. Atty., both of Madison, Wis., for defendant.

STONE, District Judge.

Plaintiff in this action seeks to recover from the United States a refund of social security taxes it paid for the years of 1936 and 1937. It contends that during those years it was engaged in agricultural labor and was exempt from the tax.

Prior to its amendment on August 10, 1939, the Social Security Act did not specifically, word for word, include as agricultural labor services performed in connection with raising fur bearing animals. The statute, as now amended, includes as "agricultural labor" services performed in connection with raising, feeding and caring for live stock and fur bearing animals and wild life. 42 U.S.C.A. § 409.

The issues herein must be determined under the provisions of the statute before its amendment.

The question before the Court is whether or not the services rendered to the plaintiff by its employees in connection with the raising and selling of foxes and fox pelts, constitutes agricultural labor within the meaning of the Social Security Act. The total amount of the taxes, penalty and interest paid by the plaintiff for the years 1936 and 1937 is $2,514.92. Plaintiff failed to file a return for those years. The Collector of Internal Revenue prepared delinquent returns for the company and assessed taxes based thereon, and thereafter, on September 28, 1938, plaintiff filed returns under Title VIII, 42 U.S.C.A. § 1001 et seq., for 1936, and under Title IX, 42 U.S. C.A. § 1101 et seq., for 1936-1937, disclosing taxes due to the Government in the amounts of $827.17, $48.47, and $1,057.85, respectively. The assessment made on the basis of the returns prepared by the Collector's office exceeded these amounts. The excess was abated, and payment of the tax, penalty and interest was made by the plaintiff. Plaintiff then filed claims for refund for the amount it paid, and based its claims on the ground that the taxes were imposed with respect to wages paid for services rendered in the breeding, raising, pelting and sale of foxes and pelts, and that such labor constituted agricultural labor within the meaning of the Act and was therefore exempt. The Commissioner of Internal Revenue rejected plaintiff's claim for refund, holding that such services were not agricultural.

In 1936 and 1937 plaintiff owned, and now owns, 10,000 acres of land in Marathon County, Wisconsin, about 400 acres of which are under cultivation. Of the 400 acres, 80 acres are devoted to ginseng, and the remainder thereof to growing grain, corn, hay and some vegetables. About 480 acres are used for fox pens, and about 1,380 acres are used for fox ranges. The remainder of the 10,000 acres is cut-over woodland.

Plaintiff breeds, ranges and feeds silver foxes of its own, and also ranges, feeds and pelts foxes for "Fromm Brothers, Niemann and Company", "Federal Silver Fox Farms", and "Fromm Silver Cross Fox Farms". The amount of stock owned by the plaintiff and by its officers and stockholders in these three corporations exceeds 50% of the issued and outstanding capital stock of the corporations.

Plaintiff raised and pelted about 5,000 foxes of its own during 1936 and about 7,000 during 1937. In 1936 it ranged and pelted about 8,000 foxes for the controlled corporations, and about 8,000 in 1937. The controlled corporations were charged for these services. Plaintiff also ranged, fed and pelted foxes belonging to other corporations in which it was not financially interested.

Plaintiff conducts auction sales of furs and pelts on its property. At these sales it offers its own furs and the furs of foxes ranged and pelted by it for other corporations, and furs shipped in by independent breeders of fur bearing animals. It conducts these sales in the same manner and offers the same services with respect thereto as ordinary commercial fur auction houses. It charges a commission of from three to four per cent on the sale of furs or pelts sold. It charges shippers for the drumming — that is, the cleaning of the pelts. It loans money to shippers on unsold pelts and furs on the security of such pelts and charges interest on the loans. In the year of 1936 it sold at these auctions 5,000 of its own pelts and 8,000 pelts for controlled corporations. In 1937 it sold 7,000 of its own pelts, 8,000 pelts for controlled corporations, and about 9,000 for independent shippers.

The plaintiff employs men and women in carrying on the foregoing activities, the number varying from season to season and from year to year. The employees are employed and paid by the day. Rates of pay vary with the types of the services, but generally are comparable to farm wages in the locality where plaintiff's property is situated. Each of the officers of the plaintiff receives a salary of $10,000 per year.

In addition to about sixty or seventy women employees, the plaintiff, in 1936, employed 193 men; in 1937, 272 men. The women are employed principally in the ginseng gardens, but from three to five are continuously employed as cooks. From five to twelve night watchmen are employed throughout the year, and the company has advertised that it employs as many as thirty-five.

Plaintiff employs two veterinarians, one of whom also acts as a contact man and solicits independent fur growers to send their pelts to plaintiff's auctions for sale. It employs a man who is engaged solely in research work in bacteriology and immunology. It also employs a salesman with an office in New York City.

The average sale price for a pelt in the years 1936 and 1937 was not disclosed by the testimony, but it does appear that the average sale price of pelts sold for others in 1939 was $36.74; that 25,000 pelts were sold at 3% commission, which yielded $27,555 that year as commissions for the sale of other pelts.

Foxes in their natural state are wild animals. Plaintiff's foxes...