FW Fitch Co. v. United States

• Decision Date: 19 June 1943
• Docket Number: No. 191.,191.
• Citation: 52 F. Supp. 292
• Parties: F. W. FITCH CO. v. UNITED STATES.
• Court: U.S. District Court — Southern District of Iowa

52 F. Supp. 292

F. W. FITCH CO. v. UNITED STATES.

No. 191.

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

June 19, 1943.

Richard E. Williams and Haemer Wheat-craft, both of Des Moines, Iowa, for F. W. Fitch Co.

George H. Zeutzius, Atty., Department of Justice, of Washington, D. C., Maurice F. Donegan, U. S. Dist. Atty., of Davenport, Iowa, and Wm. R. Sheridan, Asst. U. S. Dist. Atty., of Keokuk, Iowa, for the United States.

DEWEY, District Judge.

The above entitled action came on for hearing on its merits at Des Moines, Iowa, on the 24th and 25th days of May, 1943, evidence was introduced, arguments had and the suit fully submitted to the court for decision.

In the action the plaintiff seeks to recover from the United States of America certain manufacturers' excise taxes alleged to have been illegally and wrongfully paid to the Collector of Internal Revenue commencing with October, 1936, and ending with June, 1939.

Commencing with October, 1936, and ending with June, 1939, plaintiff filed manufacturers' excise tax returns with respect to the toiletries and cosmetics manufactured and sold by it, reporting thereon tax liabilities in the aggregate amount of $319,170.48, which was assessed and paid on the dates of the filing of said monthly returns. Some of the articles so manufactured and sold by the plaintiff were taxable under the applicable statutes at the rate of 10 per cent. while others were taxable at the rate of 5 per cent.

On October 8, 1940, plaintiff filed a claim for a refund of $67,666.39, on the excise taxes paid for the period from Oct. 1, 1936, to June 30, 1940. The claim was based on the ground that in making out its monthly returns plaintiff erroneously failed to deduct from the selling price of its toilet articles the amount it spent for selling and advertising, and therefore there had been wrongfully assessed and paid by it the above excise taxes.

In its claim so filed the taxpayer stated that the amount of the tax sought to be refunded was absorbed by plaintiff and had not been passed on to its customers.

On the trial the taxpayer introduced evidence establishing that it did pay the tax as aforesaid and that during said period it had spent a large amount in the cost of selling and advertising of its products and that a large proportion of its sales was made to barbers, beauty supply dealers, chain stores and customers purchasing a line of cosmetics known as "Beauty by Fitch," and that all such sales were made at arm's length; that the plaintiff on all of such sales did not add the manufacturer's excise tax to the selling price but absorbed and bore the burden of said tax. However, in respect to articles sold by the plaintiff to drug jobbers and wholesalers and in respect to sales of special labeled merchandise the plaintiff added the tax to the selling price and no refund of the manufacturers' excise tax paid on such sales is claimed.

Also, that a proper and fair method of computing the amount of the credit for the expense of selling and advertising on the manufacturing cost of those articles upon which the refund is claimed is the percentage that such costs bear to the cost of the entire output and sales of the taxpayer's manufactured products covered by the advertising and selling.

The Government did not offer any evidence to refute the facts established by the taxpayer as above. It claims, however, that the evidence taken as a whole fails to establish that the taxpayer absorbed the tax on those products for which it claims it is entitled to a refund; but I find that the taxpayer has fairly established that it did so absorb the tax; reported and paid the same and is entitled to a refund therefor. Campana Corporation v. Harrison, 7 Cir., 114 F.2d 400.

The Government relies principally, in addition to challenging the decision of the Campana case, upon its affirmative defenses set out in its answer: 1st, that the complaint fails to state a claim against the defendant upon which relief could be granted; 2nd, that the court lacks jurisdiction of the action because plaintiff's claim for refund for the tax period in suit is insufficient; and 3d, that the action cannot be maintained against the defendant because of plaintiff's failure to comply with the provisions of Sec. 621 (d) of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Code § 3443(d), and Section 316.94 of Regulations No. 46 promulgated thereunder.

The defense that the complaint fails to set forth a claim against the defendant is the same, as I understand it, as the other defenses which have to do, with the jurisdiction of the court. It is the contention of the Government that the claim filed by the taxpayer before the Commissioner only states in general terms that "the amount of tax which the F. W. Fitch Company now seeks to have refunded has been absorbed by the F. W. Fitch Company and has not been passed on to its customers." That this allegation is not sufficient to give the Commissioner authority to refund a claim, but that additional evidence must be presented to the Commissioner to establish such conclusion on the part of the taxpayer, as required by certain statutes and regulations. This statute is:

Section 621 (d) of the 1932 Revenue Act: "No overpayment of tax under this title shall be credited or refunded * * * 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, * * *".

And Article 71 of Treasury Regulations No. 46 (now 316.94, 1940 edition Regulations No. 46), reading as follows:

"Credits and Refunds. * * *

"If any person overpays the tax due with one monthly return, he may either file a claim for refund on Form 843 or take credit for the overpayment against the tax due with any subsequent monthly return. In all cases * * * where a person overpays tax, no claim or refund shall be allowed, 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 the tax from the vendee, * * *"

The taxpayer, as stated above, in his claim filed for the refund only stated generally that he had absorbed the tax and did not establish such general allegation by any evidence; and had the Commissioner passed upon plaintiff's claim on its merits and denied the same it may be that this defense of the Government would be well taken. Lee Wilson & Co. v. Commissioner, 8 Cir., 111 F.2d 313, 317, and Id., 8 Cir., 123 F.2d 232; Landrum v. Commissioner, 8 Cir., 122 F.2d 857; Weiss v. United States, 7 Cir., 135 F.2d 889, opinion dated May 17, 1943, affirming decision by Judge Holly in D.C., 46 F.Supp. 383.

However, there is considerable history in connection with the filing of the claim by the taxpayer and its disposition by the commissioner. The claim as originally filed asked for a refund from October 1, 1936, to June 30, 1940. The claim was filed October 8, 1940, and acknowledged by the Commissioner on December 30, 1940, in a letter which stated, among other things, as follows: "You are advised that the provisions of section 3 of the Revenue Act of 1939 * * * are not retroactive in their effect. Selling and advertising expenses incurred prior to July 1, 1939 do not therefore represent allowable deductions from taxable sales and no consideration may be given to your claim with respect to any tax paid for a period prior to that date."

And:

"Your statement is noted that you did not pass the tax on to your customers but absorbed it. The mere statement does not constitute a basis for a finding by the Commissioner that you have established your compliance with section 621 (d) of the Revenue Act of 1932. * * *

"You are therefore requested to forward to this office any evidence which in your opinion will substantiate your contention on this point."

After some correspondence in which the Commissioner asked for further evidence, the taxpayer filed with the Commissioner on April 29, 1941, a paper designated as a "Brief," with supporting schedules and data in connection with the refund claim. This statement of the taxpayer sets forth detailed information as to each month of sales to the several customers, as above stated, showing the percentage of such sales to the total net sales, the net...