Gellman v. United States

• Decision Date: 25 June 1956
• Docket Number: No. 15442.,15442.
• Citation: 235 F.2d 87
• Parties: Nathan GELLMAN, Burt Horwitz and Peter Podany, Co-Partners, d/b/a Gellman Brothers, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

235 F.2d 87 (1956)

Nathan GELLMAN, Burt Horwitz and Peter Podany, Co-Partners, d/b/a Gellman Brothers, Appellants, v. UNITED STATES of America, Appellee.

No. 15442.

United States Court of Appeals Eighth Circuit.

June 25, 1956.

Maurice Weinstein, Milwaukee, Wis. (Charles Halpern, Minneapolis, Minn., on the brief), for appellants.

Kenneth E. Levin, Atty., Dept. of Justice, Washington, D. C. (Charles K. Rice, Acting Asst. Atty. Gen., Lee A. Jackson and Hilbert P. Zarky, Attys., Dept. of Justice, Washington, D. C., and George E. MacKinnon, U. S. Atty., St. Paul, Minn., on the brief), for appellee.

Before GARDNER, Chief Judge, and VOGEL and VAN OOSTERHOUT, Circuit Judges.

VAN OOSTERHOUT, Circuit Judge.

This appeal involves the question of what constitutes a sale at retail within the meaning of sections 1651 and 2400 of the Internal Revenue Code of 1939, as amended, 26 U.S.C.A. §§ 1651, 2400. Appellants, plaintiffs below and hereinafter called taxpayers, brought this suit for recovery of excise taxes alleged to have been erroneously assessed for the years 1947, 1948, 1949, and 1950, and January and February of 1951. Taxpayers paid the taxes assessed and filed timely claims for refund. The District Court, after trial without a jury, allowed the taxpayers judgment for the amount of error conceded by the Government and the amount of tax on sales made to pocket merchants, with interest upon such items, and in all other respects denied taxpayers relief. The trial court's opinion is reported at D.C., 129 F.Supp. 291. Taxpayers have appealed from the judgment to the extent that it denied them the relief they asked. This court has jurisdiction.

It is alleged in the petition and conceded in the answer that taxpayers' principal business is selling at wholesale novelties, premium goods, and other merchandise, which goods are bought by taxpayers' customers primarily for sale and disposition. Taxpayers issued 25,000 wholesale catalogs annually, and their sales ran from $400,000 to $800,000 per year to some 8,000 customers, most sales arising out of orders from the catalog, although some sales resulted from direct solicitation and purchase at taxpayers place of business. The sales were at wholesale prices and generally in substantial quantities. All invoices were stamped, "All merchandise billed is sold for resale only." The taxpayers' sales records for 1950 and the first two months of 1951 were examined in detail by internal revenue agents who concluded that sales in the categories hereinafter described were retail sales and were subject to excise tax.

The facts, mostly stipulated, relative to the sales here in controversy, the taxes assessed thereon, and the disposition of the goods by purchasers, are summarized by the trial court as follows, 129 F. Supp. at page 293:

                        "Category of Customer                  Sales        Tax
                  (1) — Lodges, Churches & Clubs
                        100% disposed of by these
                        customers as prizes                  $ 3,449.11   $ 477.29
                  (2) — Bars, Taverns & Cafes 50%
                        disposed of as prizes                  1,736.08     259.19
                        50% disposition not agreed
                        but plaintiffs contend was
                        resold                                 1,736.17     259.19
                  (3) — Industrial Concerns
                        100% disposed of in following
                        manner without specific
                        allocation
                        (a) given as premiums in
                            connection with sale of
                            other merchandise
                        (b) given as incentive
                            awards to employees
                        (c) given as awards to employees
                            or preferred customers               457.60      50.55
                  (4) — Operators, Concessionaires
                        and Pocket Merchants (Peddlers)
                        30% sold to operators and
                        disposed of as prizes on
                        games                                  6,101.82     970.12
                        50% sold to concessionaires
                        and disposed of as prizes             10,169.69   1,616.88
                        10% sold to operators — disposition
                        not agreed but
                        plaintiffs contend was
                        resold                                 2,033.94     323.37
                        10% sold to pocket merchants
                        — disposition not
                        agreed but plaintiffs
                        contend was resold by
                        them                                   2,033.94     323.37
                  (5) — Individuals
                        100% disposed of by personal
                         or family use                         5,196.17     670.95
                                                             __________  _________
                  Total for period January 1, 1950
                   through February 1951                     $32,914.42  $4,950.91
                

"The parties have further stipulated that sales for the years 1947 through 1949, upon which the tax was estimated in the amount of $3,423.27, were made to customers in the various categories in the same proportions as shown in the summary and disposed of by them in the manner there indicated."

Taxpayers stipulated that Category (5), individuals' sales, were retail sales subject to excise tax. In explanation of this stipulation Mr. Gellman testified:

"I do not know as a matter of fact whether all the sales to individuals referred to in paragraph 15 of the stipulation were purchased by such individuals for their personal use. We agreed to the stipulation to simplify matters. I thought we would waive that portion of it and pay a tax on that."

The stipulation justified the imposition of the tax upon the Category (5) sales. It is noted, however, that such sales constituted only approximately one per cent of taxpayers' volume.

The trial court found that sales to pocket merchants were sales for resale, but found that the taxpayers had not satisfactorily established that any of the other questioned sales were sales for resale. Such findings are warranted by the record.

The decisive issue in this case is whether the sales described in Categories (1) to (4), inclusive, were sales at retail within the meaning of the applicable excise tax statutes. Leather goods and jewelry were the subject matter of the sales here under scrutiny. The excise tax upon leather goods is imposed by section 1651 of the Internal Revenue Code of 1939 which provides, "There is hereby imposed upon the following articles * * * sold at retail a tax equivalent to 20 per centum of the price for which so sold * * *." Section 2400 imposing a tax on jewelry provides, "There is hereby imposed upon the following articles sold at retail a tax equivalent to 10 per centum of the price for which so sold * * *." The trial court interpreted the phrase "sold at retail" as being the equivalent of "sale for a purpose other than resale." If the court was justified in so doing, the sales here questioned were retail sales and subject to the excise tax.

The pertinent statutes, heretofore quoted, do not define the word "retail." Counsel for both sides advise that there are no decided cases arising under the excise tax statutes interpreting this word. Courts frequently resort to established rules of construction to aid them in construing words and phrases appearing in statutes. Among such rules are the following:

"* * * we have not been unmindful of the rule, frequently stated by this court, that taxing acts `are not to be extended by implication beyond the clear import of the language used,\' and that doubts are to be resolved against the government and in favor of the taxpayer. The rule is a salutary one, but it does not apply here. The intention of the lawmaker controls in the construction of taxing acts as it does in the construction of other statutes, and that intention is to be ascertained, not by taking the word or clause in question from its setting and viewing it apart, but by considering it in connection with the context, the general purposes of the statute in which it is found, the occasion and circumstances of its use, and other appropriate tests for the ascertainment of the legislative will. * * *" Helvering v. Stockholms Enskilda Bank, 293 U.S. 84, 93-94, 55 S.Ct. 50, 54, 79 L.Ed. 211.

"`The legislature must be presumed to use words in their known and ordinary signification.\' * * * `The popular or received import of words furnishes the general rule for the interpretation of public laws.\' * * *" Old Colony R. Co. v. Commissioner, 284 U.S. 552, 560, 52 S. Ct. 211, 213, 76 L.Ed. 484, approved in substance Crane v. Commissioner, 331 U.S. 1, 6, 67 S.Ct. 1047, 91 L.Ed. 1301.

"* * * `The rule of strict construction is not violated by permitting the words of the statute to have their full meaning, or the more extended of two meanings, as the wider popular instead of the more narrow technical one; but the words should be taken in such a sense, bent neither one way nor the other, as will best manifest the legislative intent.\' * * *" Securities & Exchange Commission v. C. M. Joiner Leasing Corp., 320 U.S. 344, 355, 64 S.Ct. 120, 125, 88 L.Ed. 88.

"* * * But in statutes levying taxes the literal meaning of the words employed is most important, for such statutes are not to be extended by implication beyond the clear import of the language used. If the words are doubtful, the doubt must be resolved against the government and in favor of the taxpayer. * * *" United States v. Merriam, 263 U.S. 179, 187-188, 44 S. Ct. 69, 71, 68 L.Ed. 240. To the same effect, see Leich & Co. v. United States, 7 Cir., 210 F.2d 901, 907; Shattuck v. Gallagher, 6 Cir., 218 F. 2d 428, 429.

Our first problem is to determine whether the trial court's definition of "retail" is a permissible and recognized definition. In Roland Electrical Co. v. Walling, 326 U.S. 657, 66 S.Ct. 413, 90 L.Ed. 383, the Supreme Court had occasion to determine whether an electrical engineering company was exempt from the operation of the Fair Labor Standards Act, 29 U.S.C.A. § 213(a) (2), as a retail or service establishment, and concluded that it was not. The Court made an exhaustive study of the word "retail," and, among other things, in the course of its opinion states, 326 U.S. at pages 673-674, ...