General Motors Corp., Frigidaire Div. v. United States

• Decision Date: 08 June 1954
• Docket Number: No. 47657.,47657.
• Citation: 121 F. Supp. 932,128 Ct. Cl. 465
• Parties: GENERAL MOTORS CORP., FRIGIDAIRE DIVISION v. UNITED STATES.
• Court: U.S. Claims Court

121 F. Supp. 932

128 Ct. Cl. 465

GENERAL MOTORS CORP., FRIGIDAIRE DIVISION v. UNITED STATES.

No. 47657.

United States Court of Claims.

June 8, 1954.

Newell W. Ellison, Washington, D. C., for plaintiff. Henry M. Hogan, New York City. Daniel M. Gribbon, Calvert Thomas, Detroit, Mich., Donald C. Alexander, and Covington & Burling, Washington, D. C., were on the briefs.

J. W. Hussey, Washington, D. C., with whom was Asst. Atty. Gen. H. Brian Holland, for defendant. Andrew D. Sharpe and Joseph H. Sheppard, Washington, D. C., were on the brief.

Before JONES, Chief Judge, and LITTLETON, WHITAKER, MADDEN and LARAMORE, Judges.

MADDEN, Judge.

The plaintiff sues to recover certain manufacturers' excise taxes paid by it for the period May 10, 1937, through December 31, 1941. It manufactured electric refrigerators which were subject to a manufacturer's excise tax imposed by Section 608 of the Revenue Act of 1932, 26 U.S.C.A.Int.Rev.Acts, page 611, until March 1939, and thereafter by Section 3405 of the Internal Revenue Code, 26 U.S.C.A. The part of the taxes in controversy were those attributable to a $5 charge which the plaintiff made in the sale of each refrigerator for a warranty which will presently be described.

In the sale of a refrigerator, the plaintiff included a certificate which comprised a warranty of all parts of the refrigerator except the sealed-in refrigerating unit for one year, and an agreement to repair or replace the refrigerating unit in the event that that unit became inoperative within five years following the date of the refrigerator's delivery to the original householder purchaser. The latter agreement was designated in the certificate as the "Five-Year Protection Plan." The Five-Year Protection Plan was priced at $5 by the plaintiff, that price was separtely stated on the plaintiff's invoices to its vendees, and all persons buying the refrigerators were obliged, with exceptions not here material, to pay for the Protection Plan.

In 1933 the plaintiff had offered a warranty for one, two, or three years, at $6 a year, at the option of the purchaser. In 1935 it offered a four-year warranty for $10, still at the option of the purchaser. In 1936 it adopted the plan which is here involved.

The plaintiff says that it sold refrigerators and "something else," and that that something else was not within the category of things subject to the manufacturer's excise tax. We think that what the plaintiff sold was a warranted refrigerator, and not a refrigerator and something else. In any sale of new merchandise, there is an implied warranty of fitness. In the sale of the refrigerators here in question, that implied warranty was replaced by an express warranty of all parts of the refrigerator for one year. This express warranty may have been more, or less, extensive than the warranty which the law would have read into the sale by implication, if there had been no express warranty. One may suppose, for example, that if the cabinet of a refrigerator corroded within two years that would show that it was unfit for the purpose for which it was sold. As to other parts, the one-year warranty may have been for a longer period than the implied warranty would have covered.

The plaintiff does not claim that some portion of the sale price should be tax free because of the express warranty for one year. It does, however, make such a claim as to the five-year warranty of the sealed-in mechanical unit. We see no difference whatever between the two warranties, nor between the two express warranties, on the one hand, and the warranty which the law would, in the absence of an express warranty, have attached to the sale, on the other hand. To be sure, the plaintiff assigned, for its accounting purposes, a five-dollar price to the five-year warranty. That is certainly immaterial. If any of these warranties were "something else," in addition to the refrigerators, within the meaning of the tax statute, the tax-free price of that something else would have to be determined in some way other than by arbitrary assignment by the seller in cases where the buyer has no choice and therefore no part in the fixing of the price of the "something else."

If a manufacturer with a lesser reputation than General Motors attempted to sell refrigerators intrinsically as good as those sold by General Motors, it would almost certainly have to sell them at a lower price in order to compete successfully. Because its price was lower, it would pay less tax. General Motors could say, truthfully, that the purchaser of a General Motors refrigerator was getting a refrigerator and "something else," viz. the feeling of security arising from the fact that the manufacturer had a fine reputation. But General Motors could not assign a price to that something else and claim that that part of the sales price of its refrigerators was tax free.

The excise tax statute here involved would be indeed difficult of administration if the several kinds and extents of warranties by implication, by custom of the trade, and by express agreement, attached to sales of products, could be priced and the prices deducted from the taxable price of the product sold. In the instant case, several years' experience with the five-dollar price assigned by the plaintiff to the five-year warranty showed that it yielded a profit of more than 100 percent above the cost of fulfilling the warranty. Whether that is the plaintiff's normal profit on what it sells, we do not know. How much the one-year warranty added to the selling price of the refrigerators and how much it cost to fulfill it, we do not know. We think that Congress did not intend that the taxing authorities should have to concern themselves with those problems.

The precedents cited by the plaintiff relate to combinations of two tangible objects, one taxable and the other not, such as costume jewelry and dresses, pencils and notebooks, and fur trimming on cloth coats. In those cases the "something else" was obvious and tangible.

The plaintiff's alternative claim is not valid. It is based upon Section 3441(a) of the Internal Revenue Code, 26 U.S. C.A., which says:

"In determining, for the purposes of this chapter, the price for which an article is sold, there shall be included any charge for coverings and containers of whatever nature, and any charge incident to placing the article in condition packed ready for shipment, but there shall be excluded the amount of tax imposed by this chapter, whether or not stated as a separate charge. A transportation, delivery, insurance, installation, or other charge (not required by the foregoing sentence to be included) shall be excluded from the price only if the amount thereof is established to the satisfaction of the Commissioner, in accordance with the regulations."

We think that the five-dollar charge here in question is not of the nature of a transportation, delivery, insurance, or installation charge, and is therefore not covered by the words "or other charge" which appear in the sentence excluding certain charges. The five-dollar charge was included in the price of the refrigerators when they were packed ready for shipment and the paper containing the contract of warranty was packed in the refrigerator.

We think, however, that the plaintiff may recover on its claim that it is entitled to a credit under Section 3443(a) (2) of the Internal Revenue Code, 26 U.S.C.A. That section says that "when the price * * * is readjusted * * * by a bona fide discount, rebate, or allowance", the taxable price shall be reduced by the amount of the readjustment. When an article is sold with a warranty, and fulfillment of the warranty costs the seller a certain sum, he has in fact received for the article only the amount by which the sale price exceeded the cost of fulfilling the warranty. He has, in effect, given the purchaser an "allowance" when he has spent money for his benefit. Here the findings show that the...