Gillan v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 104149
| Decision Date | 19 November 1941 |
| Docket Number | 104151.,104150,Docket No. 104149 |
| Parties | G. HAROLD GILLAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. LEE E. GILLAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. SAMUEL W. GILLAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Harold J. Requartte, Esq., for the petitioners.
William V. Crosswhite, Esq., for the respondent.
These proceedings, consolidated for hearing and decision, involve deficiencies in unjust enrichment taxes for 1937 as follows: G. Harold Gillan, $506.98; Lee E. Gillan, $506.99; Samuel W. Gillan, $506.98. The issue is whether petitioners were unjustly enriched by reimbursements from vendors of amounts representing processing taxes.
The proceedings were submitted on a written stipulation of facts. We find the facts to be as stipulated, and hereinafter set forth the pertinent portions thereof.
The petitioners are individuals, with legal residences in York, Nebraska.
In the calendar year 1937 the Gillan Baking Co., a partnership of the three petitioners, received, as reimbursement for Federal excise tax burdens included in prices paid by it for wheat flour purchased and used to make bread and pastry in 1935, the following amounts: From the Omar Baking Co., $1,348.26; from the Crete Mills, $500.44; from the Pillsbury Mills, $52.50, total, $1,901.20.
The number of barrels of flour represented by these reimbursements was 1,931.5, weighing 196 pounds each.
The selling price of the articles produced from 1,931.5 barrels of flour was $49,852.02.
The cost of 1,931.5 barrels of flour, plus other ingredients entering into the articles, was $24,669.70. Said sum does not include the cost of bread and pastry wrappers, nor has it been reduced by the amount of reimbursements received.
During and after 1928 the Gillan Baking Co. was in the business of wholesale and retail baking. The five-year period 1928 to 1932, inclusive, is a sufficient base period for the purposes of these proceedings. During said period 17,760 barrels of flour, weighing 196 pounds each, were processed into bread and pastry. The selling price of the articles was $443,699.86. The cost of the flour and other ingredients entering into the articles was $201,260.89. This cost did not include bread and pastry wrappers.
During 1935 and the base period 1928-1932, inclusive, the Gillan Baking Co. incurred expenses as follows:
------------------------------------------------------------------------
| Entire year | Base period
| 1935 | 1928-1932
--------------------------------------------|-------------|-------------
Wrappers __________________________________ | $4,969.03 | $18,564.58
Payroll (except partners): | |
Sales drivers __________________________ | 4,027.10 | 27,682.84
Sales room labor _______________________ | 1,243.18 | 4,110.02
Office salaries ________________________ | 734.97 | 3,563.89
Bake shop labor ________________________ | 8,089.18 | 45,831.34
Rent ______________________________________ | 2,100.00 | 10,920.00
Interest __________________________________ | 88.06 | 753.95
Taxes _____________________________________ | 130.00 | 822.49
Truck expense _____________________________ | 4,665.72 | 26,006.44
Depreciation ______________________________ | 1,966.52 | 6,417.18
Repairs ___________________________________ | 126.85 | 2,273.72
Fuel ______________________________________ | 876.77 | 9,215.44
Power _____________________________________ | 1,219.91 | 5,201.43
Insurance _________________________________ | 773.06 | 3,015.58
Bake shop supplies ________________________ | 1,406.64 | 9,193.44
Other expense, advertising, etc ___________ | 2,658.53 | 15,668.21
| ___________ | ____________
Total _______________________________ | 35,075.52 | 189,240.55
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During 1935 Gillan Baking Co. used 2,888 barrels of flour weighing 196 pounds each.
During the entire year 1935 there existed in the trade territory of the petitioners a "price war" which adversely affected the sale prices of petitioners' products. This "price war" was started by competitors of the petitioners.
Respondent determined that the distributive share of the processing tax reimbursements was taxable to each petitioner under 501 (a) of the Revenue Act of 1936.
Title III of the Revenue Act of 1936 imposes a tax of 80 percent on the unjust enrichment accruing to any person as a result of shifting to others the burden of Federal excise taxes. Three classifications of persons subject to the unjust enrichment tax are set up by said act, which may be briefly described as follows: (1) Persons who shifted the excise tax burden to their vendees but failed or refused to pay the excise tax; (2) persons who shifted the burden to their vendees but received reimbursement for the excise tax burden from their vendors; and (3) persons who shifted the burden to their vendees but received refunds or credits from the Government. Sec. 501 (a). Petitioners received reimbursement from their vendors and will be subject to the tax, if otherwise liable, under the provisions of section 501 (a) (2) of the Revenue Act of 1936.1
The first question which arises under section 501 (a) (2) is the amount of net income that petitioners realized from the reimbursement. A statutory method for computing this net income is provided by section 501 (d). Said section provides that the "net income from reimbursement * * * shall be computed as follows: From the total payment * * * of reimbursement to the taxpayer from vendors for amounts representing Federal excise tax burdens included in prices paid by the taxpayer to such vendors * * *, there shall be deducted the expenses and fees reasonably incurred in obtaining such reimbursement * * *." Under the stipulated facts the net income of these petitioners would be the entire amount of the reimbursements as no showing has been made that any expenses or fees were incurred in securing the reimbursement.
The second question under section 501 (a) (2) is the extent to which petitioners have shifted the burden of the excise tax to their vendees. For the purposes of determining the extent to which the taxpayer has shifted the burden to others, the statute provides that the amount of the shift shall be presumed to be an amount computed as follows (section 501 (e) (1)):
(1) From the selling price of the articles there shall be deducted the sum of (A) the cost of such articles plus (B) the average margin with respect to the quantity involved; * * *
Section 501 (e) (2) provides an alternative method of computation "If the taxpayer so elects by filing his return on such basis * * *." However, we do not know whether the petitioners filed returns, or whether they elected to take advantage of the alternative computation, and therefore we must compute the extent of the shift, if any, under the provisions of section 501 (e) (1).
The presumption created by section 501 (e) is rebuttable by the express terms of section 501 (i), which permits either party to rebut the presumption "by proof of the actual extent to which the taxpayer shifted to others the burden of the Federal excise tax." Subdivision...
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