Hackendorf v. United States

Decision Date28 May 1957
Docket NumberNo. 5445.,5445.
Citation243 F.2d 760
PartiesC. Ed. HACKENDORF, d/b/a Sun Bearing Supply, Appellant, v. UNITED STATES of America, Appellee.
CourtU.S. Court of Appeals — Tenth Circuit

R. F. Roberts, Beaumont, Tex. (S. J. Clendenning, Tulsa, Okl., on the brief), for appellant.

Earl E. Pollock, Washington, D. C. (Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson, Robert N. Anderson, Walter Akerman, Jr., Attys., Department of Justice, Washington, D. C., and B. Hayden Crawford, U. S. Atty., for Northern District of Oklahoma, Tulsa, Okl., prepared the brief), for appellee.

Before BRATTON, Chief Judge, and PICKETT and LEWIS, Circuit Judges.

PICKETT, Circuit Judge.

The plaintiff was engaged in the business of reconditioning or rebuilding automobile motors for sale. He brought this action to recover a manufacturers' excise tax alleged to have been erroneously assessed and collected under the provisions of § 3403(c) of the Internal Revenue Code of 1939, as amended, 26 U.S.C.A. § 3403(c), and § 4061(b) of the Internal Revenue Code of 1954, 26 U.S.C.A. § 4061(b), during the period beginning November 1, 1952, through March 1955. This is an appeal from a judgment holding the sales were subject to the manufacturers' tax provided for in the statute.

Relying upon decisions distinguishing manufacturing or reconstruction from repair in other types of cases, plaintiff vigorously insists that he does no more than replace worn out automobile parts for the purpose of preserving the motors as a whole.1 In other words, he says that by his process he replaces only worn out essential parts to preserve a machine which is a combination of parts. In applying the statutes, we think the contention is untenable.

The facts are not in dispute. During the period in question the plaintiff acquired old automobile motors which had ceased to function efficiently or to function at all. In some instances the motors were purchased from automotive salvage companies, but most of them were acquired through trade-in allowances from his wholesale customers when purchasing rebuilt motors. In the process of rebuilding, the motors were completely dismantled and the component parts thoroughly cleaned. The different parts were then inspected and placed in compartments containing parts from the same type and make of motors. The motor blocks, crankshafts, valves and connecting rods were machined with special equipment. Plaintiff's reworking operations consisted of resurfacing of the cylinder walls by reboring the block, resurfacing of the crankshaft journals, valves, valve seats and connecting rods with emery wheels and honing stones. There were new bearings in all motors. No attempt was made to replace salvaged parts in the same block from which they were taken. The parts were used on an assembly line in the production of rebuilt motors.2 When the motors were reassembled, parts which were worn to the extent that they were unusable were replaced by new parts upon which the tax had been paid. The finished product was sold at a fixed price for each model and the taxpayer gave a new motor warranty to the purchaser. The sales averaged 85 or 90 motors per month.

Section 3403 of the Internal Revenue Code of 1939, as amended, provides that "There shall be imposed upon the following articles sold by the manufacturer, producer, or importer, a tax equivalent to the following percentages of the price for which so sold: * * * (c) Parts or accessories (other than tires and inner tubes and other than radio or television receiving sets) for any of the articles enumerated in subsection (a) or (b), * * *." Subsections (a) and (b) refer to automobiles. § 4061 of the 1954 Internal Revenue Code is to the same effect. § 316.4 of Treasury Regulation 46 (1940 Ed.), defines a manufacturer to include "a person who produces a taxable article from scrap, salvage, or junk material, as well as from new or raw material, (1) by processing, manipulating, or changing the form of an article, or (2) by combining or assembling two or more articles. Administrative rulings are to the same effect.3

The courts have generally held that rebuilding automobile parts such as armatures, generators, and connecting rods for sale constitutes manufacturing within the meaning of the statute, and sales of the rebuilt products are subject to the manufacturers' tax. Clawson & Bals v. Harrison, 7 Cir., 108 F.2d 991, certiorari denied 309 U.S. 685, 60 S.Ct. 808, 84 L. Ed. 1028; United States v. Armature Exchange, 9 Cir., 116 F.2d 969, certiorari denied 313 U.S. 573, 61 S.Ct. 960, 85 L. Ed. 1531; United States v. J. Leslie Morris Co., 9 Cir., 124 F.2d 371; United States v. Moroloy Bearing Service of Oakland, Ltd., 9 Cir., 124 F.2d 373; United States v. Armature Rewinding Co., 8 Cir., 124 F.2d 589; Clawson & Bals v. United States, 7 Cir., 182 F.2d 402, certiorari denied 340 U.S. 883, 71 S.Ct. 197, 95 L.Ed. 641;4 Monteith Bros. Co. v. United States, 7 Cir., 142 F.2d 139; Broad Motors Co. v. Smith, D.C., 86 F.Supp. 4. There is no material difference in the rebuilding of armatures, generators, and connecting rods, and in rebuilding motors. Each is made up of component parts which are reworked or replaced when necessary. The end product in either case is a finished part of an automobile ready for installation. Furthermore, it appears that Congress expressly recognized that rebuilt automobile parts are subject to the manufacturers' tax by refusing to exempt specifically such rebuilt parts. In considering the Revenue Bill of 1941, the Senate Finance Committee reported as follows:

"It was urged that this section be amended to specify that repaired, reconditioned, and rebuilt automobile parts and accessories are not subject to the `parts and accessories\' tax. Your committee examined the problem very carefully. Repaired and reconditioned parts are not now subject to tax. There are several decisions of the United States circuit courts of appeals holding rebuilt parts and accessories to be subject to the manufacturers\' tax. Rebuilt parts compete with new parts, and it appears appropriate that they should be subject to the same tax. Accordingly, no change has been made." S.Rep. No. 673, Part 1, 77th Cong., 1st Sess., p. 48.

Automobile motors, whether new or rebuilt, are single functional units and are usually sold as such for installation in motor vehicles. They are a necessary "part" of an automobile and taxable if manufactured and sold. It is unimportant that they may be made up of component parts which are subject to the tax if sold separately. The statute provides that if taxable component parts are used in manufacturing or producing a taxable part, a credit shall be allowed.

Judgment affirmed.

2 As to plaintiff's process, the trial court made these findings:

"6. Sun completely disassembles the old engines that it acquires, cleans and degreases the various components, and...

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    ...useless automotive parts is manufacture. Hartley v. United States, 252 F.2d 262 (5th Cir.1958) (rebuilt engines); Hackendorf v. United States, 243 F.2d 760 (10th Cir.), cert. denied, 355 U.S. 826, 78 S.Ct. 36, 2 L.Ed.2d 40 (1957) (same); United States v. Armature Rewinding Co., 124 F.2d 589......
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