Hine v. United States, 50145.

• Decision Date: 13 July 1953
• Docket Number: No. 50145.,50145.
• Parties: HINE v. UNITED STATES.
• Court: U.S. Claims Court

113 F. Supp. 340

125 Ct. Cl. 836

HINE v. UNITED STATES.

No. 50145.

United States Court of Claims.

July 13, 1953.

Hardy K. Maclay, Washington, D. C., for plaintiff. Edgar J. Melchione, Los Angeles, Cal., was on the brief.

M. P. Wolk, Washington, D. C., with whom was Asst. Atty. Gen. H. Brian Holland, for defendant. Andrew D. Sharpe and Ellis N. Slack, Washington, D. C., were on the brief.

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

HOWELL, Judge.

The sole question involved in this suit is whether or not so-called Fishing Rod Kits as sold by plaintiff George Hine Products Co. are "fishing rods" within the meaning of Section 3406(a) of the Internal Revenue Code which provides in pertinent part as follows:

"There shall be imposed on the following articles, sold by the manufacturer * * * a tax equivalent to the rate, on the price for which sold, set forth in the following paragraphs:

"(1) Sporting goods. * * * fishing rods, creels, reels, and artificial lures, baits, and flies; * * *." 26 U.S.C. 1946 Ed. Sec. 3406.

Plaintiff's business, started in 1946, consisted originally of the manufacture and sale of completed bamboo fishing rods, but during 1947 he discontinued the manufacture and sale of such rods and became the exclusive distributor of a spun glass fishing rod shaft manufactured by the Harrison-Rennels Company.

The shafts which are sometimes referred to as "blanks" were the essential part of a fishing rod and were sold primarily to hobbyist type of fisherman who preferred to complete the fishing rod in accordance with his own personal desires and/or superstitions. In order to bring the shafts to the state of completion which would warrant their description as completed fishing rods within the conception of laymen, or "catch as catch can" fishermen as distinguished from "hobbyist" fishermen, the purchaser was required to do the additional things described in Finding 4.¹

Obviously, allowance was made for hobbyist fishermen to "rig" the shafts according to individual requirements. In other words, various kinds of ferrules with different bushings could be affixed and installed, and guides of different sizes and materials in varying numbers could be affixed along the shaft. Spun glass shafts were an innovation on the market at the time plaintiff became exclusive distributor for the Harrison-Rennels Company. Indeed, they were novel when compared with one-piece bamboo and steel rods as well as sectional or disjointed rods commonly known to ordinary fishermen up to that time.

It is admitted that for practical purposes, plaintiff was the only company selling spun glass rods along with ferrules which could be properly attached because of the novelty of this type of rod upon the market at that time, 1947 to July 1948. (Finding 5.)

Because of the novel nature of the rod and the difficulty of obtaining ferrules of proper size by the purchasers of such rods as well as the difficulty of attaching ferrules to the shafts, plaintiff in 1948 began selling "kits" containing all the items needed to make up a complete fishing rod except wrapping material, varnish and color retainer. The "Kit" contained: (a) spun glass shaft with ferrule attached, (b) reel seat and handle assembly, (c) matched set of guides and tip-top, affixed to a card but not installed on the shaft, (d) on some rods, cork foregrips cemented to the shaft. (Finding 6.)

Plaintiff did not manufacture any of the component parts of the kit, except the ferrules which were reamed on a screw machine from purchased forms. In addition to this minor manufacturing operation, plaintiff also performed at his factory all work requiring special tools and cement including the installation of ferrules, adaptors, foregrips, reel seats, and winding checks. By wrapping on the guides and cementing on the tip-top, the purchaser could make a completed fishing rod.

From July to September 1948, inclusive, the plaintiff continued the manufacture and sale of these kits and collected excise taxes from his vendors on the sale of such kits which he paid to the Collector of Internal Revenue. Hence those taxes are not in issue in this suit.

On July 26, 1948, the Commissioner of Internal Revenue advised plaintiff that the sale of the kit above described would be taxable under Section 3406(a) (1) of the Internal Revenue Code, supra, inasmuch as the applicable regulations provided that a manufacturer who sold a taxable article in a knockdown condition but complete as to all component parts was liable for the tax. (The letter of inquiry dated June 28, 1948, and the Commissioner's response dated July 26, 1948, are set out in Finding 8.)

In response to plaintiff's further inquiry dated July 28, 1948, the Commissioner advised him on August 20, 1948, that the kit would be taxable even if the tip-top were excluded. (See Finding 9.)

Plaintiff and his attorney concluded that, if certain components of a completed fishing rod were omitted from the kit, the kit would not be taxable when sold. In November 1948, plaintiff began and has since continued to make and sell the kit, the taxability of which is here in issue, differing from the one sold during the months of July, August, and September only in that the guides and tip-top were omitted.

In referring to the kits in the catalog of plaintiff's products, these words are used:

"Kits—All work requiring special tools and cement has been done at the factory, such as installing ferrules, cork grips, reel seats, and winding checks. Customer has only to wrap the guides and install the tip-top to build a rod to meet his own requirements."

Since November 1948, plaintiff did not collect from his vendors or pay to the Collector the manufacturer's excise tax imposed by Section 3406(a) (1), supra, upon the kits sold. The Commissioner of Internal Revenue determined that the kits were "fishing rods" within the meaning of that Section, and assessments were made on the sales thereof for the period from November 1, 1948, through February 28, 1950, in the amount of $9,784.67. On January 17, 1951, plaintiff paid $517.32 of the amount so assessed representing the tax for the month of November 1948, and on the same day filed a claim for refund of that amount. This claim was rejected by the Commissioner on March 16, 1951.

In our findings of fact numbered 14 through 23, a detailed description of plaintiff's business methods in marketing fishing rod kits as well as the component parts of a fishing rod, including shafts, ferrules, bushings, reel seat, handle assemblies and cork foregrips, can be found along with a discussion of the uses made of the various products by hobbyists as well as ordinary type of fishermen. These matters should be of interest to those who love and participate in the great sport of fishing, but for the purposes of this opinion we do not deem it necessary to set them out here. Suffice it to say, we must decide whether the kit, as marketed and sold by plaintiff during November 1948, constituted "fishing rods" within the meaning of the Internal Revenue Code.

Neither the statute nor the Regulations defines exactly what is meant by "fishing rods." Plaintiff, in order to assist the court in determining whether his product is one which should be subject to the excise tax proposes three tests: (1) The kit as sold by plaintiff cannot be used as a fishing rod because of absence of the guides and tip-top; (2)...