Jacobs Equipment Co. v. U.S., 76-1683
| Decision Date | 24 April 1978 |
| Docket Number | No. 76-1683,76-1683 |
| Parties | 78-1 USTC P 16,285 JACOBS EQUIPMENT CO., Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Douglas M. Cain, Denver, Colo. (Stephen P. Kregstein of Dawson, Nagel, Sherman & Howard, Denver, Colo., and George D. Webster of Webster, Kilcullen & Chamberlain, Washington, D.C., on brief), for plaintiff-appellee.
Robert A. Bernstein, Washington, D.C. (Gilbert E. Andrews and Richard W. Perkins, Attys., Tax Div., and Scott P. Crampton, Asst. Atty. Gen., Dept. of Justice, Washington, D.C., of counsel; James L. Treece, U. S. Atty., Denver, Colo., on brief), for defendant-appellant.
Before McWILLIAMS and DOYLE, Circuit Judges, and ROGERS, District Judge. *
The question to be resolved in this appeal is whether the act of welding a hoist to a truck body constitutes the "manufacture" of a truck body within the meaning of 26 U.S.C. § 4061(a)(1). The trial court held that such did not, and we agree with that conclusion.
Jacobs Equipment Co., the taxpayer, hereinafter referred to as Jacobs, brought this suit to obtain a refund of excise taxes and penalties in the aggregate amount of $10,117.72. The parties stipulated to an agreed statement of facts. Jacobs then filed a motion for summary judgment. The United States, the defendant, filed a cross motion for summary judgment. The case was submitted to the trial court for final determination on this basis. The trial court entered its findings and conclusions, and held, inter alia, that the process whereby the taxpayer combined a hoist and a truck body was too minor to constitute an act of manufacture, thereby rendering 26 U.S.C. § 4061(a)(1) inapplicable. The trial court also held, alternatively, that the regulation authorizing the tax, Rev.Rul. 69-195, was invalid because it created a "substantial imbalance" between the sale of products by so-called "single-line manufacturers" and "dual-line manufacturers."
From the trial court's findings, which were based on the agreed statement of facts, we learn the following: Jacobs is a wholesale distributor of truck bodies and hoists. The majority of Jacobs' sales are at wholesale to retail dealers. However, Jacobs does make some sales of hoists and truck bodies at retail, i. e., to the ultimate customer. It is Jacobs' sale of hoists and truck bodies, at retail, and the services rendered by Jacobs in connection with such sales, that is the root of the present controversy.
Jacobs purchases hoists and truck bodies from a number of different manufacturers. Some manufacturers make both hoists and truck bodies and are referred to as "dual-line manufacturers." Other manufacturers from whom Jacobs also makes purchases, manufacture only hoists, or truck bodies, but not both. They are referred to as "single-line manufacturers." The hoists and truck bodies, whether purchased from a double-line manufacturer or a single-line manufacturer, are essentially interchangeable in use.
When Jacobs sells a hoist and a truck body to an ultimate customer, it is for use on a truck chassis which is furnished by the customer. Jacobs first installs the hoist on the truck chassis. This is a somewhat involved operation, and requires approximately 15 hours of labor. Once the hoist has been installed on the truck chassis, the truck body is attached to the hoist. This process consists of lowering the truck body into place, raising the truck body by means of an overhead hoist or by cylinders of the hoist and welding its run sills (two rails running the length of the body underside) to the vertical plates of the hoist tail hinge assembly and to the upper mount of the hoist frame. This attaching of the hoist and the truck body, which, aside from the wiring of the body lights, constitutes the total process involved in attaching the body to the chassis, was characterized by the trial court as a fairly trivial operation normally requiring only one to two hours of labor. In a demonstration performed for the benefit of counsel, the operation was completed in three-quarters of an hour. It is the attachment of the hoist to the truck body which is at issue here, and the ultimate question is whether the act of attaching the hoist to the truck body constitutes the "manufacture" of a truck body. If it does, then the taxpayer is subject to the imposition of the tax provided for in 26 U.S.C. § 4061(a)(1). If it does not constitute such a manufacture, then 26 U.S.C. § 4061(a)(1) is inapplicable.
26 U.S.C. § 4061(a)(1) imposes an excise tax on the sale of truck chassis and truck bodies by a manufacturer, producer or importer in the amount of 10% of the sale price. A like tax is also imposed on the sale of all parts and accessories (which would include a hoist) if sold in connection with the sale of either a truck chassis or truck body. Another section imposes a tax of 8% on the sale of the same parts and accessories when they are sold separately, i. e., not in connection with the sale of either a truck body or chassis.
Although the incidence of the tax falls on the manufacturer, producer or importer, the taxable event is the first sale of the manufactured article. Indian Motorcycle Co. v. United States, 283 U.S. 570, 51 S.Ct. 601, 75 L.Ed. 1277 (1931). Hence, the tax base is the price at which the taxable article is sold by the manufacturer. One who purchases a manufactured article, and uses it in a manner which constitutes further manufacturing, thereby himself becomes a manufacturer subject to the same manufacturer's tax. Magnesium Casting Co. v. United States, 323 F.2d 952 (1st Cir. 1963). However, a credit is allowed to such subsequent manufacturer in the amount of the tax paid by the "first" manufacturer.
As above stated, Jacobs purchased dump truck bodies and hoists and assembled them on truck chassis belonging to its customers. On the theory that this process of assembly constituted "manufacturing," the Internal Revenue Service assessed a 10% tax on the price charged by Jacobs, giving a credit for taxes previously paid by the original manufacturers of the hoists and truck bodies, i. e., 10% on truck bodies and 8% on sale of hoists not made in connection with the sale of a truck body.
The trial court held that the tax was improperly imposed on two grounds: (1) the process of attaching the hoist to the truck body did not constitute an act of manufacturing; and (2) the tax as proposed by...
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Keasler v. United States
...within the meaning of the statute. Slip. op. at 2. The Court then observed that a factually analogous case, Jacobs Equipment Co. v. United States, 574 F.2d 1040 (10th Cir.1978), had previously addressed the same issue. In Jacobs Equipment, the Tenth Circuit held that the assembly of hoists ......
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Keasler v. U.S.
...Rev.Rul. 69-195, 1969 C.B. 276. This ruling had, however, been expressly disapproved by the Tenth Circuit in Jacobs Equipment Co. v. United States, 574 F.2d 1040 (10th Cir.1978), a case involving facts nearly identical to the case at Keasler paid the assessment and sought a refund from the ......