Overseas Mailman, Inc. v. United States

• Citation: 326 F. Supp. 172
• Decision Date: 01 February 1971
• Docket Number: Civ. A. No. 1066-66.
• Parties: OVERSEAS MAILMAN, INC., Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of New Jersey

326 F. Supp. 172

OVERSEAS MAILMAN, INC., Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 1066-66.

United States District Court, D. New Jersey.

February 1, 1971.

Max L. Rosenstein, Newark, N. J., for plaintiff; Seymour Kehlmann, of Blum, Haimoff, Gersen, Lipson & Szabad, New York City, of counsel.

Robert Hipple, Atty. Tax Division, Department of Justice, Washington, D. C., for defendant.

OPINION

AUGELLI, Chief Judge:

Plaintiff seeks in this action to recover $29,567.19 paid by it to defendant as retailers' excise taxes for the years 1959 through 1964 and as delinquency return payments and interest relating to those taxes, together with statutory interest on any amounts found to be overpayment. By stipulation, defendant has conceded that plaintiff has exhausted its administrative remedies and that this suit for refund was timely filed. The Court's jurisdiction is invoked under 28 U.S.C. § 1346(a). The matter has been submitted to the Court on cross-motions for summary judgment. The basic facts have been stipulated. Following oral argument, decision was reserved.

The facts may be briefly summarized. The plaintiff, Overseas Mailman, Inc. (Overseas), is a New Jersey corporation, with its principal place of business in New Jersey, engaged in the business of offering promotional schemes to various domestic commercial businesses to be used by them in connection with the sale of their products. Overseas would establish connections with various foreign manufacturers of premium or gift items such as Italian Ceramic Ashtrays, Yugoslavian Dolls, German Black Forest Clocks, Cuckoo Clocks, and numerous other items. It would then contact American manufacturers and offer them such gift or premium items to be used as promotional schemes in connection with the sale of such manufacturers' usual products. Agreements were reached with the manufacturers, copies of which are attached to and made part of the stipulation. Typically, the American manufacturer would include a coupon with its own product, offering its customer an opportunity to purchase the foreign premium items. The present case involves the sale of certain German Black Forest Clocks and Cuckoo Clocks, items which both parties to the suit agree are included in the list of items taxable under Section 4001 of the Internal Revenue Code of 1954, 26 U.S.C. § 4001.

In the promotional scheme, the retail consumer sent the accompanying coupon with a stated consideration to a Post Office Box maintained under the exclusive control of Overseas in Palisades Park, New Jersey. The address on the coupon for the post office box generally included the word "clock" in conjunction with some part of the name of the commercial business from which the purchaser obtained his coupon. There was no indication on such coupon that Overseas was involved in the transaction. Upon receipt of the coupon and proper payment from the consumer, Overseas, pursuant to its prior agreement with Franz Grieshaber, a German clock manufacturer, forwarded an addressed mailing label to him in Germany with a fixed payment for each clock ordered, which included postage and handling. The difference between each consumer's payment in the amount forwarded for the clock was retained by Overseas.

Throughout the period from 1959 to 1964, the individual contracts between Overseas and the American manufacturers that were made part of the stipulation indicate that the price of the clocks to the consumer differed from time to time, and the amount of money paid by Overseas to Grieshaber likewise varied during this period. Overseas explained that these changes reflected the increased costs of manufacturing, handling and shipping charges. On receipt of the address label and the agreed upon consideration, Grieshaber shipped the clocks directly to the purchaser.

The only obligation of the American manufacturers involved in these promotional schemes was to design, print and distribute the coupons and other advertising materials employed, and to forward to Overseas any communications received relating to the operation. These manufacturers entered into no direct agreements with Franz Grieshaber, except with respect to some of the contracts between Overseas and the manufacturers, Grieshaber would signify his consent to the terms of the contract by signing a copy.

The written agreement which Overseas entered into with each of the manufacturers who agreed to this clock promotional scheme generally obligated Overseas:

(1) to warrant that Franz Grieshaber would have a certain quantity of German clocks available for shipment to the United States and that these clocks be of the same quality as a sample shown to said manufacturers;

(2) to open and process all orders within a reasonable time; to type on triplicate labels the name and address of each purchaser (sending one to Franz Grieshaber for use in mailing clocks to the purchaser, placing one on a postcard acknowledgment to the purchaser, and retaining one in the Overseas files), and to keep accurate records of all transactions;

(3) to assume all financial responsibility for transactions between purchasers and Overseas;

(4) to refund the full clock purchase price to any dissatisfied purchaser;

(5) to refund any import duty, tax or handling charges collected from any clock purchaser;

(6) to maintain product insurance against liabilities arising from personal injury or property damages caused by the clocks;

(7) to assure that all German clocks would be securely packaged and properly stamped in Germany;

(8) to assure that Grieshaber would, on receipt of the addressed mailing label and payment, promptly mail the clock to each purchaser in the United States; and

(9) to accept from purchasers a given price in full payment for each German clock, including postage and handling costs.

Although there was no detailed written agreement between Overseas and Grieshaber, a letter dated December 28, 1958, written by Grieshaber to Overseas spells out the essential terms of an agreement. This letter establishes the basic scheme whereby Overseas would send Grieshaber 76 cents to cover the cost of the clock, including postage and handling; however, there are inconsistencies within the letter which make it uncertain whether Overseas was acting as a sales agent for Grieshaber or whether it was purchasing each clock for resale. Thus, the Court is called upon to decide the question which this letter leaves unclear.

The Internal Revenue Service concluded that Overseas was selling the clocks at retail, and therefore subject to the retailers' excise tax prescribed by Section 4001 of the 1954 Internal Revenue Code, 26 U.S.C. § 4001, for the years 1959 through 1964. This particular tax was repealed on June 21, 1965. In pertinent part, the statute, while in force, read:

"There is hereby imposed upon the following articles sold at retail a tax equivalent to 10 percent of the price for which so sold:

* * * * * *

Clocks."

The parties agree that unless three statutorily required conditions existed in connection with Overseas' operation, the tax was improperly levied against it. This requires a determination as to: (1) whether the sale of Black Forest Clocks and Cuckoo Clocks were sales at retail within the meaning of Section 4001 of the Internal Revenue Code of 1954, as amended; (2) if so, were these "sales at retail" made by Overseas; and (3) if so, did such "sales at retail" take place within the United States. If the answer to each of the three questions is in the affirmative, defendant would be entitled to a summary judgment in its favor; otherwise, Overseas would be entitled to a judgment in its favor and a refund with statutorily accrued interest of the retail excise taxes and penalties it paid for the period in question. Consideration will now be given to each of the three questions in their listed order.

(1) Were the individual sales of Black Forest Clocks and Cuckoo Clocks to American consumers, sales at retail within the meaning of Section 4001 of the Internal Revenue Code of 1954, as amended?

The term "sold at retail" for the purposes of a retail excise tax has never been clearly defined by Congress. Courts have construed the meaning of this term on a case by case basis. Such interpretation has not been entirely uniform. In Torti v. United States, 249 F.2d 623 (7 Cir. 1957) and Gellman v. United States, 235 F.2d 87 (8 Cir. 1956), it was held that a retail sale is a sale to the ultimate consumer for his own personal consumption and without a further consumer profit motive. The Court of Claims, however, defined "sold at retail" for the purposes of levying the excise tax to be a sale which is made for a purpose other than resale by the purchasers. Worrell's, Ltd. v. United States, 301 F.2d 317, 157 Ct.Cl. 297 (1962).

In the course of reaching its decision, the Court of Claims considered the genesis of 26 U.S.C. § 4001:

"The excise tax as imposed on * * clocks under the Revenue Act of 1932, 47 Stat. 169 et seq., § 605, was imposed at the level of sale of * * clocks by the manufacturer, producer, or importer. The tax continued as imposed at that level until the Revenue Act of 1941, 55 Stat. 687 et seq., § 552(a), placed the excise tax on * * clocks at the level of retail sale. The major purpose of that act was to increase the national revenues to meet the radical increase in government expenditures for national defense in 1941. (House Report No. 1040, 77th Cong., 1st Sess., 1941—2 Cum. Bull. 413). The same House Report indicates that the alteration of the level of taxation on * * * clocks from manufacturer's to retailer's sale would net the Government annually $56,200,000 in additional revenue. Id. at 415. From this it may be inferred that the legislature did not intend any diminution of the base of the excise tax when it changed the level from manufacturer's to retailer's sale. * * *

"The obvious conclusion dictated by this analysis is that the phrase `sold at retail' was

...