United States v. Armature Exchange

Decision Date18 February 1941
Docket NumberNo. 9469.,9469.
Citation116 F.2d 969
PartiesUNITED STATES v. ARMATURE EXCHANGE, Inc.
CourtU.S. Court of Appeals — Ninth Circuit

Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, Norman D. Keller, Geo. H. Zeutzius, and Carl Pergler, Sp. Assts. to Atty. Gen., and Ben Harrison, U. S. Atty., and E. H. Mitchell and Armond Monroe Jewell, Asst. U. S. Attys., all of Los Angeles, Cal., for appellant.

Darius F. Johnson, of Los Angeles, Cal., for appellee.

Before DENMAN, MATHEWS, and STEPHENS, Circuit Judges.

STEPHENS, Circuit Judge.

Suit by appellee taxpayer against the United States for recovery of $1,452.30 assessed and paid as manufacturer's excise taxes on sales of armatures. From a judgment of the District Court in favor of the taxpayer 28 F.Supp. 10, 14, the United States appeals. For clarity in this opinion we shall refer to the appellant United States of America as the Government, and to the appellee as taxpayer.

The taxes in question were assessed against the taxpayer by virtue of Section 606 (c) of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Acts, pages 609, 610, which provides, so far as here applicable,

"§ 606. Tax on Automobiles, Etc.

"There is hereby 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) for any of the articles enumerated in subsection (a) or (b), 2 per centum. * * *"

Note — Subsections (a) and (b) referred to enumerate automobiles, automobile trucks and motorcycles.

It is not denied that the taxpayer sold the armatures in question, nor is it denied that the armatures constitute automobile parts or accessories. The sole question involved in this appeal is whether or not the sales are taxable to taxpayer as the manufacturer or producer thereof, within the meaning of the Act.

Taxpayer was incorporated under the laws of California "to carry on the business of manufacturing and assembling armatures, motors and electrical equipment of any and all kinds. To design and prepare plans and specifications for the manufacture, construction and assembling of electrical appliances and equipment. To enter into contracts and make the necessary agreements for marketing and disposing of the same. * * *"

Taxpayer acquires burned and worn out armatures, strips them to the core, and by various machine and hand operations, through the use of the old core and new material, turns out for the general market "Rebuilt Armatures". The method of taxpayer's operations is fully described in the opinion of the Judge who tried the case, supra, and it need not be repeated here. Each article is stamped with the taxpayer's trade name "Armex" and is separately boxed and labelled "Armex Rebuilt Armature. `A Quality Product'. Armex Code (giving number)." About 80 armatures are turned out, checked, boxed and put on the taxpayer's shelves daily. It maintains a stock for sale of 600 different types of armatures, each with taxpayer's own stock number.

It is the contention of the taxpayer, and in this it is supported by the conclusion of the trial court, that its business is simply that of reconstructing and restoring armatures, as contrasted to that of manufacturing or producing armatures.

The trial court's conclusion that the rebuilt armatures were not "manufactured or produced" by the taxpayer is premised upon the assumption that there must be a "new and different article" at the completion of the taxpayer's operations. Hartranft v. Wiegmann, 121 U.S. 609, 7 S.Ct. 1240, 30 L.Ed. 1012 and Anheuser-Busch Ass'n v. United States, 207 U.S. 556, 28 S.Ct. 204, 52 L.Ed. 336, are cited as authority for this proposition.

The Hartranft case 121 U.S. 609, 7 S. Ct. 1243, 30 L.Ed. 1012 arose under the provisions of §§ 2504 and 2505 of the Revised Statutes. By § 2504 "manufactures of shells" were dutiable. Under the provisions of § 2505 "shells of every description, not manufactured" were exempt from duty. The taxpayer there involved had imported shells which had been cleaned with acid and ground on an emery wheel. Some of them were etched with acid. All were intended to be sold for ornaments, as shells. It was held that the cleaned and polished shells were not "manufactures" of shells, as they had not been manufactured into a new and different article.

The Anheuser-Busch Brewing Ass'n case arose under § 25 of the Tariff Act of October 1, 1890, 26 Stat. 567, 617, which provided for a rebate on exported manufactured articles. The taxpayer exported beer in corked bottles. The corks had been brought from Spain, and then treated to make them usable. It was held by the Supreme Court that the corks had not been "manufactured" here. The Court cited the Hartranft case, supra, with approval, and held that in order to constitute a "manufacture" "there must be transformation; a new and different article must emerge, `having a distinctive name, character, or use.'" 207 U.S. at page 562, 28 S.Ct. at page 207, 52 L.Ed. 336.

In our opinion neither of the cited cases is authority for the position of the taxpayer that it is not a "manufacturer or producer" of armatures. In both cases the raw materials were not subject to the terms of the statute involved, the statutes relating solely to "manufactures". Certainly in such statutes there must be a "transformation".

De Jonge v. Magone, 159 U.S. 562, 16 S.Ct. 119, 40 L.Ed. 260, cited by the taxpayer in its brief, is in the same category. It also arose under the tariff act, 22 Stat. 488, 510, which imposed a duty of 15% on "paper, manufactures of, or of which paper is a component material", and a duty of 25% on "all other paper not specially enumerated or provided for". The question was whether the taxpayer was subject to 15% or 25% duty. The paper involved had been treated to make a higher and better grade of paper. There was no change of form, and the Court therefore held that the 25% duty applied.

Other cases relied on by the taxpayer are those arising under the patent laws. American Fruit Growers, Inc. v. Brogdex, 283 U.S. 1, 51 S.Ct. 328, 75 L.Ed. 801; Goodyear Shoe Machinery Co. v. Jackson, 1 Cir., 1901, 112 F. 146, 55 L.R.A. 692; Foglesong Mach. Co. v. J. D. Randall Co., 6 Cir., 1917, 239 F. 893; Ely Norris Safe Co. v. Mosler Safe Co., 2 Cir., 1933, 62 F.2d 524; and Hess-Bright Mfg. Co. v. Bearings Co., D.C.Pa.1921, 271 F. 350.

The American Fruit Growers case involved the question of whether certain claims of a patent described an article of manufacture within the meaning of 35 U. S.C.A. § 31. The product attempted to be patented was orange...

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