United States v. Gamble-Skogmo

• Decision Date: 29 July 1937
• Docket Number: No. 10801.,10801.
• Citation: 91 F.2d 372
• Parties: UNITED STATES v. GAMBLE-SKOGMO., Inc.
• Court: U.S. Court of Appeals — Eighth Circuit

91 F.2d 372 (1937)

UNITED STATES v. GAMBLE-SKOGMO., Inc.

No. 10801.

Circuit Court of Appeals, Eighth Circuit.

July 29, 1937.

Louise Foster, Sp. Asst. to the Atty. Gen. (James W. Morris, Asst. Atty. Gen., Sewall Key, J. Louis Monarch, and E. W. Pavenstedt, Sp. Assts. to Atty. Gen., and George F. Sullivan, U. S. Atty., and Linus J. Hammond, Asst. U. S. Atty., both of St. Paul, Minn., on the brief), for the United States.

W. P. Berghuis, of Fergus Falls, Minn., for appellee.

Before STONE, SANBORN, and THOMAS, Circuit Judges.

SANBORN, Circuit Judge.

The question presented by this appeal is whether in 1932 Gamble-Skogmo, Inc., a retailer and the operator of a large number of chain stores, was a "manufacturer" or "producer" of certain household type electric refrigerators which it purchased, and hence liable for the excise tax of 5 per cent. of the selling price thereof, under the provisions of section 608 of the Revenue Act of 1932, 47 Stat. 169, 263 (26 U.S.C.A. § 1420 et seq. note).

The government levied and collected from the taxpayer a tax of $5,565.82 for the period June 21, 1932 (the effective date of the act), to December 28, 1933, on the ground that it was the manufacturer or producer of the refrigerators in question. The taxpayer applied for a refund upon the ground that it was neither the manufacturer nor the producer. Its claim for refund was denied; this action was brought by it to recover the tax; and from a judgment in the taxpayer's favor the government has appealed.

Briefly and generally, the facts are as follows: Prior to 1932 the taxpayer did not sell electric refrigerators in its retail stores. Late in 1931 or early in 1932 it decided to add refrigerators to its line of merchandise. Various manufacturers were solicited to submit bids for furnishing it completed electric refrigerators. For the purpose of enabling the taxpayer to make a comparison of bids, it requested the manufacturers to "break down" their bids to show the price of the cabinet or box and the price of the freezing unit. (A complete refrigerator consisted of a cabinet and a freezing unit.) The Puffer-Hubbard Manufacturing Company, of Minneapolis, Minn., was the low bidder. Its bid showed the price of the cabinet, which included its profit, and the price of the freezing unit, which equalled the cost thereof plus freight and an installation charge of $1.50. The freezing unit which Puffer-Hubbard proposed to furnish was known as the "Domestic" and was manufactured in Ohio. Shortly after the bid was submitted, the manager of Puffer-Hubbard learned that the Domestic freezing unit had given trouble, and he proposed to the taxpayer that a unit known as the "Zerozone," manufactured by the Zerozone Corporation, of Chicago, Ill., be substituted. The Zerozone unit was more expensive than the Domestic, and required a corresponding increase in Puffer-Hubbard's bid. In February, 1932, a representative of the Zerozone Corporation conferred in Minneapolis with representatives of Puffer-Hubbard and of the taxpayer. The Zerozone Corporation was willing to supply units, provided it could secure an immediate commitment for a large number. The taxpayer estimated its needs for the year 1932 at 2,000 refrigerators. The Zerozone Corporation was willing to accept an order for 2,000 freezing units, but, because of the shaky financial condition of Puffer-Hubbard, it would not extend to it the necessary credit. For the same reason, the taxpayer was unwilling to advance to Puffer-Hubbard sufficient funds to enable Puffer-Hubbard to purchase the units. It was finally agreed that the Zerozone Corporation should ship the units to Puffer-Hubbard to enable it to complete the refrigerators, and that the units, as they were shipped to Puffer-Hubbard, should be billed to the taxpayer. Two thousand units were thereupon ordered from the Zerozone Corporation. At the same time — about February 15, 1932 — the taxpayer gave to Puffer-Hubbard a blanket order for 1,000 "Coronado Electric Refrigerators," that being the name which the taxpayer intended to apply to its refrigerators. On March 21, 1932, the taxpayer gave another order to Puffer-Hubbard for 1,000 "Coronado Cabinets." About 1,350 of the Zerozone units were shipped to Puffer-Hubbard and installed by it in the refrigerator cabinets for a charge of $1.50 per unit, which was the installation charge included in its original bid. This installation was a simple operation which required no mechanical skill. Each refrigerator cabinet was so constructed that the freezing unit could be inserted into the cabinet and fastened by turning up six screws. After the refrigerators were completed by Puffer-Hubbard, they were inspected by the taxpayer, were then crated by Puffer-Hubbard, and shipped by it to such of the taxpayer's stores as the taxpayer directed. Some of the refrigerators were to be distributed from the taxpayer's warehouse in Chicago. In order to save freight on the freezing units, Puffer-Hubbard suggested that the units for those refrigerators be delivered by the Zerozone Corporation to the taxpayer's Chicago warehouse, that Puffer-Hubbard ship the cabinets from Minneapolis to the Chicago warehouse, and that the taxpayer have one of its employees there insert the freezing units in the cabinets. This procedure was followed with respect to some 650 of the refrigerators, and as to all of these Puffer-Hubbard waived its installation charge of $1.50 per freezing unit. All of the freezing units furnished for all of the refrigerators were paid for by the taxpayer under its arrangement with Puffer-Hubbard and the Zerozone Corporation.

The Revenue Act of 1932 went into effect on June 21, 1932. In its bills to the taxpayer for all refrigerators shipped after that date, Puffer-Hubbard added the 5 per cent. tax imposed upon it as the manufacturer and producer of the refrigerator cabinets.

The trial court found that the taxpayer ordered 2,000 completed refrigerators from Puffer-Hubbard; that the latter ordered freezing units from Zerozone; that the taxpayer, as an accommodation to Puffer-Hubbard, paid the Zerozone Corporation for the freezing units, thus financing their cost; that Puffer-Hubbard made a charge of $1.50 for installing the freezing units, in accordance with its original bid; and that the taxpayer was not the manufacturer or producer of the refrigerators.

The government contends that the evidence does not warrant the finding that the taxpayer was not the manufacturer or producer of these refrigerators. It contends that the evidence compels a finding that the taxpayer bought for itself freezing units from the Zerozone Corporation; that it bought only cabinets from Puffer-Hubbard; that it employed the latter to assemble the complete refrigerators, with the exception of those which the evidence shows the taxpayer itself assembled in its Chicago...