Vogel v. Knox, Civ. No. 5219.

• Decision Date: 03 January 1957
• Docket Number: Civ. No. 5219.
• Citation: 147 F. Supp. 10
• Parties: Harvey VOGEL, dba Ken-Add Machine Company, Plaintiff, v. A. R. KNOX, District Director of Internal Revenue for the District of Minnesota, Defendant.
• Court: U.S. District Court — District of Minnesota

147 F. Supp. 10

Harvey VOGEL, dba Ken-Add Machine Company, Plaintiff, v. A. R. KNOX, District Director of Internal Revenue for the District of Minnesota, Defendant.

Civ. No. 5219.

United States District Court D. Minnesota, Fourth Division.

January 3, 1957.

Salisbury Adams, Minneapolis, Minn., for plaintiff.

Sheldon Gitelman, Washington, D. C., for Government (Dept. of Justice).

DEVITT, District Judge.

The plaintiff taxpayer seeks a refund of manufacturer's excise taxes in the amount of $2,204.64, assessed for the period from December, 1952 through June 30, 1954.

Section 3406(a) (6) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 3406(a) (6), under which this tax was assessed, levies a ten per cent excise tax on manufacturers, producers and importers of business and store machines. Under the heading of this statute, "Business and store machines", is enumerated such equipment as adding machines, tabulating machines, hand staplers, check writing and cancelling machines, and many other devices commonly used in the operation of a present day business establishment or office.

The item involved in this case is a pocket or purse size adding machine manufactured by the taxpayer and bearing the trade name "Ken-Add." It is enclosed in a flat metal case, and is so constructed that with the aid of a metal stylus, cogged wheels may be manipulated to produce a numerical total up to four digits. The device will register up to $99.99 in dollars and cents, or 9,999 employing simple arithmetic units.

The taxpayer's contention is that "Ken-Add" is not primarily adaptable to use as a business or store machine and that, therefore, it is without the scope of Section 3406(a) (6) and not subject to the excise tax.

The government argues (1) that the device is at least suitable for some business or store purposes and therefore taxable, (2) that the taxpayer is not entitled to a refund since the evidence does not show that it was he who bore the economic burden of the tax rather than the ultimate purchaser by inclusion of the tax in the sales price, and (3) that the plaintiff has failed to comply with the regulations regarding its claim for refund and that this court is consequently without jurisdiction to hear the claim. The United States has counterclaimed for excise taxes allegedly still due; plaintiff denies these taxes are due.

1. Is the device a business or store machine within the meaning of Section 3406(a) (6)?

Under the heading of "Business and store machines" is listed "adding machines" as one of many specific items subject to the tax imposed by Section 3406 (a) (6). Without belaboring the point, the "Ken-Add" device is unquestionably an adding machine. But, as the government concedes, the heading of the statute, "Business and store machines," qualifies the items listed thereunder, and the device must also be found to be a business or store machine to be subject to the tax. See Treasury Regulation 36, Section 316.140. To state the issue briefly, we must decide whether a somewhat rudimentary adding machine which may conceivably be used for some business or store purposes is subject to the excise tax, as the government contends, or whether it is necessary that this item be an adding machine which is primarily adaptable to business or store uses to come within the purview of the statute, as the taxpayer has argued, citing Universal Battery Co. v. U. S., 281 U.S. 580, 584, 50 S.Ct. 422, 74 L.Ed. 1051.

Plaintiff's device, albeit an adding machine, is barren of all the extra devices commonly associated with the modern mechanical office adding machine. It is manually operated, has no simple means of clearing the machine to zero, cannot carry totals forward, and has no tape, and, therefore, no convenient means of checking the accuracy of the results. Considering the complex operations of a present day business office, it cannot reasonably be contended that "Ken-Add" is primarily adaptable for business or store uses. It is argued, however, that the device is at least suitable for use in a business or store, if not primarily adaptable for that purpose.

The advertising of "Ken-Add" contains mention of its possible use by salesmen and others in the commercial world. There is evidence of an isolated sale of several of the machines to the county tax assessor of Davenport, Iowa, but there is no evidence of what use was made of the machine there. Since the capacity of the device is limited to four digits, only $99.99 may be registered thereon, clearly inadequate for most, if not all, commercial operations involving dollars and cents, but the device, by the same token, can count up to 9,999 whether it be in boxes, watermelons, or rubber tires. The device was sold at wholesale to some office supply companies, but there is no evidence that any retail sales were made to businesses or offices for commercial use. The weight of the evidence shows without question that the device was designed for and purchased by housewives and children, or was used for premium gifts. Considering the machine itself, it is my opinion that the device performs so few tasks outside of merely producing a total of numbers that the business or store uses to which it could be put would be few indeed. Evidence of the type of buyers of the machine reveals clearly that the commercial world thought very little of the feasibility of "Ken-Add" as a useful computing device in a business or store.

True, the device might be suitable, in the loose sense of that word, for use in a business or office. A worker on a shipping or receiving dock, for instance, could conceivably use it to count incoming items of freight. There is no evidence that the device was ever put to any such limited use. It would be an unreasonable expansion of the scope of Section 3406(a) (6) to include within it those items which only have a mere possibility of being used in a business or store. The case of Sackman Bros. Co. v. Hoey, 2 Cir., 125 F.2d 490, on this point is distinguishable for the reason that the statute there involved, by its wording, had a greater scope.

In support of its contention that suitability is the test, the government points out that Section 3406(a) (6) also lists typewriters, pencil sharpeners and portable hand staplers as subject to the tax, all of which are not necessarily primarily adaptable to business or store purposes, but may be employed in a variety of other uses. The word "suitable" implies appropriateness, and these items of course are certainly appropriate for use in any business or store. But "Ken-Add" lacks that essential appropriateness. It has little commercial utility and might justifiably be called a gadget. There is, at the least, a reasonable doubt whether Section 3406(a) (6) is broad enough to include a device such as "Ken-Add", and under these circumstances, the statute should be construed most favorably to the taxpayer. Gould v. Gould, 245 U.S. 151, 38 S.Ct. 53, 62 L.Ed. 211.

It is concluded that the "Ken-Add" pocket adding machine is not subject to the excise tax imposed by Section 3406(a) (6), I.R.C.1939.

2. Has plaintiff established that the burden of the tax was borne by him and not passed on to the ultimate purchaser?

Section 3443(d) (1) of the 1939 Internal Revenue Code, 26 U.S.C.A. § 3443(d) (1) provides that no overpayment of an excise tax shall be refunded unless the taxpayer establishes that "* * * he has not included the tax in the price of the article with respect to which it was imposed, or collected the amount of tax from the vendee, * * *". The purpose of this provision is to prevent the unjust enrichment of a taxpayer who has not suffered the burden of the tax, but has succeeded in passing the tax on to the ultimate purchaser. Con-Rod Exchange, Inc., v. Henricksen, D.C.W.D.Wash., 28 F.Supp. 924, 926.

In 1950, or shortly before, the inventor of...