Wilson Milling Co. v. Commissioner of Internal Revenue

• Decision Date: 03 January 1944
• Docket Number: No. 12611.,12611.
• Citation: 138 F.2d 249
• Parties: WILSON MILLING CO. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Eighth Circuit

138 F.2d 249 (1943)

WILSON MILLING CO. v. COMMISSIONER OF INTERNAL REVENUE.

No. 12611.

Circuit Court of Appeals, Eighth Circuit.

October 18, 1943.

Writ of Certiorari Denied January 3, 1944.

Scott P. Crampton, of Washington, D. C. (Geo. E. H. Goodner, of Washington, D. C., on the brief), for petitioner.

F. E. Youngman, Sp. Asst. to Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., on the brief), for respondent.

Before SANBORN and RIDDICK, Circuit Judges, and DELEHANT, District Judge.

Writ of Certiorari Denied January 3, 1944. See 64 S.Ct. 430.

SANBORN, Circuit Judge.

The question for decision is whether the petitioner is liable for an unjust enrichment tax, under § 501(a) (2) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Acts page 944, upon reimbursements received by the petitioner in 1937 from vendors of flour purchased by it in 1935. The Commissioner of Internal Revenue and the Tax Court of the United States have determined that the petitioner is liable for the tax. 1 T.C. 389.

In 1935 the petitioner was engaged in the milling of corn and the purchase of flour from millers and the reselling of it to retail grocers. Its business was unsuccessful. It ceased operations in 1936, and closed its business in 1937. During 1937 it received from two of its vendors $3,794.92 as reimbursements on account of flour purchased from them in 1935. The reimbursements were made by the vendors with respect to flour delivered under contracts which contained the following provisions: "Taxes: The price named in this contract includes all taxes as at the date hereof proclaimed by the Secretary of Agriculture by virtue of the authority vested in him by the Agricultural Adjustment Act of the United States. * * * if any tax included in the price hereof shall be decreased or abated, then, in that event, said decrease or abatement shall be deducted from the price hereof." The contracts were for the delivery of a specified number of barrels of flour at a specified price per barrel. No separate charge was made by the vendors for processing tax, but the price per barrel for each barrel on which the petitioner received reimbursements included the processing tax on wheat. The flour which the petitioner purchased in 1935 was sold by it at so much a barrel. The cost price used by the petitioner in determining its selling price was the price it had paid to its vendors. In selling its flour, no separate charge for processing tax was set out in the invoice or charged on its books against its customers. The flour was not sold by the petitioner pursuant to written contracts. It collected from its customers only the invoice price. The petitioner did not receive enough from the sales of its flour and other products to cover its costs and the expenses of operating its business. On January 6, 1936, the Agricultural Adjustment Act, 48 Stat. 31, 7 U.S.C.A. § 601 et seq., was declared invalid. United States v. Butler, 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477, 102 A.L.R. 914. In its income tax returns for the years 1935, 1936, and 1937, the petitioner reported net losses in the respective amounts of $11,436.81, $4,554.40, and $8,677.06. For the year 1937 it made an unjust enrichment tax return, but reported no tax. The Commissioner assessed a deficiency of $3,035.94, and, upon review, the Tax Court affirmed the Commissioner.

The applicable statute is Title III of the Revenue Act of 1936, c. 690, 49 Stat. 1734,¹ 26 U.S.C.A. Int.Rev.Acts, page 944 et seq. There can be no doubt that Congress, in enacting this statute, intended that a tax of 80% of the net amount received by a taxpayer such as the petitioner by way of reimbursement for processing taxes included in prices paid for flour, should be imposed "regardless of any loss arising from the other transactions of the taxpayer, and regardless of whether the taxpayer had a taxable net income." The statute segregated such a reimbursement from other income and imposed a special tax upon it, obviously upon the theory that it was in the nature of an ill-gotten gain, a windfall, or an unjust enrichment, which was essentially different from ordinary income derived from the usual conduct of the taxpayer's business.

Certainly, if the statute is to be accorded its plain meaning, the petitioner owes the tax which was assessed against it. But it argues: (1) That the reimbursements were not income received in 1937, and were either reductions in the price of flour purchased in 1935 or nontaxable gifts made in 1937; (2) that the reimbursements could not be income in 1937, since the petitioner had no net income in that year; and (3) that Title III of the Revenue Act of 1936 is invalid in so far as it purports to tax reimbursements under § 501(a) (2) thereof when a taxpayer has no net income.

The first of these arguments, we think, ignores the realities. In 1935 the petitioner's vendors collected from the petitioner, as a part of the price of flour, the processing taxes paid by them upon wheat. The petitioner, by basing its selling price upon a cost price which included processing taxes, passed the burden of the taxes to its customers. That the taxes included in the prices for which the petitioner bought and sold flour were not treated or billed as separate items, is of no legal significance. Sportwear Hosiery Mills v. Commissioner, 3 Cir., 129...