#### LASH’S PRODUCTS CO. v. THE UNITED STATES1

[No. D-412.

Decided November 7, 1927]

*On the Proofs*

*Beverage taw; taw not iiwoieed to customer.*— Where the manufacturer of soft drinks informs its customers that the price quoted them includes the sales tax and that payment thereof will be made by the manufacturer, but does not show the tax in the invoice, the tax imposed by section 628, revenue act of 1918, is upon the entire amount invoiced.

*The Reporter's*statement of the case:

*Mr. A. R. Serven*for the plaintiff. *Forbes da Daniels*were on the briefs.

*Mr. Joseph H.*Sheppard, with whom was *Mr. Assistant Attorney General Herman J.*Galloway, for the defendant.

*Mr. W. Parker J ones*as *amicus*i *curiae.*

The court made special findings of fact, as follows:

I. The plaintiff is a corporation duly organized and existing under the laws of the State of California, with its principal office in the city of San Francisco, California, and branch offices in Chicago, Illinois, and New York City, New York, and since the year 1884 it has been continuously engaged in the manufacture and sale, at wholesale, of cordials, syrups, and laxative medicinal preparations.

II. The plaintiff was organized and incorporated under the name of Lash’s Bitters Company, under which name it carried on its business until during the year 1920, when its name was duly changed to Lash’s Products Company, but without change in the status or. identity of the company.

III. Beginning in June, 1919, the plaintiff manufactured and sold soft-drink products, the sales of which were made direct to customers in the retail trade on orders obtained by its salesmen.

*253Plaintiff’s salesmen personally called upon the customers aforesaid and told them that the prices quoted to them on its nonalcoholic beverages included the sales tax, and that payment thereof would be made by the plaintiff.

The plaintiff also notified its customers by letters dated June 28, 1919, reading in part:

“We are pleased to quote you prices on all our goods! as follows:

Less than 5 cases 5-case lots 10-case lots

Lash’s Bitters (officially classed as a medicine,not a beverage) .per case.. $10.00 $9.20 $9.00

Homer’s Ginger Cordial, nonalcoholic (all taxes paid). 8.00 7.20 7.00

Hill’s Horehound and Irish Moss, nonalcoholic (all taxes paid).-. 8.00 7.20 7.00

Clark’s Cordial, nonalcoholic (all taxes paid). 8.00 7.20 7.00

“Terms: All goods shipped with sight draft for the amount of invoice (less 2% discount allowed for cash) attached to bill of lading.

“ We allow freight on shipments ,of ten (10) or more ca^es and orders may be assorted to suit your requirements.

“ You will please note that we pay the tax on our nonintoxicating goods — which amounts to 10%- — and as they sell at 10^ or more per drink, it leaves a nice margin of profit for you.”

IV. During the period involved in this suit the plaintiff manufactured and sold to its said customers the aforesaid soft-drink products, and from the said customers received in return $2,475,031.44. All the goods so sold were invoiced or billed to the customer at prices which were not itemized in the bill or invoice so as to show any tax, and payment in each instance was made by the customer to the plaintiff of the total amount invoiced less agreed discount for cash.

The amounts received on account of such sales were reported by plaintiff monthly to the proper officers of the Bureau of Internal Revenue, and in monthly current payments a total of $247,503.16 was paid by plaintiff to the United States as the 10 per cent beverage tax on said sales under the revenue act of 1918, as follows:

*2541919

June-July-August-September-October-November_ December_ $745. 83 4, 658.89 7, 294.08 8, 994. 71 12, 950.10 16, 771.50 28, 306. 81

1920

January-February_ March_ April_ May-June_ July-August-September_ October-22, 040. 94 21,538. 21 32, 281. 28 13, 873. 39 11, 620. 26 8, 807.24 5,416. 58 5, 503. 62 7,143. 91 10, 075. 91

1920 — Continued

November. December. $7, 866.13 3, 781.41

1921

January_ February_ March_ April_ May-'_ June_ July-August-September_ October_ November_ December_ 3, 507.13 2, 751. 84 1,438.29 1, 027. 72 956.12 843. 57 508. 95 781. 03 1,135. 77 2, 061.95 1, 794. 07 1,025. 92 247, 503.16

The .said sum of $247,503.16 is retained in the Treasury of the United States.

V. On or about March 20, 1923, the plaintiff filed claims with the Commissioner of Internal Revenue for the refund to it of $22,500.33 as being the amount erroneously computed and overpaid by it as beverage tax on the said sales of its soft-drink products. On November 5, 6, and 13, 1923, the said claims were finally disallowed by the Commissioner of Internal Revenue on the ground that plaintiff *“*did not indicate the tax in such a way as not to be a part of and included in the price ” f,or which the product was sold.

The court decided that plaintiff was not entitled to recover.

1

 Certiorari granted.

GRAHAM, Judge,

delivered the opinion of the court:

The plaintiff was a manufacturer and seller of certain so-called soft drinks and beverages. Sales were made to the retail trade, who were informed by the salesmen that the price of plaintiff’s product would not be increased on account of the beverage tax imposed by the revenue act of 1918, but that the price would remain the same as before the act was passed. Plaintiff’s customers understood that *255it would pay the tax on beverages, and that they would not be billed therefor. During the period involved in the instant case the plaintiff received $2,475,031.44 from sales and paid to the collector of internal revenue 10 per cent thereof. This suit is brought to recover the sum of $22,500.03, with interest, upon the ground that in paying 10 per cent on the amount received from sales under the aforesaid arrangement with its customers it had paid a tax on a tax, and that the price at which its product was sold was not the price actually received from its customers, but that sum less the tax paid; that the product having been sold for $8, the 10 per cent tax paid amounting to 80 cents, the price the plaintiff received for its product was $7.20, and that it was only liable to pay a tax of 10 per cent on this latter sum.

The statute provides that the manufacturer shall pay “ ten per centum of the price for which [the product is] so sold.” The question involved is: What shall be taken as the selling price, the sum actually received or another sum less the tax paid ?

The plaintiff contends that if the tax is levied upon the sum received it is being taxed upon a tax; that it pays not only a tax upon the sum received for its product but also upon the tax paid on it. The defendant, on the other hand, contends that the “ price ”* at which sold means what it says; that is, the sum actually paid by the buyer to plaintiff, the price which the plaintiff on its contract with the purchaser could collect from the purchaser. In the case of the *J. Hungerford Smith Grape Juice Co.,*63 C. Cls. 140, decided February 14,1927, this court, in passing upon the question whether goods sold with a discount of 2% on the price if paid within 10 days were to be taxed on the billing price or the price less 2% where the bill had been paid within 10 days, held that the manufacturer was only liable for tax on the price fixed by the agreement between the parties, and paid to'the manufacturer. The price was not determined until the buyer elected to pay in 10 days.

Plaintiff says in effect: “ I billed the goods at $8, but I paid a tax of 80 cents, which is more than I should have paid, because as $8 embraced the tax, the tax being 10 per *256cent, the amount that I actually received could only be ascertained by dividing $8 by 110, or $7,263+, and the tax on this sum would be $0,726+, and as 80 cents was paid I have overpaid my tax by the difference between the last-named sum and $0,726+.”

The regulation of the Commissioner of Internal Revenue allowed the plaintiff to either add the tax to the selling price or, if it intended, as in this case, to pay the tax, to bill the goods with the price and the tax stated separately, and of this regulation the plaintiff must be visited with notice. It was a reasonable regulation and intended to save time, labor, and complications on the part of both the Government and plaintiff. The plaintiff did not observe the regulation. It billed the goods at $8, received that amount in payment therefor, and paid the tax upon this basis during six months of 1919, and for the years 1920 and 1921; in all, 30 months. It is evident that plaintiff thought that the tax was to be levied upon the price at which it sold the goods and which the customer paid therefor, and we think it reached the right conclusion.

The petition should be dismissed, and it is so ordered.

Moss, *Judge.;*Booth, *Judge;*and Campbell, *Chief*Justice, concur.

Hat, Judge, absent.