OFFICE OF THE AlTORNEY GENERAL OF f%xAs **AUSTIN** -cIlurc -IOU OFFICE OF THEATTORNEY GENERAL OF TEXAS
AUSTIN

Honorable George H, Sheppard Comptroller of publicAooounts Austin, Texas
Dear Sir: OpinicnNo. O-4056 R0: Whether or not the ten per oent additionalcharged the buyer by merohants in order to cover the Federal tax shouldbe included in the "receipts from the sale" onwhich the 2 per cent State sales tax on radios end cosmetics (Art, 7047-L,V.AC.S.) is calculated.
This is in reply to your request for our opinion on the question of whether or not, when certain articles are sold at retail, the extra charge collectedby merchantsbecause of the recentFederal RevenueAct of 1941, levying a ten per cent tax, shouldbe included in computing the tax on the sale of radios and cosmeticsdue the State of Texas under Article X, House BillNo. 6, Forty-seventhLegislature, 1941, oodified as Article 7047-L of Vernon'sAnnotated Revised Civil Statutes of Texas. If a radio or a quantity of cosmetics sold at retail for ten ($10.00)dollarsbefore the Federal RevenueAct of 1941 went into effect, and if said radio or said quantity of oosmetios sold at retail for eleven ($11.00)dollars after the Act went into effect, the one ($1.00)dollar being added to cover the ten per cent Federal tax, would the State tax be oaloulated on a sale price of ten ($10.00)dollars or on a saleprice of eleven ($11.00)dollars?

The State tax in question, to-wit, saidArticle 7047-L, V.A.C.S., reads in part as follows:

%eotion 1. Each person,partnership, assooiation, or corporation selling at retailnew radios or new cosmetics, shallmake quarterly on the first days of January,April, July end October of eachyear, a report to the Comptrollerunder oath of the owner,Honorable George H. Sheppard, Pa&e 2

manager, or if a corporation,an officer thereof, showing the aggregategross receipts from the sale of any of the above named items for the quarter next preceding; and shall at the same time pay to the Comptroller * luxury excise tax equal to two (2)per cent of said gross receiptsas shownby said report.
I'** * "Nothingherein shallbe construed so as to requirepayment of the tax on gross receiptsherein leviedmore than onoe on the proceeds of the sale of the same article of merchandise, A retail sale EIS used herein,means a sale to onewho buys for use or consumption, andnot for resale:.Gross receipts of a salemeans the sumwhich the purchaser Pays, or agrees to pay for an article or commodity bought at retail sale."
The Federal taxes in question are levied under the terms of "PublicLaw 250, Chapter 412, Seventy-seventhCongress, First Session,"known as the "hevenueAct of 1941," effective October 1, 1941. That part of the Act with whioh we are concerned levies two types of taxes, to-wit, (1) a manufacturersand producers tax, and (2) a sales tax.

That part of th? "RevenueAct of 1941" that concerns radios is S&ion 545, which amends Section 3404 of the Internal Revenue Code, and reads as followsa

"There shallbe imposedupon the following articles (includingin each CBSR, except in the case of musical instrurr,ents, parts or accessoriestherafar sold on or in cocnectionwith the sale thereof) sold by the manufacturer,producer, or importera tax equivalent to 10 per centum of the price forwhich sold:"(a) Radio receiving sets, automobileradio receiving sets, combinationradio and phonograph sets, and phonographs. "(b) Chassis, cabinets, tubes, reproducing units, power packs, antennae of the 'built-inc.typeHonorable GeorgeH. Sheppard,Page 3

and phono~aqhm~r~~nj-~,E.,wh.i&.%x WLL+R&J~~ fv use on or in ccnnectionwith, or as componentparts of, any of the articles enumerated in subsection (a),whether CP not primarily adaptsd for such use, "(c) Phonograph records. "(d) Musical instruments."
That part of the "Revenuexct of 1941" that oonoerns cosmetics is a part of Section 552,which adds 8 chapter 19 to the InternalRevenue Code, and reads 8s follows:

"Sec. 2402. (a)Tax. - There is hereby imposed upon the following articles sold at retail a tax equivalent to 10 per centum of the price for which so sold: Perfumes, *ssenoes, extracts, toiletwaters, cosmetics,petroleum jellies,hair oils, pomades, hair dressings, hair restoratives,hair dyes, arome.- tic cachous, toilet powders, and any similar substance, article, or preparation,by whatsoever naxie known or distinguished; any of the abovewhich are used or applied or intended to be used or applied for toilet purposes.
I'** *
"Sec. 2403. (a)Fvery personwho sells at retail any article taxable under this chapter shallmake monthly returnsunder oath in duplicate and pay the taxes imposedby this chapter to the collector for the district in which is located his principalplace of business * * *

. fl* * * "(c) In determining, for the purposes of this chapter, the price forwhich an article is sold, there shall be included any charge for coverin& and containers ofwhatever nature, and any charge incident to placing the article in conditionpacked ready for shipment,but there shallbe excluded the mount of tax imposedby this chapter,whether or not stated as a separate charge. A transportation,delivery, insurance, installation, or other charge (not requiredHonorable George H. Sheppard, Page 4

by the foregoing sentenceto be included) shall be excluded from the price only if the amount thereof is establishedto the satisfactionof the Commissioner, in accordancewith the regulations. There shall alsobe excluded, if stated as a separate charge,the amount of any retail sales tax imposedb:fany State or Territory or political subdivi(lion

of the forekoinb, or the District of Columbia,whether the liability for such tax is in-posed

on the vendor or the vendee."

Let us examine the State law, to-wit, Article 7047-L, V.A.C.S. It says th&t eachperson, etc., "sellin& at retailnew radios or new cosmetics, shallmake quarterly * * * a report * * * showing the a®ate &ross receipts from the sale of any of the abovenamed items * * *; and shall * * * pay to the Comptroller a luxury excise tax equal to two (2)per cent of said brass receipts * * *.'I It is important for us to determine what reoeipts are "from the sale," We believe it is a question ?fwhat part of the money passes is the saleprice,

Section 545 of the Federal RevenueAct **of** 1941,which is the part that concerns radios, is a manufacturers and producers tax, It is levied against the manufacturer, producer or importer. The tax ismeasured by the amount the manufacturer,producer or importer receives for itwhen he sells the article,but, neoertheless it is a tax ag,ainstsaidmanufacturer,producer or importer. The courts have held in many instancesthat taxes leviedby statutes worded like said Section 545 are against the manufacturer, producer or importer, Lash's Products CompanyVS. United States, 278 U. S. 175, 73 L. Ed. 251, 49 Sup. Ct. R. 100; ThurmanV, Swisshelm, 36 Fed. (Zd) 350; Con-Rod Exchange, Inc.,V* Henrioksen, 28 Fed. Supp. 924; and People v. ';'erner, 364 Ill. 594, 5 N. E. (2d) 238. An amount equivalent to such a tax is usually added to the price of the articleby the manufacturer in the samemanner that he aids other costs incurred in prodwin& the article, for example, increased rents, ad valorem taxes, unemployment oompensation taxes, andmany other i.tems or cost; and each person in turn buyink and reselling the articlepasses this added cost on until it reaches the consumer. The consumer cannotpass it on. In the case of taxes of this kind the consumerusually p&ys them in the form oi an increased cost to the oonsumer. The tax becomes 8 part oi;

the saleprice. Ihisview is clearly illustratedby the language of JustionHolmes in the case of Lash's Products Company V. United States, supra, inwhich he saidrHonorable George H. Sheppard, Page 5

"This is a.suit to reoover the amount of certain taxes paid under the Revenue Aot of 1918 (Act of February 24, 1919, C. 18, 1 628, 40 Stat. 1057, 1116). By $ 626 there is imposed on 'softdrinks, sold by the manufacturer, * * * inbottles or other closed containers, a tax equivalentto 10 per oentum of the price for which so sold.1 by thepetitioner, This tax was paid calculated at ten per oentum of the sum actually receivedby it for the goods sold. But the petitionerhad notified its customersbeforehand that it paid the ten per cent tax and it contends that in this way it passed the tax on and that the true price of the goodswas the sum received less the amount of the tax. 'The phrase 'passedthe tax on1 is inaccurate,as obviouslythe tax is laid and l~emains on the manufacturer and on him alone. Heckman & Co.

The same view was taken by the Supreme Court of Illinois in the case of People v.Werner, supre, inwhich the court said:

"* * * Section 617 of the internal revenue laws (26U.S.C.A.p$ 3601-3629, see 26 U.S.C.A. 1 1420 et seq. note) levies a federal excise txx of one cent per gallon on the producer or importer of gasoline and prescribes for his registration and thjr conditions under which he shall furnish bonds, make returns, and pay the tax to the federal collector of the district. No excise tax is imposedupon or paid by the retailer of gasoline, It may be true that the federal excise tax upon gasolinewhich is paid b:ythe producer or importer is, upon its sale to the retailer, added to the cost of the product as a separate charge, in the samemanner as transportation,delivery, insurance, or other charges are added. The itemization of these separate charges, or any of them, in the invoices sentby the producer or importer to the retailer,does not change the fact that the producer or importerhas paid the tax to the federal tovemment and has thereby, in effect, raised the cost of the gasoline to the retailer. The federal excise tax has thernfor~e made the t;asoline cost one cent per gallonmore to the retailer, just as import andr

HonorableGeorge H, Sheppard,Page 6

. other taxes leviedby the federal government are added to the price of cigars, cigaretts, clothing, or automobiles soldby producers or importersto retailers, The retailer,whether of tobacco, gasoline, clothing, or automobiles,has no duty or burden of collecting or paying over to the federal government any manufacturer's, importer's,or excise taxes - they have alreadybeen paid before he gets the nrticle, and they are as much a part of the cost to him as are freight, express, insurance,or other charges which enter into and increase the cost of such articles. * * * n
A similarview was taken by the court in the case of Elmer Candy Company Y. Fauntleroy, 19 Fed, (2d) 664.

It is our conclusionthat the ten per cent increase in the amount collected on the sale of a radio,because of the Federal tax, is a part of the saleprice.

We reach a different conclusion in the case of cosmetics. Section 552 of the Federal RevenueAct of 1941,which concerns radios, is a retail sales tax. It is a tax on the retail sale, and althoughthe seller remits the amount of the tax to the Gwernment the tax is collected from the buyer in the retail sale, to-wit, the consumer. In this o&se the consumerpays the tax without any disguise. In construing a Federal sales tax on gasoline that was similar in wording to this particularFederal sales tax on cosmetics the Supreme Court of Michigan in the ease of Standard Oil Co. Y. State, 283 Mich. 85, 276N. ?:.908, said:

' * * + The trial court held that both of the above-mentionedfederal taxes are taxes on the sale of gasoline and lubricatingoil andnot taxes upon their manufacture and permittedplaintiff to recover. "Appellantsadmit that the federal excise tax abovementioned isnot a tax on the manufacturer,but is a tax on the sale.
11* * *

'I* * * when sales we made directly from producer to oonsumer, the sales tax attaches the instant 8 sale ismade. In view or the fact that the federal e*cisec

.
Honorable George H. Sheppard,Pabe 7

tax and the State sales tax attach at the instanta sale is made, it follows that the federal tax has not become a part of the saleprice, but is a fund,which when collected is payableby the manufacturer to the federal government. Such fund does not become a part of the 'grossproceeds' realizedby the manufacturer from the sale, ad is not subject to taxationwithin the meaning of Act No. 167, Pub. Acts 1933.
fl* * *
"The conclusion is inevitablethat the federal excise tax may not be considered as a part of the retail prioe, and the judgment of the trial court is affirmed." (Underscoringours)
It is our conclusion that the ten per cent increase in the amount collected on ~the6~10 of cosmetics,because of the Federal tax, isnot a part'of the saleprice.

- Our answer to your inquiry is that the Federal tax in regardto radios is a manufacturers and producers tax, and the tax is actuallypaid by the manufacturer or producer and added to the sellingprice as a part of the cost of production. Said increase in cost to the consumer is a part of the saleprice. But on the other hand, the Federal tax in regard to cosmetics is a retail scles tax, and the tax is actuallypaid by the buyer, towit, the consumer. Said increase in cost to the consumer is not a part of the sdle price. In both cases the consumerpays an amount equivalent to the Federal tax; but, in the oise of' radios it is in the form of an increasedprice because of an increased production cost caused by a tax on the producer, md in the case of cosmetics it is in the form of an undisguised sales tax borne directlyby the consumer, In computing tho State tax on the sale of radios it shouldbe calculated on the amount paidby the purchaser includingthe amount addedbecause of the Federal tax; but in computing the State tax on the sale of cosmetics it shouldbe calculated on the amount paid b:rthe purchaser excluding the amount addedbecause of the Federal tax.

APPROVED NOV 7, 1941 Yours very truly
ATTORNEY GENERAL OF TELAS (S) Grover Sellers FIRSTASSISTANT ATTORKJiY

GENLRAL CCR:ej (S)By Cecil C. Rotsch Assistant