Source: https://openjurist.org/323/us/582
Timestamp: 2019-04-20 20:15:24+00:00

Document:
Mr. Arnold F. Schaetzle, of Des Moines, Iowa, for petitioner.
Mr. Andrew D. Sharpe, of Washington, D.C., for respondent.
Mr. Justice MURPHY delivered the opinion of the Court.
Section 603 of the Revenue Act of 1932, c. 209, 47 Stat. 169, 261, Internal Revenue Code, § 3401, 26 U.S.C.A. Int.Rev.Code, § 3401, imposes on toilet preparations sold by manufacturers or producers an excise tax equivalent to stated percentages 'of the price for which so sold.' Petitioner was subject to this tax from October 1, 1936, to June 30, 1939, and has sought a refund of a portion of the tax paid on the ground that its selling and advertising expenses should have been excluded from the selling prices in computing the tax. The District Court after trial upheld this claim and awarded a refund, D.C., 52 F.Supp. 292, but the court below reversed that judgment, 8 Cir., 141 F.2d 380. The alleged conflict with the decisions of the Circuit Court of Appeals for the Seventh Circuit in Campana Corporation v. Harrison, 7 Cir., 114 F.2d 400, and Campana Corporation v. Harrison, 7 Cir., 135 F.2d 334, led us to grant certiorari.
Petitioner contends that advertising and selling expenses fall within the term 'other charge' appearing in the last sentence of Section 619(a) and hence are excludable in determining the selling price for tax purposes. This claim, however, is refuted by both the spirit and the letter of this statutory provision.
Congress sought in the Revenue Act of 1932 to use the manufacturer's or wholesaler's selling price, rather than the retail price, as the measure of the excise taxes imposed by Section 603. 75 Cong.Rec. 11383, 11657. Section 619(a) was designed to lay down specific rules for determining this selling price, especially in relation to costs incurred after the article itself had been manufactured. It provides for the use of the manufacturer's or producer's f.o.b. price at the factory or place of production. In essence, all manufacturing and other charges incurred prior to the actual shipment of an article and reflected separately or otherwise in the f.o.b. wholesale price are to be included in the sale price underlying the tax, while all charges incurred subsequent thereto are to be excluded. Hence any additional charge which a purchaser would not be required to pay if he accepted delivery of the article at the factory or place of production may be so excluded. See H.Rep. No. 708 (72d Cong., 1st Sess.) p. 37; S.Rep.No. 665, Part 3 (72d Cong., 1st Sess.) p. 3; H.Conf.Rep. No. 1492 (72d Cong., 1st Sess.) p. 22.
Advertising and selling expenses incurred by a manufacturer such as petitioner clearly fall within the class of charges which Congress intended to be included in the tax base. Regardless of whether we consider such expenses technically as manufacturing costs, it is obvious that they are incurred prior to the actual shipment of articles to wholesale purchasers and that they enter into the composition of the wholesale selling price. Even if the purchaser accepts delivery at the factory, he pays for the advertising and selling expenses. Thus they must be included in the taxable sales price.
The inclusion of these expenses is plainly warranted by the language of Section 619(a). Pre-shipment charges relative to coverings, containers and placing an article in condition for shipment are specifically included in the determination of the selling price. But a subsequent 'transportation, delivery, insurance, installation, or other charge' is to be excluded if properly established. In the setting of this case, no rule of reason or grammar justifies placing advertising and selling expenses within the meaning of this exclusionary sentence.
Finally, petitioner urges that Section 619(b) must also be considered in order to ascertain the true Congressional intent and in order to give Section 619(a) its proper construction. But Section 619(b) merely provides that where the manufacturer sells at retail, on consignment or otherwise than through an arm's length transaction, the tax shall be based upon a figure determined by the Commission with reference to the prices at which similar articles are sold in the ordinary course of trade. Inasmuch as petitioner's sales were made at wholesale, Section 619(b) has no direct application to this case. But it does serve to emphasize the failure of Congress to make similar provisions for tax equalization under Section 619(a) where the manufacturer's sales are at wholesale. It cannot, however, vary the plain intent and language of Section 619(a) and Congressional statements4 relating to the desirability of eliminating discriminations against manufacturers making retail sales cannot be taken as evidence of a desire to prevent the natural inequalities that result when a tax is placed on the wholesale selling price.
Mr. Justice ROBERTS concurs in the result.
The parenthetical matter following the term 'other charge' in the last sentence of Section 619(a)—'(not required by the foregoing sentence to be included)'—is not significant in this case. It serves simply to provide that, to the extent that the provisions for inclusion and exclusion may overlap, the former shall control.
Section 3(a) of the Revenue Act of 1939, 53 Stat. 862, 863, Internal Revenue Code, § 3401, 26 U.S.C.A. Int.Rev.Code, § 3401, excluded from the sale price 'a transportation, delivery, insurance, or other charge, and the wholesaler's salesmen's commissions and costs and expenses of advertising and selling.' (Italics added.) Section 3(b) made this amendment prospective only and hence Section 3(a) cannot be taken as a Congressional declaration that the advertising and selling expenses were intended to be excluded from the selling price under the Revenue Act of 1932. On the contrary, the very fact that Congress found it necessary in 1939 to exclude such expenses specifically is persuasive evidence that prior thereto advertising and selling expenses were not meant to be excluded.
Congress has subsequently realized that the excise tax on the wholesale selling price created tax inequalities among manufacturers. In Section 552 of the Revenue Act of 1941, 55 Stat. 687, 718, 26 U.S.C.A. Int.Rev.Code, § 2402, Congress substituted a retail excise tax for the manufacturer's excise tax on toilet preparations. The reasons assigned for the change were that under the earlier law 'evasion is substantial and inequitable competitive situations are created.' H. Rep. No. 1040 (77th Cong., 1st Sess.), p. 33.
See H. Rep. No. 708 (72d Cong., 1st Sess.), pp. 32-33; 75 Cong., Rec. 5693, 5694.

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