Court Opinion

ID: 4606467
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:38:38.01101+00
Date Added: 2024-06-11T07:53:22.689794
License: Public Domain

Crane Company of Minnesota, Petitioner, v. Commissioner of Internal Revenue, RespondentCrane Co. of Minnesota v. CommissionerDocket No. 26262United States Tax Court25 T.C. 727; 1956 U.S. Tax Ct. LEXIS 297; January 17, 1956, Filed *297 Decision will be entered for the respondent.  Petitioner is engaged in the sale at wholesale of a wide variety of plumbing and heating supplies and equipment in a sales area comprising 4 States and parts of 3 other States.  It claims relief from excess profits tax under the provisions of subsections (b) (2), (b) (3) (A), (b) (3) (B), and (b) (5) of section 722 of the 1939 Code.  Held, petitioner has failed to establish the qualifying factors requisite to relief under any of the above subsections of section 722 (b).  George S. Stansell, Esq., John B. Chamberlain, Esq., and Leonard S. Schmitz, Esq., for the petitioner.Charles D. Leist, Esq., and Arthur B. White, Esq., for the respondent.  Harron, Judge.  HARRON *727  The taxable year involved is 1941.  The Commissioner agrees that the petitioner is entitled *298  to the benefit of an unused excess profits credit carryover or carryback, as the case may be, to the taxable year 1941.  The years 1940 and 1942 are involved in the application of an unused excess profits credit carryover and carryback.  The respondent has determined that the amount of excess profits tax for 1941 is $ 58,700.46, after giving effect to an unused excess profits credit carryover and carryback.  If the petitioner's claim for relief from excess profits tax is sustained in this proceeding, then there is overpayment of excess profits tax for the year 1941 in the amount of $ 58,700.46.  The petitioner has filed a claim for refund of excess profits tax which has been paid.The petitioner filed application for relief from excess profits tax under section 722 of the 1939 Code for the year 1941.  The petitioner's application for relief for the year 1941 was denied after consideration and review by the Excess Profits Tax Council.  Thereafter, the Commissioner issued his notice of disallowance, determining that the petitioner was not entitled to any relief under section 722.  The Commissioner determined that the petitioner did not qualify for relief under any of the provisions of*299  section 722 which were relied upon by *728  the petitioner, and that it had not established what would be a fair and just amount representing earnings to be used as a constructive average base period net income for the purpose of computing an excess profits tax based upon a comparison of normal earnings and earnings during the excess profits taxable year ended December 31, 1941.The issues, in general, are whether the petitioner qualifies for relief under the provisions of either subsection (b) (2), (b) (3) (A), (b) (3) (B), or (b) (5) of section 722 of the 1939 Code, and, if the petitioner qualifies for relief under any subsection of section 722, whether the petitioner has established what would be a fair and just amount representing normal earnings to be used as a constructive average base period net income. The petitioner relies primarily upon the provisions of section 722 (b) (3) (A).  The petitioner contends that throughout its history it has carried on a business through which it supplied certain types of building materials to the construction industry and that, therefore, at all times it was either a member of the construction industry, or, in the alternative, it was a*300  member of an industry which was so closely related to and dependent economically upon the construction industry that its profits cycle was affected or controlled by the profits or volume cycle, or both, of the construction industry. The petitioner claims that it had a variant profit cycle.The record in this proceeding is large; it includes 10 volumes of transcript and more than 240 exhibits.  A few of the facts have been stipulated.FINDINGS OF FACT.The stipulated facts are found as facts.  The stipulations are incorporated herein by this reference.The petitioner filed its excess profits tax returns for the taxable years 1940, 1941, and 1942, with the collector of internal revenue for the district of Minnesota.  The petitioner filed timely applications for relief under section 722 of the 1939 Code for the taxable years 1941 and 1942, on September 15, 1943.  Petitioner did not file application for relief under section 722 or claim for refund with respect to the year 1940, and the statutory period within which such application or claim might be filed has expired.The petitioner, a Minnesota corporation, was organized on December 15, 1892, under the name of Crane & Ordway Company. *301  Its charter was renewed on December 15, 1922, and at that time its corporate name was changed to Crane Company of Minnesota.  The petitioner maintains its principal office in St. Paul, Minnesota.The petitioner is not and never has been engaged in any construction work.  The petitioner's charter, both the original and the renewed charter, describes the scope of petitioner's authorized activities in the following way: "The general nature of its business shall be buying, *729  selling and dealing in pipe, fittings, railway, mill, steam fittings and plumbers' supplies and similar commodities." The nature of petitioner's business operations and of the products it sells are described in more detail hereinafter.  In general, petitioner's business operations during the taxable year, the base period years, and during all of the earlier years is and has been primarily the purchase and the resale at wholesale of plumbing and heating equipment and supplies manufactured by Crane Co. of Illinois and by other manufacturers.  Petitioner is and always has been primarily a wholesale distributor and it has done very little manufacturing at any time and very little fabricating work.  Such fabricating*302  of materials as petitioner does is done in connection with its business of wholesale distribution.Crane Co., the Illinois corporation, has its principal office in Chicago.  It is referred to hereinafter as Crane of Illinois.  It was organized in 1865.  Crane of Illinois, at all times material, has been and is a manufacturer of a wide line of plumbing and heating materials and allied equipment, heating boilers, heating radiators, plumbing earthenware, plumbing enamelware, and bathroom fixtures such as lavatories, bathtubs, closets, closet tanks, sinks, laundry trays; various kinds of valves and fittings, steam specialties, and pipe fittings.  Crane of Illinois, in 1932, operated 11 manufacturing plants.  Crane of Illinois has various subsidiaries such as Crane-O'Fallon Co. of Colorado, Trenton Potteries Co. of New Jersey, and Crane Enamelware Co. of Tennessee; and it has a nationwide distributing organization with headquarters in New York, Birmingham, Cleveland, Chicago, Dallas, St. Paul, Denver, and San Francisco.  Crane of Illinois, over the long period of its existence, has developed a national system for the distribution and sale of its own manufactured goods.  It also has maintained*303  a control purchasing department for the purchase of goods manufactured by others, called jobbed goods, which are sold by Crane's subsidiaries and branches.In Poor's Industry and Investment Survey of July 5, 1939, the use of Crane products is described in the following way:Crane's products are used in all major industries as well as for household, office building, hospital and industrial building purposes.  Among the major industrial markets are public utilities, railroads, water works and steel, shipbuilding, oil, chemical, textile, paper and food products industries.In a report to stockholders of Crane of Illinois for the year 1932, the market for the products of Crane of Illinois is described as falling into three large divisions, namely, industry, building construction, and replacements and remodeling; the market of "industry" is indicated by reference to steel mills, oil refineries, public service plants, packing houses, railroads, ships, waterworks, and any plant where water, air, gas, steam, or oil has to be conveyed and controlled; and the field of building construction is indicated by reference to residential construction, *730  served by Crane's plumbing and heating*304  division, and to construction by the Federal Government.From 1892 until the end of 1922, petitioner's outstanding capital stock was owned 50 per cent by Lucius P. Ordway, and 50 per cent by Crane of Illinois.  On December 31, 1922, Crane of Illinois acquired an additional .025 per cent of petitioner's stock.  Thereafter, including 1939, Crane of Illinois owned 50.025 per cent, and the Ordway family owned 49.975 per cent of petitioner's stock.Since 1910, petitioner's books of account have been kept on a calendar year basis.  From 1892 to 1909, inclusive, petitioner's books were kept on the basis of a fiscal year ended on November 30.  Accounting data set forth hereinafter is based on the accounting periods which existed in the respective years.In its nationwide distribution and sales of its products, Crane of Illinois has established 8 regions, or sales territories. The petitioner's sales territory constitutes 1 of these regions.The petitioner's sales territory, during all of the time which is material, has consisted of Minnesota, the northwest quarter of Wisconsin, the upper peninsula of Michigan, North Dakota, South Dakota, the northern third of Wyoming, and Montana.  From 1906*305  to 1916, inclusive, petitioner also had a sales outlet in Winnipeg, Canada, and it made substantial sales in the Winnipeg area.  The sales territory of the petitioner is principally an agricultural area, but in the States of Minnesota, South Dakota, and Montana there are industrial and mining enterprises.During the base period years, and before, petitioner had 9 sales offices or branches in its sales territory, together with warehouses.  The locations of the branches, the years of their operation, and the type of economy in the area served by each branch are set forth in the following table:Table 1State and citiesPeriods of operationType of economyMinnesotaSt. Paul1895-1939Principally agricultural, someindustrial.Minneapolis1895-1939Principally agricultural, someindustrial.Duluth1895-1897Agricultural, industrial, and mining.1904-1939Mankato1925-1939Almost entirely agricultural.Hibbing1925-1927Principally industrial and mining;some limited agriculture.Winona1920-1932Mostly agricultural; some industry.North DakotaFargo1904-1939Almost entirely agricultural.South DakotaAberdeen1910-1939Almost entirely agricultural.Sioux Falls1925-1939Principally agricultural, someindustry.Watertown1904-1910Agricultural.MontanaGreat Falls1911-1939Principally agricultural; quite a bitof mining, some industrial associatedwith mining.Billings1925-1939Principally agricultural, includingcattle raising.Butte1911-1912Principally mining and smelting.CanadaWinnipeg1906-1916During years indicated, almostentirely agricultural.*306 *731  The items sold by petitioner were purchased, almost entirely, from Crane of Illinois and its subsidiaries and affiliates, and from Crane's central purchasing department which did the buying of jobbed goods, i. e., goods manufactured by others.  Hereinafter, the lines of goods sold by petitioner are designated Crane-manufactured goods (meaning made by Crane of Illinois), and jobbed goods (meaning made by others than Crane of Illinois).The principal products which petitioner sold come under the following general descriptions; iron and steel pipe, valves, fittings and appliances for controlling and conveying water, oil, other liquids, steam, gases, and air; heating boilers, furnaces, heating radiators, heating appliances; plumbing appliances (meaning bathtubs, lavatories, water closets, sinks, and other earthenware and enamelware (enameled iron) products of similar use and type); plumbing brass and fixtures; and miscellaneous related goods.  Petitioner sold a wide selection of the above classes of goods.  In one of petitioner's catalogues it is stated that it handled about 20,000 articles manufactured by Crane of Illinois made of brass, iron, cast steel, ferro steel, and forged*307  steel, and distributed pipe, and heating and plumbing materials.  Petitioner sold iron and steel pipe having diameters ranging from one-eighth of an inch to 40 inches.  In addition to the above types of goods, petitioner has sold, in each year since 1920, specialized equipment designed for use in creameries and dairies, but such sales have amounted to less than 5 per cent of all sales each year.  For many years prior to 1930, petitioner sold windmills.  A small percentage of petitioner's sales each year have consisted of such miscellaneous goods as pumps, refrigerators, water and irrigation systems and equipment, flag poles, humidifiers, auto washers, bar furniture and equipment, hose, plumbers' tools, bathroom accessories, clothes poles, belt lacers and lacings, flue brushes, and water softeners.Petitioner destroyed its sales invoices after 3 years, but it retained other records which go as far back as 1899 from which large group classifications of goods sold by petitioner can be made.  Exhibit 64 is incorporated herein by reference.  From the retained records, petitioner's sales during 1899-1929 can be described in 3 groups; sales during 1930-1936 can be described in 5 groups; *308  sales in 1937 and 1938, in 8 groups; and sales in 1939, in 10 groups, as the following schedules show: 1899-19291. Crane manufactured goods (general).2. Steel pipe (not made by Crane).3. Jobbed goods other than steel pipe (not made by Crane).*732 1930-1936Crane manufactured goods: (1) Plumbing consisting chiefly of earthenware and enamelware fixtures.(2) Boilers and radiation.(3) Other goods such as valves and fittings.(4) Steel pipe (not made by Crane).(5) Jobbed goods other than steel pipe (not made by Crane).1937 and 1938Crane manufactured goods: (1) Valves and fittings.(2) Plumbing brass.(3) Plumbing earthenware.(4) Plumbing enamelware.(5) Heating boilers.(6) Heating radiators.(7) Steel pipe (not made by Crane).(8) Jobbed goods other than steel pipe (not made by Crane).1939Crane manufactured goods: (1), (2), (3), (4), (5), and (6) (same as above).(7) Steel pipe (not made by Crane).Jobbed goods other than steel pipe (not made by Crane): (8) Jobbed plumbing.(9) Jobbed heating.(10) Jobbed miscellaneous.Petitioner does not have records for all of the years it has carried on its business from which computations*309  can be made of the dollar amounts of its sales of various classes of goods, but it has records for the years 1936-1939, inclusive, from which such computations can be made.In 1936, petitioner's sales of Crane plumbing goods amounted to roughly $ 1,138,000; Crane boilers and radiation, $ 361,400; other Crane goods, $ 804,900; jobbed steel pipe, $ 708,400; and other jobbed goods, $ 1,618,500.The following schedule presents a breakdown of petitioner's sales in 1937, 1938, and 1939:Table 21937Per cent1938PercentValves and fittings 1$ 978,89820$ 814,56420Plumbing brass 1216,7165180,5634Plumbing earthenware 1219,4465203,2675Plumbing enamelware 1235,2505239,4296Heating boilers 1131,4083111,6693Heating radiators 1120,414293,6262Jobbed pipe678,38114589,50614Jobbed goods2,184,478461,926,98046Jobbed plumbingJobbed heatingJobbed miscTotal sales 2$ 4,764,999100$ 4,159,604100Table 21939Per centValves and fittings 1$ 893,13120Plumbing brass 1222,5635Plumbing earthenware 1250,1165Plumbing enamelware 1306,8557Heating boilers 1109,7492Heating radiators 196,7122Jobbed pipe569,05813Jobbed goodsJobbed plumbing1,287,82628Jobbed heating593,16713Jobbed misc229,4175Total sales 2$ 4,558,594100*310 *733  The following schedule shows for 1939, the dollar amounts of petitioner's sales of goods in each of 5 classifications without reference to the manufacturers of the goods:AmountsPercentageClassof salesof totalsales1. Valves and fittings$ 893,13119.592. Steel pipe569,05812.493. Plumbing (including earthenware, enamelware, andbrass2,067,36045.354. Heating799,62817.545. Miscellaneous (including wrought iron pipe andspecialized creamery equipment)229,4175.03Total sales 1$ 4,558,594100.00The petitioner's records either are lacking or do not permit computations of *311  the dollar amounts or the percentages of sales, each year, of goods according to the end use thereof by the purchasers.  Furthermore, petitioner follows the policy of not disclosing the names or identities of its customers. However, petitioner's records for 1936-1939 provide information from which the compilations can be made of the general nature of the businesses of petitioner's customers and, to some extent, the dollar amounts of sales to customers according to the customer's business.  Large percentages of petitioner's sales were made to plumbing and heating contractors which classification is an accepted trade designation which includes, for example, all master plumbers who are engaged in the work of installing, repairing, and maintaining plumbing and heating fixtures and equipment, as well as contractors who install, under subcontracts, plumbing and heating equipment in new buildings.  The following schedule shows petitioner's customers, by business grouping, during 1936-1939, inclusive, and, where available, the dollar amounts of sales each year to the various groups of customers:Table 3Sales by Groups of CustomersCustomer groups19361937(1) Plumbing and heating contractors$ 2,356,627$ 2,498,073(2) Industrial994,0221,120,545(3) Wholesalers169,788191,322(4) Govts., Fed., State, mun111,859145,028(5) Private11(6) Fabricators11(7) General contractors11(8) Hardware dealers11(9) Unclassified1,270,8431,097,4462 $ 4,903,1392 $ 5,052,414*312 Table 3Sales by Groups of CustomersCustomer groups19381939(1) Plumbing and heating contractors$ 2,344,330$ 2,753,985(2) Industrial1,340,9881,198,874(3) Wholesalers202,497245,338(4) Govts., Fed., State, mun149,526199,606(5) Private47,93739,840(6) Fabricators28,47923,685(7) General contractors33,15359,709(8) Hardware dealers78,18395,183(9) Unclassified166,133164,1492 $ 4,391,2262 $ 4,780,369*734  Based upon the foregoing table, the following schedule sets forth the percentage of petitioner's total sales in each year to each group of purchasers.  (Petitioner's records were not kept prior to 1936 in such way as to show the amounts of sales each year to customers by classifications.)Percentage Breakdown of SalesCustomers by groups1936193719381939(1) Plumbing and heating contractors48.0649.4453.3957.61(2) Industrial20.2722.1830.5425.08(3) Wholesalers3.463.794.615.13(4) Governments2.282.873.414.18(5) Private institutions1.090.83(6) Fabricators0.650.50(7) General contractors0.751.25(8) Hardware dealers1.781.99(9) Unclassified25.9221.723.783.43*313  Large amounts of the goods sold by petitioner were purchased by contractors for installation in new construction of all types including new residences, apartments, schools, hospitals, university buildings, office buildings, power plants, county and city water and sewerage systems, store buildings, commercial buildings, meat packing plants, factories, irrigation systems, installations of wells, public buildings, oil and sugar refineries, an airport administration building, and public works constructed by State and Federal agencies.Some of the goods sold by petitioner were used by the purchasers in connection with repairs, replacements, and maintenance in existing structures.The uses made by some of petitioner's customers of goods which they purchased are not readily classified.Where the uses of goods sold by petitioner were in industrial plants, the goods were sometimes used in connection with plant equipment which was used in manufacturing processes.According to certain records of the petitioner which were maintained in 1938 and 1939, petitioner classified its customers in groups, as is shown in Exhibit 14, and as is shown in the following schedule.  Exhibit 14 is incorporated*314  herein by reference.  Table 4Types of AccountsA. Wholesalers.B. Plumbing and heating contractors.C. Classified "industrial" sales: 1. Food and kindred products.2. Textiles.3. Chemical.4. Iron and steel (not incl. machinery).5. Oil.6. Gas.7. Pulp and paper.8. Railroad.*735  9. Shipbuilding.10. Rubber.11. Water supply and drainage.12. Mining.13. Machinery (excl. transp. equip.).14. Lumber and forest products.15. Electric light and power.16. Automotive.17. Laundries and dry cleaning estabs.18. Well drillers.19. Hotels.20. Real estate and resorts.21. Fire apparatus.22. Florist.23. Sheet metal works.24. Tin and roofing.25. Hatcheries.26. Electric appliances.27. Elevator and grain companies.28. Electric companies and contractors.29. Farms and farmers.30. Tractor and impl. companies.31. Dept. stores.32. Coal docks.33. Greenhouses.34. Refrigeration companies.35. Consumers.D. Sales to Federal, State, and municipal governments.E. Schools, colleges, hospitals, and other private institutions.F. Fabricators.G. General contractors.H. Hardware dealers.I. Unclassified.The following table sets forth the capital stock, surplus, and the*315  net worth of petitioner at the beginning of each year in the period 1899-1939:Table 5CapitalNetYear 1stockSurplusworth1899$ 200,000$ 67,942 $ 267,9421900200,00093,116 293,1161901200,00062,221 262,2211902200,00064,457 264,4571903200,00085,585 285,5851904200,00092,055 292,0551905200,00087,013 287,0131906200,00099,159 299,1591907200,000218,045 418,0451908400,000100,685 500,6851909400,000125,232 525,2321910800,00023,557 823,5571911800,000170,848 970,8481912800,000335,053 1,135,05319131,000,000155,923 1,155,92319141,000,000282,781 1,282,78119151,000,000425,155 1,425,15519161,500,000589,217 2,089,21719171,500,000544,621 2,044,62119181,500,000631,987 2,131,98719191,500,000601,160 2,101,16019201,500,000699,469 2,199,4691921$ 2,000,000$ 943,908 $ 2,943,90819222,000,000327,150 2,327,15019232,000,000327,207 2,327,20719242,000,000397,863 2,397,86319252,000,000315,856 2,315,85619262,000,000296,329 2,296,32919272,000,000387,083 2,387,08319282,000,000218,589 2,218,58919292,000,000178,024 2,178,02419302,000,000170,640 2,170,64019312,000,00024,341 2,024,34119322,000,0002,158 2,022,15819332,000,000(63,154)1,936,84519342,000,000(70,104)1,929,89519352,000,000(12,191)1,987,80819362,000,00051,139 2,051,13919372,000,000136,741 2,136,74119382,000,000188,778 2,188,77819392,000,000160,917 2,160,917Averages:1922-19392,000,000168,743 2,168,7431936-19392,000,000134,394 2,134,394*316 *736  During the years 1899-1925, inclusive, petitioner borrowed capital from Crane of Illinois and from L. P. Ordway.  Its total borrowed capital, and the amounts borrowed from Crane of Illinois and from L. P. Ordway, are set forth in the following table.  During the years 1918-1939, inclusive (except 1923), the petitioner loaned funds to Crane of Illinois.  From 1926 through 1939, petitioner did not borrow funds from either Crane of Illinois or L. P. Ordway, or from any other source; it loaned funds to Crane of Illinois as the following table shows.  The following table shows, also, the ratios, in percentages, of the advances to Crane of Illinois to petitioner's net worth:Table 6Advances to Crane Co.Borrowed capital(Ill.)YearTotalFromFrom L.P.Ratio (perborrowedCrane Co.OrdwayAmountcent) to netcapitalworth1899$ 42,084$ 17,648$ 24,4361900191,04494,82296,2221901116,55853,07863,4801902220,150171,49648,6541903318,802270,24548,5571904397,696333,38064,3161905468,232385,91382,3191906667,426626,92840,4981907693,027688,5414,4861908701,562645,27256,2901909679,382619,23260,1501910724,928724,9281911646,829566,98479,8451912717,249684,16633,0831913942,148869,80472,3441914833,287759,31473,9731915743,698680,73262,9661916695,252618,48776,7651917392,755242,881149,8741918112,970112,970$ 48,1222.26191929,17929,179360,40117.151920134,740134,74029,1571.331921187,047187,04714,328.491922103,453103,45344,2101.901923257,230187,42869,8021924100,059100,059158,8996.631925100,806100,806267,76411.561926172,4797.511927554,86423.241928733,13333.051929510,62023.441930389,37117.941931369,73518.261932375,06518.731933390,29720.151934218,72511.331935202,44310.181936262,17612.781937219,88710.291938394,78918.041939517,48723.95*317  In the period 1899-1939, the petitioner received no tax-exempt income, either in the form of dividends from domestic corporations, or in the form of tax-exempt interest on Federal, State, or municipal bonds.*737  Petitioner's average net profit before Federal income taxes during the base period years was higher than its average net profit during the period 1922-1939.  Petitioner's average net profit before taxes during the base period years was $ 199,913, or 110.7 per cent of $ 180,560, its average net profit for the period 1922-1939.  The period of petitioner's highest profits embraces the 5 years 1916-1920, inclusive. In these 5 years, petitioner's average net profit before taxes amounted to $ 733,885.  In the period 1899-1939, omitting the years 1916-1920 (that is 1899-1915 and 1921-1939), petitioner's average net profit before taxes amounted to $ 177,682.  Petitioner's average net profit before taxes in the period 1916-1920, $ 733,885, equaled 367.1 per cent of the average for the base period years, and 413.0 per cent of the average for the periods 1899-1915 and 1921-1939.  The following table sets forth petitioner's profit or loss for each of the years 1899 to 1939, inclusive: *318 Table 7Petitioner'sprofit (orIndexYearloss) before1922-1939FederalAverage=100income taxes1899$ 225,002 124.6 1900112,870 62.5 1901104,437 57.8 1902121,128 67.1 1903106,470 59.0 190474,961 41.5 190592,146 51.0 1906118,885 65.8 1907202,640 112.2 1908124,547 69.0 1909178,325 98.8 1910307,291 170.2 1911164,205 90.9 1912250,870 138.9 1913279,654 154.9 1914270,076 149.6 1915317,234 175.7 1916770,820 426.9 1917609,884 337.8 1918572,982 317.3 1919799,209 442.6 1920916,530 507.6 192195,734 53.0 1922186,915 103.5 1923314,065 173.9 1924138,233 76.6 1925211,215 117.0 1926$ 339,998 188.3 1927271,857 150.6 1928354,301 196.2 1929388,777 215.3 1930121,730 67.4 193146,679 25.9 1932(63,159)(35.0)1933(4,279)(2.4)193469,030 38.2 193575,067 41.6 1936234,869 130.1 1937244,423 135.4 193862,441 34.6 1939257,920 142.8 Averages:1922-1939$ 180,560 100.0 1936-1939199,913 110.7 1916-1920733,885 406.4 1899-1939245,511 136.0 1899-1939 (less1916-1920)177,682 98.4 1916-1920 compared to:1936-1939367.1 1899-1939 (less1916-1920)413.0 1899-1939298.9 *319  Petitioner's average net sales during the base period years amounted to $ 4,485,605, or 92.3 per cent of the average for the period 1922-1939.  Petitioner's average net sales in the period 1922-1939 amounted to $ 4,857,500.  Petitioner's annual net sales reached their height in the period 1916-1930.  In each of these years, petitioner's sales exceeded $ 5,153,000, and within the period 1916-1930, annual sales exceeded *738  $ 6,000,000 from 1919 to 1926, inclusive, with the exception of 1921.  On the other hand, sales did not exceed $ 4,705,000 in any year prior to 1916 or after 1930.  The following table sets forth petitioner's annual net sales for the period 1899-1939, and an index thereof based on an average of 100 for the years 1922-1939:Table 8Index1922-1939YearNet salesAverage = 1001899$ 1,183,29824.419001,120,36023.119011,388,29128.619021,664,66534.319031,787,70236.819041,668,57934.419051,946,88940.119062,357,16848.519072,669,77455.019082,399,96149.419093,152,19664.919104,082,05884.019113,812,81878.519124,350,37389.619134,578,82794.319144,519,16893.019154,463,72791.919165,769,773118.819175,843,632120.319185,317,868109.519196,717,343138.319208,239,292169.61921$ 5,275,949108.619226,308,885129.919236,762,667139.219246,038,764124.319256,477,829133.419266,232,134128.319275,393,860111.019285,674,483116.819295,939,553122.319305,153,169106.119314,067,71083.719322,629,69654.119332,186,54445.019343,039,06162.619353,588,22173.919364,620,42295.119374,704,54796.919384,110,57784.619394,506,87592.8Average:1922-19394,857,500100.01936-19394,485,60592.3*320  The ratio of petitioner's average net income during the base period years, $ 199,913, to average net sales during the base period years, $ 4,485,605, was 4.45677 per cent.  This base period ratio of net income to sales was 119.9 per cent of the ratio of 3.71714 for the period 1922-1939, when average net income and net sales amounted to $ 180,560 and $ 4,857,500, respectively.  The ratio of petitioner's average net income during the base period years, $ 199,913, to average net worth during the base period years, $ 2,134,394, was 9.36627 per cent.  This base period ratio of net income to net worth was 112.5 per cent of the ratio of 8.32556 for the period 1922-1939, when petitioner's average net worth was $ 2,168,743.  The following table sets forth the ratios of petitioner's net income to net sales and to net worth for each of the years 1899-1939, together with indices based upon an average of 100 for the period 1922-1939: *739 Table 9 1Ratio ofIndexRatio ofIndexYearnet income1922-1939net income1922-1939to net salesAverage = 100to net worthAverage = 100189919.014 511.5 83.974 1008.6 190010.074 271.0 38.507 462.5 19017.523 202.4 39.828 478.4 19027.276 195.7 45.803 550.1 19035.956 160.2 37.281 447.8 19044.492 120.9 25.667 308.3 19054.733 127.3 32.105 385.6 19065.044 135.7 39.740 477.3 19077.590 204.2 48.473 582.2 19085.189 139.6 24.875 298.8 19095.657 152.2 33.952 407.8 19107.528 202.5 37.313 448.2 19114.307 115.9 16.914 203.1 19125.767 155.2 22.102 265.5 19136.107 164.3 24.193 290.6 19145.976 160.8 21.054 252.9 19157.107 191.2 22.260 267.4 191613.360 359.4 36.895 443.1 191710.436 280.8 29.828 358.3 191810.775 289.9 26.875 322.8 191911.898 320.1 38.037 456.8 192011.124 299.3 41.671 500.5 19211.814 48.8 3.252 39.1 19222.963 79.7 8.032 96.5 19234.644 124.9 13.495 162.1 19242.289 61.6 5.765 69.2 19253.261 87.7 9.120 109.5 19265.456 146.8 14.806 177.8 19275.040 135.6 11.389 136.8 19286.244 168.0 15.970 191.8 19296.546 176.1 17.850 214.4 19302.362 63.5 5.608 67.4 19311.147 30.9 2.306 27.7 1932(2.402)(64.6)(3.155)(37.9)1933(0.196)(5.3)(0.221)(2.7)19342.271 61.1 3.577 43.0 19352.092 56.3 3.776 45.4 19365.083 136.8 11.451 137.5 19375.195 139.8 11.439 137.4 19381.519 40.9 2.853 34.3 19395.723 154.0 11.936 143.4 Averages:1922-19393.717 100.0 8.326 100.0 1936-19394.457 119.9 9.366 112.5 *321 During the base period years, petitioner's average profit from business done in Montana amounted to $ 44,803, or 116.9 per cent of $ 38,338, the average profit during the period 1922-1939.  Petitioner's average profit during the base period years in its sales territory other than Montana also exceeded its average profit during the period 1922-1939.  Average profits in the base period years in this area amounted to $ 155,110, or 109.1 per cent of average profits during the period 1922-1939.  The following table shows, for the years 1920-1939, petitioner's total profit (or loss) before Federal income taxes, and the respective portions of its total profit (or loss) derived from its business in Montana and from business done in the balance of its sales territory other than Montana.  *740 Table 10Petitioner's Profit (or Loss) Before Federal Income TaxesIndexIndexTotalIndex1922-1939Montana1922-1939less1922-1939YearTotalAverage=onlyAverage=MontanaAverage=1001001001920$ 916,530 507.6 $ 101,492 264.7 $ 815,038 585.2 192195.734 53.0 (7,022)(18.3)102,756 73.7 1922186,915 103.5 19,162 50.0 167,753 120.4 1923314,065 173.9 24,458 63.8 289,607 214.4 1924138,233 76.6 20,202 52.7 118,031 84.7 1925211,215 117.0 11,587 30.2 199,628 143.3 1926339,998 188.3 49,329 128.7 290,669 208.7 1927271,857 150.6 66,611 173.7 205,246 147.4 1928354,301 196.2 101,585 265.0 252,716 181.4 1929388,777 215.3 95,314 248.6 293,463 210.7 1930121,730 67.4 35,177 91.8 86,553 62.1 193146,679 25.9 22,087 57.6 24,592 17.7 1932(63,159)(35.0)(12,061)(31.5)(51,098)(36.7)1933(4,279)(2.4)8,493 22.2 (12,772)(9.2)193469,030 38.2 20,230 52.8 48,800 35.0 193575,067 41.6 48,696 127.0 26,371 18.9 1936234,869 130.1 42,628 111.2 192,241 138.0 1937244,423 135.4 74,923 195.4 169,500 121.7 193862,441 34.6 9,772 25.5 52,669 37.8 1939257,920 142.8 51,891 135.4 206,029 147.9 Averages:1922-1939180,560 100.0 38,338 100.0 1 142,222 100.0 1936-1939199,913 110.7 44,803 116.9 155,110 1 109.1 *322 During the base period years, the average sales made by petitioner's branch offices in Montana considerably exceeded sales made by those offices in the period 1922-1939.  Average sales in Montana (including sales made in Wyoming), during the base period years amounted to $ 752,778, or 125.03 per cent of $ 602,090, the average for the period 1922-1939.  On the other hand, petitioner's average sales during the base period years in the balance of its sales territory amounted to $ 3,732,827, or only 87.7 per cent of $ 4,255,409, the average for the period 1922-1939.  In petitioner's sales territory other than Montana, average sales in the base period years amounted to 86.74 per cent of the 1922-1939 average in Minnesota; 90.68 per cent in North Dakota; and 91.07 per cent in South Dakota.  The following table shows, for the years 1922-1939, inclusive, petitioner's total annual sales and the annual sales in the 4 States in which petitioner maintained branch offices: *741 Table 11TotalMinnesota1Montana 2NorthSouthYearsalesDakota 3Dakota 41922$ 6,308,885$ 4,628.057$ 613,291$ 608,675$ 458,86219236,762,6675,074,105604,916630,303453,34319246,038,7644,648,706430,071501,090458,89719256,477,8294,612,214472,786686,307706,54019266,232,1344,239,439561,400750,538680,75719275,393,8603,556,295619,176635,944582,44519285,674,4833,480,457819,063679,129695,83419295,939,5533,671,579913,028648,486706,46019305,153,1693,249,707664,562594,374644,52619314,067,7102,632,587516,114364,970554,03919322,629,6961,842,464267,525223,179296,52819332,186,5441,441,506243,350206,576295,11219343,039,0611,906,870454,709321,546355,93619353,588,2212,170,433646,535386,012385,24119364,620,4222,917,411718,575470,459513,97719374,704,5472,951,025814,042453,414486,06619384,110,5772,550,830749,541407,505402,70119394,506,8752,839,959728,956495,084442,876Averages:1936-19394,485,6052,814,806752,778456,615461,4051922-19394,857,5003,245,202602,090503,533506,674Per cent:1936-1939 to1922-193992.3486.74125.0390.6891.07*323 If the annual totals for petitioner's net sales are adjusted for fluctuations in the wholesale price index of metals and metal products, the adjusted figures show a rise from a low point in the years 1917 and 1918 to a high point in 1925, and a decline to a low point in 1933.  In each of the years 1916 to 1920, inclusive, the adjusted figures for petitioner's net sales are lower than in any year during the period 1922 to 1930, inclusive. Petitioner's average net sales in the period 1916-1920, as adjusted, amounted to $ 4,675,056, or only 78.7 per cent of $ 5,940,508, the average for 1922-1930.  On the other hand, petitioner's average taxable income in the period 1916-1920 was the highest in its history.  During this period, petitioner's average taxable income amounted to $ 733,885, or 283.8 per cent of $ 258,566, the average for the period 1922-1930.  Similarly, petitioner's average taxable income during the base period years, $ 199,913, was higher than $ 180,560, *324  the average for 1922-1939, whereas petitioner's average net sales during the base period years, as adjusted, $ 4,824,066, were less than $ 5,069,104, the average for 1922-1939.The following table shows, for the years 1900 to 1939, inclusive, petitioner's net sales, the wholesale price index for metals and metal products, petitioner's net sales as adjusted for fluctuations in the latter index, and petitioner's taxable income before Federal income tax.  *742 Table 12 1Wholesale pricePetitioner'sindex, metalsYearnetand metalsalesproducts 1926=1001900$ 1,120,36098.019011,388,29193.119021,664,66591.019031,787,70290.219041,668,57979.919051,946,88989.119062,357,168102.419072,669,774109.819082,399,96186.319093,152,19684.519104,082,05885.219113,812,81880.819124,350,37389.519134,578,82790.819144,519,16880.219154,463,72786.319165,769,773116.519175,843,632150.619185,317,868136.519196,717,343130.919208,239,292149.419215,275,949117.519226,308,885102.919236,762,667109.319246,038,764106.319256,477,829103.219266,232,134100.019275,393,86096.319285,674,48397.019295,939,553100.519305,153,16992.119314,067,71084.519322,629,69680.219332,186,54479.819343,039,06186.919353,588,22186.419364,620,42287.019374,704,54795.719384,110,57795.719394,506,87594.4Averages:1916-19201922-19301922-19391936-1939Percentages:1916-1920 to1922-19301936-1939 to1922-1939*325 Table 12 1Petitioner's netsales asPetitioner'sadjusted by metalstaxable incomeand metalbefore Federalproducts wholesaleincome taxprice index1900$ 1,143,224$ 112,870 19011,491,182104,437 19021,829,302121,128 19031,981,931106,470 19042,088,33474.961 19052,185,06092,146 19062,301,921118,885 19072,431,488202,640 19082,780,951124,547 19093,730,409178,325 19104,791,147307,291 19114,718,834164,205 19124,860,751250,870 19135,042,761279,654 19145,634,872270,076 19155,172,337317,234 19164,952,594770,820 19173,880,233609,884 19183,895,873572,982 19195,131,660799,209 19205,514,921916,530 19214,490,16995,734 19226,131,083186,915 19236,187,252314,065 19245,680,869138,233 19256,276,966211,215 19266,232,134339,998 19275,601,100271,857 19285,849,982354,301 19295,910,002388,777 19305,595,188121,730 19314,813,85746,679 19323,278,922(63,159)19332,740,030(4,279)19343,497,19369,030 19354,153,03375,067 19365,310,830234,869 19374,915,932244,423 19384,295,27362,441 19394,774,231257,920 Averages1916-1920$ 4,675,056$ 733,885 1922-19305,940,508258,566 1922-19395,069,104180,560 1936-19394,824,066199,913 Percentages:1916-1920 to1922-193078.7283.8 1936-1939 to1922-193995.2110.7 *326 The Central Supply Association is a trade association of wholesalers of plumbing and heating equipment and supplies who sell the same general line of merchandise as the petitioner sells.  Its membership consists of corporations, partnerships, and proprietorships located in more than 20 States in the central part of the United States.  The area in which its members are located extends from Montana to New Mexico, south, from Tennessee to West Virginia, eastward, and from Pennsylvania to the Canadian border, northward.  During the base *743  period years the Central Supply Association had approximately 380 members.In the years 1927 to 1930, inclusive, and 1934 to 1939, inclusive, the association collected information from its members pertaining to their operations.  No data was collected for the years 1931, 1932, or 1933.  The following table shows the number of members who reported information, the total net sales reported by such members, and the average net sales per reporting member for the periods 1927-1930 and 1934-1939:NumberTotal net salesAverageYearof membersreportednet salesreportingper reportingmember1927134$ 106,000,000$ 791,0001928120100,000,000835,0001929157132,000,000843,0001930203114,000,000564,000193416436,000,000218,000193518752,000,000281,000193615256,000,000366,000193717581,000,000463,000193818368,000,000372,000193917983,000,000461,000*327  During the base period years, the average value of total construction contracts awarded in the Ninth Federal Reserve District, other than Montana, amounted to $ 96,244,000, or 99 per cent of $ 97,186,000, the average for 1922-1939.  The average value of residential construction contracts awarded in this area during the base period years equaled 92.0 per cent of the average for 1922-1939, and the value of nonresidential construction 101.8 per cent of the 1922-1939 average.  During the base period years, petitioner's average net sales in the same area (Minnesota, North Dakota, South Dakota, northwest Wisconsin, and the northern peninsula of Michigan) equaled $ 3,732,827, or 87.7 per cent of the 1922-1939 average.  The following tables show, for the years 1919 to 1939, the total value of building construction contracts awarded in the Ninth Federal Reserve District, the portions thereof representing residential and nonresidential construction, the petitioner's total net sales in the same geographical area, and indices thereof in which the 1922-1939 average equals 100: *744 Table 13Value of Building Construction Contracts Awarded in the Ninth Federal ReserveDistrict, Other Than MontanaYearTotal 1Residential 1Nonresidential 1Petitioner'ssales1919$ 91,676,000$ 30,256,000$ 61,420,000$ 6,206,5911920109,978,00025,358,00084,620,0007,565,186192198,212,00026,876,00071,336,0004,770,145192293,651,00029,980,00063,671,0005,695,5941923144,432,00048,243,00096,189,0006,157,7511924102,387,00039,592,00062,795,0005,608,6931925113,011,00047,066,00065,945,0006,005,0431926123,678,00045,798,00077,880,0005,670,7341927110,122,00041,392,00068,730,0004,774,6841928110,876,00039,878,00070,998,0004,855,4201929124,675,00028,337,00096,338,0005,026,5251930117,495,00021,932,00095,563,0004,488,607193199,008,00019,755,00079,253,0003,551,596193260,465,0008,055,00052,410,0002,362,171193341,854,0006,014,00035,840,0001,943,194193455,859,0004,719,00051,140,0002,584,352193566,869,00012,719,00054,150,0002,941,686193691,969,00019,174,00072,795,0003,901,847193792,182,00023,401,00068,781,0003,890,505193896,283,00025,854,00070,429,0003,361,0361939104,542,00032,684,00071,858,0003,777,919Average:1936-1939$ 96,244,000$ 25,278,000$ 70,966,000$ 3,732,8271922-193997,186,00027,477,00069,709,0004,255,409*328 Indices:1936-193999.092.0101.887.71922-1929100.0100.0100.0100.0Table 14Indices-Value of Building Construction Contracts Awarded in theNinth Federal Reserve District, Other Than MontanaYearTotal contractResidentialNonresidentialPetitioner'sindex 1index 1index 1sales index 1191994.3110.188.1145.91920113.292.3121.4177.81921101.197.8102.3112.1192296.4109.191.3133.81923148.6175.6138.0144.71924105.4144.190.1131.81925116.3171.394.6141.11926127.3166.7111.7133.31927113.3150.698.6112.21928114.1145.1101.8114.11929128.3103.1138.2118.11930120.979.8137.1105.51931101.971.9113.783.5193262.229.375.255.5193343.121.951.445.7193457.517.273.460.7193568.846.377.769.1193694.669.8104.491.7193794.985.298.791.4193899.194.1101.079.01939107.6119.0103.188.8*745  According to statistics prepared*329  by the F. W. Dodge Corporation, the average value of construction contracts awarded in the States of Minnesota, North Dakota, and South Dakota during the base period years amounted to $ 76,090,000, or 101.8 per cent of $ 74,742,000, the average during the period 1922-1939.  Petitioner's average net sales from its branch offices located in these 3 States during the base period years amounted to $ 3,732,827, or 87.7 per cent of the 1922-1939 average.  In Minnesota, the average value of construction contracts awarded during the base period was 99.4 per cent of the 1922-1939 average; in North Dakota, 114 per cent; and in South Dakota, 107.6 per cent.  Petitioner's average base period sales in Minnesota were 86.7 per cent of sales during the period 1922-1939; in North Dakota, 90.7 per cent; and in South Dakota 91.1 per cent.  The following tables show, for the years 1922-1939, the value of construction contracts awarded and petitioner's sales in each of the States of Minnesota, North Dakota, and South Dakota, and the totals thereof, together with indices based on an average of 100 for the period 1922-1939:Table 15MinnesotaValue ofYearconstructionIndexPetitioner'sIndexcontracts awardedsales1922$ 67,073,000113.8$ 4,628,057142.61923103,955,000176.45,074,105156.4192467,237,000114.14,648,706143.2192577,529,000131.64,612,214142.1192678,828,000133.84,239,439130.6192762,171,000105.53,556,295109.6192854,918,00093.23,480,457107.2192963,052,000107.03,671,579113.1193067,727,000115.03,249,707100.1193157,140,00097.02,632,58781.1193236,881,00062.61,842,46456.8193325,315,00043.01,441,50644.4193429,588,00050.21,906,87058.8193534,757,00059.02,170,43366.9193653,377,00090.62,917,41189.9193754,739,00092.92,951,02590.9193856,779,00096.42,550,83078.6193969,446,000117.92,839,95987.5Averages:1922-193958,917,000100.03,245,202100.01936-193958,585,00099.42,814,80686.7*330 *746 Table 16North DakotaValue ofYearconstructionIndexPetitioner'sIndexcontracts awardedsales1922$ 2,953,00039.5$ 608,675120.919237,583,000101.3630,303125.219244,108,00054.9501,09099.519254,838,00064.6686,307136.319269,062,000121.1750,538149.1192710,243,000136.8635,944126.3192810,412,000139.1679,129134.9192910,733,000143.4648,486128.819308,837,000118.1594,374118.019317,621,000101.8364,97072.519327,620,000101.8223,17944.319332,948,00039.4206,57641.019346,918,00092.4321,54663.919356,727,00089.9386,01276.7193610,626,000142.0470,45993.419376,877,00091.9453,41490.019388,258,000110.3407,50580.919398,364,000111.7495,08498.3Averages:1922-19397,485,000100.0503,533100.01936-19398,531,000114.0456,61590.7Table 17South DakotaValue ofYearconstructionIndexPetitioner'sIndexcontracts awardedsales1922$ 6,003,00072.0$ 458,86290.6192311,459,000137.4453,34389.519247,674,00092.0458,89790.619259,709,000116.4706,540139.419267,556,00090.6680,757134.419278,712,000104.5582,445115.019287,273,00087.2695,834137.319299,467,000113.5706,460139.419308,633,000103.5644,526127.2193110,768,000129.1554,039109.319324,216,00050.6296,52858.519336,258,00075.0295,11258.219348,262,00099.1355,93670.219358,237,00098.8385,24176.019368,754,000105.0513,977101.419379,498,000113.9486,06695.919389,945,000119.2402,70179.519397,696,00092.3442,87687.4Averages:1922-19398,340,000100.0506,674100.01939-19398,973,000107.6461,40591.1*331  In dealing with comparisons of cyclical statistics, other than price data, a series of statistics pertaining to value may be reduced to a more comparable basis approximating volume by applying a price index to the value statistics. Application of an index of construction costs to the value of construction contracts awarded over a series of years would tend to eliminate fluctuations caused by fluctuations in construction *747 costs, and the adjusted data would more closely approximate the volume of construction over the period of years.The following table shows, for the years 1921-1939, the F. W. Dodge Corporation statistics for the value of construction contracts awarded in Montana, North Dakota, and South Dakota; for the years 1919-1939, the Federal Reserve System statistics for the value of construction contracts awarded in the Ninth Federal Reserve District other than Montana; for the years 1919-1939, the Department of Commerce composite index of construction costs, in which construction costs for 1939 are indexed at 100; and the F. W. Dodge and Federal Reserve System statistics, as modified by the composite construction cost index.Table 18Value of constructioncontract awardsCompositeindex ofconstructionYear(Col. A)(Col. B) FederalcostsDodgeReserve(1939statistics forstatistics forcosts=Minn.,9th Fed.100) 1N. D.,Reserve Districtand S. D.(other thanMontana)1919$ 91,676,000106.01920109,978,000133.91921$ 81,532,00098,212,000108.9192276,029,00093,651,00097.71923122,997,000144,432,000107.1192479,019,000102,387,000106.2192592,076,000113,011,000104.8192695,446,000123,678,000105.2192781,126,000110,122,000104.4192872,603,000110,876,000104.5192983,252,000124,675,000106.7193085,197,000117,495,000102.4193175,529,00099,008,00093.8193248,717,00060,465,00081.1193334,521,00041,854,00087.1193444,768,00055,859,00094.4193549,721,00066,869,00090.8193672,757,00091,969,00092.8193771,114,00092,182,000100.9193874,982,00096,283,00099.7193985,506,000104,542,000100.0Averages:1936-193976,090,00096,244,0001922-193974,742,00097,186,0001919-1933102,768,0001921-193379,080,000Percentages:1936-1939 to 1922-1939101.899.01936-1939 to 1919-193393.71936-1939 to 1921-193996.2*332 Table 18Value of constructioncontract awardsadjusted by index ofconstruction costsYearFederalDodgeReservestatisticsstatistics(Col. A)(Col. B)1919$ 86,487,000192082,134,0001921$ 74,869,00090,185,000192277,819,00095,856,0001923114,843,000134,857,000192474,406,00096,410,000192587,859,000107,835,000192690,728,000117,565,000192777,707,000105,481,000192869,477,000106,101,000192978,024,000116,846,000193083,200,000114,741,000193180,521,000105,552,000193260,070,00074,556,000193339,634,00048,053,000193447,424,00059,173,000193554,759,00073,644,000193678,402,00099,105,000193770,480,00091,360,000193875,208,00096,573,000193985,506,000104,542,000Averages:1936-193979,399,00097,895,0001922-193974,782,00097,125,0001919-193398,844,0001921-193377,627,000Percentages:1936-1939 to 1922-1939106.2100.81936-1939 to 1919-193399.01936-1939 to 1921-1939102.3*333  The following table shows the petitioner's net sales and the gross income of all corporations filing returns in the States of Minnesota, Montana, North Dakota, and South Dakota, for each of the years 1916-1939: *748 Table 19Gross incomePetitioner'sof corps inYearnet sales 1Index 2Minn., Mont.,Index 2N. Dak., andS. Dak.1916$ 5,769,773118.8$ 990,000,00034.319175,843,632120.32,937,000,000101.819185,317,868109.52,715,000,00094.119196,717,343138.32,766,000,00095.819208,239,292169.63,344,000,000115.919215,275,949108.62,533,000,00087.819226,308,885129.92,900,000,000100.519236,762,667139.22,939,000,000101.819246,038,764124.33,175,000,000110.019256,477,829133.43,302,000,000114.419266,232,134128.33,302,000,000114.419275,393,860111.03,460,000,000119.919285,674,483116.83,616,000,000125.319295,939,553122.33,573,000,000123.819305,153,169106.13,080,000,000106.719314,067,71083.72,374,000,00082.319322,629,69654.11,790,000,00062.019332,186,54445.01,922,000,00066.619343,039,06162.62,364,000,00081.919353,588,22173.92,632,000,00091.219364,620,42295.13,040,000,000105.319374,704,54796.93,038,000,000105.319384,110,57784.62,631,000,00091.219394,506,87592.82,816,000,00097.6Averages:1922-19394,857,500100.02,886,000,000100.01936-19394,485,60592.32,881,000,00099.8*334 The petitioner's net sales (other than sales in Montana and Wyoming) constituted a smaller percentage of the value of construction contracts awarded in the Ninth Federal Reserve District (other than Montana) during the base period than during the period 1922-1939.  Petitioner's net sales amounted to 4.3786 per cent of the value of construction contracts awarded in the period 1922-1939, and to only 88.58 per cent of that amount, or 3.8785 per cent, during the base period years.The petitioner's total net sales constituted a smaller percentage of the gross income reported by all corporations filing returns in Minnesota, Montana, South Dakota, and North Dakota, during the base period than during the period 1922-1939.  Petitioner's net sales amounted to .168313 per cent of the gross income reported by these corporations in the period 1922-1929, and to only 92.5 per cent of that amount, or .155696 per cent, during the base period years.The following table, derived from the foregoing tables, sets forth the ratio of petitioner's net sales (other than sales in Montana and Wyoming) to the value of construction contracts awarded in the Ninth*335  Federal Reserve District (other than Montana), for the years *749  1919-1939, and the ratio of petitioner's total net sales to the gross income reported by all corporations filing returns in Minnesota, Montana, South Dakota, and North Dakota, for the years 1916-1939, inclusive:Table 20Petitioner's netsales (otherPetitioner's netthan Montana)sales as percentageas percentageof total grossof the value ofincome reportedYearconstructionby all corporationscontractsfilingawarded inreturns inNinth FederalMinn., Mont.,ReserveS. D., andDistrict (otherN. D. 1than Montana) 119160.5828  19170.1990  19180.1959  19196.77  0.2429  19206.88  0.2464  19214.86  0.2083  19226.08  0.2175  19234.26  0.2301  19245.48  0.1902  19255.31  0.1962  19264.59  0.1887  19274.34  0.1559  19284.38  0.1569  19294.03  0.1662  19303.82  0.1673  19313.59  0.1713  19323.91  0.1469  19334.64  0.1138  19344.63  0.1286  19354.40  0.1363  19364.24  0.1520  19374.22  0.1549  19383.49  0.1562  19393.61  0.1600  Averages:1922-19394.37860.1683131936-19393.87850.155696Percentage:1936-1939 to1922-193988.58  92.50  *336 According to a study prepared by John R. Riggleman, an expert economist, there was substantially less construction in 65 cities in the United States5 during the base period years than during the period 1922-1939 or any other period after 1900 except 1917-1920 and the period immediately preceding the base period years.  The Riggleman data is expressed as building permit values per capita, in terms of 1913 dollars. It was derived by reducing the total annual building permit values in the 65 cities to a per capita basis, and converting the resulting dollar per capita figure to an equivalent to 1913 dollars *750  per capita, by use of a special index of building costs.  The following table shows, for the years 1900-1939, the value of building permits per capita, expressed in 1913 dollars, for the 65 cities included in the Riggleman study:Table 21 1Value ofbuildingIndex 1922-1939permitsYearper capitaAveragein 1913=100dollars 11900$ 21.7386.4190130.60121.7190230.10119.7190329.62117.8190433.35132.6190541.88166.5190641.65165.6190735.45141.0190831.73126.2190944.48176.9191038.86154.5191137.77150.2191241.00163.0191333.02131.3191429.47117.2191529.51117.3191631.19124.0191715.8763.119187.6830.5191917.6770.3192015.2660.7192124.3796.91922$ 39.24156.0192342.01167.0192442.39168.5192549.89198.4192646.33184.2192740.18159.8192838.04151.3192933.43132.9193019.9579.3193117.0167.619327.3729.319336.0724.119345.3421.219359.4237.5193613.9455.4193713.4153.3193813.3953.2193915.3761.1Averages:1936-193914.0355.81922-193925.15100.0*337 During the base period years, the average value of new construction in the United States (other than local transit, military and naval, highway, miscellaneous public service, conservation and development, and certain other public construction) and maintenance*338  and repair work (other than local transit and highway repairs, and repairs by the Corps of Engineers), was less than the average value during the period 1922-1939.  The average value of this construction and maintenance work during the period 1922-1939 was $ 8,759,000,000.  During the base period years, the average value was $ 7,420,000,000, or only 84.7 per cent of the 1922-1939 average.  The following table shows, for the years 1915 to 1939, inclusive, the annual value of construction and maintenance work in the United States, together with an index thereof in which the 1922-1939 average equals 100.  *751 Table 22Value ofIndex 1922-1939YearconstructionAveragework 1=1001915$ 4,161,000,00047.519164,829,000,00055.119174,999,000,00057.119184,960,000,00056.619196,728,000,00076.819208,154,000,00093.119217,057,000,00080.619228,742,000,00099.8192310,727,000,000122.5192411,695,000,000133.5192512,692,000,000144.9192613,521,000,000154.4192713,340,000,000152.3192812,973,000,000148.11929$ 12,255,000,000139.919309,563,000,000109.219316,786,000,00077.519323,891,000,00044.419333,138,000,00035.819344,036,000,00046.119354,621,000,00052.819366,575,000,00075.119377,525,000,00085.919387,128,000,00081.419398,452,000,00096.5Averages:1936-1939$ 7,420,000,00084.71922-19398,759,000,000100.0*339 During the base period years, the average net profit, less tax-exempt income, of all corporations filing returns in the 4 States of Minnesota, North Dakota, South Dakota, and Montana, was higher than the average for the period 1922-1939.  The average compiled net profit, less tax-exempt income, for all corporations filing returns in the 4 States during the base period years was $ 39,225,000, or 108.5 per cent of $ 36,155,000, the average for 1922-1939.  The following table shows, for the years 1918 to 1939, inclusive, the compiled net profit (or loss), less tax-exempt income, for all corporations filing returns in Minnesota, North Dakota, South Dakota, and Montana.Table 23Net profit (orloss), lesstax-exempt income,Yearfor allIndex 1922-1939corporations inAverageMinn., N. D.,=100S. D., andMont. 11918$ 170,941,000 472.8 1919206,607,000 571.4 1920127,247,000 351.9 1921(18,450,000)(51.0)192259,192,000 163.7 192375,462,000 208.7 192472,385,000 200.2 1925110,091,000 304.5 1926107,670,000 297.8 192789,394,000 247.3 1928142,931,000 395.3 1929123,313,000 341.1 193021,962,000 60.7 1931($ 70,159,000)(194.1)1932(133,976,000)(370.6)1933(69,978,000)(193.5)1934(39,312,000)(108.7)19354,922,000 13.6 19362 52,827,000 146.1 19372 36,396,000 100.7 19382 13,420,000 37.1 19392 54,257,000 150.1 Averages:1922-193936,155,000 100.0 1936-193939,225,000 108.5 *340 *752  In the base period years, the compiled net profit, less tax-exempt income, for all corporations filing returns in the United States was higher than the average for the period 1922-1939.  The average compiled net profit, less tax-exempt income, for all corporations during the base period years was $ 3,724,000,000, or 108.4 per cent of $ 3,434,000,000, *341  the average for 1922-1939.  The following table shows, for the years 1918 to 1939, inclusive, the compiled net profit (or loss), less tax-exempt income, for all corporations filing returns in the United States.Table 24All corporationscompiled profitIndex 1922-1939Year(or loss) lessAverage=tax-exempt100income1918$ 7,672,000,000 223.4 19198,416,000,000 245.1 19205,873,000,000 171.0 1921458,000,000 13.3 19224,770,000,000 138.9 19236,308,000,000 183.7 19245,363,000,000 156.2 19257,621,000,000 221.9 19267,504,000,000 218.5 19276,510,000,000 189.6 19288,227,000,000 239.6 19298,740,000,000 254.5 19301,552,000,000 45.2 1931($ 3,288,000,000)(95.7)1932(5,643,000,000)(164.3)1933(2,547,000,000)(74.2)193494,000,000 2.7 19351,696,000,000 49.4 19364,370,000,000 127.3 19374,407,000,000 128.3 19381,608,000,000 46.8 19394,509,000,000 131.3 Averages:1922-1939$ 3,434,000,000 100.0 1936-19393,724,000,000 108.4 During the base period years, the average compiled net profit, less tax-exempt income, for all corporations in the construction *342  industries, was less than the average for the period 1922-1939.  The average compiled net profit, less tax-exempt income, during the period 1922-1939 was $ 39,080,000.  During the base period years, the average was $ 36,099,000, or only 92.4 per cent of the 1922-1939 average.  The following schedule shows, for the years 1920-1939, inclusive, the compiled net profit (or loss), less tax-exempt income, for all corporations in the construction industries.Table 25 1Compiled net profit (or loss)less tax-exempt incomeYearIndicesAmount1922-1939Average=1001920$ 85,343,000 218.4 192115,828,000 40.5 192239,196,000 100.3 192369,195,000 177.1 192490,694,000 232.1 1925113,145,000 289.5 1926108,948,000 278.8 1927111,743,000 285.9 192899,537,000 254.7 1929108,310,000 277.1 193068,060,000 174.2 1931(30,348,000)(77.7)1932($ 110,369,000)(282.4)1933(67,808,000)(173.5)1934(34,787,000)(89.0)1935(6,477,000)(16.6)193628,780,000 73.6 193740,824,000 104.5 193828,706,000 73.5 193946,087,000 117.9 Averages:1936-1939$ 36,099,000 92.4 1922-193939,080,000 100.0 *343 *753  The following table shows, for the years 1918-1939, the indices for petitioner's net income before taxes, and for the compiled profit (or loss), less tax-exempt income, of all corporations filing returns in the United States; all corporations filing returns in the States of Minnesota, North Dakota, South Dakota, and Montana; and all corporations in the construction industries in the United States.  In each index, the 1922-1939 average equals 100.Table 26 1Compiled net profit (or loss) lesstax-exempt incomePetitioner'sAllYearnet profitAllcorporations inAll(or loss)corporations inMinn.,corporations inthe UnitedMont.,constructionStatesN. D., andindustriesS. D.1918317.3 223.4 472.8 2 304.5 1919442.6 245.1 571.4 2 362.0 1920507.6 171.0 351.9 218.4 192153.0 13.3 (51.0)40.5 1922103.5 138.9 163.7 100.3 1923173.9 183.7 208.7 177.1 192476.6 156.2 200.2 232.1 1925117.0 221.9 304.5 289.5 1926188.3 218.5 297.8 278.8 1927150.6 189.6 247.3 285.9 1928196.2 239.6 395.3 254.7 1929215.3 254.5 341.1 277.1 193067.4 45.2 60.7 174.2 193125.9 (95.7)(194.1)(77.7)1932(35.0)(164.3)(370.6)(282.4)1933(2.4)(74.2)(193.5)(173.5)193438.2 2.7 (108.7)(89.0)193541.6 49.4 13.6 (16.6)1936130.1 127.3 146.1 73.6 1937135.4 128.3 100.7 104.5 193834.6 46.8 37.1 73.5 1939142.8 131.3 150.1 117.9 Averages:1922-1939100.0 100.0 100.0 100.0 1936-1939110.7 108.4 108.5 92.4 *344 Petitioner's average earnings during the base period years were less than its average earnings in the period 1918-1933.  During the based period years, the average compiled net profit, less tax-exempt income, of all corporations in the United States, and of all corporations in the States of Minnesota, Montana, North Dakota, and South Dakota, also was less than the 1918-1933 average.  The following table, which is derived from tables set forth above, shows for the base period years and for the period 1918-1933, petitioner's average profit before Federal income taxes, and the average compiled net profit, less tax-exempt income, of all corporations in the United States and of all *754  corporations filing returns in Minnesota, Montana, North Dakota, and South Dakota:Table 27 1Compiled net profit, lesstax-exempt incomePetitioner'sPeriodnet profitbefore taxesAll corporationsCorporationsinin Minn.,United StatesMont., N. D.,and S. D.1936-1939$ 199,913$ 3,724,000,000$ 39,225,0001918-1933293,1744,221,000,00063,415,000Indices:1936-193968.288.261.91918-1933100.0100.0100.0*345 From the entire record the following findings are made:The average value of construction contract awards in petitioner's sales area for the base period years, as shown by the Federal Reserve Board statistics, was 99 per cent of the average of the same for the period 1922-1939, and was 101.8 per cent of the average for the period 1922-1939, according to the statistics of the F. W. Dodge Corporation.  The average of the value of construction contract awards in petitioner's sales area, adjusted by use of the composite construction cost index, was somewhat higher for the base period years than was the average for the period 1922-1939.  The average value of construction contract awards in petitioner's area for the base period years, using the Federal Reserve Board figures and making adjustments by use of the composite construction cost index, was 100.8 per cent of the adjusted average for 1922-1939; and the average value for the base period years, using the F. W. Dodge figures and making adjustment by use of the composite construction cost index, was 106.2 per cent of the adjusted average for 1922-1939.  Therefore, it is concluded that the average value*346  of construction contract awards in petitioner's sales area in the base period years was approximately equal to the average value during the period 1922-1939 of construction contract awards in petitioner's sales area.The lengths of the movements of petitioner's profits, and their turning points, during the years 1922-1929, excepting the year 1926, are about the same as (if not identical with) the trends of profits (less tax-exempt income) of all corporations in the United States.  The indices of both rose steadily from low points in 1921 through 1923; both declined in 1924; both rose steadily through 1926; both declined in 1927; both rose through 1929; after 1929, both indices fell sharply to low points in 1932; thereafter both rose steadily through 1937; both declined in 1938; and both rose in 1939.  Also, both indices reached *755  high points in 1923, 1929 (their highest), 1937, and 1939; and both indices fell to low points in 1924, 1927, 1932 (their lowest), and 1938.  Accordingly, the pattern of petitioner's profits during the period 1922-1939 was closely similar to the pattern of the profits (less tax-exempt income) of all corporations in the United States during the same*347  period, with the exception of 1926 in which year petitioner's profits increased and profits of all corporations decreased slightly.Comparison of the trend of petitioner's profits during the period 1922-1939 with the trend of the profits (less tax-exempt income) of all corporations filing income tax returns in the 4 States, Minnesota, Montana, North Dakota, and South Dakota, shows the following: Both indices show a decline in 1924 for 1 year.  The profits of all corporations in the 4-State area entered downward phases in 1926, 1929, and 1937, whereas petitioner's profits entered downward phases 1 year later, in each instance, namely, in 1927, 1930, and 1938, so that the duration of the decline of petitioner's profits was 1 year shorter than the decline of the profits of all corporations in the area in these three instances.  However, in each instance of a decline, both indices reached low points and began recovery in the same years, namely, in 1924, 1927, 1932 (the year of the greatest depression in both indices), and 1938.  Furthermore, each index shows the same general trend; both rise from low points in 1921 to very high levels in 1928 or 1929, after a decline in 1924; then both*348  follow a pronounced decline to 1932 followed by gradual recovery to 1936 (to 1937 in the case of petitioner); followed by a downturn thereafter, and a sharp recovery in 1939.  Accordingly, the pattern of petitioner's profits during the period 1922-1939 was closely similar to the pattern of the profits (less tax-exempt income) of all corporations filing returns in the 4-State area during the same period.The petitioner's profits cycle in the period 1922-1939 did not differ materially in length from the profits cycle of all corporations either in the United States or in petitioner's sales area in the same period.The average amount of petitioner's profits before Federal income taxes for the period 1922-1939 was $ 180,560; the average amount of petitioner's profits before Federal income taxes for the base period years was $ 199,913, which amount is 110.7 per cent of $ 180,560.  The average amount of the profits (less tax-exempt income) of all corporations in the United States for the period 1922-1939 was $ 3,434,000,000.  The average amount of the profits (less tax-exempt income) of all corporations for the base period years was $ 3,724,000,000 which amount is 108.4 per cent of $ 3,434,000,000. *349  The amount of the average profits (less tax-exempt income) of all corporations in the 4 States, Minnesota, Montana, North Dakota, and South Dakota, for the period *756  1922-1939 was $ 36,155,000.  The amount of the average profits (less tax-exempt income) of all corporations in the 4-State area during the base period years was $ 39,225,000, which amount is 108.5 per cent of $ 36,155,000.  Accordingly, the level of the average profits of the petitioner for the base period years was approximately the same as the level of the average profits, for the base period years, of both "all corporations in the United States," and "all corporations in the 4-State area," when, in each instance, comparison is made of the average amount of base period profits with the average amount of profits for the period 1922-1939.A comparison of average profits for the base period with average profits for the period 1918-1933, in the cases of the petitioner, of all corporations in the United States, and of all corporations in petitioner's sales area shows that, in each case, the average profits for the period 1918-1933 was higher than average profits for the base period. This is demonstrated by the following: *350 AverageAverageRatio ofamount ofamount ofbase periodprofits 1profits 1 baseto1918-1933period1918-1933All U. S. corps$ 4,221,000,000$ 3,724,000,00088.2Corps. in pet's. area63,415,00039,225,00061.9Petitioner293,174199,91368.2The petitioner is entitled to use the excess profits credit based upon income under the provisions of section 713 of the 1939 Code.  Petitioner's excess profits net income for the base period years was as follows:YearExcess profits net income1936$ 234,393.591937244,039.30193862,441.221939257,920.01Total$ 798,794.12Arithmetic average199,698.53These amounts are subject to adjustment for income taxes paid in order to determine the amount of excess profits net income to be used in computing the excess profits credit for 1940 based on the income method.For the purposes of section 713, petitioner's average base period net income (ABPNI) and excess profits credit for each of the years*351  1940, 1941, and 1942, as computed under the statutory provisions applicable to each of these years, is as follows: *757 Average baseperiod netExcess profitsYearincome (ABPNI)credit1940$ 162,852.95$ 154,710.301941199,698.53189,713.601942230,110.28218,604.77The invested capital credit for each of the years 1940, 1941, and 1942, to which petitioner was entitled under sections 712 and 714 of the Code, and the equivalent of the invested capital credit in terms of average base period net income, are as follows:Invested capitalEquivalentYearcreditABPNI1940$ 170,306.09$ 179,269.561941177,522.42186,865.701942187,527.64197,398.46The petitioner has been allowed the following excess profits credits in the final determination of its excess profits tax liability for the years 1940, 1941, and 1942, such determination having been made without regard to the application of section 722:YearExcess profits credit1940$ 170,306.09(invested capital method)1941189,713.60(income method)1942218,604.77(income method)In addition, in the final determination of its excess profits tax for 1941 (without regard*352  to the applicability of section 722), the petitioner has been allowed an unused excess profits credit adjustment of $ 119,629.34 resulting from an unused excess profits credit carryback in that amount from 1942.The petitioner has paid excess profits tax in the net amount of $ 58,700.45 for the year 1941, and in the net amount of $ 1,150.53 for 1940.  For the year 1942, the petitioner incurred no excess profits tax liability and paid no excess profits tax. The petitioner has not filed any application for relief under section 722 or any claim for refund of excess profits tax for the year 1940, and the statutory period in which such application or claim might be filed, or such refund might be made, expired several years before the petition was filed in this proceeding.  However, the petitioner duly filed an application for relief under section 722 for the year 1941, in which it claimed relief under sections 722(b)(2), 722(b)(3)(A) and (B), and 722(b)(5) of the Code and also claimed the benefit of a carryover from 1940 and a carryback from 1942, properly computed under the provisions of section 722.  On October 3, 1949, the respondent issued his notice of disallowance, determining that*353  petitioner was not entitled to any relief under section 722 of the Code.The petitioner does not meet the qualifying requirements of subsections (b)(2), (b)(3)(A), (b)(3)(B), or (b)(5) of section 722 of the Code, and it is not entitled to use a constructive average base period net income for the purpose of computing its excess profits tax.*758  OPINION.The petitioner claims relief from excess profits tax under the provisions of Code sections 722(a) and 722(b)(2), (b)(3) (A), (b)(3)(B), and (b)(5).The claim in this proceeding is for relief from excess profits tax for 1941.  The years 1940 and 1942 are also involved because petitioner claims unused constructive excess profits credit carryover and carryback.Petitioner's chief contention is that it meets all of the qualifying factors set forth in section 722 (b)(3)(A).  Petitioner contends also that it qualifies for relief under subsections (b) (3) (B), (b) (2), and (b)(5).On the basis of the facts found we conclude that petitioner does not meet any of the qualifying requirements of subsections (b) (3) (A), (b) (3) (B), (b) (2), or (b) (5), and is not entitled to use a constructive average base period net income for the purpose*354  of computing its excess profits tax.At the outset, it is concluded that petitioner's claim for relief under section 722 (b)(5) must be denied because it is not based on "any other factor" than those to which subsections (b) (2), (b) (3) (A), and (b)(3)(B) are specifically directed.  Clermont Groves, Inc., 17 T. C. 1616; Gulf Coast Broadcasting Co., 24 T.C. 1094">24 T. C. 1094.The petitioner has made computations designed to show a constructive average base period net income. We have not included in the findings the facts upon which petitioner relies in making its computations, and we do not give consideration to petitioner's contentions in support of its computations because of our conclusion that petitioner has not shown that it qualifies for relief under the requirements of section 722(b).We need consider, therefore, only whether the petitioner qualifies for relief under subsections (b) (2), (b) (3) (A), and (b) (3) (B) of section 722.  The provisions of section 722 which are involved under the remaining contentions of the petitioner appear in the margin.  6*759  Applicable also are various provisions of Regulations 109 and*355  of the Treasury Department's Bulletin on Section 722, Excess Profits Tax Relief, hereinafter referred to as the Bulletin.*356  The petitioner contends that its business was depressed in the base period. It claims that it meets the requirement in section 722 (b) (2), namely, that the depression was because of the fact that an industry of which it was a member was depressed by reason of temporary economic events unusual in the case of such industry.  Petitioner also contends, under section 722 (b) (3), that its business was depressed in the base period by reason of conditions generally prevailing in an industry of which it was a member subjecting petitioner either to (A) a profits cycle differing materially in length and amplitude from the general business cycle, or (B) to sporadic and intermittent periods of high production and profits which periods were inadequately represented in the base period.The petitioner has undertaken to establish that it meets all of the above qualifying factors although petitioner relies in the alternative upon the provisions set forth above of (b) (2), (b) (3) (A), and (b) (3) (B).  In attempting to meet the requisites of (b) (2) and (b) (3), the petitioner presented a vast amount of economic data relating to the nationwide construction industry of which it claims it is a member; *357  and, in rebuttal, the respondent presented a substantial amount of economic data relating to the record of profits of all corporations in the United States as well as all corporations carrying on business within petitioner's sales area.  There is in the record before us a great quantity of expert testimony, statistical tables and charts, and exhibits.  The record contains a great deal of data which is overlapping and which is pertinent to consideration of the questions arising under both (b) (2) and (b) (3).  This is because under both (b) (2) and (b) (3) a taxpayer must establish the identity of an industry of which it is a member as well as that the taxpayer's business was depressed in the base period. At the outset, it is noted also that the nature of the provisions of subsection (b) (3) (A) necessitates consideration of periods of years other than the base period years.  Likewise, determination of the question of whether there is depression in the base period requires comparison with prior years; and comparison of cycles involves consideration of facts and factors over a longer period than the base period. Part IV (B) of the Bulletin.Since we are confronted with having to analyze*358  the proof with respect to petitioner's contentions that it meets various qualifying factors, it is convenient, if not necessary, to consider the evidence relating to qualifying factors, such as, for example, base period depression, petitioner's industry, conditions in the industry, and the comparison of cycles, rather than to consider the evidence adduced under each of *760  the subsections of section 722 (b) on which petitioner relies.  See Waldorf System, Inc., 252">21 T. C. 252, 267, 268, 269, 270, where this approach was followed.Industry.The parties are in sharp disagreement over the question involving determination of the industry of which petitioner is a member.  Briefly, petitioner contends that it is either a member of the construction industry (nationwide in scope), or of an industry, wholesalers of plumbing and heating supplies and equipment, which is closely related to and economically dependent upon the construction industry. On brief petitioner states its contentions in the following way:At all times the petitioner was a member of the construction industry, being a member of the sub-division thereof embracing wholesalers of plumbing*359  and heating supplies and equipment; or, in the alternative, petitioner was a member of an industry embracing some or all of the wholesalers of plumbing and heating supplies and equipment, either in the entire United States, or in its general geographic portion thereof, which industry was so closely related to and dependent economically upon the construction industry that its profit cycle was affected and controlled by the profit or volume cycle, or both, of the construction industry.Petitioner also argues that, at least, it is --so dependent upon and subject to and controlled by the same economic influences as is the construction industry (using this term in the sense of contractors and others actually doing installation and construction work) that its volume and profits cycle is influenced and controlled by the volume and profits cycle of the construction industry.Respondent contends that petitioner is a member of an industry in the area within which petitioner made sales which is engaged in the wholesale distribution of broadly diversified lines of plumbing and heating equipment and supplies.  In advancing this argument, respondent admits that to the extent that petitioner*360  made sales to those engaged in actual construction, it was to a limited extent related to the construction industry. Respondent points out that because of the diversity of the line of products which petitioner sells, it appears to fall into several subindustry classifications according to the classifications of industries in both the Census of Manufacturers and the Census of Wholesalers, and that the diversified line of goods sold by petitioner includes materials which are used not only in new construction but also in repairs, replacements, maintenance, plant equipment, and manufacturing processes.The statute does not define industry.  In Part I (F) of the Bulletin, the concept of "industry" is discussed as follows:In most general terms an "industry" comprises a group of business concerns sufficiently homogeneous in nature of production or operation, type of product or service furnished, and type of customers, so as to be subject to roughly the same *761  external economic circumstances affecting their prices, volume and profits.  Stated otherwise, an industry will generally consist of all of the producers which compete with each other in selling essentially the same products*361  or services in the same market. * * *Regulations 109, section 30.722-2 (b) (8), states as follows:(8) For the purposes of section 722 and of section 30.722-3 (b) and (c), no exclusive definition of the concept "industry" can be constructed.  In general an industry may be said to include a group of enterprises engaged in producing or marketing the same or similar products or services under analogous conditions which are essentially different from those encountered by other enterprises.  The mere similarity of product and marketing methods, however, is not enough of itself to comprehend taxpayers satisfying such conditions within the same industry.  Factors such as geographical location, character and location of markets, availability and character of raw material supply, and other conditions under which operations are carried on must be considered.  Regard may be had to trade custom and practice in determining whether a group of enterprises constitutes an industry.In Pabst Air Conditioning Corporation, 14 T. C. 427, 438, we expressed the view that these concepts of industry are sound.  Under the facts of this case, these concepts do not permit the *362  industry which embraces wholesale distributors of plumbing and heating supplies and equipment to be regarded as the same as the general construction industry or the building and construction industry. Paraphrasing our reasoning in Pabst Air Conditioning Corporation, supra, it seems plain that the construction industry (or the building and construction industry) and the industry of wholesale distributors of plumbing and heating supplies and equipment do not "compete with each other in selling essentially the same products or services in the same market."The petitioner has failed to establish that its business was closely associated with the building and construction industry and that the largest part of its sales was used in new construction.Petitioner did not maintain records over a long period of years showing the end uses made of the goods it distributed.  Such records as petitioner maintained show that its customers were engaged in various businesses which indicates various end uses of the goods sold by petitioner.  Furthermore, petitioner was unable to produce satisfactory statistics about concerns comparable to petitioner in its sales area.  The*363  record does not establish that wholesale distributors of plumbing and heating supplies and equipment compete with the entire construction, or building and construction industry, or with the building and construction industry within petitioner's sales region.The record contains no substantial evidence upon which reliable comparison can be made with petitioner.  Petitioner attempted to obtain evidence about the sales data of plumbing and heating wholesalers through the records of a trade association, Central Supply Association, but such factual material as petitioner was able to obtain *762  is limited to the years 1927-1930, and 1934-1939; it is fragmentary; and it relates to concerns which operated outside of petitioner's sales region in 20 States.Petitioner's sales area is restricted to the 4 States, Montana, Minnesota, North and South Dakota, and to portions of Wyoming, Michigan, and Wisconsin.  Upon the entire record, it is concluded that the industry of which petitioner is a member comprises wholesale distributors of plumbing and heating equipment and supplies who operate in the same region and markets as petitioner operates; i. e., wholesalers of essentially the same products*364  and services as petitioner sells, operating in the same market as petitioner.  In determining whether petitioner meets the requirements of subsections (b) (2) and (b) (3) (A) and (B), we shall consider, therefore, the industry of which petitioner is a member as is concluded above.Base Period Depression.Petitioner's average net profit during the base period years exceeded its average net profit over the long period 1922-1939.  During the base period years, average earnings were $ 199,913, or 110.7 per cent of $ 180,560, the 1922-1939 average.  The petitioner was well established in its businesses prior to the base period and was not in a developmental stage during the base period. Cf.  Ainsworth Manufacturing Corporation, 23 T. C. 372, 376. It is concluded that petitioner's business was not depressed during the base period years.  Foskett & Bishop Co., 16 T. C. 456, 462; Industrial Yarn Corporation, 16 T. C. 681, 689; Granite Construction Co., 163">19 T. C. 163, 170-171; A. B. Frank Co., 19 T. C. 174, 181; Pratt & Letchworth Co., 21 T. C. 999, 1005;*365 Edgewater Steel Co., 23 T. C. 613, 626-627.The petitioner contends that its base period earnings were depressed when comparison is made with its average earnings during the period 1918-1933.  It is true that petitioner's average base period earnings were below the 1918-1933 average.  However, we have held that the fact that average base period earnings were not as large as the average for a prior period does not necessarily mean that a taxpayer's business was depressed during the base period. See Toledo Stove & Range Co., 1125">16 T. C. 1125, 1130; Harlan Bourbon & Wine Co., 14 T.C. 97">14 T. C. 97, 104. On the basis of the entire record, we are satisfied that the petitioner's average profit in the period 1922-1939 is a more appropriate standard by which to measure petitioner's base period earnings for depression than petitioner's average profit in the period 1918-1933.  The period 1918-1933 includes the years 1918, 1919, and 1920, which the evidence establishes were years of abnormally high profits due to the influence on the economy of the first World War.  Also, petitioner underwent a substantial change*366  in the nature of its business during the early *763  twenties, when it changed from a debtor corporation using borrowed capital to a creditor corporation lending a substantial portion of its net worth to Crane of Illinois.  (See Table 6.) Of equal significance is the fact that average profits during the base period years were lower than the 1918-1933 average not only in petitioner's case, but also in the case of all corporations in the United States and all corporations in petitioner's sales area.  (See Table 27.) Inasmuch as the base period years have been determined by Congress to constitute a period of normal profits for general corporate business, the fact that petitioner's base period earnings, like those of all corporations, were below the 1918-1933 average does not establish that petitioner's earnings were depressed during the base period years.  Upon the basis of the entire record, we must reject petitioner's contention that its business was depressed during the base period years.Depression in Petitioner's Industry.The petitioner has failed to establish that the industry of which it was a member, wholesalers of plumbing and heating supplies and equipment competing*367  with petitioner in petitioner's sales area, was depressed during the base period. The petitioner was unable to produce any evidence pertaining to its competitors.  Nevertheless, petitioner cannot be excused from its burden of proving a fact essential to its contentions.  El Campo Rice Milling Co., 13 T. C. 775, 786, 788.Petitioner also has failed to establish that the construction industry in its sales area, of which it claims to be a member, was depressed during the base period years.  The evidence shows that construction activity in petitioner's sales area was at approximately the same level as, or above, average construction activity in the same area during the period 1922-1939.  The F. W. Dodge Corporation and Federal Reserve Board statistics show that the average value of construction contract awards in petitioner's sales area for the base period years was 101.8 per cent and 99 per cent, respectively, of the 1922-1939 average value of construction contract awards, and that the average volume of construction contract awards in petitioner's sales area during the base period years was 106.2 per cent and 100.8 per cent, respectively, of the average*368  volume during the period 1922-1939.It is concluded that petitioner has not established that the industry of which it was a member was depressed during the base period years.  Petitioner has also failed to establish that its business was depressed during the base period years.  Accordingly, it is held that petitioner fails to qualify for relief under the provisions of section 722 (b) (2).Conditions in Petitioner's Industry.Under section 722 (b) (3), the petitioner must establish that its business was depressed during the base period years by reason of conditions *764  generally prevailing in its industry.  It has been pointed out, above, that petitioner has failed to establish that its business was depressed during the base period years.  Petitioner has also failed to establish that conditions generally prevailed in its industry which exerted a depressing effect in petitioner's business.  The record before us contains no statistics relating to the business of wholesalers of plumbing and heating supplies and equipment in petitioner's sales area, and we are unable to determine what conditions prevailed in that industry during the base period years.  One of petitioner's witnesses*369  testified generally that business conditions among plumbing and heating wholesalers in petitioner's sales area were poor during the base period years because of the lack of construction activity in that area.  However, this testimony is in conflict with the evidence relating to construction activity in petitioner's sales area during the base period years.  This evidence, which is discussed above, establishes that construction activity in petitioner's sales area was not depressed during the base period. On this state of the record, we cannot find that conditions generally prevailed among plumbing and heating wholesalers in petitioner's sales area, or in the construction industry in petitioner's sales area, which might have depressed petitioner's business during the base period years.  It is concluded that petitioner's business was not depressed during the base period years by reason of conditions generally prevailing in an industry of which it was a member.Variant Profits Cycle.Cycles can be regarded as including four phases, which may be designated as prosperity, decline, depression (or recession, if slight), and improvement or recovery.  Each of these phases changes gradually*370  into the next phase.  7The meaning of the terms "length" and "amplitude" are not in dispute.  For the purposes of this proceeding, we accept the definitions contained in the Bulletin on Section 722, Part IV (B):The length of the cycle is the period of time between corresponding stages of two successive cycles. The amplitude of the cycle refers to the violence of fluctuation and is measured by the vertical distance between high and low stages.The evidence shows that the pattern of petitioner's profits during the period 1922 to 1939 was decidedly similar to the pattern of the profits, less tax-exempt income, of all corporations in the United States.  The only point of divergence between the two profits patterns occurred in 1926, when general corporate profits fell slightly whereas petitioner's earnings increased.  Apart from 1926, the lengths of the movements and the turning points in both series of earnings data are the same.  It is concluded*371  that the movements in petitioner's profits *765  pattern did not vary materially in length from the movements in the profits pattern of all corporations in the United States.  To the extent that the upturns and downswings in both series of profits can be segregated into cyclical patterns, the lengths of the movements in both profits cycles are virtually identical.It is true that the profits pattern for all corporations in the United States experienced a greater amplitude than did petitioner's profits.  However, under the statute, petitioner must prove a material variance in both length and amplitude. Avey Drilling Machine Co., 16 T. C. 1281, 1296. It is concluded that petitioner has failed to establish that its profits cycle varied materially in length and in amplitude from the profits cycle of all corporations in the United States.Petitioner's profits pattern also is decidedly similar to the profits pattern of all corporations filing returns in the principal part of its sales area, namely, in Minnesota, Montana, North Dakota, and South Dakota.  As set forth in the findings, the only difference noted is that in three instances in which both series*372  of profits indices experienced a decline in profits, the duration of decline in petitioner's profits was 1 year shorter than the period of decline for all corporations in its sales area.  However, even in these instances, both series of profits indices reached troughs and entered recovery phases at the same time.  Apart from this difference, both series of indices demonstrate the same upward and downward movements.  It is concluded that the pattern of petitioner's profits does not vary materially in length and amplitude from the profits pattern of corporations in its sales area.The differences noted above between the profits indices of petitioner and of all corporations in its sales area are quite different from those which appeared in Waldorf System, Inc., supra, where the taxpayer was held to have been subject to a variant profits cycle. In that proceeding, the taxpayer's earnings reached their peak in 1930.  Earnings in 1931, although slightly below those of 1930, were well above average and higher than earnings in any other year in the entire period 1923-1939, with the exception of 1930.  The taxpayer's earnings did not fall sharply until 1932, *373  and reached their trough in 1934, with 1935 as the first year of upturn.  Thus, the taxpayer demonstrated that both the depression and recovery of its profits lagged 1 or 2 years behind the profits of all corporations.  Furthermore, the taxpayer's earnings did not experience any measure of recovery subsequent to the trough in 1934.  Its earnings had reached a temporary high point in 1936, but thereafter fell again to a point where earnings during the period 1937 to 1939 were lower than in the prior low period of 1933 to 1935.  Unlike the taxpayer in Waldorf System, Inc., supra, petitioner's profits did not experience a lag in the timing of its recoveries from downturns, in comparison either with all corporations in the United States, or with the corporations in its sales area.  Also, petitioner's base period *766  profits, measured quantitatively, did not fail to recover from the low period of 1931-1933, as was the case in the Waldorf System case.The record does not support petitioner's contention that it experienced complete profits cycles, measured trough to trough, in the periods 1918-1933 and 1900-1918.  Under petitioner's contention, *374  the year 1918 would be a trough year in both alleged cycles. Yet, the evidence shows that petitioner's profits in 1918 were far greater than its average profits during either alleged cycle. Petitioner's profits in 1918 were 195 per cent of average profits during the period 1918-1933 and 227.8 per cent of average profits during the period 1900-1918.  Also, average profits for the 2 years 1919 and 1920 amounted to 292 per cent of the 1918-1933 average, although earnings in these 2 years would have been below the average for 1918-1933 if 1918 was a trough year.  Similarly, average profits for the 2 years 1916 and 1917 amounted to 274.4 per cent of the 1900-1918 average, although earnings in these 2 years would have been below the 1900-1918 average if 1918 was a trough year.  Petitioner's contention that it experienced variant profits cycles, measured trough to trough, in the periods 1918-1933 and 1900-1918, must be rejected.  It is concluded that petitioner was not subject to a profits cycle which differed materially in length and amplitude from the general business cycle, within the meaning of section 722 (b) (3) (A).  It is held that the petitioner fails to qualify for relief under*375  section 722 (b) (3) (A).Sporadic Periods of High Profits.The provisions of section 722 (b) (3) (B), relating to "sporadic and intermittent periods of high production and profits," are intended to apply in the case of a taxpayer experiencing prosperous years at irregular and unpredictable intervals, and having an earnings experience which cannot be segregated into cyclical patterns.  8 It has been pointed out above that petitioner's earnings experience can be segregated into the same profits cycles as the profits of all corporations in the United *767  States and the profits of all corporations in petitioner's sales area.  It is held that petitioner does not qualify for relief under the provisions of section 722(b)(3)(B).*376  Under all the facts and circumstances of this case, it is concluded that petitioner's average base period net income is not an inadequate standard of normal earnings for the petitioner.Reviewed by the Special Division.Decision will be entered for the respondent.  Footnotes1. Manufactured by Crane of Ill.↩2. The total sales figures represent sales before adjustment for sales discounts of $ 57,825 in 1936; $ 60,451 in 1937; $ 49,026 in 1938; and $ 51,718 in 1939.  The parties have stipulated that petitioner's net sales for the years 1936-1939 were $ 4,620,422, $ 4,704,547, $ 4,110,577, and $ 4,506,875, respectively.↩1. The figure for total sales represents sales before adjustment for sales discounts of $ 51,718.  The parties have stipulated that petitioner's net sales for 1939 amounted to $ 4,506,875.↩1. Records not available.↩2. The figures set forth in Table 3 are taken from Exhibit 15, and apparently represent petitioner's gross sales.  The parties have stipulated that petitioner's net sales amounted to $ 4,620,422 in 1936; $ 4,704,547 in 1937; $ 4,110,577 in 1938; and $ 4,506,875 in 1939.↩1. The years 1899 to 1909 are fiscal years ended November 30.  The year 1910 represents a 13-month period ended December 31, 1910.  The balance of the years indicated are calendar years.↩1. From Tables 5, 7, and 8.↩1. Figure corrected.  Compare with Exhibit ZZ.↩1. St. Paul, Minneapolis, Duluth, Mankato, 1895-1939; Winona, 1920-1932; Hibbing, 1922-1927.↩2. Great Falls and Billings; includes sales in Wyoming.↩3. Fargo.↩4. Aberdeen, 1910-1939; Sioux Falls, 1924-1939.↩1. Sources: See Exhibits 119 and K.↩1. Source: Board of Governors of the Federal Reserve System, Division of Research and Statistics. Exhibit WW.↩1. 1922-1939 average=100.↩1. Source: U. S. Department of Commerce, "Construction and Construction Materials," Statistical Supplement, May 1950, p. 34.  Ex. 12.↩1. Source: Exhibit 89.↩2. 1922-1939=100.↩1. From Tables 13 and 19.↩5. The 65 cities are: New York, Boston, Washington, Milwaukee, Philadelphia, Indianapolis, Baltimore, Kansas City (Mo.), St. Paul, St. Louis, Denver, Chicago, Colorado Springs, Detroit, San Francisco, Louisville, Minneapolis, New Orleans, Portland (Oregon), Providence, Newark, Pittsburgh, Bridgeport, Fall River, Omaha, Cincinnati, Salt Lake City, Worcester, Cleveland, Seattle, Duluth, Los Angeles, Albany, Buffalo, Syracuse, Memphis, Galveston, Atlanta, Hartford, Tampa, Des Moines, Rochester, Toledo, Birmingham, Cambridge, Columbus, Dayton, Grand Rapids, Houston, Jacksonville, Jersey City, Kansas City (Kansas), Lowell, Nashville, New Bedford, New Haven, Oakland, Peoria, Reading, Richmond, St. Joseph, San Diego, Scranton, Spokane, and Tacoma.↩1. Source: Exhibit 126.↩1. New construction less local transit, military and naval, highways, miscellaneous public service enterprises, conservation and development, and "All Other Public"; maintenance and repairs less local transit, highways, and Corps of Engineers.  Source: U. S. Department of Commerce, "Construction and Building Materials," Statistical Supplement, May 1951.  Exhibit 134.L↩1. Figures from Exhibit KK.↩2. These figures are estimates.  For 1936 and subsequent years, taxable net income must be reduced by the amount of taxable dividends received from domestic corporations, in order to make the data for these years comparable with the data for years prior to 1936.  Although the amount of these items for all corporations filing returns in the years 1936-1939 is known, the amount is unknown with respect to corporations filing returns in the 4 States listed above.  Accordingly, the taxable net income for the corporations in the 4 States has been reduced to determine compiled profit less tax-exempt income by the same percentages as these items for all corporations bore to the taxable net income of all corporations: 1936, 40.4 per cent; 1937, 40.1 per cent; 1938, 56.2 per cent; and 1939, 33.1 per cent.↩1. Source: Exhibit X.↩1. From Tables 7, 23, 24, and 25.↩2. Source: Statistical Abstract of the United States; Exhibit 47.↩1. From Tables 7, 23, and 24.↩1. For all corporations, and for corporations in petitioner's area, "profits" means profit less tax-exempt income.  For petitioner, "profits" means profit before Federal income taxes.↩6. SEC. 722. GENERAL RELIEF -- CONSTRUCTIVE AVERAGE BASE PERIOD NET INCOME.(b) Taxpayers Using Average Earnings Method.  -- The tax computed under this subchapter (without the benefit of this section) shall be considered to be excessive and discriminatory in the case of a taxpayer entitled to use the excess profits credit based on income pursuant to section 713, if its average base period net income is an inadequate standard of normal earnings because -- * * * *(2) the business of the taxpayer was depressed in the base period because of temporary economic circumstances unusual in the case of such taxpayer, or because of the fact that an industry of which such taxpayer was a member was depressed by reason of temporary economic events unusual in the case of such industry.(3) the business of the taxpayer was depressed in the base period by reason of conditions generally prevailing in an industry of which the taxpayer was a member, subjecting such taxpayer to (A) a profits cycle differing materially in length and amplitude from the general business cycle, or(B) sporadic and intermittent periods of high production and profits, and such periods are inadequately represented in the base period↩7. Riggleman and Frisbee, Business Statistics (3d ed., 1951), 332, 334.↩8. Regs. 109. Sec. 30.722-3. Determination of Excessive and Discriminatory Tax; Taxpayer Entitled to Excess Profits Credit Based on Income.  --(c) Business depression in base period because of variant profits cycle or sporadic and inadequately represented profits periods.  --* * * *(2) Sporadic profits inadequately represented in the base period↩.  -- The characteristic distinguishing the type of case described in section 722 (b) (3) (B) from that in section 722 (b) (3) (A) is that in the latter case the taxpayer has an earnings experience which can be segregated into definite cycles, whereas in the former case (the type of case described in this paragraph) no such cyclical segregation can be made.  In case the taxpayer is subjected to intermittent periods of high production and profits, the prosperous years of the taxpayer will occur at irregular and unpredictable intervals, and may depend upon fortuitous combinations of advantageous circumstances, as for example the juxta-position of a good crop and a good market.  If the base period of the taxpayer does not include these prosperous years, its earnings during such period will not be an adequate measurement of average normal earnings.