Court Opinion

ID: 6892563
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:45:32.084018+00
Date Added: 2024-06-11T16:05:52.832412
License: Public Domain

On Petition for Rehearing.
In its petition for rehearing the petitioner urges that our statement in the opinion that the beef content of the sausage items is not shown in the record is incorrect The beef content was calculated by petitioner from the figures given by Mitchell, petitioner’s accountant, who admitted that his figures were based largely on allocation, and that he could not testify from his books as to any shipments of purchased pork for he could not identify them. Mitchell’s calculation of the beef content in sausage depends partly upon his calculation of the item of purchased pork. He estimated that the amount of beef in sausage was 60% of the total, and of pork 40%. This is disputed by nine refund claims' for credit on the processing tax, executed under oath by Wernke, petitioner’s president. These claims stated the pork content of the various items as ranging from 43% to 100%. Only one had less than 40% pork content. All the other fourteen items had 40% or greater of pork, the majority of them ranging from 43% to 100%.
Petitioner’s calculation of the value of the beef content in sausage is contradicted at important points by its own evidence. While the principal materials in sausage are pork and beef, the petitioner’s president and Mitchell, the accountant, testified that sausage contains various other articles besides pork and beef. Of the ingredients in forms of sausage other than pork sausage Mitchell says in effect that from 10% to 16% are other materials than beef or pork. For example, he says: “Of the ingredients in Southern Star bologna 83.77 were materials while the rest of it was a gain in weight due to the addition of spices and other ingredients.” He agrees, although with some evasiveness, in answer to a question, that as to all but pure pork sausage there is “this gain in weight” due to the addition of other ingredients and moisture, amounting “apparently” to more than 10% average gain in the finished weight. In calculating the weight of “other materials than own-slaughter pork” in sausage, Mitchell stated that the sausage from all other materials was that produced “from the beef transferred and from the beef purchased, and from the pork that we purchased.” Petitioner relies on this statement to support the conclusion which it claims is uncontradicted, that there is nothing but beef and pork in this sausage. But as shown above, there is approximately a 10% gain in the finished weight which clearly cannot be attributed to beef or pork, and any calculation of the value of the beef content of sausage which ignores the other ingredients is substantially incorrect.
Also petitioner’s estimate of the sales value of the beef content in sausage is increased considerably by the erroneous assumption that all kinds of sausage have the same sales value. Its figures here, as elsewhere, are calculated from premises which are assumed, but not shown to exist.
The petitioner vigorously attacks our conclusion that under the statutes and regulations the Tax Court should have taxed the processing of purchased pork as well as own-slaughter pork. The burden was on the petitioner to show that the determination'of the Commissioner in this regard was incorrect. While the record' shows that some of the pork is bought from packers, petitioner has carefully refrained from showing what these totals were. Nothing in the record establishes, as claimed in the brief, that all purchased pork came from packers.
If we are wrong in our conclusion that the regulations govern this case, we think that the applicable statutes required the taxing of certain products which were omitted by the taxing agents, and that petitioner therefore was not damaged by the Tax Court’s decision. Section 609(d) (8), 7 U.S.C., 7 U.S.C.A. § 609(d) (8), defines processing as “any manufacturing or other processing involving a change in the form of the commodity or its preparation for distribution or use, as defined by regulations of the Secretary of Agriculture.” Section 609(f), which further emphasizes this proposition, reads: “For the purposes of sections-608 to 619 of this title, processing shall be held to include manufacturing.” Section 655, 7 US.C, 7 U.S.C.A. § 655, in defining the term “article,” says that it means “the product which is obtained [from] further manufacture or by combination with otljer materials.” This definition was recognized in the unjust enrichment *513statute, for § 501(a) (1) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Acts, page 944, laid the tax upon “the net income from the sale of articles with respect to which a Federal excise tax was imposed” but not paid. Section 501(f) (2) of the Act, which defines the taxable costs of operation for the purpose of calculating the tax, states that the term “cost” means in the case of articles manufactured or produced by the taxpayer the cost to the petitioner of materials entering into the articles. Clearly sausage is an article manufactured by petitioner, and purchased pork is one of the materials entering into it. If its cost is deductible, net profit from the entire article is evidently intended to be taxable. As the Commissioner originally contended, the petitioner should have been taxed here upon the total net income from the sale of sausage, whether or not it was made from own-slaughter or from purchased pork.
The petition for rehearing is denied.