Court Opinion

ID: 8087912
Source: CourtListenerOpinion
Date Created: 2022-09-09 14:09:08.976641+00
Date Added: 2024-06-11T16:38:28.949275
License: Public Domain

*414DISSENTING OPINION
Walker, Judge:
I regret that I am unable to agree with my colleagues in the decision of this case, which for the first time raises an important issue with respect to the cost of production formula for determining value set forth in section 402 (f) of the Tariff Act of 1930.
As the issue was presented, and apparently as regarded by my colleagues, the question is whether or not a tax imposed in connection with a sales transaction may be considered a “usual general expense” under paragraph (2) of the formula referred to.
I agree with the statement in Presiding Judge Oliver’s opinion that—
It is quite obvious that cost of production as defined by section 402 (f) is not confined to the naked cost of raw materials, labor, and manipulation because specific provision is made in the formula for profit (section 402 (f) (4)).
I disagree, however, with what follows. In my view, the caption “cost of production” is a misnomer, for the formula does not set up the cost of producing merchandise alone, but the cost of producing and selling merchandise. Profits do not arise until goods are sold. Expenses having to do with selling merchandise, are, therefore, in my opinion; contemplated in the cost of production formula.
The term “expense” is extremely broad when considered in the ordinary meaning, and refers to an outlay or disbursement. When coupled with the term “general,” as it is in the cost of production formula, it refers to those items not chargeable to any particular unit of production, but to the entire output (see Austin, Baldwin & Co. v. United States, 7 Ct. Cust. Appls. 186, T. D. 36505, at p. 192). I therefore see no reason why an expenditure, disbursement, or outlay for a tax imposed in connection with the transaction of sale should not be considered to be a general expense. Certainly other taxes imposed upon business, such as corporate taxes, license fees, etc., are general expenses, and I see no reason why a tax in connection with sales should not be.
On the question of whether such a tax might be considered a usual general expense, it seems to me that if sales upon which a tax is levied occur in the ordinary course of events or in ordinary practice, are customary, frequent, or common (cf. definition of “usual” in Funk & Wagnalls New Standard Dictionary, 1940 ed.), as the record indicates they are, then it is a usual general expense. The mere fact that under certain circumstances (i. e., sales to registered dealers, or for exportation) the tax does not accrue, does not affect the fact that it is a usual general expense.
The tax item involved is rejected by Presiding Judge Oliver as a “usual general expense” for the following six reasons:
(1) It is said that it is incurred by the purchaser. As I read the British law, the seller is the person primarily liable for the tax. In section 22 (1) (a) it is provided that—
*415The person accountable for tax chargeable shall * * * where the purchase by virtue of which it is chargeable was made from a wholesale merchant or a manufacturer, be the seller under that purchase.
Furthermore, even if the tax were incurred by the purchaser, I see' no reason why it should not be a usual general expense. There is nothing in the cost of production formula which requires that the items covered thereby must be paid by the manufacturer or the seller, and it is not uncommon for the purchaser to supply parts or services in connection with the merchandise he buys. The value of that merchandise includes the cost of the parts or services so supplied, and it is value that is treated in section 402. Therefore, it matters not who pays for the item so long as it is part of the value under the formula.
(2) It is said it is not a charge arising out of the production of the merchandise. As I have hereinbefore pointed out, the cost of production formula does not concern itself with production alone, but with selling also.
(3) It is said that if the merchandise was never sold the tax would not arise but the cost of production could nevertheless be determined. This, of course, is based upon the premise that no selling expenses can be part of the cost of production, with which I do not agree. The fact is, in this case, that such or similar goods were sold.
(4) It is said that two costs of production would arise if the tax were held to apply, one when the goods were sold to unregistered dealers, and the other when sold to registered dealers or for export. This entirely overlooks the word “usual” in the phrase “usual general expenses.” It is not the general expenses of every transaction, but the usual general expenses that are covered by paragraph (2) of the formula.
(5) It is said that the tax was billed separately, collected as a separate item, kept separate and apart from the funds representing the proceeds of the sale, and remitted quarterly to the British Government. I fail to see how the method of accounting used in connection with the tax can affect or give any indication as to its character. The question is whether it is part of the value as determined under the cost of production formula. In this connection see Hugo Reisinger, Inc., et al. v. United States, 20 C. C. P. A. 67, T. D. 45683, wherein it was held that the fact that a sales tax there involved was required to be separately listed did not affect its being part of the value. Nor, in this connection, does it matter that the tax ultimately was paid into the British Treasury. There is nothing either directly or by inference in section 402 (f) which requires that the amounts represented by the various items should be paid to the manufacturer or seller alone. So long as those items'are part of the value as determined by the formula it matters not who receives payment for them.
(6) It is said that no profit was figured on the tax nor .was it figured as part of the sales price by the manufacturer. There is nothing in *416section. 402 (f) which says that profit thereunder must be figured on each item of usual general expenses or that it must be part of the sales price figured by the manufacturer. It says that there shall be an addition for profit— ,
* * * equal to the profit which ordinarily is added, in the case of merchandise of the same general character as the particular merchandise under consideration, by manufacturers or producers in the country of manufacture or production who are engaged in the production or manufacture of merchandise of the same class or kind.
and that if such profit should turn out to be less than 8 per centum of the sum of the amounts found under paragraphs (1) and (2) of the formula, then 8 per centum thereof is to be used instead of such profit.
Profit usually means the excess of the total amount received over the total amount expended in producing and marketing goods, and the total amount expended necessarily includes all expenses in connection with the goods from the first acquisition to the final disposition. If profit were broken down and assigned to the various items' expended, the total of which was used in calculating it, it would be seen that no profit should be figured on many such items, particularly administrative expenses, e. g., postage, corporate taxes, stenographic hire, etc., when considered by themselves. But profit is not figured on each item taken by itself, but on the total of all such items.
The profit contemplated by section 402 (f), then, is one based upon the inclusion of all expenses — not merely production or manufacturing expenses alone. If that profit should be less than 8 per centum of the sum of the amounts found under paragraphs (1) and (2), then 8 per centum thereof is substituted. By this device Congress indicated the minimum amount it should consider as profit; it did not indicate that “usual general expenses” were to be broken down and only those upon which a profit could be figured by themselves should be considered.
So far as the tax bveing figured as part of the sales price by the manufacturer, I agree that it may not have been expressed as part of the sales price,- but both parties knew, in the case of transactions with unregistered persons, that it must have been paid before the fruits of the sale could be enjoyed. In that sense, then, it was part of the sales price.
As I read Judge Cole’s concurring opinion, it is based upon two reasons: (1) From the fact that in paragraph (2) of section 402 (f), supra, the minimum amount of usual general expenses to be taken is 10 per centum of the manufacturing costs specified in paragraph (1), he concludes that—
* * * it is a logical sequence that the only amounts to be included as “usua' general expenses” are the expenses related to the items covered by paragraph (1).
—that is to say, manufacturing expenses, and excluding administrative or selling expenses.
*417It is a matter of common knowledge that in the case of many products the expenses other than manufacturing expenses are equal to, and often exceed, the manufacturing expenses. It would be attributing an unrealistic attitude to Congress to assume that in establishing a formula by which value might be determined, it would omit so large an element of value.
Furthermore, I do not think that the language used in paragraph (2) warrants the interpretation Judge Cole has put upon it. As in the case of profit, Congress indicated the minimum' amount it would consider to be “usual general expenses,” but it did not indicate or limit the character of those usual general expenses.
(2) Judge Cole’s second reason is connected with the fact that the tax in this case, being relatively high, would not appear to have been intended to be included in the cost of production formula by Congress unless more specific appropriate language had been used. Here, again, I cannot agree with the conclusion my colleague has drawn. The tax in question had not been in existence when the statute was enacted. I do not see why the amount of a subsequently existing tax should affect its inclusion as an item to be considered under the cost of production formula. Suppose the tax, instead of being 33% per centum, were 5 per centum, or one-tenth of one per centum? It must not be forgotten that Congness was trying to establish a formula to take care of all cases as they might arise. If, in a particular case, one item to be considered might be disproportionate or abnormal, that is one of the vicissitudes of economic and political life.
It is my view, therefore, that the position of my colleagues, that the tax at bar is not part of the usual general expenses in connection with merchandise such as or similar to that here involved under the cost of production formula, is not tenable.
I see only one feature remaining to be considered. It appears by section 22 (2) (a) of the British Act, that the tax becomes due—
* * * where the purchase by virtue of which it is chargeable is other than an importer’s purchase, on the delivery of the goods under the purchase; * * *.
It may be argued that since the tax does not become due until delivery, it is not part of the expenses of sale. In trade and commerce one buys goods in order to acquire the basic rights of ownership, and among these rights is that of possession. In the case of goods sold in England which are subject to tax under the British Act, the enjoyment of the right of possession, which is one of the chief reasons why chattels personal are pm-chased, cannot be had by the purchaser without liability for the payment of the ,tax being incurred. The tax, then, is an inseparable part of the transaction. It would be absurd to think that anyone who purchased goods under a chargeable purchase did so with the intent not to take delivery of them or exer*418cise bis right of possession. See also, in this connection, General Dyestuff Corp. v. United States, 19 C. C. P. A. 309, T. D. 45480.
For the foregoing reasons I am of the opinion that the decision of the court below should be reversed, and judgment should issue accordingly.