Court Opinion

ID: 9788552
Source: CourtListenerOpinion
Date Created: 2023-08-31 00:57:53.62301+00
Date Added: 2024-06-11T07:37:01.221380
License: Public Domain

MADDEN, Judge
(dissenting in part).
I have come to the conclusion, inexcusably belated, that the court was wrong in holding for the plaintiff in its earlier cases, 121 F.Supp. 932, 128 Ct.Cl. 465, and No. 49428, decided November 7, *7451956. I think now, as I did when I wrote the opinion of the court in the first of these cases, that there is no material distinction between warranties for five year terms and warranties for one year or other shorter or longer terms; that there is no distinction between warranties separately charged for and warranties paid for in the purchase price of the utensil itself. I also think that the distinction suggested in the court’s instant opinion between warranties in accordance with the “custom of the trade” and other warranties is largely nonexistent andy to whatever extent it does exist, is irrelevant. As to its nonexistence, the brief of the amicus in this case advises us that practically all manufacturers of refrigerating equipment warrant the sealed units for five years, which means that such warranties are the custom of the trade.
The plaintiff is, in this case, quite justifiably pressing our earlier decisions to their logical conclusion. If we adhere to those decisions, I think we must accompany the plaintiff to that conclusion. I would go back to the starting point and not forward to where that road inevitably leads.
The intention of Congress, in enacting Section 3443(a) (2) of the Internal Revenue Code of 1939, granting to payers of manufacturers’ excise taxes the right to refunds of such taxes proportionate to the amounts of bona fide discounts, rebates or allowances to their customers, is the matter now in question. I now think that sums expended by such taxpayers in fulfilling, in kind, warranties of any sort, were not intended to be covered by this provision of the statute. There is a great variety of such warranties, extending from the warranty of fitness implied by law, without any expression whatever, to express warranties for various periods of months or years, even up to warranties for the entire life of the thing sold. Rights to refunds of taxes paid at the time of the sale would arise, in cases like the instant one, as much as five years, and, in case of warranties for longer periods, more than five years after the sale. Discounts, rebates or allowances in cash are never, I suppose, made at times so remote from the sale of the goods.
Then there is the problem of accounting, when warranties are fulfilled in kind. How much did the replacement part cost; what was the value of the defective part which was returned and which could often be rebuilt and resold; how much of the workman’s time is attributable to the warranty, when on one trip he installs new appliances and also removes and replaces defective units of old appliances; how much of the overhead at the local sales agency or at the home office is properly attributable to the fulfillment of warranties, which is a small part of the entire business of these offices; is it proper tax accounting to charge the cost of fulfilling the warranty on the occasional defective appliance, which cost may be more than the whole cost of the appliance, against the selling price of other appliances as to which no defects developed and no costs were incurred?
These accounting problems are not insoluble, in the approximate fashion in which such accounting would have to be done, but they would impose upon the taxpayer a considerable burden of keeping proper accounts, and would impose upon the Government a heavy burden of checking such accounts. Cash rebates or allowances would be simple matters of bookkeeping and would not involve these difficult accounting problems.
Expenditures made in fulfilling warranties in kind could, of course, come within the statutory definition of “allowances” if Congress so intended. But equally, of course, the word allowances does not plainly or necessarily include them. The court’s task is, then, to ascertain as best it can the “intent” of Congress in this regard. The probability is that the particular question did not occur to those who wrote the statute. It is significant that taxpayers, including the largest enterprises in the *746country with the most astute tax lawyers in their service, did not, for many years, discover this meaning in the statute. Not until this plaintiff, in the first of its series-of .cases, presented this interpretation of the statute as a secondary and. alternative basis of its. claim, did sucjr a possible meaning of the statute occur to the. many other taxpayers to whom it would have meant large refunds of, taxes. It is not, then, a meaning which those .familiar with the language of business and of taxation naturally draw from a reading of the statute.