Appendix — District of Columbia v. Radio Corp. of America

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APPENDIX A

OPINION OF THE COURT

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 12,927

District oF COLUMBIA, PETITIONER

Vv.

Rapio Corporation OF AMERICA, RESPONDENT

Petition for Review of Decision of the

District of Columbia Tax Court

Decided April 5, 1956

Mr. Henry bk. Wixon, Assistant Corporation Couu-

sel for the District of Columbia, with whom Messry,

Vernon E. West, Corporation Counsel, Chester HH,

Gray, Principal Assistant Corporation Counsel, and

George C. Updeqraf?, Assistant Corporation Counsel,

were on the brief, for yp: titioner,

Mr. Loftus FE. Becker for respondent. Messrs, Rob-

ert G. Zeller and John A, Gilmore were on the briet

for respondent. Mr. James FE. Greeley also entered

an appearance for respondent.

Before Winsurn K. Miuier, Bazeron and Danater

Circuit Judges.

Winbur K. Miuuer, Circwi? Judge: The question in

this case is whether the District of Columbia must

CERI tO ON,

refund certain franchise taxes paid under protest

by the Radio Corporation of America.

The Ineome and Franchise Tax Act of 1947, as

amended, § 47-1551 et seq., D. C. Code (1951), imposes

a franchise tax upon every corporation and unincorpo-

rated business ‘‘for the privilege of carrying on or

engaging in any trade or business within the District

and of receiving such other income as is derived from

sources within the District ....’’ The measure of

the tax is that portion of the corporation’s net income

‘tas is fairly attributable to any trade or business

earried on or engaged in within the Distriet and such

other net income as is derived from sources within

the District .. ..’’ § 47-1580.. It is provided by

§$ 47-1580a: ‘*. . . Where the net income of a corpo-

ration or unincorporated business is derived from

sources both within and without the District, the

portion thereof subject to tax under this article shill

be determined under regulation or regulations pre-

seribed by the Commissioners. . . .”’

August 31, 1948, the Commissioners ‘of the District

promulgated regulations pursuant to the statutory

authority quoted above, which include the following:

See. 10-2(d). ‘*. .. If the trade or business i<

earried on partly within and partly without the

Distriet, that portion of the gross income froi

trade or business to be apportioned to the District

shall be determined as follows :’’

See. 10-2(d) (1)a. ‘‘Where gross income for

any taxable year is derived from the manufacture

and sale or purchase and sale of tangible per-

sonal property, the portion thereof to be appor-

tioned to the District shall be such percentage

of the total of such gross income as the District

sales made during such taxable year bear to the

total sales made everywhere during such taxable

year. For the purpose of this regulation the

phrase ‘District sales’ shall mean the gross re-

Rg Tee

iil, et ane

ceipts from all sales made which were principally

secured, negotiated, or effected by owners, em-

ployees, agents, officers and branches of the cor-

poration or unincorporated business located in the

District; and the phrase ‘total sales’ shall mean

the gross receipts from all sales.’’ [Emphasis

supplied. |

It was also provided that ‘‘these regulations shall

apply to the taxable year or part thereof beginning

on the first day of January, 1948, and to succeeding

taxable years.’’

RCA seasonably filed with the Assessor of the

Yistrict franchise tax returns for the calendar years

1949, 1950 and 1951 and paid the taxes disclosed

thereby. The returns were prepared in accordance

with the allocation provisions of the 1948 regulations.

March 17, 1953, the Commissioners amended § 10-

2(d)(1)a of the 1948 regulations by eliminating there-

from the word ‘located’? which we have italicized

above. August 6, 1953, the section was further amended

to read in pertinent part as follows:

‘If the trade or business is carried on partly

within and partly without the District, that par-

tion of the net income from trade or business to

be apportioned to the District shall be determined

as follows:

“(1) Income from sales of tangible personal

property.

‘a. Where income for any taxable year is de-

rived from the manufacture and sale or purchase

and sale of tangible personal property, the portion

thereof to be apportioned to the District shall

be such percentage of the total of such income

as the District sales made during such taxable

year bear to the total sales made everywhere dur-

ing such taxable year. ... For the purpose of

this regulation, the phrase ‘District sales’ shall

mean all sales to Distriet customers the income

from which is fairly attributable to the trade

or business carried on or engaged in within the

District, including solicitation in the District by

salesmen or other representatives of the taxpayer,

that portion of sales to customers outside the

District the income from which is fairly attrib-

utable to the trade or business carried on in the

District, and sales of tangible personal property

the income from which is from District sources.”

It was also provided that the regulations as amended

August 6, 1953, ‘‘shall apply to the taxable year or

part thereof beginning on the first day of January,

1948, and to succeeding taxable years.’’

It will be observed that the August, 1953, amend-

ment substantially broadens the basis upon which

income attributable to sales in the District must he

allocated to the District.

Conceiving that the regulations as amended in 1952

should govern the computation of the respondent's

franchise taxes for the years 1949, 1950 and 1951,

the Assessor of the District on September 21, 1954,

calculated thereunder and assessed against RCA de-

ficiencies in franchise taxes for the three years in

exnestion aggregating $112,653.50 plus interest in the

sum of $23,424.87. The additional taxes and interest

demanded were pait under protest by the respondent

October 5, 1954, and on December 17, 1954, RCA filed

this proceeding in the District of Columbia Tax Court

for the refund of the sums so paid, with the exception

of a small amount which it coneeded to be due under

the 1948 regulations. The Tax Court decided in favor

of the taxpayer and this petition for review was filed

by the District.

The District insists that the 1948 regulations were

wholly invalid and that consequently the 1953 regu-

lations were the only ones which could be applied

under the statute. In Lever Bros. Co. v. District of

Columbia, 92 U.S.App. D. C. 147, 204 F. (2d) 39

(1953), we considered and held valid the apportion-

ment formula contained in § 10-2(d)(1)a of the 1948

regulations. We adhere to that holding. The 1953

amendment does not operate retroactively. The re-

spondent’s franchise tax liability for the years 1949,

1950 and 1951 sheuld have been determined, as the

Tax Court held, wi .er the regulations then in foree.

Helvering v. R. J. Reynolds Tobacco Co., 306 U. 3.

110 (1939).

Affirmed.

JUDGMENT OF THE COURT

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 12,927

Aprrit Term, 1956

District oF CoLuMBIA, PETITIONER,

Vv.

Rapio Corporation OF AMERICA, RESPONDENT.

Petition for Review of Decision of the

District of Columbia Tax Court

Before: Wiisur K. Miner, Bazeton and Dananer,

Circuit Judges.

JUDGMENT

This case came on to be heard on the record from

the District of Columbia Tax Court, and was argued

by counsel,

os Pret ae ek ee ee ree wie :

ec on ee ee ~ ~~ 8 eo 2 be are ~ ee”

On ConsiperaTION Wuereor, It is ordered and ad-

judged by this court that the decision of the said

Tax Court on review in this ease be, and the same is

hereby, affirmed, with costs.

Dated: April 5, 1956.

Per Cireuit Judge Wmsur K. Mumuer.

UNITED STATES COURT OF APPEALS

For the District of Columbia Circuit

Filed Apr 5, 1956

Joseph W. Stewart, Clerk

APPENDIX B

STATUTES, AND REGULATIONS PROMUL-

GATED BY THE COMMISSIONERS OF THE

DISTRICT OF COLUMBIA

Statutes Involved

District of Columbia Income and Franchise Tax

Act of 1947, 61 Stat. 328, ch. 258, as amended by the

Act of May 3, 1948, 62 Stat. 206, ch. 246, and by Title

IV, District of Celumbia Revenue Act of 1949, 63 Stat.

112, ch. 146, and by Title XII, of the District of Colum-

bia Publie Works Act of 1954, 68 Stat. 101, ch. 218:

Section 4(h), Article 1, Title] (Sec. 47-1551c(h),

D. C. Code, 1951).

‘Sec. 4. Generat Derinitions.—For the pur-

poses of this article and wherever appearing

herein, unless otherwise required by the context—

* * @

‘‘(h) The words ‘trade or business’ include the

engaging in or carrying on of any trade, business,

profession, vocation or calling or commercial

activity in the District of Columbia; and include

the performance of the functions of a public

office:' Pro ded, however, That the words ‘trade

or business’ shall not include, for the purposes of

this article—

‘*(1) Sales of tangible personal property where-

by title to such property passes within or without

1 As originally enacted in 1947, Sec. 4(h) ended with the words

‘‘nublie office.’’ The proviso to this section was added in its entirety

by the Act of May 3, 1948, 62 Stat. 206, ch. 246.

the District, by a corporation or unincorporated

business which does not physically have or main-

tain an office, warehouse, or other place of busi-

ness in the Distriet, and which has no officer,

agent, or representative having an office or other

place of business in the District, during the tax-

able year; or

‘**(2) Sales of tangible personal property by a

corporation or unincorporated business which

does not maintain an office or other place of busi-

ness in the District and which has no office, agent,

or representative in the District except for the

sole purpose of doing business with the United

States, but such corporations and unincorporated

businesses shall be subject to the licensing provi-

sions in title XIV of this article.

‘*For purposes of this proviso, the words

‘agent’ or ‘representative’ shall not include any

independent broker engaged independently in rev-

ularly soliciting orders in the District for sellers

and who holds himself out as such.’’

Section 1, Article I, Title III (Sec. 47-1557,

D. C. Code, 1951).

“Sec. 1. Ner Income.—For the purposes of

this article and wherever appearing herein, un-

less otherwise required by the context, the words

‘net income’ mean the gross income of a taxpayer

less the deductions allowed by this article.”

Section 2(a), Article I, Title III (Sec. 47-1557.

(a) and Sec. 47-1557a.(b) (13), D.C. Code,

1951).

**Sec. 2. Gross Income ano Exciusions THerr-

FRoM.—(a) The words ‘gross income’ include

gains, profits, and income derived from salaries,

wages, or compensation for personal services of

whatever kind and in whatever form paid, includ-

ing salaries, wages, and compensation paid by the

United States to its officers and employees to the

extent the same is not exempt under this article,

or income derived from any trade or business or

sales or dealings in property whether real or

personal, other than capital assets as defined in

Ne alti cce et OD stk tee

this article, growing out of the ownership, or

sale of, or interest in, such property; also trom

rent, royalties, interest, dividends, securities, or

transactions of any trade or business carried on

for gain or profit, or gains or profits, and income

derived from any source whatever.

‘“*(b) The words ‘gross income’ shall not in-

clude the following:

* * * * * *

**(13) Income derived from the sale of tangible

personal property to the United States by cor-

porations and unincorporated businesses having

their principal places of business located outside

the District, which property is delivered from

places outside the District for use outside the

District: Provided, however, that the taxpayer

shall furnish to the Assessor a statement in

writing of the amount of gross sales so made

and, if required by the Assessor, a list of the

names of the agencies of the United States through

which such property was sold.’’*

Sections 1 and 2, Article I, Title VII (Sec. 47-1571

and 47-157 1a., D. C. Code, 1951).

‘Sec. 1. Taxaste Income Derinep.—For the

purposes of this title, and unless otherwise re-

quired by the context, the words ‘taxable income’

mean the amount of net income derived from

sources within the District within the meaning of

title X of this article.*’

**Sec. 2. Imposition anp Rate or Tax.—For the

privilege of carrying on or engaging in any trade

or business within the District and of receiving

income from sources within the District, there

is hereby levied for each taxable year a tax at

the rate of 5 per centum upon the taxable income

of every corporation, whether domestic or foreign

(except those expressly exempt under title II of

this article).”’

2 As originally enacted in 1947, the Franchise Tax Act did not include

paragraph (13). This paragraph was added by the Act of May 3, 1948,

62 Stat. 206, ch. 246.

Sections 1 and 2, Article I, Title X (Sec. 47-1580

and 47-1580a., D. C. Code, 1951).

**Sec. 1. Purpose or ArticLe.—It is the purpose

of this article to impose (1) an income tax upon

the entire net income of every resident and every

resident estate and trust, and (2) a franchise — |

tax upon every corporation and unincorporated

business for the privilege of carrying on or

engaging in any trade or business within the

District and of receiving such other income as

is derived from sources within the District: Pro- b

vided, however, That, in the case of any corpora- ;

tion, the amount received as dividends from a

corporation which is subject to taxation under

this article, and, in the case of a corporation not

engaged in carrying on any trade or business

within the District, interest received by it from ,

a corporation which is subject to taxation under

this article shall not be considered as income from

sources within the District for the purposes of

this article. The measure of the franchise tax

shall be that portion of the net income of the

corporation and unincorporated business as is

fairly attributable to any trade or business car-

ried on or engaged in within the Distriet and

such other net income as is derived from sources

within the District:* Provided, further, That

income derived from the sale of tangible personal

property by a corporation or unincorporated busi-

ness not carrying on or engaging in trade or

business within the District as defined in title |

of this article shall not be considered as income

from sources within the District for purposes of

this article, with the exception of income from

sales to the United States not excluded from

gross income as provided in title III, section

2(b)(13) of this article.’’

“Sec. 2. ALLOCATION AND APPORTIONMENT.—

The entire net income of any corporation or un-

incorporated business, derived from any trade

a“

a naman

3 As originally enacted in 1947, this section ended with the words

‘the District.’’ The proviso following those words was added by the

Act of May 3, 1948, 62 Stat. 206, ch. 246.

as 55 AP Fan ZI EBS GONNA Nan OE nen :

or business carried on or engaged in wholly within

the District shall, for the purposes of this article,

be deemed to be from sources within the District,

and shall, along with other income from sources

within the District, be allocated to the District.

If the trade or business of any corporation or

unincorporated business is carried on or engaged

in both within and without the District, the net

income derived therefrom shall, for the purposes

of this article, be deemed to be income from

sources within and without the District. Where

the net income of a corporation or unincorporated

business is derived from sources both within and

without the District, the portion thereof subject

to tax under this article shall be determined unde1

regulation or regulations prescribed by the Com-

missioners. The Assessor is authorized to employ

any formula or formulas provided in any regula-

tion or regulations prescribed by the Commis-

sioners under this article which, in his opinion,

should be applied in order to properly determine

the net income of any corporation or unincorpo-

rated business subject to tax under this article.”’

Regulations Promulgated by the Commissioners of

the District of Columbia Involved

The Commissioners of the District of Columbia,

following enactment of the District of Columbia In-

come and Franchise Tax Act of 1947, and pursuant to

authority contained in that Act, adopted regulations

for the purpose of providing a basis for allocation

to the District of Columbia for franchise tax purposes

of the net income of a corporation deriving income

from sources both within and without the District

of Columbia.

On August 31, 1948, the Commissioners promulgated

regulations reading as follows:

‘Sec, 10-2. The measure of the franchise tax

shall be that portion of the net income of a corpo-

ration or unincorporated business as is fairly

attributable to any trade or business earried on

or engaged in within the District, as defined in

the Act, and such other net income as is derived

from sources within the District. The portion

of such net income which is ‘fairly attributable’

to any trade or business or such other net income

as is derived from sources within the District

shall be determined by allocation and apportion-

ment thereof as prescribed in Sections 10-2()),

10-2(¢), 10-2(d), 10-2(e).”’

‘‘Src. 10-2(b). The word ‘allocated’ as herein-

after used in reference to income and deductions

therefrom means a determination based upon

actual figures specifically applicable thereto; and

the word ‘apportioned’ so used means a ratable

portion determined on a percentage basis. If the

entire gross income is derived from engaging in

a trade or business within the District or from

sources within the District, all of such income shall

be allocated to the District. If the gross income

is derived from engaging in a trade or business

partly within and partly without the District or

from sources both within and without the District,

such gross income shall be allocated and appor-

tioned in accordance with the specifie provisions

or formulae prescribed in these regulations.”’

> * >. 2 a . 2

“Sec. 10-2(d). Income from Trade or Busi-

ness. If the trade or business is carried on en-

tirely within the District, the entire gross income

from trade or business shall be allocated to the

District. If the trade or business is carried on

partly within and partly without the District, that

portion of the gross income from trade or business

to be apportioned to the District shall be deter-

mined as follows:

“©(1) Income from sales of tangible personai

property.

‘‘a. Where gross income for any taxable year

is derived from the manufacture and sale or pur-

chase and sale of tangible personal property, the

portion thereof to be apportioned to the District

shall be such percentage of the total of such gross

income as the District sales made during such

taxable year bear to the total sales made every-

where during such taxable year. For the purpose

of this regulation the phrase ‘District sales’ shall

mean the gross receipts from all sales made

which were principally secured, negotiated, or

effected by owners, employees, agents, officers and

branches of the corporation or unincorporated

business located in the District; and the phrase

‘total sales’ shall mean the gross receipts from

all sales.’

The foregoing regulations promulgated August 31,

1948, contained the following provision:

“Src. 17. Effective date of Amendments, The

amendments made by these regulations shall

apply to the taxable year or part thereof begin-

ning on the first day of January, 1948, and to

sueceeding taxable years.”’

On March 17, 1953, the Commissioners of the Dis-

trict of Columbia amended Section 10-2(d)(1)a of the

regulations to provide as follows:

‘“‘Sec. 10-2(d)(1)a. Where gross income for

any taxable year is derived from the manufacture

and sale or purchase and sale of tangible personal

property, the portion thereof to be apportioned

to the District shall be such percentage of the

total of such gross income as the District sales

made during such taxable year bear to the total

sales made everywhere during such taxable year.

For the purpose of this regulation the phrase

‘District sales’ shall mean the gross receipts from

all sales made which were principally secured,

negotiated, or effected by owners, employees,

agents, officers and branches of the corporation or

unincorporated business in the District; and the

phrase ‘total sales’ shall mean the gross receipts

from all sales.’’

On August 6, 1953, the Commissioners further

amended the regulations applicable to income and

franchise taxes. Section 10-2 of these regulations, as

amended on August 6, 1953, provided as follows:

‘‘Sec, 10-2. The measure of the franchise tax

shall be that portion of the net income of the

corporation and unincorporated business as is

fairly attributable to any trade or business carried

on or engaged in within the District, as defined in

the Act, and such other net income as is derived

from sources within the District. The portion of

such net income which is ‘fairly attributable’

to any trade or business or such other net income

as is derived from sources within the District

shall be determined by allocation and apportion-

ment thereof as prescribed in Sees. 10-2(b), 1°-

2(d), 10-2(e).”’

Section 10-2(b) of the regulations was amended to

read as follows:

‘¢*Sec. 10-2(b). The word ‘allocated’ as herein-

after used in reference to income and deductions

therefrom means a determination based upon

actual figures specifically applicable thereto; and

the word ‘apportioned’ as hereinafter used in

reference to net income means a ratable portion

determined on a percentage basis. If the entire

net income is derived from engaging in a trade

or business within the District or from sources

within the District, all of such income shall be

allocated to the District. If the net income !s

derived from engaging in a trade or business

partly within and partly without the District or

from sources both within or without the District,

BROS HIN)

such income shall be allocated and apportioned in

accordance with the specific provisions or formu-

lae prescribed in these regulations.”’

Section 10-2(d)(1)a of the regulations was amended

to read as follows:

‘Sec, 10-2(d). If the trade or business is

carried on or engaged in wholly within the Dis-

trict, the entire net income trom trade or business

shall be allocated to the District. If the trade or

business is carried on partly within and partly

without the District, that portion of the net in-

come from trade or business to be apportioned to

the District shall be determined as follows:

“(1) Income from sales of tangible personal

property.

‘“(a) Where income for any taxable year is de-

rived from the manufacture and sale or purchase

and sale of tangible personal property, the por-

tion thereof to be apportioned to the District

shall be such percentage of the total of such in-

come as the District sales made during such tax-

able year bear to the total sales made everywhere

during such taxable year. Every corporation and

unincorporated business which carries on or en-

gages in business in the District within the mean-

ing of the words ‘trade or business’ as defined in

the Act is, unless specifically exempted by some

provision of the Act, subject to tax. For the pur-

pose of this regulation, the phrase ‘District sales’

shall mean all sales to District customers the in-

come from which is fairly attributable to the

trade or business carried on or engaged in within

the District, ineluding solicitation in the District

by salesmen or other representatives of the tax-

payer, that portion of sales to customers outside

the District the income from which is fairly at-

tributable to the trade or business carried on in

the District, and sales of tangible personal prop-

erty the income from which is from District

sourees.”’

| “yy

10b

By Section 15 of the amendments of August 6, 1993, |

the effective date of those amendments was prescribed}

as follows:

“Seetion 15. Effective Date of Amendments,

The amendments made by these regulations shall

apply to the taxable year or part thereof begin-

ning on the first day of January, 1948, and to,

succeeding taxable years.”’

APPENDIX C

REPORT OF THE COMMITTEE ON THE DIS-

TRICT OF COLUMBIA, UNITED STATES

SENATE, ACCOMPANYING 8.2409, ENACTED

AS THE ACT OF May 8, 1948, 62 Stat. 206, ch.

246, AMENDING THE DISTRICT OF COLUM-

BIA INCOME AND FRANCHISE TAX ACT

OF 1947, 61 Stat. 328, ch. 258 (Senate Report No.

1042, 80th Congress, 2d Session).

‘The Committee on the District of Columbia,

to whom was referred the bill (S. 2409) to amend

an act entitled ‘An act to provide revenue for the

District of Columbia, and for other purposes,’

approved July 16, 1947, having considered the

same, report favorably thereon without amend-

ment and recommend that the bill do pass.

‘“The purpose of the bill is to clarify and limit

the imposition of a tax upon the income of corp-

orations or businesses which is ‘derived from

sourees within the District of Columbia.’ Due to

the language appearing in the existing District

of Columbia income-tax law, the imposition or

assessment of the income tax was_ heretofore

made against concerns casually engaged in busi-

ness within the borders of the District of Colum-

bia by such means as telephone, mail orders,

traveling salesmen, and other nonconsistent means

of solicitation. This bill will correct such situa-

tion, and limit the imposition of an income tax to

those concerns factually engaged in business on

their own account or through representatives or

agents within the District of Columbia.”

}

REPORT OF THE COMMITTEE ON THE DIS- ;

TRICT OF COLUMBIA, UNITED STATES © j

HOUSE OF REPRESENTATIVES, ACCOM-

PANYING S. 2409, ENACTED AS THE ACT

OF May 3, 1948, 62 Stat. 206, ch. 246, AMEND-

ING THE DISTRICT OF COLUMBIA INCOME

AND FRANCHISE TAX ACT OF 1947, 61 Stat.

328, ch. 258 (House Report No. 1792, 80th Con-

gress, 2d Session).

‘“The Committee on the District of Columbia,

to whom was referred the bill (S. 2409) to amend |

an act entitled ‘An act to provide revenue for the |

District of Columbia, and for other purposes,’ |

approved July 16, 1947, having considered the ’/

same, report favorably thereon with amendments

and recommend that the bill as amended do pass.

‘“The amendments are as follows:

‘‘Strike all but enacting clause and insert the

following:

“That paragraph lettered (h) of section 4 of

title I of article I of the Act entitled ‘An Act to

provide revenue for the District of Columbia, and

for other purposes’, approved July 16, 1947, is

amended by striking out the period at the end of

the paragraph, inserting a colon, and the follow-

ing: ‘Provided, however, That the words ‘‘trade

or business”’ shall not include, for the purposes

of this article—

“(1) Sales of tangible personal property

whereby title to such property passes within or

without the District, by a corporation or unin-

corporated business which does not physically

have or maintain an office, warehouse, or other }

place of business in the District, and whieh has

no officer, agent, or representative having an office

or other place of business in the District, during

the taxable year; or

‘©(2) Sales of tangible personal property by a

corporation or unincorporated business which

does not maintain an office or other place of busi-

ness in the Distriet and which has no office, agent,

or representative in the District except for the

sole purpose of doing business with the United

States, but such corporations and unincorporated

businesses shall be subject to the licensing pro-

visions in title XIV of this article.

‘‘Kor purposes of this proviso, the words ‘agent’

or ‘representative’ shall not include any inde-

pendent broker engaged independently in regu-

larly soliciting orders in the District for sellers

and who holds himself out as such.

‘SHC. 2. Section 1 of title X of article I of

said Act is amended by striking out the period at

the end of the section, inserting a colon, and the

following: ‘Provided further, That income de-

rived from the sale of tangible personal property

by a corporation or unincorporated business not

carrying on or engaging in trade or business

within the District as defined in title I of this

article shall not be considered as income from

sources within the District for purposes of this

article, with the exception of income from sales

to the United States not excluded from gross in-

come as provided in title III, seetion 2(b) (18) of

this article."

“SEC. 3. Paragraph lettered (b) of section 2

of title IIT of article I of said Act is amended by

adding thereto the following subparagraph :

‘(13) Income derived from the sale of tangible

personal property to the United States by corp-

orations and unincorporated businesses having

their principal places of business located outside

the District, which property is delivered from

places outside the District for use outside the

Distric: . ided, however, That the taxpayer

shall fi) _to the Assessor a statement in writ-

ing of the amount of gross sales so made and, if

required by the Assessor, a list of the names of

the agencies of the United States through which

such property was sold.’

“SEC. 4. Section 4 of title XTV of article I of

said Act is repealed,

“SEC. 5. The amendments made by this Act

shall apply to the taxable year or part thereof

BAD: OLD COE AS DARA AREY eA A TE AIS La LES ES me er oe om

beginning on the Ist day of January 1948, and to

succeeding taxable years.

“The purpose of the bill, as amended, is to

clarify the language and intent in the District of

Columbia Income and Franchise Tax Act of 1947,

in order that the tax so provided be not imposed

on corporations and unincorporated businesses

which do not maintain places of business or rep-

resentatives in the District of Columbia, or on

such concerns which maintain places of business

or representatives in the District for the sole

purpose of doing business with the United States,

in respect to sales of tangible personal property

delivered outside the District for use outside the

District.

‘‘Complaints were received by Members of the

Congress from business organizations located out-

side the District which did business in the District

through solicitation by salesmen and others who

did not maintain business offices in the District.

As a result of such complaints, H. R. 5317 and

H. R. 5563, Eightieth Congress, Second session,

were introduced. Those bills were intended to

amend the 1947 act to exempt from taxation in-

come derived from the procurement of orders for

the sale of personal property by means of tele-

phonic communication, correspondence, or solici-

tation by salesmen in the District where such

orders required acceptance without the District

before binding the parties and title to such prop-

erty passed without the District, as well as the

income derived from sales of personal property

to the United States unless the taxpayer was en-

gaged in business in the District and such prop-

erty was delivered for use within the District.

The language of H. R_ 5317 and H. R. 5563 was

the same as that contained in section 1 of the act

of June 22, 1942 (56 Stat. 376, title 47, sec.

1502(b), D.C. Code 1940, supp. V), which amended

the District of Columbia Income Tax Act of 1939.

Those bills met with opposition by District tax

officials because, in their view, the prior Jaw on

which the two bills were based resulted in inequit-

Se.

able taxation and much administrative difficulty

and litigation.

‘‘Hearings on the subject were held before the

Joint Subcommittee on Fiscal Affairs of the Com-

mittees on the District of Columbia, and, there-

after, conferences were held by District tax offi-

cials and some of the interested representatives

of manufacturing organizations in efforts to for-

mulate amendments to the 1947 act which would

be satisfactory to the complaining taxpayers and

alleviate the difficulties of the tax officials. As a

result of the hearings and conference, bill H. R.

6050 and companion bill S. 2409 were introduced.

Subsequently on April 12, 1948, the bill (S. 2409)

was passed by the Senate and referred to the

House Committee on the District of Columbia.

‘‘Representatives of the Navy Department of

the United States and a corporation doing busi-

ness with the United States suggested amend-

ments with respect to sales of tangible personal

property to the United States which property is

delivered from places outside the District for use

outside the District, when the selling corporations

or unincorporated businesses do not have their

principal places of business in the District. Ad-

ditional conferences were held by District tax

officials and interested representatives of the

United States and others, as indicated above, and

the amendments with respect to sales made to the

United States, which this committee recommends,

were agreed upon. * * *.”’

wane

INDEX

PAGE

Findings of Facts and Opinion of the District of Columbia Tax Court:

Findings of Facts _------------------------------------------------ 1

(AIOE: 5 + 5 ss soe eect ea

Computation for entry of decision submitted by the District of Colum-

bia Under Rule 30 of the Rules of Procedure before the District of

Paar aii ee NRE oe oe on ee oe oem armen eae | ee

a a eh ee eT AOE OE Te a eS eeas ac

Excerpts from Transcript of Proceedings:

Opening Statement of Counsel for respondent --.-.-.--..----------- 57

John 8S. Carter:

Direct Examination : , : A Se:

Cross Examination _- : Puke Eden eee ——

Conder C. Henry:

Direct Examination _- atte ees = sah) 64

Cross Examination - Sees ee. fae : 67

James P. Veach:

oeeees RRINIEM (te a cnn —

Cross Examination z oS a UE Re nas Re 69

Allen Buxton Mills:

Direct Examination ple ed ee eR rene ae eR gee

Cross Examination - Oia i AP Nh i Pee Pe Noe Dies ee og te ee 7

Mimi’ \emmininnintae 2 20 2) eee ee en Se

Martin Polikoff:

Direct Examination : 2 eee 2 _ 80

Cross Examination SE SD PIE IES =

Redirect Tevainnnee oe ce 88

Recross Examination As = ee nS 5 ese 89

Se ao

ag a

DAT a RRR TES Rp Raa ae

“ag

agte

ERR TIT»

be alti

PE OBNG NITE INE OI me MSHS “ " Ie iar UE ae

il INDEX—Continued

2 Pace

4 Harold F. Bersche:

| See eee Re a ae CEC a a Soe ee eT a4 ;

4 RAN INI oot acne Seen ede pam neGietin mei _ 104

: Sy, I ta 3d sien diaia eee Silane 3a

3 ee A EONAR RTT

3 Edward O. Welker:

EOI, NI a hi a ninc hccccnccenatsice scidhi enindeeceiiaonsoisach Saas 106 }

RS ROI ENE Se

; Francis H. Engel:

; I Se i eas Senn ete ieaes 118

bo SES ARS EE Te

Redirect Examination ria slacks nsiioc a naicipasiRkaaplad Dees bin eiskc a

James H. Hickey:

is I on ee mininicanenieesiaaeman ee

aren nn 9 De ad whine eaten eae 130

William L. Hopkins:

SSS SS SS a EN Oe ee a aI 136

a ee ene aa ey ae os Se salieri ee

Howard L. Pettit:

Direct Examination __-___- EE SEALY ee PO Ve = 144

Charles William Kraus:

Direct Examination _ : OER ey es we Sones - 146

SOA INI Sook cae ce ee en neen dr nedenatannnnnns canes

Exhibits:

Petitioner’s Exhibit No. 1—RCA Sales to District customers of

products by departments for years 1949, 1950 and 1951 ._.__.._- 149

2 Petitioner’s Exhibit No. 2—RCA Tube Department sales to District

3 customers for years 1949, 1950 and 1951 -__--_.-----...---... -... M9

Fd Petitioner’s Exhibit No. 3—RCA Enfiineering Products Department

4 sales to District customers for years 1949, 1950 and 1951 _. _.____ 149

: Petitioner's Exhibit No. 10—RCA Home Instrument Department

: sales to District customers for years 1949, 1950 and 1951 2 150

Bien.

Eetes te

19 FILED JUN 29 1955 District of Columbia Tax Court

Docket No. 1463

FINDINGS OF FACTS AND OPINION

The petitioner here seeks a reduction of an assessment of

franchise taxes assessed against it for the calendar years

1949, 1950 and 1951. It claims that the Assessor erred in

determining that certain sales of tangible personal property

to customers in the District of Columbia were ‘District

sales’? within the meaning of pertinent regulations ; and that

the use of the proceeds of such sales as a factor in a formula

for the apportionment of its net income by which the tax

was measured was improper.

FINDINGS OF FACTS

In General

1. The petitioner is a Delaware corporation, with its

principal office at 30 Rockefeller Plaza, New York, N. Y.

2. During the taxable years involved the domestic manu-

facturing and sales activities of the petitioner were con-

ducted by four product departments, each organized as a

separate business, each had its own general manager (us-

ually a vice-president of the petitioner), chief engineer and

engineering staff, financial department and sales depart-

ment. Each department had its own separate manufactur-

ing facilities and general office. The departments were

SEINE FBG EATER OMY stat |

POLITIC VETO CEH

bil a ek att

connected at the highest echelon of management only,

Such departments were the Engineering Products Depart-

ment, Home Instrument Department, Record Department

and Tube Department.

3. The Home Instrument Department had its general

office at Camden, New Jersey, and its manufacturing facil-

ities at Camden, New Jersey, Indianapolis, Indiana, and

Bloomington, Indiana. It manufactured and _ sold

20 radio sets, television sets and phonographs. It had

no office, manufacturing facilities, warehouse or

stock of goods in the District of Columbia.

4. The Record Department had its general offices at

Camden, New Jersey, with its manufacturing facilities at

Indianapolis, Indiana, and for a part of the taxable period

at Cannonsburg, Pennsylvania, New York, New York, and

Los Angeles, California. It manufactured, sold and leased

phonograph and other recording records, part of which

were leased to radio broadcasting stations in the District

of Columbia.

d. The Tube Department had its general offices at Har-

rison, New Jersey, and its manufacturing facilities at Lan-

caster, Pennsylvania, Marion, Indiana and Indianapolis,

Indiana. It manufactured and sold electron tubes, tube

parts, tube-making machinery and batteries. It had no

manufacturing facilities, warehouse or stock of goods in

the District of Columbia. It had no office in the District of

Columbia during 1949, 1950 and the first four months of

1951. In May, 1951 the Tube Department opened an of-

fice at 1757 K Street, N.W., Washington, D. C. In it were

employed a secretary and one representative whose duty

it was to maintain liaison between the Federal Govern-

ment’s purchasing agencies and the management of the

Tube Department.

6. The Engineering Products Department had its gen-

eral offices at Camden, New Jersey, and its manufacturing

facilities at Camden, New Jersey, Detroit, Michigan, and

o>)

Los Angeles, California. It manufactured and sold indus-

trial electronic equipment and special apparatus for the

United States Government. It had no manufacturing fa-

cilities, warehouse or stock of goods in the District of

Columbia. It had an office in the Commonwealth Building,

Washington, D. C., in which two other activities of the

petitioner, namely, the Patent Department and the Fre-

quency Bureau, had office space. The principal function of

the Washington office of the Engineering Products Depart-

ment Was to maintain contact with, and to assist the Fed-

eral Government in connection with its needs for electronic

equipment, chiefly with respect to military equipment such

as radar, sonar and special communications devices.

7. In addition to the four products departments herein-

before described, there were maintained and oper-

21 ated by the petitioner two activities, namely, Patent

Department and Frequency Bureau, in the P istrict

of Columbia.

8. The Patent Department had its headquarters at

Princeton, New Jersey. It maintained an office in the Com:

monwealth Building. Washington, D. C., which was a re-

search and training office for the petitioner's patent attor

neys. It consisted of nine professional employees and three

secretaries. Its only connection with other departments

and divisions of the petitioner was to handle patent dis-

closures originating therein. Its personnel had nothing to

do with the sale of the petitioner’s products. Its office

space was used solely by its own personnel.

9. The Frequency Bureau was a part of the Laboratories

Division of the petitioner located at Princeton, New Jersey.

It had an office in the Commonwealth Building, Washing-

ton, D. C. It consisted of three professional employees and

three secretaries. The function of the Frequency Bureau

was to advise the petitioner and its subsidiaries on the use

and assignment of frequencies granted by the Department

of State, the Federal Communications Commission and the

Department of Defense, and to obtain licenses for use of

frequencies. Its representatives attended all international

conferences on radio frequencies. It had nothing to do with

the sale of the petitioner’s products and its office space was

used solely by its own personnel.

10(a) The petitioner sold its products and leased its

recording records to customers in the District of Columbia

through its four products departments solely during the

taxable years here involved and in the amounts following:

Depertment 1949 1950 1951

Home Instrument $3,408,875.33 $5,282,511.93 $3,584,938.98

Record 261,529.41 308,190.87 424,864.39

Tube 440,829.70 574,767.65 724,257.98

Engineering Products 268,250.10 350,647.21 468,032.22

Total $4,379,484.54 $6,516,117.66 $5,202,093.57

(b) In the foregoing amounts relating to the Reeord De-

partment are included amounts received by that depart-

ment as rental of records to radio broadeasting stations in

the Distriet of Columbia as follows : for 1949—$3,710.60, for

1950—$12,859.89 and for 1951—$16,760.00.

22 as above set forth were shipped by common carrier;

did not come into the District of Columbia through

any facilities maintained by petitioner; and were not

shipped on a consignment basis.

11. The petitioner filed with the Assessor within the time

provided by law, corporate franchise tax returns for the

three taxable years here involved, and in respect of gross

and net income, the apportionment thereof and the fran-

chise taxes due the District of Columbia reported as follows:

1949 1950 1951

Total Gross Sal's $286,724,157.384 $452,676,201.68 $407,542,968.59

District of Columbia Sales 69,842.67 158,733.53 150,842.58

Apportionment Factor .00024359 .000350655 000370126

Total Net Income 37,069,963.56 90,749,804.67 40,461,785.10

District of Columbia Portion 8,751.96 31,103.74 13,953.64

Tax due District of Columbia 437.60 1,555.19 697.68

—_

12(a) On March 11, 1954, the Assessor sent by registered

mail a deficiency notice to the petitioner to the effect that he

intended to assess deficiencies in franchise taxes for the

taxable years here involved in accordance with the accom-

panying statement following:

“RADIO CORPORATION OF AMERICA

Front and Cooper Streets

Camden, New Jersey

Calendar Years

_1949_ _ 1950 1951

Net income subject to

apportionment $35,929,041.24 $88,701,818.59 $37,699,692.70

X apportionment factor* .015274 .014395 .012765

Portion attributable to D. C. $548,780.18 $1,276,862.68 $481,236.58

Tax @ 5% $27,439.01 $63.843.13 $24,061.83

Less amount reported 437.60 1,555.19 697.68

Deficiency $27,001.41 $62,287.94 $23,364.15

*Computation of apportionment factor:

A. Total sales all

sources $286,724,157.34 $452,676,201.68 $407,542,968.59

B. Total District sales,

item 5, schedule M 4,379,484.54 6,516,1 17.66 5,202,093.57

Cc. ee factor

(B + A) .015274 .014395 .012765

Based on the information furnished, it is our view that the

above computations reflect the net income fairly attribut-

able to business carried on within the District of Columbia.*’

(b) The statement of net income of the petitioner subject

to apportionment in the foregoing computation by the As-

sessor Was correct.

13(a) On September 21, 1954, the Assessor assessed the

petitioner deficiencies in franchise taxes, plus interest, for

the taxable years here involved as follows:

Year mid ___snberest Total

1949 $27,001.41 $7,182.38 $34,183.79

1950 62,287.94 12'831.32 75,119.26

1951 23,364.15 3,411.17 26,775.32

Total $112,653.50 $23,424.87 $136,078.37

ne AON F

Shope _—

(b) On October 5, 1954, the petitioner paid such taxes

to the Collector of Taxes.

the taxes and interest in controversy are as follows:

Year _Tax __ Interest _ _ Total_

1949 $26,373.22 $ 7,015.28 $33,388.50

1950 61,452.71 12,659.26 74,111.97

1951 21,876.07 3,193.91 25,069.98

Total $109,702.00 $22,868.45 $132,570.45

(d) In its amended petition the petitioner conceded that

during the taxable years it had ‘‘Distriet Sales’? as meant

by the pertinent regulations as follows:

_1949 _ 1950. _1951

Total District Sales $140,479.34 $178,150.06 $291,595.83

(e) In its amended petition the petitioner conceded that

it owed to the District of Columbia the deficiencies in fran-

chise taxes following:

Year K Tax ee nterest a Total

1949 $ 628.19 $167.10 $ 795.29

1950 825.23 172.06 1,007.29

1951 1,488.08 217.26 1705.34

Total $2,951.50 $556.42 $3,507.92

14. This proceeding was filed on December 17, 1954.

Home Instrument Department Sales

15. Sales of products of the Home Instrument Depart-

ment, namely, television and radio sets and phonographs,

to customers in the District of Columbia were to the cus-

tomers, for the years and in the amounts following:

Customer 1949 1950 — 1951

Southern Whole-

salers, Inc. $3,330,918.18 $5,184,251.96 $3,538,464.63

Fairfax Distributing

Co., Ine, 59,677.25 67,315.17 28,541.81

RCA Affiliated Cos. 6,671.71 18,603.77 10,404.89

Other Customers 11,608.19 12,341.03 7,068.61

U. S. Government 459.04

Total $3,408,875.33 $5,282,511.93 $3,584,938.98

16(a) Southern Wholesalers, Inc., was a wholesale dis-

tributor of sundry articles with its office at 707 Edgewood

Street, N. E., Washington, D. C. It was a wholesale

94 distributor of the products sf csc Tome Instrument

Department, of the products of other departments of

the petitioner and of the products of manufacturers other

than the petitioner, such as refrigerators, ranges and wash-

ing machines. It was appointed by a letter from RCA Vie-

tor Company, Inc. dated January 15, 1934, and reading

as follows:

“Mr, William E. O'Connor, President,

Southern Wholesalers, Inc.,

1519-21 L Street, N. W,,

Washington, D. C.

Dear Mr, O’Connor:

We take pleasure in extending to you an appoint-

ment as of this date, and until further notice, as a

Distributor for RCA Victor products,

We suggest and recommend that you confine your

sales of RCA Victor products to the territory

which is outlined on the attached map.

We are looking forward with pleasure to our

future relations.

Very truly yours,

M. F. Burns, Merchandising Manager,

Radio and Phonograph Division.’’

RCA Victor Company, Inc., was a subsidiary of the peti-

tioner, and its home instrument business was operated by

the Home Instrument Department during the taxable years,

Among the products covered by the aforesaid letter were

radio receivers and phonographs.

s (od ad

(b) In its dealings with Southern Wholesalers, Inc., the

Home Instrument Department followed the Distribu‘ors

Quarterly Acceptance system of selling, hereinafter re-

ferred to as ‘*DQA.’’ Each quarter of the year the Depart-

neni determined the percentage of the total factory output

which it was felt should reasonably be handled or moved

by Southern Wholesalers, Inc. The field sales representa-

tive of the Home Instrument Department then began negoti-

ations with Southern Wholesalers, Inc., for the acceptance

by the latter of the responsibility to move the quota of

products allotted to it. If the quantities suggested or al-

lotted were not satisfactory changes mutually satisfactory

were made. As the merchandise was produced Southern

Wholesalers, Inc., was notified as to what was scheduled for

shipment in that particular weck. In the absence of any

objection from Southern Wholesalers, Inc., the merchandise

was shipped and billed in the ordinary course of

25 business. Southern Wholesalers, Inc., could have re-

fused shipment at any time prior to the time of actual

shipment. The DQA for the first and third quarters of the

year were negotiated in Camden, New Jersey, and for the

second and fourth quarters in Washington, D. C. Supple.

mental DQA’s were in most instances negotiated by tele-

phone from Philadelphia, Pennsylvania or Camden, New

Jersey.

ment Department who represented the Department in its

dealings with Southern Wholesalers, Inc., resided in Phila-

delphia and had his office in Camden, New Jersey. Tis

territory comprised Eastern Pennsylvania, Southern New

Jersey, Delaware, Maryland, Distriet of Columbia and a

part of Virginia. He was compensated by salary and re-

ceived no sales commissions. He visited the Southern

Wholesalers, Inc., about twelve times each year. On such

visits he advised Southern Wholesalers, Ine., in the mer-

chandising of the products of the Department, and discussed

= :

such matters as the movement of merchandise, advertising,

' sales promotion programs, and sales training of personnel.

He did not take orders for merchandise on his visits to

Southern Wholesalers, Inc., or from any other customer in

the District of Columbia. He did not enter into any agree-

ment for the sale of merchandise to Southern Wholesalers,

except the negotiation of the DQA. He did not use any of

the offices of the petitioner in the District of Columbia.

(d) The Home Instrument Department made available

to Southern Wholesalers, Inc., a cooperative advertising

fund used for sales promotional purposes by the latter. The

fund was made up of equal contributions by both parties.

Advertisements for which payment was made out of the

cooperative fund were run over the name of Southern Whole-

salers, Ine., or the names of retail dealers offering the

products of the Home Instrument Department for sale.

(e) Several times during the taxable years involved

James H. Hickey, Assistant to the General Manager of the

Home Instrument Department, who resided in Collings-

wood, New Jersey, and whose office was in Camden, New

Jersey, came to the District of Columbia to attend meetings

or gatherings promoted by Southern Wholesalers, Ine., or in

which that company was interested, such as dinners

26 given by that company to important officers of a

customer, anniversary parties given by large depart-

ment stores, other social gatherings and ‘‘pep”’ meetings of

salesmen. On some, if not all of such occasions, Mr. Hickey

was accompanied by the field sales representative. The

purpose of attending such meetings and gatherings was to

create good will and enthusiasm for the products of the

Home Instrument Department, and no orders for merchan-

dise were taken thereat.

(f) Sales of products of the Home Instrument Depart-

ment to Southern Wholesalers, Ine., were f.o.b. factory.

Shipments from first to the middle of the month were due

for payment by the end of the month, and shipments from

the middle te the end of the month were due for payment

in the middle of the following month.

17(a) Fairfax Distributing Company, hereinafter called

‘*Fairfax’’ was a distributor of the products of the Home

Instrument Department. It was formerly known as ‘‘E. M.

Rosenthal Jewelry Company,’’ and was the purchasing

organization or agency tor an affiliated group of retail

jewelry stores. The individual stores placed their orders

for the petitioner’s products through Fairfax as needed. It

did not carry an inventory of goods, and did not purchase

merchandise under the DQA system. It sold television and

radio receivers manufactured by competitors of the peti-

tioner. It was appointed distributor by letter, dated Decem-

ber 27, 1939, reading as follows:

**K. M. Rosenthal Jewelry Company

Homer Building

Washington, D. C.

Gentlemen:

We are pleased to appoint you a Distributor of

RCA Victor Instruments. In making this appoint-

ment, we suggest and recommend that you confine

your sales of our products to your present list of

dealers and other similar dealers that you may line

up in the future.

In accepting this appointment as our distributor,

you do so with the understanding that it is subject

to all of the terms and conditions of the sales and

merchandising policies of the Company as it now

exists, or as it may hereafter be changed at any

time without notice.

We recognize your right to discontinue handling

our products at any time without notice, and we

reserve the right to cancel your appointment as our

——

Distributor, or to change prices or discounts with-

out notice to you.

It is our desire to cooperate fully with you and we

will be glad to discuss any problems that may

confront you in the merchandising and sale of our

products at any time.

27 With best wishes for maximum success, we

are

Cordially yours,

RCA MANUFACTURING COMPANY, INC.

J.B. Elliott

Field Organization Headquarters.”’

(b) The Fairfax account was handled or carried on by

the Assistant to the General Manager of the Home Instru-

ment Department, whose home and office were without

the District of Columbia. He came to the District of Colum-

bia two or three times each of the taxable vears to call on

Fairfax. Such were ‘‘prestige’’, or ‘‘good will’’ calls to

promote the sale of the products of the Home Instrument

Department. He never took an order for merchandise and

did not visit any retail dealers. He did not use the office

facilities of the petitioner in the District of Columbia.

18. Affiliated Companics to whom products of the Home

Instrument Department were sold were affiliates or subsidi-

aries of the petitioner in the District of Columbia, such as

the National Broadcasting Company or another department

of the petitioner, such as the Engineering Produets Depart-

ment and Tube Department. The merchandise was shipped

into the District of Columbia and billed to the affiliated com-

panies. Orders for such merchandise were not procured

by any representative of the petitioner.

19. Other Customers represented customers in the Dis-

trict of Columbia other than Southern Wholesalers, Inc.,

Fairfax Distributing Co., affiliated companies and the

United States Government. Sales represented merchandise

shipped to other customers in the District of Columbia,

Orders for such merchandise were not procured by any

representative of the petitioner.

20. Neither the Home Instrument Department nor any

employee of that Department maintained an office in the

District of Columbia. No employee of that Department

resided in the District of Columbia.

21. No employee of the petitioner other than employees

of the Home Instrument Department had any duty or re-

sponsibility regarding sales of its products; and no sales

of its products were negotiated or made by any non-Horme

Instrument Department employee.

22. None of the petitioner's sales of the products of the

Hfome Instrument Departinent to customers in the

28 District were principally secured, uegotiated or ef-

fected by employees, agents, officers or branches of

petitioner located in the District of Columbia.

23. The petitioner conceded that the amount of gross

income of $459.04 from sales of products of the Home In-

strument Department to the United States Government and

shipped into the District of Columbia was from sources

within the District of Columbia.

Ill

Record Department Sales

24(a) The receipts of the Record Department from the

sale and rental of RCA Victor records to customers in the

District of Columbia were as follows:

1949 1950 1951

Sales $257,818.81 $295,330.98 $408,104.39

Rental 3,710.60 12,858.89 16,760.00

Total $261,529.41 $308,190.87 $424,864.39

(b) Sales of RCA Victor records by the Record Depart-

ment were made to one customer only, namely, Southern

Wholesalers, Ine.

—————

25(a) Southern Wholesalers, Ine., is described ii Fint-

ings of Fact 16(a), which by reference is incorporated

herein. It was eppointed a distributor of RCA Victor ree-

ords by a letter dated January 15, 1954, quoted in full in

that findings of fact.

(b) The records sold to Southern Wholesalers, Inc., were

sold f.o.b. Washington, D. C. No records were sold in con-

signment. Orders by Southern Wholesalers, Inc., for ree-

ords were subject to acceptance at the office of the Record

Department without the District of Columbia.

(ec) The field sales representative of the Record Depart-

ment who handled the account of Southern Wholesalers,

Ine., and who had dealings therewith resided, and had his

office without the District of Columbia. His operative terri-

tory was Eastern Pennsylvania, Southern New Jersey, parts

of Delaware, of Maryland, of Virginia and of West Vir-

ginia, and the Distriet of Columbia. He was the only field

sales representative of the Record Department in that area.

He worked out of the headquarters of the Record Depart-

ment in Camden, New Jersey, and later out of New York,

N.Y. He had nothing to dp with the sale of products of the

other departments of the petitioner. No representa-

2 tive or other employee of the Record Department

resided, or had an office in the District of Columbia.

(d) The field sales representative came to Washington

about once every three weeks. He did not make use of the

office facilities of the petitioner in the District of Columbia.

He did not receive or accept orders in the District of Colum-

hia. All orders went directly to the Headquarters of the

Record Department in Camden, New Jersey. On such trips

he visited Southern Wholesalers, Inc. He reviewed the

personnel of that conspany any then current matters regard-

ing the promotion of sales and advertising campaigns. He

investigated whether that company was ‘‘servicing’’ its

customer's orders promptly and suggested promotion of

advertising. He made suggestions concerning such matters,

which sometimes were followed and sometimes not, in which

latter event nothing happened and no threat of any kind

was made. The field representative made calls on retail

dealers, radio broadcasting stations in company with the

salesmen or the record manager of Southern Wholesalers,

Ine.

(e) The Record Department had a cooperative adver-

tising fund with Southern Wholesalers, Inc., similar to that

fund which the Home Instrument Department had with the

latter, and described in Findings of Fact 16(d).

(f) None of the petitioner’s sales of RCA Victor records

by the Record Department to Southern Wholesalers, Inc,

were principally secured, negotiated or effected by an em-

ployee, agent, officer or branch of the petitioner in the

District of Columbia.

26. Leasing of Records. The petitioner conceded that the

gross income represented by rentals received from the

leasing of records to customers or lessees in the District of

Columbia, as set forth in Findings of Fact 24(a), was from

sources within the District of Columbia.

Tube Department Sales

27. The Tube Department manufactured and sold radio

receiving tubes, power tubes, tubes for television, transis-

ters, batteries, component parts and accessories. Sales

of such products were under the jurisdiction or manage-

ment of two units or organizations within the Tube De-

_ partment, namely, Equipment Sales and Renewal

30 Sales.The Equipment Sales personnel handled sales

to manufacturers of radio and television equipment

and to the United States Government. The Renewal Sales

personnel handled sales to distributors, radio stations and

other types of customers.

pe td tye tt tO Pt

uw a Stone

98. Sales of products of the Tube Department to its

various classes of customers located in the District of Co-

lumbia were as follows:

1949 1950 1951

Franchised distributors $ 51,798.74 $127,338.72 $192,183.47

Other distributors’ 213,476.95 193,444.99 213,864.12

Radio stations 71,351.71 6,664.28 4,492.61

Manufacturers 22,976.91 87,127.41 75,736.80

Affiliated Companies 40,289.40 69,563.62 38,893.08

Miscellaneous 5,014.63 1,903.71 1,144.37

U. S. Government 35,921.36 89,724.92 197,943.53

Total $440,829.70 $574,767.65 $724,257.98

99, The distributors of the products of the Tube Depart-

ment in the District of Columbia were Southern Whole-

salers, Inc., Capitol Radio Wholesalers, Inec., Rucker Radio

Wholesalers, Inc., and American Amplifier and Television

Corporation.

20). Southern Wholesalers, Inc., was appointed distribu-

tor of tubes and batteries by the letters following:

a March 18, 1936

Southern Wholesalers, Inc.

1519 L Street, N. W.

Washington, D. C.

Gentlemen:

We are pleased to appoint you as a distributor of

RCA Transmitting Tubes and Amateur Equip-

ment.

In accepting this appointment as our Distributor

you do so with the understanding that it is subject

to all of the terms and conditions of the sales and

merchandising policy of the Company as it now

exists, or as it may hereafte be changed at any

time without notice.

‘ The above information appears on Petitioner's Exhibit 2. The record

does not disclose the difference, if any, between “Franchised distribu-

tors” and “Other distributors.”

In appointing you as our Distributor we recognize

your right to discontinue handling our products

at any time without notice, and we reserve the right

to cancel your appointment as our Distributor, ap-

point additional outlets or to change prices or dis-

counts without notice to you.

It is our desire to cooperate fully with you and we

will be glad to discuss any problems that may con-

front you in the merchandising and sale of our

product at any time.

With best wishes for success, we are,

Very truly yours,

RCA MANUFACTURING CO., INC.

R. A. Forbes,

District Manager’’

_ May 20, 1938

Southern Wholesalers, Ine.

1519 L Street, N. W.

Washington, D. C.

Gentlemen:

We are pleased to appoint you a wholesale distribu-

tor of RCA Victor Radio Tubes. In making this

appointment, we suggest and recommend that you

confine your sales of RCA Victor Radio Tubes to

the identical territory which you serve with RCA

Victor instruments.

In accepting this appointment as our Distributor

you do so with the understanding that it is subject

to all of the terms and conditions of the sales and

merchandising policy of the Company as it now

exists, or as it may hereafter be changed at any

time without notice.

We recognize your right to discontinue handling

our products at any time without notice, and we

reserve the right to cancel your appointment as

our Distributor, or to change prices or discounts

without notice to you.

It is our desire to cooperate fully with you and

we will be glad to discuss any problems that may

confront you in the merchandising and sale of our

product at any time.

With best wishes for success, we are

Very truly yours,

RCA MANUFACTURING COMPANY, INC,

District Manager’’

sat June 18, 1945

Mr. Wm. FE. O’Connor

Southern Wholesalers, Ine.

1519 L St., N. W.

Washington, D. C.

Dear Mr. O’Connor:

We are pleased to appoint you a Distributor of

RCA Batteries.

In accepting this appointment as our Distributor,

you do so with the understanding that it is subject

to all of the terms and conditions of the sales and

merchandising policy of the Company as it now

exists, or as it may hereafter be changed at any

time without notice.

We recognize your right to discontinue handling

our products at any time without notice, and we

reserve the right to cancel your appointment as our

Distributor, or to change prices or discounts with-

out notice to you.

You will receive very shortly from the home office

at Camden, complete policy, price, promotion and

advertising information which will assist you in

merchandising the product listed above.

It is our desire to cooperate fully with you and we

will be glad to discuss any problems that may con-

front you in the merchandising and sale of our

product at any time.

is)

32 With best wishes for success, we are,

Very truly yours,

RADIO CORPORATION OF AMERICA

RCA Victor Division

J. G. Wilson

Operating Vice President’’

31. Capitol Radio Wholesalers, Inc., was appointed dis-

tributor of tubes and batteries and laboratory measuring

equipment by the letters following:

"9 August 30, 1937

Capitol Radio Wholesalers

2120-14th Street, N. W.

Washington, D.C.

Gentlemen:

We are pleased to appoint you as a distributor of

Cunningham Tubes.

In accepting this appointment as our Distributor

you do so with the understanding that it is subject

to all of the terms and conditions of the sales and

merchandising policy of the Company as it now

exists, or as it may hereafter be changed at any

time without notice.

In appointing you as our Distributor we recognize

your right to discontinue handling our products at

any time without notice, and we reserve the right

irs

to cancel your appointment as our Distributor,

appoint additional outlets or to change prices or

discounts without notice to you.

It is our desire to cooperate fully with you and we

will be glad to discuss any problems that may con-

front you in the merchandising and sale of our

product at any time.

With best wishes for success, we are

Very truly yours,

W. H. Kelley,

District Manager.”’

. 7 . 2 * . >. >

-" November 12, 1946

Capitol Radio Wholesalers, Inc.

2120 Fourteenth Street, N. W.

Washington, D.C.

Gentlemen:

We are pleased to appoint you a Distributor of

RCA Batteries.

In accepting this appointment as our Distributor,

you do so with the understanding that it is subject

to all of the terms and conditions of the sales and

merchandising policy of the Company as it now

exists, or as it may hereafter be changed at any

time without notice.

We recognize your right to discontinue handling

our product at any time without notice, and we

reserve the right to cancel your appointment

as our Distributor, appoint additional out-

lets, or change prices or discounts without

notice to you.

You will receive very shortly from the home office,

complete policy, price, promotion and advertising

SG RE RONEN cme gore args mente

TM Tee PTT.

information which will assist you in merchandising

RCA Batteries.

It is our desire to cooperate fully with you and we

will be glad to discuss any problems that may con-

front you in the merchandising and sale of our

product at any time.

With best wishes for suecess, we are

Very truly yours,

RADIO CORPORATION OF AMERICA

(RCA VICTOR DIVISION)

Walter M. Norton

Director of Distribution’’

ns January 27, 1947

Capitol Radio Wholesalers, Inc.

2120 Fourteenth Street, N. W.

Washington, D. C.

Gentlemen:

We are pleased to appoint you a Distributor of

RCA Laboratory Measuring Equipment.

In accepting this appointment as our Distributor,

you do so with the understanding that it is subject

to all of the terms and conditions of the sales and

merchandising policy of the Company as it now

exists, or as it may hereafter be changed at any

time without notice.

We recognize your right to discontinue handling

our product at any time without notice, and we

reserve the right to cancel your appointment as

our Distributor, appoint additional outlets, or to

change prices or discounts without notice to you.

aaa

You will receive very shortly from the home office,

complete policy, price, promotion and advertising

information which will assist you in merchandising

Laboratory Measuring Equipment.

It is our desire to cooperate fully with vou and we

will be glad to discuss any problems that may con-

front you in the merchandising and sale of our

product at any time,

With best wishes for success, we are

Very truly yours,

RADIO CORPORATION OF AMERICA

(RCA VICTOR DIVISION)

Walter M. Norton

Director of Distribution’

32. Rucker Radio Wholesalers, Inc., was appointed dis-

tributor of tubes, batteries, amateur equipment and labora-

tory measuring equipment by the letters following:

- October 26, 1939

Rucker Radio Wholesalers, Inc.

1220 14th Street, N. W.

Washington, D. C.

Gentlemen:

We are pleased to appoint you as a distributor of

RCA Parts.

In accepting this appointment as our Distributor

you do so with the understanding that it is subject

to all of the terms and conditions of the sales and

merchandising policy of the Company as it now

exists, or as it may hereafter be changed at any

time without notice.

In appointing you as our Distributor we recognize

your right to discontinue handling our products

}

LEVEN OTROS et YN BEN RY LTS

at any time without notice, and we reserve the right

to cancel your appointment as our Distributor,

appoint additional outlets or to change prices or

discounts without notice to you.

It is our desire to cooperate fully with you and we

will be glad to discuss any problems that may con-

front you in the merchandising and sale of our

product at any time.

With best wishes for suecess, we are

Very truly yours,

RCA MANUFACTURING CO., INC.

W. H. Kelley

Distriet Manager”’

* * * * * . * od .

sis December 20, 1939

Rucker Radio Wholesalers, Ine.

1220 Fourteenth Street, N. W.

Washington, D.C.

Gentlemen:

We are pleased to appoint you as a distributor of

RCA Radiotron Receiving Tubes.

In accepting this appointment as our distributor

you do so with the understanding that it is subject

to all of the terms and conditions of the sales and

merchandising policy of the Company as it now

exists, or as it may hereafter be changed at any

time without notice.

In appointing you as our Distributor we recognize

your right to discontinue handling our products at

any time without notice, and we reseve the right to

‘ancel your appointment as our Distributor, ap-

point additional outlets or to change prices or

discounts without notice to you.

It is our desire to cooperate fully with you and we

will be glad to discuss any problems that may con-

front you in the merchandising and sale of our

product at any time,

With best wishes for success, we are

Very truly yours,

RCA MANUFACTURING CO., INC.

W. H. Kelley

District Manager”’

- January 21, 1941

Rucker Radio Wholesalers, Ine.

1312-14th Street, N. W.

Washington, D. C.

Gentlemen:

Weare pleased to appoint you as a distributor of

RCA Transmitting Tubes and Amateur Equip-

ment.

in accepting this appointment as our Distributor

you do so with the understanding that it is subject

to all of the terms and conditions of the sales and

merchandising policy of the Company as it now

exists, or as it may hereafter be changed at any

time without notice.

In appointing you as our Distributor we recognize

your right to discontinue handling our products at

any time without notice, and we reserve the right

to cancel your appointment as our Distributor, ap-

point additional outlets or to change prices or dis-

counts without notice to you.

It is our desire to cooperate fully with you and we

will be glad to diseuss any problems that may con-

Ayapetaes

Pere

front you in the merchandising and sale of our

product at any time.

With best wishes for success, we are

Very truly yours,

RCA MANUFACTURING COMPANY, INC.

M. F. Blakeslee

District Manager’’

9 March 10, 1949

Rucker Radio Wholesalers,

1312 - Fourteenth St., N. W.

Washington, D.C.

Gentlemen:

Effective as of the above date, we are pleased to

appoint you a Distributor for RCA Batteries and

Laboratory Measuring Equipment.

In accepting this appointment as our Distributor,

you do so with the understanding that it is subject

to all of the terms and conditions of the sales and

merchandising policy of the Company as it now

exists, or as it may hereafter be changed at any

time without notice.

We recognize your right to discontinue handling

our products at any time without notice, and we

reserve the right to cancel your appointment as

our Distributor, appoint additional outlets, or to

change prices or discounts without notice to you.

You will receive very shortly from the home office,

complete policy, price, promotion and advertising

information which will assist yon in merchandising

the products mentioned above.

It is our desire to cooperate fully with you and we

shall be glad to discuss any problems that may con-

front you in the merchandising and sale of our

products at any time.

With best wishes for success, We are

Very truly yours,

RADIO CORPORATION OF AMERICA

(RCA VICTOR DIVISION)

H. M. Winters”’

36 33. American Amplifier and Television Corpora-

tion, was appointed distributor of tubes by the letter

dated December 2, 1940, reading as follows:

“American Amplifier & Television Corp.

1427 Eye Street, N. W.

Washington, D. C.

Gentlemen:

We are pleased to appoint you as a distributor of

RCA Radiotron Receiving Tubes.

In accepting this appointment as our Distributor

you do so with the understanding that it is subject

to all of the terms and conditions of the sales and

merchandising policy of the Company as it now

exists, or as it may hereafter be changed at any

time without notice.

In appointing you as our Distributor we recognize

your right to discontinue handling our products at

any time without notice, and we reserve the right

to cancel your appointment as our Distributor, ap-

point additional outlets or to change prices or

discounts without notice to you.

It is our desire to cooperate fully with you and we

will be glad to discuss any problems that may con-

front you in the merchandising and sale of our

product at any time.

With best wishes for success, we are

Very truly yours,

RCA MANUFACTURING COMPANY, INC.

M. F. Blakeslee

District Manager’’

34. One Renewal Sales representative, who resided and

had his office without the District of Columbia was assigned

to the territory consisting of the eastern half of Pennsyl-

vania, Southern New Jersey, Delaware, Maryland, Northern

Virginia and the District of Columbia. He worked out of

Philadelphia and reported to the headquarters of the Tube

Department at Harrison, New Jersey. He visited the Dis.

trict of Columbia every six or seven weeks. During such

visits he worked with the distributors in a counselling

capacity and in connection with the Tube Department’s pro-

motional activities. Orders for merchandise were sent di-

rectly to the warehouse of the Tube Department located

outside the District of Columbia. If an order was handed to

the representative it was incidental.

39. One Equipment Sales representative, who resided and

had his office outside of the District of Columbia, was as-

signed a territory which extended from New Jersey to

Florida, and included the District of Columbia. He

a7 came to the District of Columbia every six or seven

weeks. His visits lasted about three days, during

which time he was in contact not only with customers in the

District of Columbia, but in the surrounding areas of Mary-

land, and Virginia. He handled sales to five or six manufac-

turers in the District of Columbia. All such orders were sent

to him at his office in Harrison, New Jersey.

36. All sales of products of the Tube Department to the

United States Government were on open competitive bid-

ding. The bids for such business were prepared in Harrison,

New Jersey.

37. The Tube Department maintained no office in the

District of Columbia during the taxable years 1949, 1950,

and the first fourth months of 1951. In May, 1951, it estab-

lished an office in the District of Columbia for the purpose

of maintaining liaison with the United States Government

and obtaining information helpful in preparing bids on Gov-

ernment business, as illustrated by the following excerpt

from the testimony of the Manager of Marketing Services

of the Tube Department, concerning the office in the District

of Columbia as follows:

“<Q. What did that office consist of?

“A, A man and a secretary.

“(), What responsibilities were assigned to that man?

“A. Liaison between the many government purchasing

agencies and the management of the Tube Department.

“Q, Can you describe in somewhat greater detail, Mr.

Bersehe, by what you mean to include in the term ‘liaison, ?

“A. Yes. Frequently, in special kinds of types of govern-

ment equipment, perhaps under some secret classification,

that equipment must be worked on and they must develop

a special type of tube for that particular—that has a special

application and will work in that particular equipment that

we will be entitled to bid on if we can work out an applica-

tion or a decision on such a produet.”’

The office established in the District of Columbia had no

relation to sales or selling, except as to sales to the United

States Government on bids as indicated above. The field

sales representatives had no space therein or in any other

place in the District of Columbia. The Equipment Sales

representative used the facilities maintained by the Tube

Department in the District of Columbia solely as a tele~hone

contact point, that is to say, on arriving in Washington, the

Equipment Sales representative telephoned the Washington

office to learn if any telephone calls made by customers to

his office in Harrison, New Jersey, had been transferred to

the Washington office, or if any customer in the

38 District of Columbia had called that office in an at-

tempt to get in contact with him. He received no

mail there.

38. The petitioner concedes that the gross income from

sales of the products of the Tube Department to the United

States Government, and shipped into the District of Colum-

bia, was from sources within the District of Columbia. Such

sales during the taxable years were as follows:

1949 1950 1951

$35,921.36 $89,724.92 $197,943.53

39. The remainder of the sales of products of the Tube

Department to customers in the District of Columbia dur-

ing the taxable years were not principally secured, negoti-

ated or effected by an employee, agent, officer or branch of

the petitioner located in the District of Columbia. Such

sales were as follows:

1949 1950 1951

$404,908.34 $485,042.73 $526,314.45

Engineering Products Department Sales

40. The Engineering Products Department manufactured

and sold specially designed equipment for United States

Government military use, and other special equipment such

as public address systems, theater motion picture equipment

and scientific instruments. The manufacture and sale of

such products were directed from the headquarters of the

Department in Camden, New Jersey.

41. The sales of the products of the Engineering Products

\gnipment to customers located in the District of Columbia

during the taxable years involved were as follows:

(1949 1950 1951

Franchised distributors $ 67,891.45 $153,320.52 $104,711.31

Manufacturers 10,287.00 324.00 664.60

Affiliated companies 15,791.54 19,138.63 19,132,27

Miscellaneous 69,722.13 89,438.92 250,330.78

U. S, Government 104,557.98 88,425.14 93,193.26

Total $268,250.10 $350,647.21 $468,032.22

42. The Engineering Products Department had an office

at 1625 K Street, Northwest, Washington, D. C., during the

taxable years involved, in charge of Mr. Francis H. Engel,

Manager, who resided in the District of Columbia. Its per-

sonnel consisted of five men, including the Manager,

39 all of them engineers or with engineering background,

two or three secretaries and two or three office girls.

42. The function of the Washington office of the Engineer-

ing Products Department was as described in the testimony

of the Manager as follows:

“BY MR. ZELLER:

“*Q, Will you describe for us what the functions

of your office are, Mr. Engel?

““A. Yes. My office basically is in Washington to

assist the Federal Government, and particularly

with respect to the military equipment such as

radar, sonar, communications equipment, and so

forth.

“T would say that the activity is 9912 per cent

alous that line.

“THE COURT: You say help them. What do

you mean by that?

“THE WITNESS: The government is large and

complex and they need to know lots of things. They

know they want to do something and do not know

how to do it because they have to write the specifi-

cations, and they call on us, and we talk to them

and tell them what is going on in the electronics

business and that you can accomplish a certain re-

sult by doing this, that and the other. We will help

them to write a specification in competition with

other manufacturers and take our chances on get-

ting the bid on it.

‘*All they know is that they want a vacuum

cleaner, to use a homely example, and we tell them

what a vacuum cleaner is and how they should

specify it to be made to be sure they get a good one.

It may not be ours. That is left to competition.’’

7 * * * * * * *

‘*@. During these three years tell us exactly

what you did with reference to the sales to the

government?

“THE COURT: I thought he said he helped the

government.

“THE WITNESS: We have no sales contact

and actually do not make the sales. We do not

have a quota. Anything bought is bought by invita-

tion to bid and is sent to various manufacturers

and is not done through the office, and flows directly

to the customer from our home office. We do not

have an order book. We do not take orders.

‘‘We assist our company to meet with the cus-

tomer so that they can get together and work

efficiently to arrive at a mutual understanding of

what they are willing to pay for.

‘In other words, we are an intermediary, a liai-

son between the two.’’

A negligible portion of time, that is to say, about one-half

of one per centum, was spent on customers other than the

Government.

44. The Washington office of the Engineering Products

Department and its personnel had no responsibility or ac-

tivity in connection with sales to customers other than the

Federal and the District Government. Sales to distributors

and dealers were the responsibility of field sales represen-

tatives working out of the Philadelphia and New York

offices, to some extent as was true with respect to the other

and above mentioned departments. If the Washington office

received an inquiry concerning equipment or other

40) merchandise, such inquiry was referred to a dealer or

to a field sales representative. Neither Mr. Engel or

his staff had anything to do with the field sales representa-

tives.

45. During the taxable vears involved American Ampli-

fier and Television Corporation was the distributor of the

products of the Engineering Products Department under

letters dated and reading as follows:

pin April 19, 1946

American Amplifier & Television Corporation

1111 Nineteenth Street, N. W.

Washington, D. C.

Gentlemen:

We are pleased to appoint you a Dealer for 16mm

equipment in the Educational market. In making

this appointment, we suggest and recommend that

you confine your sales of our product to the terri-

tory which is outlined on the attached map. This

appointment becomes effective as of this date.

In accepting this appointment as our Dealer, you

do so with the understanding that it is subject to all

of the terms and conditions of the sales and mer-

chandising policy of the Company as it now exists,

or as it may hereafter be changed at any time with-

out notice.

YEN i Ni ee a |

We recognize your right to discontinue handling

our product at any time without notice, and we

reserve the right to cancel your appointment as

our Dealer or to change prices or discounts withovt

notice to you.

You will receive very shortly from the home office,

complete policy, price, promotion and adv ertising

information which will assist you in merchandising

16mm equipment.

It is our desire to cooperate fully with you and we

will be glad to discuss any problems that may con-

front you in the merchandising and sale of our

product at any time.

With best wishes for success, we are

Very truly yours,

RADIO CORPORATION OF AMERICA

(RCA VICTOR DIVISION)

J. G. Wilson

Operating Vice President.”’

e * * 5 se a . * *

- July 6, 1948

American Amplifier & Television Corp.

1111 Nineteenth Street, N. W.

Washington, D. C.

Gentlemen:

We are pleased to appoint you as a Distributor of

RCA Sound Products. This appointment super-

sedes your previous appointment(s) as a Sound

Systems Distributor (and an Intereom Equipment

Distributor). This change in status is made in order

to conform to the new Sound Products Distribution

Poliey announced April 6, 1948. With this reap-

pointment, it is suggested and recommended that

you confine your sales of all RCA Sound Products

to the territory which you have been serving as

an RCA Sound System Distributor. This appoint-

ment becomes effective as of this date.

In accepting this reappointment as our Dist ributor,

you do so with the understanding that it is subject

to all of the terms and conditions of the sales and

merchandising policy of the Company as it now

exis s, or as it may hereafter be changed at any

time without notice.

We recognize your right to discontinue

handling our product at any time without

notice, and we reserve the right to cancel your ap-

pointment as our Distributor, appoint additional

outlets, or to change prices or discounts without

notice to you.

Attached you will find a copy of the current sales

policy for Sound Products. It is suggested that

members of your organization familiarize them-

selves with the contents of this policy statement in

order that uniformity of procedures may be ob-

served.

Your very truly,

H. M. Winters

Director of Distribution’’

ws July 10, 1951

American Amplifier & Television Corp.

1111 Nineteenth Street, N W.

Washington 6, D. C.

Gentlemen:

We are pleased to appoint you a distributor of

RCA Intercom equipment, effective as of the above

date.

In accepting this appointment as our Distributor,

you do so with the understanding that it is subject

to all of the Terms and Conditions of Sale pertain-

ing to this product as they now exist, or may here-

after be changed at any time without notice.

We recognize your right to discontinue handling

our products at any time without notice, and we

reserve the right to cancel your appointment as

our Distributor, withdraw the above products, or to

change prices or discounts without notice to you.

You will receive very shortly from the Engineering }

Products Department home office policy, price, pro-

motion and advertising information which will

assist you in merchandising RCA Intercoms. It is

our desire to cooperate fully with you and we will

be glad to discuss any problems that may confront

you in the merchandising and sale of this product

at any time.

We look forward to a mutually profitable relation-

ship and wish you a full measure of success.

Very truly yours,

RADIO CORPORATION OF AMERICA

(RCA VICTOR DIVISION)

Director of Distribution

Technical Products’’ }

September 26, 1951

American Amplifier and Television Cerporation

Attention: Mr. C. H. Mahor, President

1111 Nineteenth St., Northwest

Washington 6, D.C.

Gentlemen:

Replying to your letter of September 24, you are

correct in assuming thai it was our intention to

include the District of Columbia in the suggested

and recommended territory on the sheet attached

to our appointment letter to you as an RCA ‘An-

tenaplex’ distributor dated September 18, 1951.

You will find enclosed herewith a revised list and

would ask that you kindly attach it to our letter

of September 18 and destroy the list originaliy

sent to you.

We are indeed sorry for this oversight and thank

you for calling it to our attention.

Very truly yours,

H. V. Somerville

Director of Distribution

Technical Products.”’

46. There were no employees, officers, agents or represen-

tatives of the Engineering Products Department,

42 other than Mr. Engel and the personnel of his office,

who resided or had an office or office space in the

District of Columbia during the taxable years involved.

47. The petitioner conceded that sales of products of the

Engineering Products Department to the United States

Government and shipped into the District of Columbia dur-

ing the taxable years involved constituted income from

sources within the District of Columbia in the amounts

following:

1949 1950 1951

$104,557.98 $88,425.14 $93,193.26

48. Sales to customers in the District of Columbia other

than the United States Government, during the taxable

years involved were not principally secured, negotiated or

effected by employees, agents, officers, or branches of the

petitioner located in the District of Columbia. Such sales

during such years were in the amounts following:

1949 1950 1951

$163,692.12 $262,222.07 $374,838.96

OPINION

Article I of the District of Columbia Revenue Act of 1947

is known as the District of Columbia Income and Franchise

Tax Act of 1947 (Chapter 15, Title 47, D. C. Code, 1951 Ed).

It imposes a franchise tax upon corporations and unincor-

porated business for the privilege of engaging in any trade

or business in the District of Columbia. In Section 1(h),

Title I of the Act (See. 47-1551¢(h), D. C. Code, 1951 Ed)

the term trade or business is defined to include ‘‘the engag-

ing in, or carrying on of any trade, business profession,

vocation or calling or commercial activity in the District of

Columbia.’’ Section 1 of Title X of the Act, among other

things, provides:

‘*The measure of the franchise tax shall be that

portion of the net income of the corporation and

unincorporated business as is fairly attributable

to any trade or business carried on or engaged in

within the District and such other net income as is

derived from sources within the District.’’

Section 2 of Title X deals with the allocation and appor-

tionment of net income of corporations and unincorporated

businesses in the language following:

43 ‘See. 2. ALLOCATION AND APPORTION-

MENT.—The entire net income of any cerporation

or unincorporated business, derived from any trade

or business carried on or engaged in wholly within

the District shall, for the purposes of this article, be

panne

deemed to be from sources within the District, and

shall, along with other income from sources within

the District, be allocated to the District. If the trade

or business of any corporation or unincorporated

business is carried on or engaged in both within

and without the District, the net income derived

therefrom shall, for the purposes of this article, be

deemed to be income from sources within and with-

out the District. Where the net income of a corpora-

tion or unincorporated business is derived from

sources both within and without the District, the

portion thereof subject to tax under this article shall

be determined under regulation or regulations pre-

scribed by the Commissioners. The Assessor is

authorized to employ any formula or formulas pro-

vided in any regulation or regulations prescribed

by the Commissioners under this article which, in

his opinion, should be applicd in order to properly

determine the net income of any corporation or un-

incorporated business subject to tax under this ar-

ticle.’’ (Emphasis supplied.)

Most, if not all of the States that impose taxes on income

or, like the District of Columbia, excise taxes measured by

income have formulas for apportionment of net income of

unitary or multi-state businesses engaged in the manufac-

ture and sale of personal property. In most instances such

formulas have several factors, such as, for instance the

so-called ‘‘Massachusetts Formula,’’ which has, as factors

in the equation, property, payroll and sales. In that way

some of the net income is allocated or apportioned to the

place where the merchandise is manufactured. In the Dis-

trict of Columbia, however, the Commissioners acting under

the authority and discretion given them in Section 2 of

Title X, quoted above, have seen proper to adopt a formula

for the apportionment of net income of unitary businesses

containing but one factor, namely, sales, or really the gross

receipts from sales in the District, which in the regulations

are called ‘‘ District sales.’’

During the taxable years here involved, namely the calen-

dar years 1949, 1950 and 1951, there were in force regula-

tions* adopted by the Commissioners for the allocation and

apportionment of net income of unitary businesses engaged

in the manufacture and sale of tangible personal property.

Such regulations, as far as pertinent here, read as follows:

**See. 10-2. The measure of the franchise tax

shall be that portion of the net income of a corpora-

tion or unincorporated business as is fairly attri-

butable to any trade or business carried on or

44 engaged in within the District, as defined in the

Act, and such other net income as is derived from

sources within the District. The portion of such

net income which is ‘fairly attributable’ to any

trade or business or such other net income as is

derived from sources within the District shall be

determined by allocation and apportionment there-

of as prescribed in Sees. 10-2(b), 10-2(¢), 10-2(d),

10-2(e).””

**See. 10-2(d). Income from Trade or Business. If

the trade or business is carried on entirely within

the District, the entire gross income from trade or

business shall be allocated to the District. If the

trade or business is carried on partly within and

partly without the District, that portion of the

gross income from trade or business to be appor-

tioned to the District shall be determined as fol-

lows:

* Promulgated August 31, 1948, January 7, 1949 and October 16, 1950.

**(1) Income from sales of tangible personal

property.

‘a. Where gross income for any taxable year is

derived from the manufacture and sale or purchase

and sale of tangible personal property, the portion

thereof to be apportioned to the District shall be

such percentage of the total of such gross income

as the District sales made during such taxable year

bear to the total sales made everywhere during such

taxable year. For the purpose of this regulation

the phrase ‘District sales’ shall mean the gross

receipts from all sales made which were principally

secured, negotiated, or effected by owners, em-

ployees, agents, officers and branches of the corpo-

ration or unincorporated business located in the

District; and the phrase ‘total sales’ shall mean

the gross receipts from all sales.’’ (Emphasis sup-

plied)

Sometime after the close of the taxable years here in-

volved, that is to say, on March 17, 1953, the Commissioners

amended Section 10-2(d)(1)a of the regulations by elimin-

ating the word ‘‘located’’, so as to make it read as follows:

‘See. 10-2(d)(1)a. Where gross income for any

taxable year is derived from the manufacture and

sale or purchase and sale of tangible personal prop-

erty, the portion thereof to be apportioned to the

District shall be such percentage of the total of such

gross income as the District sales made during sach

taxable year bear to the total sales made every

where during such taxable year. For the purpose

this regulation the phrase ‘District sales’ shall

mean the gross receipts from all sales made why

were principally secured, negotiated, or effected by

owners, employees, agents, eficer> a at ornact os of

—

the corporation or unincorporated business in the

District ; and the phrase ‘total sales’ shall mean the

gross receipts from all sales.’’

Later, on August 6, 1953, Section 10-2(d) (1)a, was further

amended by the Commissioners to read as follows:

‘*a. Where income for any taxable year is derived

from the manufacture and sale or purchase and

sale of tangible personal property, the portion

thereof to be apportioned to the District shall be

such percentage of the total of such income as the

District sales made during such taxable year bear

to the total sales made everywhere during such

taxable year. Every corporation and unincorpo-

rated business which carries on or engages in bus-

iness in the District within the meaning of the

words ‘trade or business’ as defined in the Act is,

unless specifically exempted by some provision of

the Act, subject to tax. For the purpose of this

regulation, the phrase ‘District sales’ shall mean

all sales to District customers in the income from

which is fairly attributable to the trade or business

carried on or engaged in within the District, in-

cluding solicitation in the District by salesmen or

other representatives of the taxpayer, that por-

tion of sales to customers outside the District

the income from which is fairly attributable to

the trade or business carried on in the District,

and sales of tangible personal property the in-

come from which is from District sourees.’’

Section 15 of the regulations adopted on August 6, 1953

recited that they ‘‘shall apply to the taxable year or part

thereof beginning on the first day of January, 1948, and

the succeeding taxable years.”’

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What this Court is now called upon to do is to decide what

s the tax liability of the petitioner to the District of Colum-

jia under the foregoing provisions of the law and the regu-

ations above quoted, coupled with the following facts con-

erning the petitioner’s activities in relation to the District

yf Columbia.

The petitioner manufactures and sells many articles of

nerchandise in the electronic field, including phonographs,

radio and television sets, tubes, batteries, amplifying sys-

ems, recording records and the like. During the taxable

vears it sold its products to customers in the District of

‘olumbia through four product departments, namely, Home

Instrument, Record, Tube and Engineering Products De-

partments. A large quantity of merchandise was sold to

wholesalers who were called ‘‘distributors’’ and who were

appointed as such by letters from the petitioner or from one

of its subsidiaries which it succeeded. Such ‘‘distributors”’

were no more than wholesalers, and were not agents of the

petitioner. The circumstances of their appointment, the

delineation of their relationship to the petitioner and the

course of conduct of the parties did not measure up to the

requirements of an agency as found in Carroll Electric Co.

v. Freed-Eisemann Radio Co., 60 App. D. C., 228, 50 F.

2d 993, and the cases therein cited. They were merely

customers,

The petitioner’s gross receipts from business with cus-

tomers in the District of Columbia by its product depart-

ments during the taxable years were as follows:

Department 1949 1950 1951

Home Instrument $3,408,875.33 $5,282,511.93 $3,584,938.98

Record 261,529.41 308,190.87 424,864.39

Tube 440,829.70 574,767.65 724,257.98

Engineering Products 268,250.10 350,647.21 468,032.22

$4,379,484.54 $6,516,117.66 $5,202,093.57

Of the foregoing there were sales to the United States of

merchandise delivered in the District of Columbia

46 as follows:

Department _ 1949 1950 1951

Home Instrument $459.04

Tube $ 35,921.36 $89,724.92 $197,943.53

Engineering products 104,557.98 88,425.14 93,193.26

Total $140,479.34 $178,150.06 $291,595.83

In respect of the business done by the Record Department

in the District of Columbia, part of the gross receipts repre-

sented amounts received as rental of records to radio broad-

casting stations and other lessees in the amounts following:

1949 1950 1951

$3,710.60 $12,859.89 $16,760.00

The petitioner concedes that sales to the United States

were ‘‘ District sales’’ and should be considered as the sales

factor in the formula for determining the portion of the

petitioner’s net income that should be apportioned to the

District of Columbia. It also concedes that the income

from the rental of records to lessees in the District should

be allocated to the District under Regulation 10-2(e) in force

during the taxable years, and which, in part, provided that

‘Interest, dividends, rents and royalties received from

sources in the District, shall be allocated to the District.”

But as to other sales the petitioner insists that under the

applicable regulations they were not ‘‘District sales’? and

had no place in the computation of the correct. franchise

tax to be assessed against it.

From time to time field sales representatives and some of

the officers of the petitioner visited the customers in the

District to promote the sale of its products, including the

negotiation of the ‘quota’’ of products which a particular

customer was expected to take and sell, assistance in train-

ing of selling personnel, visiting the retail customers of the

wholesaler or distributor and generally creating good-will

for the petitioner in the trade. The field sales representa-

tives did not as a rule procure orders for merchandise. If

such happened during the taxable Years it was incidental.

aa a a—. ew AA i.

ad al

None of the field sales representatives resided or had an

office in the District of Columbia, and no sale of products

to customers in the District of Columbia was secured, nego-

tiated or effected by any employee, agent, officer or branch

of the petitioner located in the District.

47 The Home Instrument and the Record Departments

had no office in the District of Columbia. The Tube

Department had an office in the District from May 1, 1951;

and the Engineering Products Department had an office

here during the three taxable vears. Such offices were solely

for the purpose of liaison between the petitioner and the

purchasing agencies of the United States Government, and

their primary function was to assist the Government em-

plovees in the preparation of specifications for tubes and

electronic equipment and the like. Such offices made no

sales, took no orders, All sales to the United States were

made on bids prepared at the home office of the particular

department and submitted by mail to the Government. The

functions and activities of such offices were wholly unrelated

to the sale of merchandise to other customers in the District

of Columbia.

The petitioner had two other offices in the Distriet of

Columbia, one of the Patent Department for the sole pur-

pose of attending to the patent features of the petitioner's

business, such as the obtaining of patents and the like: and

the other of the Frequency Bureau, the sole function of

which was to advise the petitioner and its radio broadeast-

ing subsidiaries, such as the National Broadeasting Com

pany, on the use and assignment of the broadcasting fre-

quencies by the Federal Communications Commission, De-

partment of State and Department of Defense. Such offices

had nothing to do with sales.

The foregoing were the only offices or places of business

of the petitioner in the District of Columbia. Its corporate

office was in New York City, and all of its divisions, depart.

ments and manufacturing plants were located without the

District of Columbia.

To decide the issue before it, the Court must first de-

‘ermine what regulations apply—those in foree during the

taxable vears or those adopted some years afterward. And

then, having settled that matter, the Court must decide

whether under the appropriate regulation and the facts the

assessment here assailed was proper, and, if not, to what

extent,

The petitioner insists that the regulations in force during

the taxable years should determine its liability— that

4s it is not fair to change the rules after the game is

finished, so to speak. On the other hand, the respond-

ent contends that the regulations adopted August 6, 1953,

apply in this case, because in such regulations it was pro-

vided that they should apply to the taxable vear beginning

January 1, 1948 and all sueceeding taxable years. The

petitioner as a second string to the bow argues that, even

if the regulations of August 6, 1953, apply here, it is not

liable for any part of the taxes involved, except that portion

which is to be computed in relation to sales to the United

States Government and to rentals of records in the District

of Columbia. Such alternative position of the petitioner will

not be considered or discussed by the Court, beeause the

Court is of the opinion that the regulations in force during

the taxable years govern the determination of the character

of sales to customers in the District, that is to sav, whether

or not they were ‘District sales’? for the purposes of ap-

portionment of net income of the petitioner.

The formula for the apportionment of net income of multi-

state or unitary businesses, (Section 10-2(d)(1)a) adopted

hy the Commissioners in exercise of the authority granted

in the Income and Franchise Tax Act provided that in re-

spect of the sale of tangible personal property there should

he apportioned to the District that portion of the gross

income of the unitary business as District sales bore to

total sales of that business; and that ‘District sales”

meant the gross receipts from sales which were principally

secured, negotiated, or effected by the owners, emp!orecs,

agents, officers or branches of the business located in the

Distriet."" The Court believes that such regulation was

valid; that it was proper exercise of the authority granted

the Commissioners in the Act, and that it did no violence to

the letter or spirit to the Income and Franchise Tax Act.

While as observed above, the formula with but one factor,

gross receipts, Was somewhat hard on non-resident unitary

businesses, and out of line with the formulas in many States.

and while on the other hand, it was lenient in limiting such

factor to sales secured, negotiated and effected the agents

of the unitary business ‘‘located in the District,’’ it cannot

be said to be in conflict with the Act.

49 In Pierre M. Ghent v. District of Columbia, Docket

No. 1397, this Court was ealled up to decide whether

a regulation adopted on March 17, 1958 could be applied to

taxable years prior thereto, where, as here there was a valid

contrary regulation in force during such taxable years. The

Court gave a great deal of thought and study to the ques-

tion; and in the course of its opinion in that case said:

‘*The Court is of the opinion that the regulations

adopted March 17, 1953, are not applicable. While

there is support in the decisions of the Supreme

Court for the proposition that regulations may be

applied retroactively, the rule seems to be that such

cannot be done if during the taxable vear there

were in effect contrary regulations pertaining to

the subject matter. It is only where there are no

prior regulations that retroactivity is permitted.

In Helvering v. R..J. Reynolds Tobacco Company,

306 U.S. 110, 83 L. Hd. 536, 581, 59S. Ct. 423, an

attempt was made to apply retroactively regula-

tions adopted after the close of the taxable year

there involved. Such was denied by the Supreme

pore

(ltd eaa ins nike

IE LEE LE SOR IE hy gh OIL II

Court, speaking through Mr. Justice Roberts, who

said:

‘Petitioner urges that the amendment oper-

ates retroactively and governs the ascertain-

ment of gross income for taxable periods prior

to the date of its promulgation, and, further,

since Congress has reenacted § 22 (a) in the

Revenue Acts of (June 22) 1936, (49 Stat. at

L. 1648, 1657, chap. 690) and (May 28) 1938 (52

Stat. at L. 452, 457, chap. 285, 26 U.S.C.A.

§ 22(a), it has approved the regulation as

amended. We hoid that the respondent’s tax

liability for the year 1929 is to be determined in

conformity to the regulation then in force.’

Following the Reynolds ease closely was H]el-

vering v. Wilshire Oil Company, 308 U.S. 95, 84

L. Ed. 101, 105, the opinion in which was delivered

by Mr. Justice Douglas. There we find this lan-

guage:

‘These regulations applied prospectively

only and did not purport to reach back to

earlier years when the taxpayer relied on a dif.

ferent rule or practice.’

ss * * *

‘We are not dealing here, as was this Court

in Helvering v. R.J. Reynolds Tobacco Co., 306

U.S. 110, 83 L. Ra. 936, 59 S. Ct. 324, supra,

with regulations applied retroactively. These

are applied prospectively only.’

“The second Reynolds case, namely, Helvering

v. Reynolds, 313 U. 8. 428, 85 L. Kd. 1438, 1441,

delivered by Judge Douglas also dealt likewise with

retroactivity of regulations. While retroactivity

was permitted, it was done so by distinguishing

that case from the first Reynolds case in this way:

‘Nor is Art. 113(a) (5)-1(b) of the Regula-

tions condemned by Jeivering v. R. J. Rey-

nolds Tebacco Co., 306 U.S. 110, 838 L. Ed. 536,

59 S. Ct. 423, supra. That case turned on its

own special facts. The transactions there in

question took place at a time when a regulation

was in force which expressly negatived any tax

liability. The regulation remained outstanding

for a long time and was followed by several

re-enactments of the statute. About five years

after the transactions in question took place

the prior regulation was amended so as to im-

pose a tax liability. There are no such circum-

stances here. No relevant regulation was in

force at the time respondent sold the securities

in 1934.’ (Emphasis supplied).

** Manhattan General Equipment Co. v. Com-

missioner, 297 U.S. 129, 80 L.Ed. 528, relied upon

by the respondent, was decided before the first

Reynolds case. There is, however, no real conflict

between the two cases, because in the Manhattan

General Equipment case the earlier regulation was

held to be invalid, so that for the purposes of the

decision there was no prior regulation, as in the

instant case.

‘‘The respondent has cited as supporting the va-

lidity of regulations See. 325 of Mertens Law of

Federal Income Taxation entitled ‘Power of the

Commissioner to Apply Regulations Prospectively

and Retroactively’ found on pages 102 to 110, in

Vol. I of that very excellent work on taxation,

OTF SIO TIE OT A Oy

ose

There is nothing in the above mentioned section of

Mertens to justify the position of the respondent.

On the contrary it supports the proposal that regn-

lations will not be applied retroactively where there

has been a prior conirary regulation in effect dur-

ing the taxable vears involved. After discussing the

two Reynolds eases Mertens has this to say:

‘* * * *

‘It is reasonably clear that his decision in-

dicates that the Supreme Court would approve

changes in the regulaticns prospectively ap-

plied where there had heen no prior regulation

and it would reasonably follow that it would

likewise approve prospective reguiations even

though there had been prior regulations ex-

pressing a contrary interpretation. The case is

also authority for the point that the Supreme

Court will approve retroactive regulations in-

sofar as they are promulgated under an exist-

ing statute and are issued within a reasonable

time after the enactment of that aet where

there are no prior regulations to the contrary.

The Supreme Court would also probably ap-

prove a retroactive application of the regula-

tions under prior acts where there was no

specific regulation to the contrary in existence

during the prior vears, although the decision

in the later Reynolds case is not direct author-

ity for this conclusion.

The language of the opinion in the later Rey-

nolds case permits the argument that regula-

tions will not be retroactively applied where

they are in conflict with a regulation to the con-

trary, which was in force during the prior year

and which covered the issue specifically.

‘* a * *?

‘See also Aluminum Company of America v.

United States, 122 F. 2d 615.”’

The Pierre M. Ghent case was appealed to the United

States Court of Appeals for the District of Columbia Cir-

cuit, and was reversed on another ground. See District of

Columbia v. Pierre M. Ghent, 220 F, 2d 210. The Court of

Appeals did not reject, or disturb this Court’s holding in

respect of the retroactive application of the regulation, but

rather approved it by deciding the case on the regulation

which this Court held applicable under principles stated in

the excerpt of the opinion above quoted. This is clear from

the language in the second paragraph of Footnote (1) of

the opinion of the Court of Appeals as follows: ‘*The regu-

lations adopted under authority of the statute, and in force

during the three vears in question ete,’’ and from the opin-

ion itself. This Court is still of the same view as expressed

in the Pierre M. Ghent case, and holds here, as it did

31 there, that the regulations adopted after the close of

the taxabie years cannot operate retroactively where

there was during such vears a valid contrary regulation.

The regulations in force during the taxable years in-

volved, as will be seen above, defined ‘District sales** as

those ‘‘principally secured, negotiated or effected by owners,

employees, agents, officers, and branches of the corporation

or unincorporated business located in the District’. In

Owens-Illinois Glass Co. v. District of Columbia, Docket No.

1215, this Court was called up, on remand from the United

States Court of Appeals, to interpret and apply Section

10-2(d)(1)a, of the Regulations, that is to say, what the

word ‘‘located’’ therein meant. The respondent insists that

the opinion of this « ourt in that respect was erroneous ; and

that *‘Faced with this dilemma the Commissioners on Au-

gust 6, 1953, amended the regulations promulgated October

16, 1950, supra, and made the effective date January 1,

1948"*. There was another course open to the respondent,

INA LIP Sa RE

Ctl) ee

fate kia

namely, appeal to the United States Court of Appeals, a

step which this Court regrets was not taken, because the

correct meaning of the word ‘‘located’’ would have been

finally determined. As it is the opinion of this Court in the

Owens-Illinois Glass Co., case, is precedent which should

be followed. It is hoped, however, that the two principal

legal questions herein presented may be finally and satis-

factorily settled by an appeal from the decision in this case

to the United States Court of Appeals. With that in mind,

it would seem appropriate to quote more at length, per-

haps, than ordinarily would be required, from the opinion

of thi. Court in the Owens-Illinois Glass Co., ease as follows:

‘*The solution of the question, therefore, turns on

the meaning of the word ‘located’. The petitioner

claims that it has the implication of permanency

or settled locale as distinguished from temporary

physical presence, and that none of the officers or

agents who secured, negotiated or effected the

sales to customers in the District of Columbia were

located therein. On the other hand the respondent

contends that the term ‘located’ has some relation

to time, in that, if the selling officer or agent was

physically present in the District of Columbia at

the time he secured, negotiated or effected the sale.

then he was ‘located’ in the District and the re-

quirement for a valid assessment under the regula-

tions was met. The Court believes that the position

of the respondent is untenable and that the peti-

tics» is correct in its contention that the selling

agent must have some permanent connection with

the District of Columbia, such as residence or at-

tachment to an office or branch of the taxnaying cor-

poration in the District of Columbia. The Court

believes that under the findings as made none of the

agents or officers securing, negotiating or effecting

sales to customers in the District of Columbia was

located therein.

“There is nothing peculiarly technical about

the regulations, and remembering that their pur-

pose is to administer the law and explain its provis-

ions to the ordinary citizen the words should be

given their ordinary and accepted meaning. None

of the dictionaries, ordinary or legal, define the

word ‘located’ in the setting in which it is found

in the regulations, but the definition of the word

‘Joeate’ is as follows in several dictionaries :

“In Webster’s Collegiate Dictionary: ‘2. To

set or establish in a particular spot. 4. To as-

sign a place to.—v.i. Collog. To take up one’s

residence ; to settle.’

“In Funk & Wagnalls New College Standard

Dictionary: ‘1. To establish or place in a par-

ticular situation or spot; place; settle. 7. To

settle; establish residence; also to reside or

live’.

“In Universal Self-Pronouncing Diction-

ary: ‘to place, establish; mark out and deter-

mine the position of: v.i. to settle’.

“In Webster’s National Dictionary, 2nd Ed.

(1944) : £2. To set or establish in a particular

spot, or position; to station. To establish in a

charge or office. Intransitive—te place oneself ;

to take up one’s residence; to settle; as, he

loeated in Ohio. (Colloq.)’

“There is no applicable definition in ‘Words &

Phrases’ or Bouvier’s Law Dictionary, but in

Black’s Law Directory the word ‘locate’ is defined

as ‘to ascertain and place the position of some-

thing’; and in Baldwin’s Pocket Law Dictionary

the term is stated to mean ‘to place,; to fix, ascer-

tain or designate the place (locus) of a thing’.

‘‘If the respondent were correct in its claim as

to the interpretation of Section 10-2(d)(1)a of the

regulations, the word ‘located’ could very well be

stricken from the pertinent phrase so as to make it

read ‘principally secured, negotiated or effected

by owners, employees, agents, officers and branches

of the corporation or unincorporated business in

the District’. The regulations were expertly drawn

and it is apparent that the draftsmen had the fa-

cility of expression. It is not believed that such

draftsmen would have included the word ‘located’

in the phrase or that the Commissioners would

have approved the regulations if such word was

intended to have no meaning.

‘It is interesting to note that on March 17, 1953,

the Commissioners amended Section 10-2(d)(1)a

by striking out the word ‘located’, so that the per-

tinent part of the regulation now in force actually

does read ‘principaliy secured, negotiated, or ef-

fected by owners, employees, agents, officers and

branches of the corporation or unincorporated bus-

iness in the District of Columbia’. In that connee-

tion in its brief to which was attached the amended

regulation of March 17, 1953, the respondent claims

that this case should be disposed of on the basis of

such amended regulation instead of that in force

during the taxable year here involved. Such con-

tention is without merit.’’

It appears from the facts and from the Court's interpre-

tation of the regulations in foree during the taxable years,

that, in respect of sales of the petitioner s products to

customers in the District of Columbia, none of such sales

were secured, negotiated or effected by any employee, agent,

offi

officer or branch of the petitioner located in the District

of Columbia. That being so the gross receipts from such

sales, except, of course, sales to the United States,

33 have no place, and must not be included in the sales

factor in the formula for the apportionment of the

net income of the petitioner to the District of Columbia. The

petitioner has conceded that the gross receipts from sales

to the United States of merchandise delivered in the Dis-

tric’ of Columbia, and the amounts received as rentals of

records to lessees in the District comprise income from

sources within the District. The correct computation, there-

fore, of the franchise taxes that were due by the petitioner

for the three taxable years involved will require the elimina-

tion from the sales factor of the amount of gross receipts

from sales to customers in the District of Columbia, other

than the United States, and the inclusion in the sales factor

the amount of gross receipts from sales to the United States.

To the portion of the net income thus determined there

must be added the amount received as rental of records to

lessees in the District of Columbia, plus interest at the rate

of 6 per centum per annum on the total amount for each

year respectively from the due date of the returns re-

spectively, to October 5, 1954. The refund to which the

petitioner is entitled is to be computed by deducting the

previous taxes and interest that were due on October 5, 1954,

from the franchise taxes and interest paid on that date for

the taxable years involved. To the sum of such net amounts

must be added interest at the rate of 4+ per centum per

annum for the period from October 5, 1954, to date of pay-

ment of the refund, minus one month.

Decision will be entered under Rule 30.

/s/ Jo. V. Morgan

Jo. V. Morgan,

Judge

ne re eee

54 FILED JUL 15 1955 District of Columbia Tax Court

Docket No. 1463

COMPUTATION FOR ENTRY OF DECISION UNDER

RULE 30 OF THE RULES OF PROCEDURE

BEFORE THE DISTRICT OF COLUMBIA

TAX COURT

Pursuant to the opinion of this Court entered in the above-

entitled cause on June 29, 1955, wherein this Court stated

that the decision of this Court would be entered pursuant to

Rule 30 of the Rules of Procedure before the District of

Columbia Tax Court, the District of Columbia submits to

the Court a computation, as set forth on Exhibit ‘‘A”’ at-

tached hereto, of the refunds of tax to be entered in this

case in accordance with the findings of fact and opinion of

this Court.

On February 2, 1955, petitioner Radio Corporation of

America filed a motion for continuance of the hearing of this

case from February 9, 1955 to Mareh 9, 1955, which motion

was granted by this Court on February 3, 1955. Pa ragraph

three of the motion of petitioner for continuance stated:

‘*3. In the event that this motion is granted, the

petitioner agrees to waive interest for the period

of one month on any refund which may be allowed.”’

Respondent District of Columbia does not, by the filing

of this computation of the amount of refunds of

5H) tax due petitioner, concede the correctness of the

conclusion of the District of Columbia Tax Court that

petitioner is entitled to a refund of any of the taxes assessed

against it.

wine itd

— el rp

COMPUTATION OF DISTRICT OF COLU

MBIA

UNDER RULE 30 OF REFUNDS OF TAX

DUE PETITIONER RADIO CORPORATION

OF AMERICA

Calendar Years

2 2 1951

Net income subject to

apportionment $ 35,929,041.24 $ 88,701,818.59 $ 37,699,692.70

x apportionment factor* .000490 .000394 000715

Portion attributable to D. C. 17,605.23 34,948.52 26,955.28

Rental income allocable

to D. C. 3,710.60 12,859.89 16,760.00

Corrected D, C, net

taxable income $ 21,315.83 $ 47,808.41 $ 43,715.28

Tax @ 5% 1,065.79 2,390.42 2,185.76

Less amount reported

on return 437.60 1,555.19 697.68

Deficiency $ 628.19 $ 835.23 $ 1,488.08

*Computation of

apportionment factor:

A. Total sales

all sources $286,724,157.84 $452,676,201.68 $407,542,968.59

B. Total District sales:

Sales to U.S. Government

1. Tube Depart-

ment $ 35,921.36 $ $9,724.92 $ 197,943.53

2. Engineering

Products

Dept. 104,557.98 88,425.14 93,193.26

3. Home

Instrument 459.04

Total $ 140,479.34 $ 178,150.06 $ 291,595.83

C. Apportionment factor

(BA) .000490 -000394 .000715

Calendar Years

1949 1950 1951

Summary ‘ "% a

Tax reported on

return $ 437.60 $ 1,555.19 $ 697.68

Deficiency assessments

Tax 27,001.41 62,287.94 23,364.15

Interest 7,182.88 12,831.32 3,411.17

Total tax & interest

asessed & paid $ 34,621.39 $ 76,674.45 $ 27,473.00

a ee oe

Corrected:

Tax per return 437.60 1,555.19 697.68

Deficiency pursuant to

opinion of D. C.

Tax Court

Tax 628.19 835.23 1,488.08

Interest (Due date

of return to

10/5/54 168.56 174.00 220.73

Total tax liability $ 1,234.35 $ 2,564.42 $ 2,406.49

Refund Computation Totals

Total tax & interest

asessed and paid $ 34,621.39 $ 76,674.45 $ 27,473.00 $138,768.84

Total tax liability

; wa to opinion of

"D.C. Tax Court 1,234.35 2,564.42 2,406.49 6,205.26

Amount refundable to

petitioner pursuant

to opinion of D, C,

Tax Court $ 33,387.04 $ 74,110.03 $ 25,066.51 $132,563.58

58 FILED JUL 22 1955 Distriet of Columbia Tax Court

Docket No, 1463

DECISION

The petitioner and the respondent having each filed herein

its computation under Rule 30, and the Court having con-

sidered said computations and the evidence taken at. the

hearing of this appeal and the findings heretofore made

herein, it is by the Court this 22nd day of July, 1955,

ADJUDGED AND DETERMINED, That. franchise

taxes and interest thereon for the calendar year 1949, in

the total sum of $33,387.04 were erroneously assessed and

collected from the petitioner; and that the petitioner is en-

titled to a refund thereof with interest thereon at the rate

of + per centum per annum from October 5, 1954, to date

of payment of the refund, minus one month, and it is

FURTHER ADJUDGED AND DETERMINED, That

franchise taxes and interest thereon for the calendar year

19°

ses

tio

at.

to.

cal

er!

tel

1950, in the total sum of $74,110.03, were erroneously as-

sessed and colleeted from the petitioner; and that the peti-

tioner is entitled to a refund thereof with interest thereon

at the rate of 4 per centum per annuin from October 5, 1954,

to date of payment of the refund, minus one month,

AND IT IS FURTHER ADJUDGED AND DETER-

MINED, That franchise taxes and interest thereon for the

calendar year 1951, in the total sum of $25,066.51, were

erroneously assessed and collected from the petitioner ; and

that the petitioner is entitled to a refund thereof with in-

terest thereon at the rate of 4 per centum per annum from

October 5, 1954, to date of payment of the refund, minus

one month,

s/ Jo. V. Morgan

Jo. V. Morgan

Judge

64 PROCEEDINGS

THE COURT: You may proceed,

MR. ZELLER: If the Court please, this is an appeal by

the Radio Corporation of America from the assessment of

franchise taxes under the District of Columbia Franchise

Tax Act of 1947 as amended.

Now, the years in issue here today are 1949, 1950 and

1951.

R.C.A,, and 1 shall so refer to the petitioner, Your Honor,

is a corporation organized under and existing under the

laws of the State of Delaware. Its principal place of

business is maintained at New York City, at 50 Rockefeller

Plaza.

R.C.A. makes sales throughout the United States inelud-

ing the District of Columbia. R.C.A. duly filed franchise

tax returns for the years which are here in issue.

The essential question in this case today is what is the

correct measure of the tax imposed on the R.CLA. under the

District of Columbia Franchise Tax Law. This stands on

the proper apportionment of R.C.A.’s income for 1949, 50

and °51, between sources within and sources without the

District,

Now, the Franchise Tax Law prescribes that that appor-

tionment shall be determined under regulations adopted

by the Commisisoners of the District of Columbia,

65 not by the Assessor.

The regulations in force during the Years in ques-

tion provided that the income of a corporation derived from

a trade or business carried on beth within and without the

District should be apportioned on the basis of a comparison

of the gross sales of the company everywhere with sales

defined in the regulation as District sales. And that, Your

Honor, seems to be the phrase of art with which we are

concerned here today.

* . * * * * . * * *

Now, the terms ‘District sales’? under the regulations

which were actually in effect during the vears “49, °50 and

‘ol means the sales principally secured or negotiated by

ageits, officers or employers of the taxpayer located—and

T emphasize located—in the District of Columbia.

I want to point out at the outset, Your Honor, that there

is an issue between R.CLA, and the Assessor as to which

regulations are applicable to the years here in question.

During these years “49, °50 and ‘Ol, the test laid down

by the regulation which was then in force st

66 it in some reform, was whether the sale was m

a salesman who was located in the District.

Now, the problem, whether this regtation and this test

ought to be applied, arises because, on Masch 7, 1950, the

Commissioner amended the regulation to strike out the

word *‘loeated.”’

ating

ade by

Subsequently, on August 6, 1953, the regulation was fur-

ther revised for what appears to be the evident purpose of

eliminating the test of whether the salesman was located 4

in the District. :

Moreover, the assessor claims that these amendments ;

are retroactive so as to change the rule which actually '

existed during the vears in question when the sales were ;

made, 1

Now, it is our, R.C.A.’s position here today, that the

assessment objected to is wrong for the following reasons: e

If you apply the regulation which was actually in effect s

during the years in question, the fact is, as we shall show, iN

the great majority of the R.C.A.’s sales which the Assessor £

has treated as District sales, were not District sales because é

they were not made by salesmen located in the District.

We do not believe that the 1953 regulation which pur- ;

ported to eliminate this test of location retroactively can

be applied retrosctively under the decisions of this Court

in the Owens-Illinois and Lever Brothers cases, nor

67 under the decision of the Court of Appeals for the 2

District of Columbia in the Pierre Ghent case. 7

Moreover, our proof will show that a very substantial

part of the R.C.A, sales to customers located in the District

were not District sales, again to use the phrase, even within

the meaning of the 1953 regulations.

. . . . . : * . . .

7) Thereupon,

JOHN S. CARTER

being first duly sworn, testified upon his oath as follows:

DIRECT EXAMINATION

BY MR. ZELLER:

Q. Mr. Carter, will you state your full name for the

record? A. John S, Carter.

anes

Q. What is vour residence?) A. 219 East Main Street,

Moorestown, New Jersey.

Q. What is your occupation? A. My position is vice presi-

dent, Finance and Administration, Radio Corporation of

America.

Q. How long have you been with RCA? A. Since 1935.

Q. Where is vour office located, sir? A. In Camden, New

Jersey.

Q. Where was your office located during the vears in

question, 1949, °50, 51? A. In Camden, New Jersey.

* * * * * * oe * .

76 Q. Would you tell us, Mr. Carter, sow the domestic

77 manufacturing and sales activities of RCA were

organized during these three vears: 1949, °50, °51?

A. The domestic manufacturing and sales activities of RCA

were conducted by four products departments. These were

the Engineering Products Department, the Home Instru-

ments Department, the Record Department and the Tube

Department.

Each of these departments was organized as a separate

business. By that I mean that they had a general manager

who was usually a vice president of the corporation; they

had their own chief engineer and engineering staff; they

had their own financial department, headed by a comptrol-

ler; they had their own sales department headed by a sales

manager; they designed and produced their own line of

products which varied from year to year; they had their

own manufacturing facilities and they had their own general

office.

In the case of Engineering Products, that general office

was located at Camden, “ew Jersey and their manufactur-

ing facilities were located at Camden, Detroit and Los An-

geles, I believe.

In the case of Home Instruments, the general office was

located at Camden, New Jersey, with manufacturing facili-

ties at Camden, Indianapolis and Bloomington.

tie

THE COURT: Llinois?

THE WITNESS: Indiana, sir. I should have added when

I was speaking of Engineering Products, that this

78 product department manufactures and sells indus-

trial electronic equipment both to commercial crs-

tomers and special apparatus for the United States Govern-

ment.

The Home Instrument Department manufactures and

sells radio sets, television sets, and phonographs.

The Tube Department had its general office at Harrison,

New Jersey; it manufactures and sells electron tubes, tube

parts, tube-making machinery, and batteries.

It had manufacturing facilities at that time at Harrison,

New Jersey, Lancaster, Pennsylvania, Marion, indiana, and

Indianapolis, Indiana.

THE COURT: I think it should be understood, if it is

not already—certainly I understand it—that what the wit

ness is testifying and what other witnesses will testify is

the situation as existed during the taxable years involved.

THE WITNESS: I believe I have not talked about the

Record Department.

This company is located in Camden, New Jersey, with

their general offices and its manufacturing facilities at In-

dianapolis and for at least a part of the period, at

79 Cannonsburg, Pennsylvania, and New York City and

Los Angeles.

BY MR. ZELLER:

Q. Mr. Carter, I believe you may have misspoken your-

self. You referred to the Record Department as a company.

A. Record Department,—I am sorry.

Q. Can you tell us whether or not, Mr. Carter, any of

these four products departments had manufacturing facili-

ties in the District of Columbia? A. They did not.

eh.»

ewes: RpeROE IR Sire 50045

Q. Can you tell us whether or not any of these four

products departments maintained a warehouse or stock of

goods here in the District? A. They did not.

Q. Did any part of RCA, regardless of whether it was a

products department or not, have manufacturing facilities

in the District? A. No, sir.

Q. Would your answer be the same as to the maintenance

of warehouses or stocks of goods in the District? A. It would

be the same answer: No.

80 BY MR. ZELLER:

Q. How did the products sold by RCA to customers

located in the District come into the District? A. They were

shipped by various means from sources outside the District

of Columbia.

THY COURT: By common carriers?

THE WITNESS: Yes, sir.

BY MR. ZELLER:

Q. Will you tell us what offices in the District were main-

tained by RCA during the three vears in question? A. The

Engineering Products Department had an office in the Com-

monwealth Building on ‘*K*’ Street, I believe, during the

entire period in question.

Within that office there were two other activities of RCA

that had office space. Those were the Patent Department

and Frequency Bureau. I believe that those two activities

were there during the entire period in question.

The Tube Department opened an office at ** KK’? Street, and

I believe the address was 1757—it was the Beacon Building

—and I think the date was about the middie, May or June

of 1950, or 1951, I believe.

+ * e ° * . ° . * .

la an

ra ae

Sl CROSS EXAMINATION

BY MR. WIXON:

S4 Q. The Engineering Products Department of the

Radio Corporation of America, I understand, main-

tains an office on K Street in the Distriet of Columbia or

maintained an office on K Street in the District of Columbia

during the tax years here in question? A. Yes, sir,

Q. Do you know how many employees were located at

that particular office on K Street during these years? A. No,

sir.

Q. You have no idea, sir?) A. Ihave an idea, but I cannot

testify with accuracy.

Q. What was the title, sir, of the o...cer of the corporation

who was in charge of the Engineering Products Depart-

ment? A. Vice president and general manager, I believe.

Q. And he would be a vice president and general manager

of the Radio Corporation of America? A. Correct.

Q. Now, all of the officers, I take it, and employees of

the Radio Corporation of America who were connected with

these departments were actually employees of the Radio

Corporation of America, were they not, sir, rather than

employees or officers of a department of the Corpora-

A. They were employees or officers of the

85 tion.

Radio Corporation of America.

: > o al * * * * > *

86 THE COURT: You are familiar with the corporate

structure of RCA, are you not, generally?

THE WITNESS: Yes, sir.

THE COURT: And it has a president and Board of

Directors, too?

THE WITNESS: Yes, sir.

THE COURT: Operates like most other corporations,

does it not?

THE WITNESS: Yes, sir.

Bee air iias at |

LEILA DLAI TD TOL Hise AES

SA DOLE ER LEAT PR PIE

weet

"RSL a PRO SE he

THE COURT: These separate divisions, they have their

own bank accounts and finances?

87 THE WITNESS: The individual product depart-

ments do not have their own bank accounts. During

this period, the Victor Division operated its own bank ac-

count and would maintain bank accounts for each product

division.

THE COURT: Well, some of them made a profit, did they

not?

THE WITNESS: Yes, sir.

THE COURT: Where did the profits go?

THE WITNESS: The profits went to the Radio Corpora-

tion of America.

THE COURT: And were distributed to the stockholders?

THE WITNESS: Pardon?

THE COURT: And were distributed to the stockholders?

THE WITNESS: Distributed to stockholders in the form

of dividends.

THE COURT: All right, that is all.

88 Thereupon,

CONDER C. HENRY

being first duly sworn, testified upon his oath as follows:

DIRECT EXAMINATION

BY MR. ZELLER:

Q. Will you please state your name for the record, please?

A. My name is Conder C. Henry and my official address

today is 711 14th Street, N. W., Washington, D. C.

Q. Is that your office address in the District? A. Yes,

sir.

Q. What is your residence, sir? A. My residence address

is 4482 Argyle Terrace, N. W.

(. What is your occupation, Mr. Henry? A. I am man-

ager of the Washington Patent Department of Radio Cor-

poration of America.

Q. And how long has the Patent Department had a Wash-

ington office, to your knowledge? A. Well, I came with the

department in February, 1946. They had a Patent Depart-

ment before I arrived. I cannot tell you the exact date, but

I understand it has been some years.

7 e e * a 2 e

89 Q. Now, will you tell us, Mr. Henry, what the

function of your office was? By that I mean the

Washington office of the RCA Patent Department during

these years in question: ’49, ’50, ’51?

2 * .

A. During those three years the function of the office was

primarily a search office for RCA. It also was a training

office for patent attorneys. In addition to that, it was more

or less a trouble-shooting office for patent applications that

were in trouble in connection with patent office in the courts.

By that I mean, we did every phase of the work connected

with the prosecution of the patent applications through

the patent office and the courts.

Q. When you say it was a search office, Mr. Henry, what

do you mean by that? A. I mean that the bulk of the work

in connection with the new invention consists in making an

investigation of the prior art to determine the extent of

novelty in that invention. On the basis of that search a judg-

ment is made as to whether or not to prepare and

90 ‘file an application for patent in the first place.

Now, that would be one aspect of the search work.

Another aspect would be to make searches of the prior

art to determine the validity of patents which RCA may

want to buy.

Then another aspect of it, to complete the answer, is to

make what is known as patent approval searches.

PABA BLL EE AL POD

as Fe

POMESES OM NOH

ARYA EE PROP EIEIO E RUE Hes Mpa aT

PRY LPIA

Q. Mr. Henry, will you tell us whether your office had any

connection with the Victor Division of RCA? A. The only

connection that we had with RCA Victor or any other

branch of RCA would be to handle patent disclosures orig-

inating in those divisions.

* * * * = * * * . *

Q. Were those the duties which you have already de-

seribed for the record, all of your duties, Mr. Henry?

A. Well, I had nothing to do with sales, if that is

91 what—

THE COURT: He just asked you, did you have any

other duties besides those you mentioned?

THE WITNESS: No other specific duties, no, sir.

Q. Can you tell us whether or not anyone not connected

with your office made use of your office during these three

years?

* * * * * * * 2 . *

THE WITNESS: The Legal Department has used my

office during those years.

BY MR. ZELLER:

Q. Any other department? <A. No, sir.

Q. Will you tell us what the size of your office staff was

during those years? A. I can’t answer that question ac-

curately, but it consisted of from two to three secre-

92 taries and from six to nine assistants who were at

least, one of whom was both an engineer and a lawyer

and all of the assistants were engineers, and most of them

were attending law school.

Q. Who is Mr. C. P. Coe? A. He is vice president of

RCA and Chairman of the Patent Policy Committee.

Q. Will you tell us whether or not he had an office in

Washington during this period? A. He maintained an

office in Washington and also in New York.

96 BY MR. WIXON:

Q. Are all of these employees in this office, or were

all of these employees in this office full time employees of

the Radio Corporation of America? A. With the exception

ofastenographer. We had to take on an extra stenographer

in the summertime during vacation, but they are full time

employees.

Q. Those you have enumerated, with the exception of the

occasional additional stenographer were permanent em-

ployees? A. That’s right.

Q. Did there ever come a time when the Radio Corpora-

tion of America, in the years in question, would send to this

office an additional employee of the corporation for the pur-

pose of working in your office or with you on the particular

or specific matters? A. Yes, sir.

Q. How often did that occur, sir, during these years?

A. IL ean’t testify with respect to that, those years you are

asking me, to remember the details—

Q. But would you say that was frequent or infrequent?

A. Very infrequent.

97 Q. Infrequent? A. Sometimes they would send

down attorneys to work with me in the office, patent

attorneys. Sometimes they would send—

Q. Did they send engineers too, occasionally? A. I think

all of the patent attorneys in RCA are engineers and some-

times they would send people down for special training

for short periods of time for two weeks or three weeks. Just

when that occurred, I don’t know, but it happened very

infrequently.

(). Would they occasionally send down personnel, send

down—lI mean to have come into the District of Columbia—

personnel for the purpose of making any research or survey

or doing any work independent of your office, although you

might know they were here? A. Yes, that has happened,

but it happened during—whether it happened during that

year or not, I don’t know; but they would be engaged purely

eae Be as

Satoh eRe RELY

To ae

aoe

SISA ER eRe Ree et

sate

BOR RAL IN PRY ASI) OR EE PT ME

in patent work, in making patent investigations on some

problem that they would particularly be concerned with,

and use my office only as a headquarters.

102. Thereupon,

JAMES P. VEACH

being first duly sworn, testified upon his oath as follows:

DIRECT EXAMINATION

BY MR. ZELLER:

Q. Please state your name and address for the record,

A. James P. Veach. I reside at 3130 North 19th Street,

Arlington, Virgina.

Q. What is your occupation, Mr. Veach?) A. T am man-

ager of the Washington office of the Washington Frequency

Bureau.

Q. Where do you have your office? A. 1625 K Street.

Q. How long have you held that position? A. Since the

office was established in 1945.

THE COURT: How long have vou held it?

THE WITNESS: Since 1945.

BY MR. ZELLER:

Q. Will you tell us what the functions of your office

are? A. The RCA Frequency Bureau advises the RCA

divisions and subsidiaries of the use and assignment of

frequencies. We also obtain—

THE COURT: Frequencies granted by whom?

THE WITNESS: Radio frequencies granted by

103 the Department of State, Federal Communications

Commission, in some cases even the Military. We

obtain those licenses as well.

BY MR. ZELLER:

Q. Would you tell us a little bit, Mr. Veach, about how

this matter of frequencies affects RCA’s business? A. Well,

all operations by RCA are primarily radio, Marine, and

RCA communications and the National Broadcasting Com-

pany, require the use of frequencies in order to broadcast

or carry on their business. We advise them regarding the

use of such frequencies and obtain licenses for such uses.

Q. By whom are such uses granted? A. Federal Com-

munications Commission of Department of State.

(). Will you tell us whether or not you have any respon-

sibilities in connection with the sales of products that are

manufactured by RCA? A. None whatsoever.

(). What was the size of your office staff during this

104. period? A. Normal complement that it was during

these years was three men and three women.

Q. And what was the position of these three men? A. Mr.

Siling is the Director of the Bureau and I am the manager

of the Bureau and we have an assistant manager.

Q. What function do these three ladies serve? A. We

have an administrative assistant and two secretaries.

CROSS EXAMINATION

BY MR. WIXON:

7 * a . y

105 Q. Do you have, from time to time, occasion to

have persons come into your offices who are em-

ployees or officers of the Radio Corporation of America for

the purpose of proceeding with some particular matter

through your office or independently of your office?’ A. On

occasions, yes.

109 Q. Have you obtained any frequencies for the Dis-

trict of Columbia? A. We do not obtain frequencies

for the Federal Government.

Tae

MEP LES RE DEL ENS SAE te SETTERS BS As Rage er

PP SE IAS SRR Le mer:

Ti SNe eS

e PVERI BEB IN”

(). I did not mean for the Government.

THE COURT: For any broadcasting station?

THE WITNESS: Yes, the National Broadcasting Com.

pany operates broadcasts, FM, and television statioy

BY MR. WIXON:

(). Is that a part of the Radio Corporation of America?

A. Yes.

Q. It does business here, sir? A. As far as I

110 know.

THE COURT: Is that a separate corporation, the

National Broadeasting Company? Do you know whether

it is?

THE WITNESS: I don’t know.

MR. ZELLER: I am not familiar with the procedure, but

I would think that that would be an appropriate matter for

counsel to respond to.

I can say that it is a separate corporation.

is here,

* * ~ * * * * * * ,.

Q. This is a separate function, the one you have, from

the four operating departments of the corporation, is that

true, sir? A. Yes,

(). And the Frecuency Bureau is a separate organization

or department or activity of the Fadio Corporation of

America? <A. It is a Bureau of the Leboratories Division.

* * * » * * * * * *

111. Thereupon,

ALLEN BUXTON MILLS

being first duly sworn, testified upon his oath as follows:

112 DIRECT EXAMINATION

BY MR. ZELLER:

. Please state your name and address for the record.

A, Allan Buxton Mills, 100 Jefferson Avenue, Haddonfield,

New Jersey.

(). What is your occupation, Mr, Mills?) A. Tam the mer-

chandise manager for the television division of the Radio

Corporation of America.

(). Where is your office located?) A. In Camden, New

Jersey,

(). How long have you been with RCA? A. Tam in my

32nd year of employment with the corporation,

’ * * * oJ a * * ’ *

118 Q. During these years, 1949, °50 and °51, what was

your position? A. T was General Sales Manager for

the Home Instruments Department of the Vietor Division

of the Radio Corporation of America.

Q. And will you tell us what your responsibilities in that

position were with particular reference to sales to custom-

ers located in the District of Columbia? A. My responsi-

bilities were to arrange for the quarterly sale of the output

of our factories in those products with which I was con-

cerned, and to oversee the sales activities of our distributors

throughout the nation, and of course in the District of

Columbia as well.

Q. Now, will vou tell us to whom sales made by RCA to

customers located in the District were actually made? A. We

made sales to our wholesale distributor, the Southern

Wholesalers, Incorporated. During that period, we made

some trifling sales to the Fairfax Distributing Corporation.

(). You say ‘‘trifling sales*’, Mr. Mills. What would be

the comparison in percentage terms between terms to South-

ern Wholesalers on the one hand and sales to Fairfax on

the other? A. IT would say not exceeding one per

114 cent; one per cent, probably less.

Q. What were the terms upon which the Home

Instrument Department sold goods to Southern Whole-

salers? A. We sold f.o.b. our plant, that is, f.o.b. our fae-

tories which were the shipping points with shipments from

the first to the middle of the month due for payment the end

of the month, and from the middle of the month to the end of

the month due for payment the middle of the following

month.

Q. Can you tell us whether or not Home Instruments De.

partment ever made sales on consignment to any customer

located in the District? A. During the taxable years? We

made no sales on consignment.

(. Who was the field sales representative in whose ter.

ritory the Distriet of Columbia fell? A. Morton Polikoff,

* * . * 7 * . * * .

(). Will you tell us, Mr. Mills, whether any em-

11) ployee of the Home Instruments Department, to your

knowledge, maintained an office in the District of

Columbia during these years? A. We maintained no office

in the District of Columbia.

THE COURT: Any employee of the organization—did

any employee of the organization maintain an office?

THE WITNESS: No employee of the Home Instrument

Department maintained any office in the District of Colum.

bia.

BY MR. ZELLER;

Q. Can you tell us whether or not any employee of the

Home Instruments Department resided in the District of

Columbia during this period? A. No emplovee resided in the

District of Columbia so far as I know.

THE COURT: That is all he is asking vou, of your own

knowledge.

BY MR. ZELLER:

Q. Now, did any RCA employee or agent other than em-

ployees or agents of Home Instruments Department have

any responsibility for sales of products manufactured by

Ifome Instruments? A. No,

Q. Can you tell us whether or not any sales were made

of Home Instruments products by any non-Home

116 Instruments employee during these three years?

A. None were.

Q. Now, will you describe to the Court the method by

which sales were made by Home Instruments Department to

Southern Wholesalers during these three years? A. The

Home Instruments Department followed what we call our

DQA system of selling, which means that for each quarter

of the year we would determine in Camden the percentage

of our total output which we felt should reasonably be

handled by our customers in areas which they served, and

develop then for each of our customers a suggested quantity

of merchandise to be moved by that customer in his area

during the quarter.

THE COURT: That does not answer the question. He

wants to know how he proceeded to sell it.

BY MR. ZELLER:

Q. Carry it on through the chain of events leading to

the actual sale, Mr. Mills. A. Very well. Those figures hav-

ing been prepared, would then be given to our sales repre-

sentative who would contact the customers whom he served

and he would then negotiate with them the acceptance of

their responsibility, let’s say, for the movement of this

quantity of goods.

Thereafter, as factories produced merchandise, our

117 sales administration section in Camden would notify

our customers what merchandise was scheduled for

shipment to them that particular week. That was a regular

recurrent activity each week, that notification of the goods

ready for shipment would be sent to each customer and in

the absence of any objection from the customer, the goods

would normally be shipped and billed in the ordinary course

of business,

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Q. Did you have any policy during these years regarding

the point at which in this distribution chain which you have

described the sale to the customer became a firm sale?

A. The sale was actually not a firm sale until the goods had

actually been shipped.

In other words, the customer could refuse shipment at

any time prior to the time that shipment actually had been

made.

* . * * * ~ * * * *

118 Q. Now, how were field sales representatives com-

pensated? A. By salary.

Q. Was any provision made in their compensation for |

commissions? A. There were no commissions.

Q. By whom were the Home Instruments field sales rep-

resentatives paid? A. By the RCA Victor Division of Radio |

Corporation of America. |

Q. And from what office of the Victor Division? A. From

the Camden office. .

Q. One thing IT think may not be entirely clear on the

record with respect to your DQA system of doing business. |

When did you at Camden consider, at what point in the

negotiation of the DQA did you in Camden consider that the

amount to be shipped to the customer for that quarter had

been arrived at?

MR. WIXON: Objection.

119 THE COURT: I will sustain that. It does not make

any different what he considers. He has already tes-

tified that the procedure was this, that they determined how

much the customer should take, the representative called

on them and told them what they had to take, and that a

week before shipment was made, they notified the customer

and if they didn’t hear any objeciion, it was shipped to

them f.o.b. Camden. That is a point already gone into. Am

I wrong in that or not?

75 :

THE WITNESS: That's correct, Your Honor, excepting

you said ‘*f.o.b. Camden.”’

THE COURT: F.o.b. the plant. :

P 120 CROSS EXAMINATION

BY MR. WIXON:

Q. Mr. Mills, in your sales of your product to the South-

ern Wholesalers, were such sales made on an agree-

121. ment between Southern Wholesalers and the Radio

Corporation of America for the distribution of its

product by that particular Southern Wholesalers? A. If

I understand vour question correctly—

Q. If vou don’t, I will be glad to restate it. A. We ap-

point distributors to handle our product and by virtue of

that appointment, there is a mutual agreement, I would say,

that we are going to sell them goods and they are going to

buy goods.

Q. Is there any restriction on such an organization geo-

graphically? That is to say, if they are accepted as a dis-

tributor for the Radio Corporation of America’s products,

that their distribution shall be confined to any particular

area?

MR. ZELLER: I object to that, Your Honor. It is far

beyond the scope of the direct. I do not think so. He has at-

tempted to tell the manner in which he is disposing of their

property.

He is telling of the manner in which Southern Wholesaler

is disposing of this property.

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122 THE COURT:

You have your objection.

Mr. Mills, you will have to answer that question: Whether

or not your distributor in the District of Columbia had ex.

clusive rights within the District of Columbia.

THE WITNESS: We sold to no one else within the Dis.

triet of Columbia, excepting these sales I mentioned to the

Fairfax Distributing Company.

126 Q. In respect of your distributors, were they con-

fined by agreement with the Radio Corporation of

127 Ameriea to any particular territory or area in

disposing of the products handled by them? A. We

recommended to them that they confine their operations to

an area with which they were fully familiar and in which

they were located. There was nothing other than a recom-

mendation.

Q. That recommendation—was that recommendation in

writing? A. I believe that when we appoint a distributor

we outline for him the area to which we recommend that he

confine his selling activities.

Q. If he transgressed and attempted to go over in areas

beyond that which you recommended, would he lose his dis-

tributorship or franchise? A. No.

Q. Mr. Mills, how do you appoint a distributor?

128 A. By this letter that I mentioned.

Q. Is there an application made? Do you have a

day set for considering the applications of a number of per-

sons to obtain a franchise? What are the mechanies of an

appointment of a franchise operator or dealer? A. There is,

when it becomes necessary to appoint a distributor, there is

an investigation carried on. There is mutual negotiation

between our various sales people and individuals who might

be interested in handling our products in the area in which

they are situated, and out of those negotiations and invesii-

gations eventually comes a decision which is evidenced by

this letter appointment that I referred to.

Q. Is there a formal contract entered inio between the

corporation and the distributor? A. There is no formal

contract.

(). This letter then would constitute the appointment, is

that right, sir? A. Yes.

129 Q. Now, Southern Wholesalers was the appointed

distributor of your products, I understand, during

these vears and was he appointed during these years? Was

he the appointed distributor? A. He was the appointed dis-

tributor during these years.

Q. And did that company obtain any product that the

corporation produced or manufactured by a department

other than the Home Instruments Department to your

knowledge? A. Yes.

Q. And from what department did it obtain products?

A. It obtained products from the Record Department, from

the Tube Department, in addition to the Home Instruments

Department; in addition to the Home Instruments Depart-

ment.

THE COURT: Mr. Mills, in connection with that testi-

mony, were television sets manufactured and sold by the

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