Petition for Writ of Certiorari — Ellison v. United States

Supreme Court brief1961

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Order denying argument ..2....cccccccccccescsesceeececeseeeee: 17a

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' CITATIONS.

. Cases.

Cory Corporation v. Sauber, 365 U.S. 709 cna, 8, 32-22

HI. Hackfeld & Co. v. United Sfates, 197 U.S. 42... s

Knott v. St. Louis S.W. R. Co., 280 U.S. 309 . ani edans 10

Prout v. Starr. 188 US. RSME, Eas a ee 10

Sebechter Poultry Corporation v. United States, .295

ER Ne aniipsinesevtavonsetiemsiniieneniaanreennieetigacnieaniiaptiesiancintaninninenss R

United States v. Davison, 3 Cir. 9 F.2d 1022, cert.

den. set US. G70, affirming D.C., W.D. Pa., 1 “F.2d

465 eeeeeeeee Devenceeecesaceeeeeceenes vee midindtcentenninieeenaenenined ew eeeeeeeserseseses 10

United States v. Parke. Davis &-Co., «0... ie piensa

5 Lied. Sd SBe (Sempre Sh, IGG ). ..c.ccccecccceccsccccccccsesess- “6

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PAGE

~ STATUTES.

sctuenas Revenue Code of 1939 ;

Section B4O5(C) .....ccsccccssccrsessrsssserssseesecsesncseseserenssneeeers 2

Internal Reyenue Code of 1984

Section 4111... cecsecseteseeeeesseeceessenssessssesscnsseeenes 2

' Section 6416(a) (1)... jacuinasababeieaoanin ee shadeieas shiek sabietea 2, is

in ’ Revenun Siemans.

S.T. 934, 1948-2 CB. 180 nnncccssssssssscsssceetegsscenmneesssssionne 2

Rev. Rul. 54-462, 1954-2: C.B. 410 ..:...cccccssssssseseccssessesees wa

, IN THE

SUPREME COURT OF THE UNITED STATES

' * OcTobEr Term 1960.

‘No. a

CORY CORPOR AT HON AND MITCHELL MANUFAC-

TURING COMPANY, |

¥ ' Petitioners,

» US. ;

IKRNEST J. SAUBER,

Respondent.

Tr sit sae

PETITION. FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

_FOR THE SEVENTH CIRCUIT.

Petitioners pray that a writ of certiorari issue to review,

the judgment of the United States Court of Appeals for

the Seventh Circuit in the above-entitled case.

e ‘ e

OPINIONS BELOW.

The opinion of the Court of Appeals (App. la, infra)*

filed November 21,-1960, after remandment by this Court

(363 U.S. 709) and the Separate opinion of Judge Duffy

dissenting from denial of rehearing (App. 13a) filed

January 11, 1961, are reported at 284 F.2d 767. |

1The designation “(App. .... )” refers to pages of the

Appendix to this petition, which pages are numbered co ;

secutively la to 23a, inclusive.

~J URISDICTION.

The judgment of the Court of Appeals 4App. 15a) as ;

entered on November 21,-1960. Petition. for rehearing en

banc was duly filed December 6, 1960, and denied January

6, 1961. (App. 16a). The jurisdiction of this Court is in-

“woked under 28 U.S.C. §1254(1).

This’ is a civil action arising under acts of Congress |

providing. for the internal revenue, of which the United

States District Court has original jurisdiction under 2s

U S.C. $1340. | .

QUESTIONS: PRESENTED.

3. May a- court of appeals, under a mandate of this

Court directing review of a finding pertinent to the con-

struction of. ‘administrative rulings held valid by this

Court, (a) disregard tle finding without reviewing it

_ and (b) ‘adopt a construction of the rulings that is in

_ direct conflict with the basis on which this - Court. has

held the rulings valid?

* 2. Is the agreement of the federal government to abide

by the decision of a contested tax case subject to summary

| invalidation by a federal court at any stage of litigation,

in the absence of any suggestion of unfairness, illegality, °

impropriety or mistake? .

STATUTES AND REVENUE RULINGS.

Section 3405 of the Internal Revenue Code of 1939,

Section 4111 and Section 6416(a) (1) of the Internal

Revenue Code’ of 1954, S.T. 934, 1948-2 C.B. 180 and

- Rev. Rul. 54-462, 1954-2 C.B. 410, are set forth in ‘the’

rer ‘at PP 18a-23a, infra.

~3— ‘ °

STATEMENT.

On February 11, 1957, taxpayers brought actions in

the District. Court against respondent, former District

Director of Internal Revenue, seeking. refund of manu- -

facturers” excise taxes collected on the sales of two

air conditioning: units sold in 1954 and 1995. (R. 1-10.)* .

On: June 14, 1957, the parties stipulated that the collec-"

tion of excise taxes assessed on the sales of*a’r condition-

ing units similar to the two units would be deferred until

final adjudication of these actions and that the decision

her¢ would determine the taxabitity of the other sales.

(R. 13-14.) All the sales weré made at a time when

revenue rulings issued by the: Commissioner limited the

application of the tax to air conditioning units having

“a-total motor horsepower of less than 1 horsepower.”

“(R. 40-41.) -The District Court entered judgment for tax-

payers (R. 154) helding that the units were cxempt. as

having a “total motor horsepower” of 1 horsepower or.

more. (R. 139-154.) The Court-of Appeals reversed, hold-

ing that the revenue rulings were void. (R.-170-178.)

This Court reversed and remanded. (563 U.S. 709.) It

held that the revenue rulings were not void, sinee horse-

“power *tmay have -bad seme relation to size in the then:

? The designation ° *(R......)” refers to pages of the print-

ed transcript of the atid record filed with this Court on

the prior writ of certiorari, No. 436, October Term, 1959.

The original record itself has been recertified by the Court

of Appeals and is refited with the present petition. The cer-

tified record of subsequent proceedings in the Court of Ap-

peals following remandment is.also filed herewith and _ is

reproduced in the Appendix to this petition (App. 1!a-16a).

3§.T. 934, 1948-2 C.B. 180, superseded by Rev. Rul. 54-

462,°1954-2 C.B. 410 (App. 22a-23a), defining ‘the type of

self-contained. air conditioning unit subject to tax” under -

§ 3405 (c) of the 1939.Code (App. 1Sa-19a), reenacted as .

a 4111 of the 1954 Code (App. 19a-20a).

onion

stage of engineering development” o-_ might thus have

been a relevant measure of taxability under the statute.

(363 U.S. 711.) It directed the Court of Appeals to

review a finding of the District C ourt as to the meaning -

of horsepower ‘‘among engineers.” (363 U.S *712.). This

Court also noted that taxpayers’: air conditioners had

* been found: to have both an actual and ‘‘rated” horse-

power of 1 horsepower, “rated” horsepower being de-

fined as that ‘“‘assigned on the basis of standards estab-

lished by trade associations.’ (363 U.S. 710.)

Upon remandment, the Court of Appeals again reversed

the “District Court (App. la). It rejected without review .

the ‘engineers’ definition” of horsepower and aiso re-

jected this Court’s definition of ‘‘rated” horsepower.

(App. 2a.) It. redefined “rated” horsepower as the un-

standardized nominal horsepower appearing on ‘‘rating

tags” and construed the rulings as measuring taxability

by these nominal designations, without regard to their

accuracy “under any engineering or industry standard.

(App. 2a,-7a.) The Court of Appeals also held, of its

own motion‘ and without request by any party, that the

stipulation ‘as to. the effect of these actions, on other as-

sessments was contrary to the public interest and void.

(App. 7a-12a.) A petition for rehearing was denied over

the dissent of Judge Duffy, who stated that the stipula- |

-‘tion. was valid and that the majority’s decision was in

. disregard of the direction of this Court. (App. 13a-14a.)

*The Court of Asouis sited to accept eueniiiis or to

hear oral argument on remandment. (pp. 17a).

en A LT cr

. .

REASONS FOR GRANTING THE WRIT.

The writ should be granted, we submit, because the

decision below on remandment does not comply with the.

mandate of this Court nor adhere to the opinion of

this Court; because invalidation of the stipulation is in

conflict with the applicable decisions of this Court and

with the decision of another court of appeals on the’ same

matter, and invelves an important question of federal

law; and because the disposition’ of this case on remand-

ment so far departs from the accepted and usual course

of judicial proceedings as to.eall for an exercise of this

~ ourt's s power of supervision. ‘Supreme Court Rule 19.1(b).

The issues before this Court on prior review were “the

construction and validity of the’ revenue rulings.” (368

US. 711.) In holding the rylings valid, this Court neces-

sarily construed them as embodying a standard relevant .

to the statutory command. It held that horsepower “may

have had some relation to -size in the then state of

engineering. development and size might well have been -

relevant to what was then a ‘self- contained air-condi-

tioning unit.’” (363 U.S, 711.) It remanded this cause

with an .express direction to the court below to review a

finding as to the--meaning of horsepower “among

engineers”. (363 U.S. 712.) .

The Court of Appeals, however, has neither reviewed

‘the finding nor inquired into the meaning of horsepower

as an engineering concept. “Instead, it has disavowed “the

engineers’ definition” of horsepower and has re-construed

the rulings as incorporating nominal: ratings that have

no relation to size ‘or Fy eign and no relevance to

the statutory definition. (App. 2a-7a.) It has thus dis-

regarded the basis on which this Court sustained the.

rulings. The court below, in’ short, has not only failed

—6 eS

sie |

to comply with the mandate but has rendered a decision

that conflicts with the decision of this Court. Cf. Urtited

States v. Parke, Davis & Co., «.....- 1 ¢ Sapeaeeen , » Lied. 2d

457 (January 23, 1961). ve ‘s '

nae : re , =

This view is shared by a member of the Court of Ap-

peals. Judge Duffy, dissenting from denial of rehearing,

stated :

The Supreme Court directed this Court to review .

the District Court’s findings as to what horsepower

meant ‘among engineers.’ Our Court has now dis-

regarded engineering concepts and selects criteria de-

rived from plates on compressor housings and tags.

(App. 14a).

The criteria selected by the Court of Appeals are noth-

ing more than the arbitrary and unstandardized nominal

ratings assigned by individual motor manufacturers to

‘particular motors used in-air conditioners... These desig-

nations do not conform to any engineering standard nor

to the ‘‘standards established by trade associations” which

this Court has defined as “rated” horsepower, (3863 U.S,

710.) Although the cdurt below now calls nominal: horse-

- 8The selection of nominal ratings is made by the manu-

facturers of the motors, not by the taxpayers. (R. 49-50).

Motor manufacturers are free to assign to any motor any

nominal rating that they choose, irrespective of the stand-

ards established by their trades association. (R. 149). It

is stipulated that the factors affecting. the assignment of

nominal ratings include “motor manufacturers’ pricing poli-

eies, competition between manufacturers, and varying

popular concepts concerning size, power and current consump-

tion.” (R. 51). It is also stipulated that motor manufactur-

-ers have assigned different nominal. ratings to the same

motor (R. 9) and have nominally rated at ‘‘1 horsepower”

motors whose actual size and rated horsepower is less than.

that of taxpayers’ nominal “34 horsepower” motors. (R.

50.) : ;

ae,

power “rated horsepower” (App. 2a), this change of no-

menclature does not bring its decision within the man-

date. As stated by Judge Duffy:

. In my view, the decision of this Court is wrong in

equating rated horsepower with nominal horsepower. |

es ¢ ¢. °

Nominal horsepower is not the same as send horse-

power. Nominal horsepower is assigned solely in the

uncentrolled discretion of the various motor manu-

facturers. Actual horsepower and rated horsepower’

_are standardized, measurable and easily: ascertain-

able. Nominal horsep6wer is arbitrary and unstand-

ardized. fApp. l4te) .

The Court. of Prone thus holds, ‘wader the revenue

rulings sustained by this Court, that when a motor man-

facturer departs from both engineering and industry stand-

ards and mislabels the horsepower of a‘motor, it is the

label and not the fact that controls taxation. Such a holding

eannot be reconciled with this Court’s opinion.

The decis sion ‘below was reached by culling from lengthy

‘correspondence a single reference in a proposed (and

rejected) draft to ‘trated capacity’—a term not used in

the rulings nor repeated in the correspondenee—and rea-

‘soning therefrom thatthe Commissioner intended that

”

taxation be governed by ‘‘rating’ tags which could’ be

‘seen by retail pur¢hasers:" (App. Ta.) Nothing in the cor-

respondence, however, indicates that the word “rated”

was intended to refer to nominal horsepower. On the con-

trary, the context of the letters indicates a concern for what

is ‘feasible from an engineering: standpoint.” (App. 5a.)

Both the Internal Revenue Servied before the trial (IR. 37) .

and government counsel at the trial (R. 105) considered

* The tax is imposed on the manufacturer, not on the- retail

oles

rated. horsepower under trade association standards to be

-the controlling factor.

In any case, whatever the Commissioner may have .

thought about horsepower, this Court clearly did not

sustain a ruling that delegated the federal taxing power

to ‘“‘the uncontrolled discretion of various motor manu-

facturers.’ (App. 14a; see Schechter Poultry Corporation

v. United States, 295 U.S. 495.)

In reversing the District Court, the Court of Appeals,

we submit, has reversed this Court as well.

| 2.

On June 14, 1957, after these actions had been pending

for several months, the parties stipulated that the taxa-.

bility of the two units in suit would determine the taxa-

bility of similar units on Which assessments were. being

made and agreed that collection of these assessments

‘would be deferred until final adjudication of Mhis case. (R.

13-15.) ' 7

The identical issue of taxability is presented by the

civi} actions and the contested assessments. The Stipula-

tion of Facts limits the effect of the adjudication to units

that are similar to-the two units in all the engineering and

physical characteristics pertinent to taxability under the

révenue rulings. (R. 39-51)’ Since the rulings have been

held valid and since all the units were sold while the same

rulings were in effect, the rulings -determine the taxa-

bility of all units. Thus the same issue of law and fact is

common to-all the units coveredsby the stipulation. .

*The stipulation as to simila is a stipulation of fact,

binding on the parties and orf the courts. H. Hackfeld & Co.

vy. United States, 197 U.S. 442, A46.

2 9 —

Nevertheless,* the Court of Appeals on remandment

struck down the stipulation, without motion or hearing,

as a “stipulation of law’’ and as contrary to the ‘‘public

interest.” (App. 7a-12a.) .As. stated by Judge Duffy:

“This Court, on its motion, and without any request

by either party, has invalidated the basic stipulation

upon which this litigation has proceeded in three

courts for more than three years: The Government

‘has made no effort to keene the agreement which

it made.

“On June 3, 1957, the Government had asked for a

continuance to which plaintiffs objected. After eleven

days of negotiation with the Internal Revenue Service

and the Department of Justice, the. stipulation was

.entered into. No one has suggested the stipulation

was unfair, inadequate or induced by, misrepresenta-

tion or mistake.,The Government does not claim that .

it has been over-reached. It seems to me that the

stipulation is in the publi¢ interest. This was not a

stipulation of law as indicated jn our opinion. It

related only to ‘air conditioning units similar to

those described in the above civil actions.’

“Rather than try the same issue of fact and law in

numerous proceedings, the parties agreed to try the

issue once and for all in the present case. There can

be no publie interest that demands repeated trials of

the same issue.’ ba is designed to avoid re-

peated trials of the Same issue should be held valid

and binding.” (App. 13a-14a)

This action of the Court ion ‘we submit, should’ be

reviewed because it is in conflict with the applicable de- |

cisions of this Court and with that of another court of

see om 4

am 10 «ao .

appeals and because it announces a? novel theory of

federal law that may seriously affect the agreements of

the government. Moreover, it: is a departure from the

usual course of judicial proceedings not warranted by the

mandate and, if intended as a device to prevent a wind-

fall, is unauthorized and inappropriate (see p. 12, infra).

as e ; yf)

The holding below that an agreement to abide by the

adjudication in another ease is.a “stipulation of law,”

voidable-at any. time hy any court, is in conflict with deci-

-sions of. this Court. In Prout v. Starr, 188 €.S.:537, and

Knott +. St. Lowis S.W.R. Co., 230 U.S. 509, this Court

enforced such agreements, held them competent and bind-

ing, and refused to readjudicate the issues préviously

adjudicated in. the test cases.

The décision below is even more directly in conflict with

a decision of the Court of Appeals for the Third Circuit..

In United. States:v. Davison, 9 F. 2d 1022, cert. den. 271°

US. 670, the court affirmed a decision of the District Court

(1 F.2d 465)-which enforeed a stipulation that the adjudi-

eation of one federal tax case should control the decision of

other tax cases involving the same factual ‘situation. The

District Court stated (1 F.2d at 470):

“Tt was greatly’ to the interest of both parties to

that action that : score of cases, involving the same.

‘questions of fact and. law, should be, disposed of ‘by

the ‘trial and final, adjudication of a single. case. This

both sides agreed to. , |

“LT shall not pass on the question as to whether the

government is absolutely precluded by the agreement

made, This ought not to be necessary. It is a ques->

tion of good faith. No one, not even a sovereign

nation, should be permitted to gamble ‘on the result

of a judgment, and then repudiate the result when

- the judgment is adverse.”

- —11—

The court below, however, has made a contrary decision,

even though the government has not asked to be relieved

of its stipulation. ‘ a

| (bd) > |

The government has made no agrecments as to other

“tax refund claims” or ‘‘disbursements from the federal

Treasury.”* (App. lla) It has merely agreed to. refrain

from collecting contested assessments until their legality

has been adjudicated in the present case. In return, the

government received taxpayers’ agreement to abide by

_ the same adjudication, to furnish continuots. evidence of

their financial responsibility, and to consent fo a continu-

ance, (R. 13-15) The fairness and propriety of this agree-

ment have never been challenged.’ Yet the Court of Ap- |

peals has set aside .the agreement as contraré to, “the

public interest, in protecting the federdl revenue.” (App.

lla.) - ow

As noted by Judge Duffy, the public interest is not

served: by repeated trials of the sante issue. Even less,

we submit, is the public interest served-by a decision that

stipulations of the federal government may be summarily.

® No tax refund claims are pending and, if the stipulation

is honored, it is*unlikely that any such claims will be filed.

The government will not collect the tax if itis not due,

while taxpayers will gain uothing by seeking refunds if the

units are taxable. : se

*Nor is there any basis for speaking of the. civil actions

as “contrived.” (App. lla). They were at issue long before

the stipulation was made. (R. 1-13.) The sales of ‘the two

units were not “contrived”; they were bona fide sales, made

before any’ tax controversy arose. We do not. understand

the significance attached to the fact that the purchasers of

these units who executed the requisite statutory consents

‘had rendered professional services to taxpayers. (App. 9a.)

Congress has expressly authorized the filing of refund claims

with the written consent of “the ultimate purchaser of the

struck down at any stage of litigation. Nor does “ protec-

tion of the federal revenue” (App. lla) require the col-

lection of illegal assessments. The decision below, if per-

mitted to stand, may seriously impair the ability of the

government to make reasonable agreements on which tax-

payers’ will be able to rely.

(ey siege

The mandate of this Court, we submit, did not authorize

the court below to enter a déclaratory judgment, without

evidence or hearing, on a matter not dn issue. The validity

of the stipulation has never been in issue. The assess-

‘ments on the similar units have not been collected; if the

stipulation is honored, they will not be collected unless ~

and until it is determined in this case that they are ‘legal.

The Commissioner has’ not claimed the right to. collect.

- illegal assessments; until he does, the validity of the -

stipulation will not be ripe. for judicial determination.

It may be (although the Court of Appeals does not say

so) that the invalidation of the stipulation was an at-

tempt to respond to the permission granted by this Court

to enter appropriate orders to prevent a windfall. (363 °¢

U.S. 709, at 712.) If so, the attempt miscarried.

The possibility of a windfall depends on whether or not

taxpayers collected taxes from their‘ customers that are

not payable to the government; this is an issue of fact

® (Continued)

article” (1.R.C. 1954 46416(a) (1), App. 20a) ; we do not know

how consents could be obtained from persons unwilling to

execute them. That taxpayers have fully complied with the

statutory prerequisites for bringing these actions has never

~ been questioned.

: nae

that has never been ‘tried.° Certainly, this Court did ~

not ‘authorize the court below to decide this factual .issue

without evidente or to encourage the government to obtain

‘a windfall through collection ¢éf*illegal assessments.

What this Court did authorize, we believe, was a further

remandment to the District. Court to take evidence on

the question of windfall and to provide that any customer

from whom a tax was erronedusly eollectéd may recover

the amount to which he is found to be entitled." Such ”

a procedure, we submit, Would insure that no one would

be deprived of his day in_court,-no-one would receive

or obtain a windfall, and full justice would be. done to

the government, to taxpayers,. and to taxpayers’ cus-

. tomers.

10 Taxpayers anticipated from this Court’s decision that

such a trial would be ordered, and they have therefore

made a complete survey of their records of sales of air .

conditioners similar to the two units. If there is any concern

that taxpayers would be unjustly enriched by a judgment in

their favor, the full docamentation is available, and any trial

of this question will be greatly accelerated by the survey

already made. -

11The apprehension expressed by Mr. Justice Clark™if .

dissent, that the likelihood of recovery by. taxpayers’ cus-

tomers “would be highly remote” (363 U.S., at 718) should,

we believe, be dispelled by the taxpayers’ survey. (fn. 10,

supra) which includes the name and address of every cus--

tomer of every unit appearing in the, invoices in taxpayers’

files. -

- —u4—

CONCLUSION.

meee x <

, \

' .For the reasons stated, it “is respectfully submitted _

‘that this petition for a writ of certiorari should be granted.

Respectfully submitted,

Epwin A, RoTHscHILD, — i

‘ "9 Srponey M: Percsrapr,

77 West Washington Street

Chicago 2, Illinois,

: STANFORD CLINTON,

111 West Monroe Street

Chicago, Illinois

Attorneys for Petitioners |

_— APPENDIX. Lae

1. OPINIONS BELOW.

IN THE

UNITED STATES COURT OF APPEALS

For Tue Sevents Ciecurr

No, 12470 Sepreaper TERM, 1960-—SepremBER SEssIon, 1960

Cory Corporation and MrrcHELL)

Manvuractunine Company, On Appeal ilo the

Delaware corporations, United. States Dis-

Plaintiffs-Appe lees, > trict Court for the

v. Northern — District

Ernest J. SAUBER, of Illinois..

" Defendant-Appellant. |

November 21, 1960. ,

Before Hastincs. Chie! Judge, and Durry and ScuNack-

—ENBERG, Circmil Judges: ;

SCHNACKE yen Circuit Judge. Following our reversal

(266 F.2d 58, 267 F.2d Sv2) J¥ a judgment of the district

court in fas or of Cory’ Corporation, a Delaware corpora-

* «tion, in consolidated suits for refund of excise taxes col.

lected on sales‘of air conditioners in 1954 and 1955, the

United States Supreme Court, 363 U.S. 709, reversed this

court, and held, at 711, that the horsepower test ks a per-

inissible ‘one and that the revenue rulings which were in

force from 1948 to 1959 were not void. The Supreme

Court mentioned, at 712, that the distriet court had found

that “Among engineers. the horsepower of a motor: does -

not mean its nominal “sia eee rating but means the

—

actual horsepower which the motor will deliver continu-

ously under its full normal load”. It pointed out that we

did not reach that question nor review that finding in ~

view of our conclusion that the horsepower test was not

valid. The case was remanded to this court for consid-

eration of that and any other questions which may remain.

1. Aceordingly,.on this record, we accept the horse-

power test as valid. The question then arises whether the

Commissioner, in applying that test, adopted the engineers’

definition of the horsepower of a motor as the actual horse-

power which the motor will deliver continuously under its

full normal load, or its nominal horsepower rating. We .

shall refer to these measurements as the “actual horse-

power” and “rated horsepower” tests respectively.

Under daté of September 26, 1947, the Commissioner,

having solicited the views of the air,conditioning industry,

‘received a letter from the Air Conditioning and-Refrigerat-

ing Machinery Association, reading, in part, as follows:

“The term ‘self-contained’ is one which has had a °

broad and somewhat loose connotation as a trade

term in the industry. It has been applied to the

small, portable air conditioner, and it has been used

to describe a thousand-horsepower centrifugal retrig-

eration unit such as is used for air conditioning pur- .

"poses. It seems probable that, in writing Section 3409

term ‘self-contained air conditioner’ in attémpting to

- destribe the portable, plug-in electric appliance known

as a room air conditioner, similar in general concept to

the commonly-used household -refrigerator.

“For purposes of taxation, it is desirable that there.

be available a definition, as exact as possible, of the

article subject to tax. The only truly ‘self-contained

air conditioner’ being marketed today, so far as we

know, is the room air conditioner (room cooler). * * *”

On December 12, 1947, Deputy Commissioner Bliss wrote

the York Corporation, a manufacturer of air conditioners:

‘*Tha Bureau has recently had occasion to re-

examine its position with respect to the scope of the

tax on ‘self-contained air-conditioning units’ imposed

tinder section 3405 («) of the Internal Revenue Code

with a view to determining whether it would be pos-

sible to formulate a iegally sound definition of the

term which could be simply applied and which would

have uniform application throughout the air-condition-

ing industry.

“From a consideration of section 3405(c), it appears

that the iaw could, with justification and without

regard tu other factors, be interpreted to include with-

in its scope any air-conditioning assembly which is so

construeted that all of its mechanical components are

hotised in a single tabinet. To give effect to such an

interpretation of the law, the term ‘self-contained air-

conditioning unit’ could’be defined as follows;

‘A self-contained air-conditioning unit within

the meaning of section 3405 (c) of the Internal

Revenue Code is ah encased assembly of a con-

densing unit with other components which serves

as a means for ventilation and for: cooling, de-

humidifying, cleaning, and circulating air.’

+The foregoing. defination does not take into consid-

eration such additional factors as to whether the unit

may be installed in the room to be conditioned, and

may be used without ducts for the distribution or re-

turn of the conditioned air. One of the principal dif-

ficulties in the way of formulating a definition which

would give ctfect tu these additional factors and which,

at the same time, would be susceptible of fair and

easily understood application in the industry. is the

variety of conditioning units being manufactured and

the varied claims made by manufacturers with re-

spect to the functioning and use of the units produced

by them. In general, however, it.is believed from

the information available that these additional factors

— 4

may be fairly reduced to a test expressed in terms of

the rated horsepower capacity of the compressor

motor used in the air-conditioning unit. If these ad-

ditional factors are to be taken into consideration in

fixing the scope of the law; the term ‘self-contained

air-conditioning unit’ could be defined as follows: -

‘A self-contained air-conditioning unit within the

meaning of section 3405 (c) of the Internal Rev-

enue Code is an encased assembly of a condensing

unit with other components which (1) has a com--

pressor motor, the rated capacity of which is 5

“hip. or less, and (2) serves as a means of venti-

lation and for cooling, dehumidifying, cleaning,

and circulating air.’ |

“The Bureau desires to extend to the industry an

opportunity to be heard and to express its views in

the matter. Accordingly, the Bureau would appreci-

ate receiving a statement of your views at the earliest

practicable date. Similar letters are being addressed

to each manufacturer of air-conditioning units of

which there is a record in this office.”

(Italics supplied.)

* Replying to that letter, the York Corporation on Janu-

ary 15, 1948, wrote to the Commissioner a detailed letter,

offering a definition of a self-contained air conditioner,

within the meaning of § 3405 (e): -

“we ee

“*A self-contained air conditioner, within the

meaning of section 3405 (c) of the Internal Rev-

enue Code, is a factory made encased assembly

primarily designed for free delivery of air, and

for installation in a window or in front of a.win-

dow; containing means‘for moving outside air

through its condenser; and having means for ven-

tilation and for cooling, dehumidifying, cleaning, .

- and circulating the air of a room; and having a

-total motor horsepower of less than, one horse-

power or a total cooling capacity of less than 10,-

‘—da—

000 Btu’s per hour at standard American Society |

- of Refrigerating Engineers test conditions as set

forth in ASRE Circular No. 16 dated June 1940.’

“We believe the suggested definition is sufficiently

broad in its scope to include without exception all self-

contained air conditioning units’ which are now being

manufactured. ‘The definition gives ‘recognition to the

fact that some units function by means other than elec-

tric motor driven compressors. The horsepower limi-

tation -was inserted for purpose of. facilitating admin-

istration, inasmuch as it is not feasible fyom an engi-

neering standpoint to employ a motor of greater horse-

power capacity in a self-contained air conditioning

unit. 7

“@ © © we attended a special meeting called of in-

dustry members at which time the problem was dis-

cussed fully.

“The definition that we have suggested was unani-

mously adopted by all who attended, and was formu-

lated with the realization of the administrative prob-

lems involved as well as the fundamental question of-

what constitutes a self-contained air conditioning unit

as the term is commonly understood among those who

produce ‘such equipment.” |

On April 21, 1945, Acting Commissioner Sherwood wrote

to Air Conditioning and Refrigerating Machinery Assucia~

tion, refyrring ‘‘to the various conferences held with you

and other representatives of the air-conditioning indus-

try,” and stated that ‘tthe following definition has. been

formulated to indicate the position of the Bureau as to .

the type of{ units properly to be included within the seope

of” § 3405 (ec): | :

“A self-contained air-conditioning unit, * * ° (3)

has a total motor horsepower of Jess than one horse:

power or a total cooling capacity of less ‘than 10,000 —

BTU’s per hour at standard American Society of

Refrigerating Mngineers test conditions as set forth

- in ASRE Cireculaf No. 16 dated June, 1940.”

— Ga —

We are convinced that the foregoing facts establish that

the Commissioner had been given the assurance of the

industry that a rated motor horsepower test of less-than-

one-horsepower, to.use the words of York, “is sufficiently

broad in‘its scope to include without exception all self-

contained air conditioning units which are now being man-

ufactured”, since “it is not feasible from an engineering

standpoint to employ a motor. of greater horsepower ca- .

pacity in a self-contained air conditioning unit.”

It can hardly be presumed that the industry intended

to mislead the Commissioner, knowing, as it must have,

that actual horsepower of a motor might vary from less

to more than one horsepower depending on the particular

motor and the test employed. The industry must, there-

fore, have made its recommendations on thie rated horse- *

power which motor manufacturers were assigning to their

motors at that time. It is clear, and the coutt below found,

that it is the practice of the industry for air conditioner

-manufacturers to list the horsepower of a household-type

unit as the rated horsepower assigned by the motor manu- -

facturer' and not the actual horsepower.

That the Commissioner was thinkng in terms of rated

horsepower is borne out by the fact that in his letter

of December 12, 1947 to York Corporation he suggested

that units with a ‘‘rated capacity” of five horsepower or

less be subject to the tax. While the rulings as finally’

promulgated omitted the reference to rated capacity, fail-

ure to set forth any other. test or procedure for deter-

mining horsepower, although a test was carefully desig-

nated for determining the cooling capacity of absorption

types, suggests the Commissioner ‘intended to follow the

revognized practice of the industry and ‘apply the rated

capacity test. The rated horsepower test gives the neces-

sary uniformity which the industry: and the Commissioner

were seeking in order to facilitate and simplify adminis-

tration of § 3405 (c).

-4 Such rating is affixed to plates fastened to the exterior of the com-

pressor housings.

a 1h

It is obvious that the Commissioner aecepted-the nom-

inal ratings used in the industry. He did not even solici

reports on tests which would reveal actual horsepower

under existing engineéring standards for each unit on the

market, Neither was such information tendered to him by

the manufacturers in, the air-conditioning industry. This

_earroberates our conclusion that taxability was determined

by horsepower ratings adopted by the manufacturers which

appeared on the plates affixed to the units sold and was

" not determined by actual horsepower output.

Moreover, prior to issuing the 194 ruling which revised

the 1948 ruling in respects not material here, the Commis-

sioner held a conference with representatives of the Air

Conditioning and Refrigeration Institute. We have exam-

ined the stipulated facts as to said conferenee and subse-

quent: correspondence and ‘do not find that. they in any

way show a change in the interpretation of the 1948 ruling

as applied to the horsepower of self-contained air condi-

‘tioners. : |

Our interpretation of the 1948 and 1904 rulings makes

for a practical enforcement of § 3405 (ec), which ultimately

-. imposes a tax upon the retail purchaser of an air condi-

tioner. Whether or not such an individual is to bear a

tax upon his purchase can readily be established by an

inspection of the manufacturer’s horsepower rating tag

affixed thereto. If the converse were true and only a test

for actual horsepower of. the motor in operation would

reveal whether the conditioner is taxable, a purchaser,

would be practically unable to make such a determination.

In view of the foregoing, we conclude that in his 1948"

and 1954 rulings the Commissioner adopted the rated

horsepower test and made a rating of less-than-one-horse-

power the line of demareation between taxability and non- |

taxability. The réference of the Commissioner to the rated

horsepower capacity of the compressor motors used in the

air conditioning units indicate that his rulings were meant

to conform with the prevalent views of the industry. While

it is apparent that there was not complete unanimity in

— om

the industry as to these views,” there is sufficient basis for

interpreting the rulings of the Commissiéner as a formal

adoption thereof.

Because of what we have said, we hold that finding 53 .

‘of the district court, in several inseparable parts, is clearly

erroneous. It reads:

“The evidence fails to show that it was the intention

of the Commissioner of Internal Revenue or of his —

subordinates, in drafting the 1948 ruling and the 1954

ruling, to refer to nominal horsepower ratings as pre-

scribed by NEMA standards or as selected by’ indi-

vidual motor mariufacturers, nor does it appear that _

the Commissioner or his subordinates intended to

make taxability turn upon such nominal ratings rather

than upon. actual horsepower output. * * °”

2; We now deal with matters which may properly be

included in “‘any other questions which may remain”,

ante, 284 F.2d 768.

The amount directly ‘involved in the case at bar is

$29.93, being: the total of two excise tax payments col-

lected on the sales of two air conditioning units sold in

1964 and 1955, as referred to in findings 3 and 4-of the

district court. The taxes were based. on § 3405 (c) of the

Internal Revenue Code of 1939, 26 U.S.C.A. (1992 ‘ed.)-

§ 3405 (c), which imposed a 10% tax on * [s]elf-contained

air-conditioning units.” To qualify for bringing their suit

for refund of taxes, plaintiffs alleged in their compiaints,

and it was stipulated in the district court, that Keith

2 In the field of manufacturers of electric motors and generators, there

is a private trade association known as National Electrical Manufactur-

ers Association, some of whom make motors for plaintiil’s air condition-

ers. This association’s publications state that the existence of an

NEMA standard “does not in any respect preclude any member or non-

member from manufacturing or selling products not‘ conforming to the

standard”. Mo

The district court found that within the NEMA- range for 1 horse-

power rating, as interpreted by motor manufacturers who are members

‘ of NEMA, the proper horsepower rating of plaintiff's motors under

NEMA standards would be 1 horsepower.

The district court also found that motor manufacturers are pot re-

— to comply with NEMA standards and are free to depart from

m. .

—9a —

McKy and Thornas Carlin would have testified, if called

as witnesses, that they each bought such a unit and exe-

cuted a written, consent to a claim for refund, copy of

_ which was attached to the complaint. It appears from the

Separate opinion of Mr. Justice Clark herein, in which the

Chief Justi and Mr. Justice Black joined, that these

purchasers Were a lawyer and an accountant of plaintiffs.

The district court found:

“5. Defendant’s successor, the present District Di-

rector. of Internal Revenue, Chicago, has assessed and

proposes to assess againste Cory, Mitchell and Pearce.

substantially more than one million dollars in federal

excise taxes upon the sales of air conditioning unit~

similar to those described in paragraphs 3 and 4.

“¢. The air conditioning units described in para-

graphs 3 and 4, being those described in the cont .

plaints, and ,the similar units described in paragrapli

5-are sometimes hereinafter collectively referred to as

plaintiff's air conditioners. , ar .

“7. It has beew heretofore stipulated by the parties

and found by this courttgat the present consolidated

civil action is a prototype or test case to determine

whether plaintiff's air conditioners are ‘subject to ex- -

. cise tax.” “Sh rs

e. That court also concluded as a matter of law, inter alia:

“3. By' reason of stipulations and orders hereto-

fore entered herein, this civil action brings before

this court for determination ‘the issue of whether air

conditioning -units similar to those described in the

complaint, on which federal excise: tax assessments

f° have been made and are proposed to .be made by

defendant and his suceessor as District Director of

Internal Revenue, Chicago, are subject to federal ex-

cise tax.”

—1l10a— .

In the majority opinion, the Supreme Court said, at 711:

¢TWere is much said in.the briefs and in oral argu- -

_ ment about this case as a test case. It is said that

taxes on the sale of about 50,000 units turn on this

decision. * * °” ?

On remandment, we are therefore immediately con-

fronted with the question of whether plaintiffs have shown

that the two cases now before the court with their small

‘money content, are actually ‘‘prototype or test” cases

so as to justify the extension of the effect of the result:

herein to other cases not before the court. The record

does not show that taxes on- the sale of the “about 50,000

units” have been paid. If they have not been paid, there

-is-no basis for a suit for refund’ such as was brought in

the cases at bar. Even if the taxes were paid in reliance

upon the validity of the revenue rulings, the litigation

now before the court fails utterly to show a similar right

of recovery by taxpayers in the cases not before thegcourt,

because there is no showing that ‘ay consents have béen.

obtained by said taxpayers as required by 26 U.S.C.A.

~ § 6416 (a) (3), 1954 Code. -

Neither by allegations of .facts in the complaints or in

the stipulations, nor by evidence introduced, did plaintiffs

establish in the district,court that, as a matter of fact or.

of law, the-eases at bar. are prototypes of the cases in-

volved in’ the sale of about 50,000 units which are not

before the court. Similarity has not been shown. It there-

fore becomes our duty to fimit the’ effect of the judg-

ment of the district court to the parties named in the

judgment entered on June 11, 1958, in which Cory Cor-

-poration was plaintiff and Ernest J. Sauber, as former

district direetor of internal revenue, Chicago, was de-

fendant.

We find that, for the reasons hereinbefore set forth,

findings 5, 6 and’7 ef the district court, insofar as they

find that the present action is a prototype or test case to

‘determine whether plaintiffs’ air’ conditioners are subject

to excise tax, are clearly erroneous and we sect aside said

‘

— te .

findings in that respect. We hold that the said civil action

brought by plaintiffs is'not a prototype or test-case and

is not to be given effect-as such by the district court.

The stipulation of the parties to the effect that this is

a prototype or test case is not sufficient, to support the

disttict court’s conclusion. While the parties to’a civil

action, in which only they have an interest, generally

may set up for court determination a prototype or test

ease, in such form as they sce fit, public interest in the

protection of the federal’ revenue is an overriding consid- -

eration which bars a blanket adjudication of a large total

of tax refund claims, based upon test cases privately

contrived especially for that purpose. Moreover, this

50,

bona fide consents of buyers which the refund act, supra,

requires. ;

“test” case, which is intended to serve us a release of

disbursements froin the federal treasury, lacks the ~

In Swift:& Co. v. Hocking Valley Ry. Co., 43 US. 281,

989, the court said:

“Tf the stipulation is to be treated as an agree-.

ment concerning the legal effect of admitted facts, it

‘is obviously inoperative ; since the court cannot be -

controlled by agreement of counsel on a subsidiary

question of lay. * * *” ; ane

Whether or not a large multitdde of cases is to be

controlled by the case at bar as a prototype or test case

is hence a question of law as to which the stipulation of

the parties is not binding upon the court. In re Gubelman,

10 F.2d 926, 929, 2 Cir. To the same effect is Davis v.

Commissioner of Internal Revenue, 241 F.2d: 701, 7 Cir.

- This case involves the publie revenue to an important

extent.. In such‘a case, the parties are not free to stipu-

late away the rights of the public. This principle is for-

cibly applied in National Bank v. Murphy, 384 Tll.* 61,

where the court said, at 64:

questions ‘of law or the legal effect of facts, can be

iio

made by the pafties. ° ee Neither can they stipulate

the legal: effect of admitted facts..* * *” (Citing

Swift & Co. v. Hocking Valley. Ry. Co., —

And, at 65:

. “The decision of questions of law mist rest upon

the judgment of the court, ‘uninfluenced by stipulations

of the parties or their counsel. This is also true as

to legal conclusions arising from the facts involved.

2 @ 6»

For these reasons, we determine that the judgment en-

tered by the district court on June 11, 1958 for $29.93

and costs in favor of plaintiff, Cory Corporation, and

‘against defendant; and ordering execution thereon, is -to

have no effect whatsoever upon other claims or cases, as

an adjudication of a prototype or test case.

For the reasons hereinbefore stated, the aforesaid judg-

" ment of the district court is revers.q —

* JupDGMENT Reve ERSED.

' — 13a —

' In the

UNITED STATES COURT OF APPEALS

For the Seventh. Cireyit

SEPTEMBER TERM, 1960—JANUARY Session,.1961:

No. 12479° .

Cory Corporation and Mircnets.) On Appeal from the

ManuracTuRING COMPANY, ‘|. Judgment of the

; Plaintiffs-Appellees, |. United States Dis-

:, trict: Court for the

fizxest J. SAUBER, . Northern District

Defendant-Appellant. of Illinois.

—

January 11, 1961

ON PETITION FOR: REHEARING EN BANC:

Durry, Circuit Judge. A majority. of the members of

this Court in active service has voted to deny the petition |

hérein for-a rehearing en bane. As I voted in favor of

granting such petition, a brief statement of my reasaps

therefor would seem to be in order. | ;

This Court, on its own motion, and without any requesi

by either party, has invalidated the basic stipulation upon

which this litigation has proceeded in. three courts for

more than three years. The Government has. made no

effort to repudiate the agreement which it made.

‘On June 3, 1957, the Government had askéd for a con-

- tinuance to which plaintifts objected. ‘After cleven days of —

negotiation with the Internal Revenue Service and the

Department of Justice, the stiprlation was entered: into.

Né one has suggested the stipulation was unfair, inade-

quate or indueed by misrepresentation or ‘mistake. The

Government docs not claim that it has been over-reached.

it seems to me that the stipulation is in the. public in-

terest. This was not a stipulation. of law as indicated in

14a — oem

| our opinion. It. related only to “air conditioning units

similar to those described in the above civil actions.”

Rather than try the same issue of fact and law in nu-

merous proceedings, the parties agreed. to try the issue

once and for all in the present case. There can be no

public interest that demands repeated trials‘ of the same

- issue. Stipulations designed: to avoid repeated trials of

the’ same issye should be held. valid and binding.

In United States v. Davison, (W.D.Pa), 1 F. 2d 469,

aff’d, 3 Cir., 9 F.2d 1022, cert. denied, 271 U.S. 670, as in

the case at bar, the Government had stipulated that the

decision in one tax case should control the decision in

other tax’ cases involving the same factual situation. The

court approved the stipulation stating, at page 470, “Tt

was greatly to the interest of both partics to that action

that a score of cases, involving the same questions of fact

and law, should be disposed of by the trial and final adju-

dication of a single case. This both sides agreed to.”.

In my view, the decision of this Court is wrong in

equating rated horsepower with‘ nominal horsepower. We

say “Whether or not such an individual is to bear a tax.

upon his’ purchase can readily be established by an in-

spection of the manufacturer’s horsepower rating tag af- |

fixed thereto.”

Nominal horsepower is not the same as rated horse-

-power. Nominal horsepower is assigned solely in the un-

vontrolled discretion of the various motor manufacturers.

Actual horsepower and rated horsepower are standard-

ized, measurable and easily ascertainable. Nominal horse-

power is arbitrary and unstandardized. —

The Supreme Court directed this Court to review the

‘District Court’s findings as to what horsepower meant

‘‘among engineers.” Our Court has now disregarded engi-

‘neering concepts and selects criteria derived from plates

on compressor housings and tags. :

Inasmuch as the decision of this Court in this case is

- based to a considerable degree upon questions neither

argued nor briefed, I have concluded that the Court, sit-

ting en banc, should consider the issues,

—

| — 15a —

2. JUDGMENT BELOW.

UNITED STATES COURT OF. APPEALS

For the Seventh Circuit,

Chicago 10, Illinois

Monday, November 21, 1960

Before: -

Hon, John S. Hastings, Chief Judge.

Hon. F. Ryan Duffy, Circuit Judge.

Hon. Elmer J. Schnackenberg, Circuit Judge.

—

Cory Corporation and MITCHELL

Manvuracturine Co., Delaware

Corp.,

A ppeal from the

United States Dis-

ern ae ater ee trict Court for the’

ee i imate Northern District

Isnnest J. SABER, io ig hasten

Defendant-Appellant. ein

This cause came ‘on to be heard on the transcript of

the record from the United States District Court for the

Northern District of Illinois, Mastern Division subsequent

to remandment to this Court by the Supreme Court of

the United States for further proceedings in. conformity

with the opinion of said Court.

On consideration whereof, it is ordered and adjudged

by this court that the judgment of the said District

Court in this cause appealed from be, and the same is

hereby, Reversep, in accordance with the opinion of this

Court filed this day.

— 16a —

_ 8. ORDER DENYING REHEARING.

UNITED. STATES COURT OF. APPEALS

For the Seventh Circuit,

Chicago 10, Illingis

Friday, January 6, 1961

Before: ;

Hon. John S. Hastings, Chief Judge

Hon. F. Ryan Duffy, Circuit Judge

Hon. Elmer J. Schnackenberg, Circuit Judge

Hon. Win G. Knoch, Circuit Judge

Hon. Latham Castle, Circuit Judge

Cory Corporation and Mircnett) Appeal from the.

Manuractrunine Co., ; Judgment of the

Plaintiffs-Appellees, : United States Dis- .

No. 12479 v. trict Court for the .

Ernest J. SAvBER, Northern Dist+’>+

Defendant-Appellant.} of Illinois.

On consideration of the petition of plaintiffs-appellees

for rehearing en banc filed in the above entitled cause

on December 6, 1960; and

It appearing that a majority of the members of this

court in active service have voted to, deny such petition —

for rehearing en banc; :

It Is Ordered by the court that the petition of plain-

tiffs-appellees for rehearing en banc in the above entitled

cause be and the same is hereby denied.

Durry, Cw., voted to grant the petition for rehearing

en bane.

va —17a—

4.-ORDER DENYING ARGUMENT.

_ UNITED STATES COURT OF APPEALS

For the Seventh Circuit,

Chicago 1% Illinois. .

> Thursday, October 20, 1960.

Before: |

Hon. John 5. Hastings, Chief Judge

_ dh. F. Ryan Duffy, Circuit Judge

Hon. Elmer J. Schnackenberg, Cireuit Judge

Cory CoRPORATION and MITCHELL ;

Sa aeaciae sia Co, - On remand from the

. Plaintiffs-Appellees, United States Su-

No. 9 7 . °

12470 bd preme Court.

Exnest J. SauBER, ;

Defendant-A ppellant.

The mandate of the United States Supreme Court hav-

ing been filed herein on July 25, 1960, and counsel for -

defendant-appellant -having filed herein on September °,

1960, a motion for leave to file a supplemental memo- .

- randum upon remand and for oral argument, to which

appellees have expressed no. objection, and the court hav-

ing considered the situation thus presented and being

fully advised in the’ premises,

It Is Hereby Ordered that said motion be and the same .

is hereby denied and that this case, upon remandment,

be taken on the briefs heretofore filed herein and without

oral argument. .

| — 18 —

5. STATUTES.

INTERNAL REVENUE CODE OF 1939.

Src. 3495. [As amended by Sec. 614 pf ‘the Revenue

Act of 1942, ¢. 619,56 Stat. 798; See. 66, Revenue Act

of 1950, c. ‘994, 64 Stat. 906; Sec. 483, Revenue Act of 1951,

‘e, 521, 65 Stat. 452, and See. 305(a), Excise Tax Reduction

Act of 1954, c. 126, 68 Stat. 37.]. Tax on MECHANICAL

REFRIGERATORS, QuicK-F'REEZE UNITs, AND SELF-CONTAINED

Air-ConpiTioninc UNITS. =2 .

There’ shall be imposed on the following, articles (in-

cluding in each case parts or accessories therefor sold on

or in connection with the sale thereof), sold by the manu-

facturer, producer, or importer a tax equivalent to 5 per,

centum (10 per centum in the case of articles subject to

tax under subsection (c)) of the price for which sold:

(a) Refrigerators and Quick-Freeze U nits.—Household

type refrigerators (for single or multiple cabinet installa-

a; mechanical refrigerating unit operated by electricity,

gas, kerosene, or gasoline; household type units for the

quick freezing or frozen storage of foods, operated by

electricity, gas, kerosene, or gasoline; combinations of .

such honseho.d type refrigerators and units.

(b) Refrigerating and Freezing Apparatus.—Cabinets,

compressors, condensers, condensing units, evaporators,

expansion units, absorbers, and controls (hereinafter re-

ferred to as “refrigerator components”) for, or suitable

for use as parts of or with, household type refrigerators

or quick-freeze units of the kind described in subsection

(a), except when sold as component parts,-of complete

refrigerators, refrigerating or cooling apparatus, or quiek-

freeze -units (hereinafter referred to as . refrigerating

equipment”). Under regulations prescribed by the Seere-

tary, the tax under this subsection shall not apply. in the

— 14¥a —

case of sales of any such refrigerator components. by the

manufacturer, producer, or importer to (1) a manufac-

turer or producer of refrigerating equipment, or (2). a

vendee for.resale-to a manufacturer or producer of refrig-

erating equipment if such components are in due course

so resold. If any such refrigerator components are resold

by the manufacturer or producer to whom sold or resold

otherwise than on or in connection with, or with the sale

of, complete refrigerating equipment manufactured or pro-

duced by him, then for the purposes of: this section such

manufacturer or producer shall be considered the manu-

facturer or producer of the refrigerator components: 80

resold by him. :

units. ‘

(26 U. 8. C. 1952 ed., See. 3405.)

IxrerNaL Revencz Cope or 1954.

* Subchapter B—Houschold Type Equipment, ete.

Part 1—Refrigeration-Equipment..

Sec. }

4111. Imposition of tax.

4112. Definitions.

- $113. Exemptions for manufacturers.

» Sec. 4111. Iposirions OF TAX.

There is hereby imposed upon the sale of the following

articles (including in each case parts or accessories there-

for sold on or in connection with the sale thereof) by the

manufacturer, producer, or importer a tax equivalent to

the specified percent of the price for which so sold:

ARTICLES TAXABLE AT 5 PERCENT— . :

Houschold type refrigerators (for single or mul-

tiple cabinet installations) having, or being pri-

-inarily designed for use- with, a mechanical re-

— 20a —

frigerating unit operated by electricity, gas,

kerosene, or gasoline. |

Household type units for the quick freezing or

frozen storage of foods operated’ by electricity,

vas, kerosene, or gasoline. ; |

Combinations of household type refrigerators and

quick-freeze units described above. :

Refrigerator eomporents.

ArticLes TAXxABLe at 10 PERCENT—

Self-contained air-conditioning units.

(26 UES. C. 1952 ed., Supp. TI, Sée. 4111.)

Sec. 6416. [&s amended Aug. 1}, 1955, c. 793, § 2, 69

Stat. 676; Aug. 11, 1955, ¢. 885 66 1 (bh), (i), 2¢b), 69 Stat.

690; Apr. 2, 1956, ¢. 160, § 2 (b) (1), 70 Stat..90; June 2,

1956. ¢. 462, Title 11, § 208 (b), 70 Stat. 393; June 30.

1958, Pub. L. S5S—475, 6 + (bd) (9), (6), 72 Stat. 260; Sept.

» 1958, Pub. L, 85—859, Title 1, ¢ 163 (a), (¢), 72.Stat.

1306,. 1311; Sept. 21, 1959, Pub. L. 86—842, Title “IL.

°3, T4 Stat. 38; Sept. 14, 1960, Pub. L, S6—781, 6 2, 7

Stat. 1018.] Certain taxes on sales and services.

(a) Condition to allowance.—

(1) General rue.—No credit ‘or refund of any _over-

payment of tax imposed by section 4251 (4),.(5), or (6)

(cabarets, ete.), chapter 31 (retailers taxes), or chapter

39 (manufacturers taxes) shall be allowed: or made unless.

the’ person who paid the tax establishes, under regula-

tions prescribed -by the Secretary or his delegate, that he—

(A) has not included the tax in the price of the

article, adn.ission, or service with respect to which it

was imposed ana has uot collected the amount of the

tax from the person who purchased such article, ad-

mission, or service; —

(B) has repaid the amount of the’ tax—

(i) in the case of any tax imposed by chapter

31 (other than the tax imposed by section 4041

°*

— 2la—

(a) (1) or (b) (4)), to the purchaser of the ar-

ticle,

(ii). in the case of any tax imposed by chapter

3” and. the tax imposed by: section 4041 (a) (1)

or (b) (1) (diesel and special motor fuels), to

the ultimate purchaser of the article, or

(iii) in the case of any tax imposed by section

4231 (4), (5), or (6) (cabarets, ete.) to the person

who paid for the admission, refreshment, service,

or merchandise ; ;

tion (b) (2), (b) (3) (C) or (D), or (b) (4) of this

section— | |

(i) has repaid or agreed to repay the amount

of the tax to the ultimate vendor of the article,

or ; ’

_ (il) . has obtained the written consent of such

ultimate vendor to the allowance of the credit

or the making of the refund; or

(D) has filed with the Secretary or his delegate .

the written consent of the person referred to in sub-

paragraph (b) (i), (ii), or (ill), as the case may be,

‘y. to the allowance of the credit or the making of the

refund,

(26 U.S.C. 1952 ed., Supp. TI, See. 6416 (ay)

—_—

6. REVENUE RULINGS,

S. T. 984, 1948-2 C. B. 180.

Advice is requested goncerning the type of self-contained

* air-conditioning units subject to tax under section 3409(c)

of the Internal Revenue. Code, as amended.

Séction 3405 (c) of the Code, as amended, imposes a tax

of 10 per centum_on sales by the manufacturer, producer,

or importer of self-contained air-conditioning units.

It is held that the type of self-contained air-conditioning

unit subject to tax under section. 3405 (c) of the Code, as

_amended, is a factory-made encased assembly primarily

designed for free delivery of air and for installation in a

window or in front of a window which (1) contains means

for moving outside air through its condenser, (2). includes —

means for cooling, dehumidifying, and cireulating the air

of a room, and (3) has a total motor horsepower of less

than 1 horsepower or a-total cooling capacity of igss than -

10,000 B.T.U.’s per hour at standard American Society of

Refrigerating Engineers test conditions as set forth in

ASRE Circular No. 16, dated June, 1940.

Rev. Rur. 54-462, 1954-2 C. B. 410.

Advice is requested concerning the types of self-con-

‘tained air-conditioning units which are subject to tax

under section 3405 (c) of the Internal Revenue Code of

1939. . ‘

‘Section 3405 (c) of the Code imposes a tax of ten per

centum on sales by the manufacturer, producer, or in-

porter of self-contained air-conditioning units.

It is held that the type of self-contained air-conditioning

unit subject to tax under section 3405 (c) of the Code in-

cludes a unit, whether a factory made encased assembly or

one sold fer assembly on installation, primarily designed .

for free delivery of air and for installation in or in front

[LOL AE

eee

. ‘

ee .

2 — 23a —

of a window or other opening which (1) contains: meaRs

for moving outside air through its condenser, (2) incor-

the air of a room or other enclosure, and (3) has a total

motor horsepower of less than 1 horsepower for motor-

driven compressor types, OF in the case of absorption

types, a total cooling capacity of less than 10,000 B.L.U..,

per hour at standard American Society of Refrigerating

Engineers test conditions asset forth in ASRE Circular

No. 16 dated June 1940.

ST. 934, C. B. 1948-2, 180 is hereby superseded:

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.