The opinion of the court was delivered by: MCVICAR
This is an action to recover internal revenue taxes alleged to have been paid by plaintiff to an Internal Revenue collector not in office when the action was brought. After hearing, the Court makes the following findings of fact and conclusions of law:
1. Plaintiff is, and at all the times hereinafter mentioned was, a Pennsylvania corporation, having its principal office and place of business at Seventh Avenue and Grant Street, in the City of Pittsburgh, Pennsylvania.
2. This action is brought against the United States of America for the recovery of internal revenue taxes erroneously and illegally collected from the plaintiff by the Collector hereinafter mentioned. The taxes in question in this action were assessed and collected in part under Titles VIII and IX of the Social Security Act, approved August 14, 1935, 49 Stat. 639, 42 U.S.C.A. §§ 1001 et seq., 1101 et seq., and in part under Sections 1410 (Federal Insurance Contributions Act) and 1600 (Federal Unemployment Tax Act) of the Internal Revenue Code as amended, 53 Stat. 1, 26 U.S.C.A.Int.Rev.Code, §§ 1410 and 1600.
3. From a time prior to January 1, 1936 to June 16, 1941, William Driscoll was the duly appointed, qualified and acting Collector of Internal Revenue for the 23rd District of Pennsylvania, and all of the internal revenue taxes involved in this action were collected by said Driscoll as such Collector. Said Driscoll ceased to be such Collector on June 16, 1941, and is not now in office as such Collector.
4. The action arises under Section 24(20) of the Judicial Code as amended, 28 U.S.C.A. § 41(20). The ground upon which the jurisdiction of this Court depends is that this is an action for the recovery of internal revenue taxes erroneously and illegally assessed and collected under the internal revenue laws, and paid to a Collector of Internal Revenue who is not in office as Collector of Internal Revenue at the time this action is commenced.
5. Prior to 1936, during the years from 1936 to 1939, inclusive, and since that time, plaintiff has been engaged in the business of producing and transporting crude oil and of refining crude oil into its various products. Plaintiff's petroleum products are widely known and are distributed and marketed in the states of Connecticut, Delaware, Florida, Georgia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas, Vermont, Virginia and West Virginia, and in the District of Columbia. In plaintiff's conduct of its distribution and sales activities, it maintained a large and completely integrated sales organization to distribute and market its petroleum products, in part, to the retail filling station trade and, in part, to the consumer trade; and in connection with this phase of its business, plaintiff had invested in bulk plants (land and buildings), retail filling stations (land and buildings) and dispensing equipment, during the year 1939, a sum exceeding $80,000,000, exclusive of the value of its products in the process of distribution and sale, and annually expended $3,000,000 in advertising and sales promotional matter.
6. From January 1, 1936 to and including December 31, 1939, plaintiff, for the purpose of distributing and selling its petroleum products, executed contracts with distributors on the forms set forth in Exhibit "A" attached to the complaint, which by reference thereto, is made a part hereof.
7. In the distributor contracts, aforesaid, plaintiff executed a contract with each distributor, in which it was stated that plaintiff "desires to arrange for the sale and distribution of petroleum products at and vicinity, and the said has agreed to undertake the marketing of said Company's products in said territory, on commission." The contract was designated a "consignment contract", the plaintiff was designated as the "Consignor" therein and the distributor the "Consignee."
8. In said distributor contract, plaintiff and distributor agreed that plaintiff would furnish at a warehouse of such size and with such facilities as it would consider requisite; that it would ship to the distributor such stocks of lubricating and illuminating oils, gasoline, greases and other petroleum products as the location may, in its judgment, justify; that it would fix the prices at which said products were to be sold by the distributor; that the distributor would devote his best efforts to the sale and distribution of plaintiff's products in said territory; that he would have the use of the warehouse and would have charge of the stocks of petroleum products; that he would make a statement on the last day of each month of sales and stocks on hand and that he would sell the plaintiff's products at the prices fixed by the plaintiff; that all sales should be made for cash, unless written authority for credit was given by plaintiff; that the distributor would make daily written statements of all sales and remit all moneys received by him as a result thereof; that plaintiff would render to distributor a written statement, showing sales during the preceding month and remit to him his net commissions at the rates agreed upon, to wit: "Kerosene .; Gasoline .; Lubricating Oils .; Greases "; that all stocks shall remain the property of the plaintiff until sold; that the distributor shall have entire charge of the management and operation of said business. He shall pay all license fees, furnish all necessary equipment, drays, trucks, tank trucks, etc. He shall also furnish all his own helpers and employees; pay all expenses of conducting said business and that plaintiff shall not be responsible for the negligence of the distributor or his employees in conducting the business. It was agreed that the distributor and the employees of the distributor shall not be deemed to be employees of the plaintiff. It was further agreed that the distributor shall carry compensation and public liability insurance for himself and his employees. Plaintiff reserved the privilege of shipping goods in the hands of the distributor, the distributor to not receive any compensation on goods so shipped except the sum of 25( per barrel for drayage and clerical work. Plaintiff reserved the right to erect and maintain such signs on the property under contract with the distributor as it might deem necessary to advertise its products. The distributor was authorized to use the words "Distributor, Gulf Oil Products" on its stationery, etc. Distributor agreed he would not represent himself as an agent or employee of the plaintiff. It was further agreed that the contract is not assignable and may be terminated by either party on ten days written notice. Upon such termination, distributor shall deliver to plaintiff possession of the warehouse and facilities, together with all stocks on hand and that a prompt settlement shall be made with the other, in full, of whatever may be found due and owing.
9. The provisions of the aforesaid contract were performed by the plaintiff and by its distributors.
10. The number of distributors between January 1, 1936 and December 31, 1939, varied from 676 to 706. The plaintiff furnished each distributor with a bulk plant consisting of a warehouse, steel storage tanks and occasionally, a garage. These bulk plants were owned either by the plaintiff, the distributor or a third party, and in most cases, were under the control of the plaintiff. The employees of each distributor were hired and discharged and their compensation was fixed by the distributor. Every distributor determined the hours of labor of his employees, their vacations and compensation. He controlled and directed their method and manner of working, in detail; fixed the time for opening and closing of the plant. The distributor and his employees, alone, had the keys to the bulk plant. Many of the distributors were men of good financial standing, who, in addition to performing their duties under the distributor contract, were engaged in other businesses entirely separate and apart from their business as distributors, and had employees who worked for them, partly in the business of the distributor and partly in other kinds of work in which the distributor was engaged. The distributor, in every instance, furnished the necessary trucks, including tanks, office equipment and all other equipment designed and used in dispensing petroleum products. The cost of this equipment, as well as the maintenance thereof, was borne by the distributor; all trucks and vehicles used by the distributor were registered and licensed by the distributor in his own name, and all taxes were paid by him. The entire operating expense of the distributor's business was borne by the distributor except that plaintiff paid occupational and privilege taxes imposed by governmental agencies for the operation of wholesale bulk plants. The distributor paid all utility services such as telephone, heat, light and water. Plaintiff has certain salesmen and inspectors who visit the distributors from time to time. Plaintiff's inspectors check the stocks in possession of the distributors. Plaintiff's salesmen occasionally assist the distributor in making sales. The plaintiff, for this purpose, has a division office and a Pittsburgh office from which it sends out such employees. Each distributor, during the aforesaid time, had capital investments ranging from $3,000 to $255,000 in such business. The average investment of the distributors in each of the six divisions of the plaintiff were approximately as follows: Atlanta Division -- $23,766.87; Boston Division -- $30,095.65; Houston Division -- $7,366.48; New York Division -- $41,736.84; Philadelphia Division -- $39,753.27; and Pittsburgh Division -- $36,729.09.
11. Prior to the ruling of the Commissioner of Internal Revenue that the distributor and his employees were employees of plaintiff, for the purpose of the Social Security Act, many such distributors paid this tax to the Collector of Internal ...