The opinion of the court was delivered by: VAN DUSEN
VAN DUSEN, District Judge
This case was tried to the late Senior Judge of this court, the Honorable Allan K. Grim, sitting without a jury. In accordance with the January 4, 1966, order of the Honorable Thomas J. Clary, Chief Judge, the case was assigned to the undersigned for decision. Argument was heard on February 25, 1966, as agreed to by the attached letters from counsel dated January 14 and January 20, 1966.
The plaintiff, Quaker City Iron Works, Inc., a Pennsylvania corporation with its principal place of business in Philadelphia, Pa., brought this action to recover $9,344.74 in Federal manufacturer's excise taxes (plus interest) which it has paid to the defendant, the United States of America. This court has jurisdiction under 28 U.S.C. § 1346(a)(1).
The excise taxes (plus interest) here sought to be recovered were assessed for the taxable period covering the first three calendar quarters of 1958. During that time, the plaintiff, in addition to other business, was engaged in the manufacture and sale of automobile bodies, truck trailers and similar trailer bodies within the meaning of § 4061(a), Internal Revenue Code of 1954, 26 U.S.C. § 4061. All of the plaintiff's sales were made at retail. The plaintiff filed timely Federal excise tax returns for the period January 1, 1958, to September 30, 1958, inclusive, and paid $26,929.39 as manufacturer's excise tax on net sales of $357,365.14. The defendant assessed additional manufacturer's excise taxes on these net sales in the amount of $8,121.33, together with interest of $1,223.41, which totals $9,344.74. This amount ($9,344.74) was paid by plaintiff on February 10, 1961. On April 21, 1961, the plaintiff filed a claim for refund of the $9,344.74 in taxes and assessed interest, which was refused and is now the subject matter of this action.
The plaintiff corporation sells in the New York, Philadelphia, and Baltimore areas and its principal customers are the major oil companies, truckers, and smaller oil companies (N.T. 12).
The principal competitors of the plaintiff in the sale of truck tanks and trailer tanks in the New York, Philadelphia, and Baltimore areas have been the Fruehauf Trailer Company of Detroit (Fruehauf), the Heil Company of Milwaukee (Heil), and the Trailmobile Company of Cincinnati (Trailmobile) [N.T. 10]. Fruehauf and Heil, taken together, account for approximately 40% of the sales in this field (N.T. 13). Fruehauf and Heil have such huge facilities that either of them could supply the entire market (N.T. 31, 32). These two companies exercise price leadership in the field of retail sales of truck tanks and trailer tanks and it is clear that the plaintiff must follow their leadership in order to compete successfully (N.T. 16). But unlike the plaintiff, which sells only at retail, Fruehauf and Heil also sell their truck tanks and trailer tanks at wholesale for a price amounting to approximately 40% less than their retail list prices (N.T. 14, 15).
It is clear that because of this competition the plaintiff could not have sold its truck tanks and trailer tanks at any price higher than it did sell them (N.T. 30, 31). The plaintiff, in order to compete successfully, has been forced to sell its products at from 10% to 30% less than the listed retail prices of Fruehauf and Heil (N.T. 30). The excise tax in question here was paid by the plaintiff-manufacturer and not passed on to the consumer (N.T. 40).
It is undisputed that the truck tanks and trailer tanks manufactured by the plaintiff in this case are subject to the provisions of § 4061 of the Internal Revenue Code of 1954 (26 U.S.C., 1958 Ed.),
which imposes on a manufacturer a Federal excise tax of 10% of the price for which such products are sold.
Section 4216(b) of the Internal Revenue Code of 1954 (26 U.S.C., 1958 Ed.),
directs the Secretary or his delegate to provide a "constructive sales price" which shall then be used as a base on which to compute the tax imposed under § 4061 (supra).
In accordance with the statutory authority of § 4216(b), the Commissioner of Internal Revenue inRevenue Ruling 54-61 (set out in its entirety in Exhibit B to this Memorandum) determined that the constructive sales price of truck and trailer tank bodies made by a manufacturer selling at retail only should be 75% of the established retail price.Revenue Ruling 54-61 provides further that in no event shall the constructive sales price of sales made at retail be lower than cost. It is this added limitation of cost which the plaintiff contends is invalid.
It is noted that although Treasury Regulations and Revenue Rulings will normally be accepted and are always entitled to consideration and weight, they will be struck down if they are unreasonable or plainly inconsistent with the statute on which they are based. As the Supreme Court said in Manhattan General Equipment Co. v. Commissioner, 297 U.S. 129, 134, 80 L. Ed. 528, 56 S. Ct. 397 (1936):
"The power of an administrative officer or board to administer a federal statute and to prescribe rules and regulations to that end is not the power to make law, for no such power can be delegated by Congress, but the power to adopt regulations to carry into effect the will of Congress as expressed by the statute. A regulation which does not do this, but operates to create a rule out of harmony with the statute, is a mere nullity. [Citing cases.] ...