Opinion
No. 45677.
April 3, 1944.
Carl J. Batter, of Washington, D.C., for plaintiff.
J.A. Rees, of Washington, D.C., and Samuel O. Clark, Jr., Asst. Atty. Gen. (Fred K. Dyar, of Washington, D.C., on the brief), for defendant.
Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and MADDEN, Judges.
Action by Caldwell Sugars, Inc., against the United States to recover unjust enrichment taxes paid.
Petition dismissed.
This case having been heard by the Court of Claims, the court, upon a stipulation, makes the following special findings of fact:
1. Plaintiff is a Louisiana corporation organized in May 1932, with its principal office and place of business at Thibodaux, Louisiana. Plaintiff was organized for the purpose of taking over the property and business of Laurel Sugars, Inc., upon the foreclosure of a mortgage held by the Canal Bank Trust Co. of New Orleans against the property of said Laurel Sugars, Inc. At the time of its organization, 51 percent of plaintiff's capital stock was held by the said Canal Bank Trust Co. and the remaining 49 percent by other parties. Plaintiff, as was true of its predecessor, the Laurel Sugars, Inc., was engaged during all times pertinent hereto in growing and buying sugar cane, and processing it by the sulphitation process into refined sugar, raw sugar and blackstrap molasses. It owned and operated a plantation and factory about five miles above Thibodaux, Louisiana. It produced about 35 percent of the sugar cane which it processed, and purchased about 65 percent from growers or producers of sugar cane within a radius of fifteen miles of its plantation. Plaintiff was in competition with six other sugar mill factories operating in the same area. Prices of sugar cane, during the period the processing tax was in effect with respect to the processing of sugar cane and raw sugar under the Agricultural Adjustment Act, as amended, 7 U.S.C.A. § 601 et seq., namely, from June 8, 1934, to and including January 6, 1936, were set by the Secretary of Agriculture. Competition between the sugar mill factories, including this plaintiff, was maintained, however, through amounts of loading and trucking fees paid to producers of sugar cane from whom they made their purchases. In Louisiana seed cane is planted in the fall of the year and the cane is harvested in the following year during October, November and December. The sugar factory of the plaintiff, as well as those of its competitors, operated only during the harvest season and was closed down until the next grinding season.
2. From 1932 to 1937, plaintiff had no sales force of its own. It sold its products through a brokerage firm in New Orleans, Louisiana, and paid a brokerage fee of 10 cents per 100 pounds. Its sales territory was limited to the Mississippi and Ohio River Valleys. Most of its sugar was sold in carload lots of 100 and 50 pound bags, largely to wholesale grocery houses, chain stores, candy manufacturers and bakeries. About one percent of its sales consisted of 25 pound bags to customers located near the factory. Plaintiff made no powdered or loaf sugar, or other specialties. Its marketing season began about the end of October and ended the following January or February, in which time about 80 to 97 percent of its sugar was sold.
3. Plaintiff's refined sugar was of an inferior grade and was sold at a differential of 20 cents to 45 cents below the current price quoted by the American Sugar Refining Company, the largest sugar refinery operating in plaintiff's trade territory and producing standard quality refined sugar. The sale terms varied from year to year. Sales were on a so-called market move. Many of the sales were made on a four-payment plan, under which the first payment, 25 percent of the invoice, was due ten days after arrival and the remaining payment each seven days thereafter — the entire payment being due thirty-one days after arrival. Whenever plaintiff learned of an impending advance in standard prices, it informed its customers so that they could satisfy their requirements before the advance. If a customer bought during the period of an impending advance his price remained unchanged. If there was an impending decline in standard price, sales were made with a guarantee of price adjustment. The points guaranteed were less than the differential, for example, if the quoted standard price was $5.50 per 100 pounds and plaintiff's sale was at a differential of 25 points, the guarantee would be of a differential of 20 points. If the standard price declined 10 cents to $5.40 during the time of transit and before final payment, plaintiff would lower its price 5 cents — from $5.25 to $5.20. The guarantee was applicable only to installments unpaid at the time of the decline. During the sale periods of the fiscal years ended February 28, 1932, 1933, 1934, 1935, and 1936, the differential ranged from 20 to 45 points, the higher points being applicable to inferior brands of sugar. In the sale periods of the fiscal years ended February 28, 1937 and 1938, the differential was 20 points, the sugar in those years being of a better quality.
4. The Canal Bank Trust Co. went into liquidation in May 1933 and was unable, as it theretofore had done, to make advances for production and operation in respect of the 1933 crop. Advances could not be had from any other bank or other source except a crop production agency. During a period of about four months plaintiff was unable to meet its labor pay roll and interest obligations. Its land was in poor condition because of lack of cultivation and drainage. Many of the growers of sugarcane who had formerly sold their products to plaintiff thought that plaintiff would be unable to pay, and it was difficult to get contracts for the purchase of sugarcane. In the fall of 1932, plaintiff purchased 66,153 tons of sugarcane and in the fall of 1933 it purchased only 33,226 tons.
5. Plaintiff maintains its books and makes its income tax returns, and made its unjust enrichment tax return involved herein, on the basis of a fiscal year ending February 28th.
6. A processing tax was in effect in the United States, under the Agricultural Adjustment Act, as amended, on the processing of sugarcane and raw sugar into direct consumption sugar from June 8, 1934, to and including January 6, 1936. Plaintiff paid the processing tax imposed upon it, in respect of the processing by it of direct consumption sugar (refined sugar) from sugarcane, from the inception of the tax to and including April 30, 1935, in the amount of $28,663.55. During the period May 1, 1935, to and including January 6, 1936, plaintiff produced 70,878 one hundred (100) pound bags of refined sugar, of which total production it sold 65,102¼ bags on or before January 6, 1936. With respect to the said 65,102¼ one hundred (100) pound bags of refined sugar produced and sold by plaintiff during the period May 1, 1935, to and including January 6, 1936, the processing tax was imposed on but was not paid by plaintiff in the total amount of $34,243.77.
7. The processing tax imposed on the processing of sugar was measured at the rate of 53½ cents per 100 pounds of refined sugar (standard quality) produced; however, plaintiff's refined sugar was below the standard quality and the tax applicable to its sugar was at the rate of 52.6 cents per 100 pounds.
8. On the effective date of the processing tax with respect to sugar there was a universal increase in the price of refined sugar, standard quality, by 55 cents per 100 pounds, which, after the customary cash discount of two percent, resulted in a net increase of 53.9 cents per 100 pounds.
9. During the time the processing tax was effective plaintiff, in the sale of certain amounts of its second raw sugar to canners and manufacturers, billed the processing tax applicable thereto to the purchasers in the total amount of $3,709. This amount of tax was paid to the Government by plaintiff and no part of it represents tax imposed but not paid. This sugar would not have been subject to a processing tax had it not been for the fact that the customers to whom plaintiff sold the sugar used the sugar for direct consumption.
10. From early spring 1933 to June 1934, conditions in the sugar industry were uncertain and confused. In the early part of 1933 there were large excess stocks of sugar in Puerto Rico, the Philippines, Hawaii, Cuba, and the United States, and refiners, processors, and growers of beet and cane sugar of Cuba, Puerto Rico, Hawaii, the Philippines, and the United States began, under the auspices of the Department of Agriculture, to negotiate an agreement limiting the market supply in the United States in order to stabilize the price. As a result, large supplies of sugar were held in check and the price of raw and refined sugar increased steadily. The price of raw sugar at the beginning of 1933 was about $2.80 per 100 pounds and it went up to $3.65 in mid-September. During the same period, refined sugar advanced from $3.90 to $4.70. In late August or early September 1933, the growers and processors reached an agreement, but the representative of the Department of Agriculture announced that it was not satisfactory and would not have his recommendation. On October 9, 1933, the Secretary of Agriculture formally announced, after a conference with the President, that he would not sign the agreement. Consequently, all the excess supplies of sugar held in check were released. This coincided with the processing of the beet sugar crop, which produced 300,000 tons more sugar than had been produced in any year before 1933. From mid-september 1933 the price of raw sugar steadily declined, with a slight interruption in February, from a high of $3.65 per 100 pounds to $2.80, on June 7, 1934 — and the price of refined sugar declined from a high of $4.70 to $4.10. There was at least 50 percent more sugar available than could be consumed in a year.
11. On February 8, 1934, the President sent a message to Congress recommending an amendment to the Agricultural Adjustment Act making sugar a basic agricultural commodity, and refined sugar prices advanced from $4.30 to $4.50. This advance held until April 18, 1934. In a press release dated March 16, 1934, the Secretary of Agriculture advocated the passage of the sugar amendment. On May 9, 1934, the Jones-Costigan amendment, 48 Stat. 670, 7 U.S.C.A. § 608 et seq., which made sugar a basic agricultural commodity, was approved by the President, and it became effective June 8, 1934.
12. Unusually large stocks of sugar moved into the hands of retailers and customers during the thirty days preceding the effective date of the tax. For several months prior to the effective date of the act, the price of refined sugar fluctuated, reaching $4.50 on February 11, 1934, just after the President's message was delivered. On June 7, 1934, the day before the taxes became effective, the price was $4.10 per 100 pounds. During the same period, the price of raw sugar also varied widely, being $3.42 on February 11, and $2.80 on June 7, 1934.
13. During the time the processing tax was effective, two reductions were made in the tariff on off-shore raw sugar from certain foreign countries. After the decision on January 6, 1936, in United States v. Butler et al., 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477, 102 A.L.R. 914, the Secretary of Agriculture announced that in his opinion all the provisions of the act applicable to sugar, except the processing tax, remained in effect. The system of quota control remained in effect throughout the marketing period of the 1935 and 1936 crops.
14. Raw and refined sugar prices from the first of the year 1933 to June 8, 1934, were determined by a number of factors. In the beginning of 1933 there were large excess stocks of raw and refined sugar and by all ordinary rules the prices of raw and refined sugar should have been very low. Probably the only thing that kept the price from going very low was the feeling that the new Administration's efforts to increase commodity prices in general would be successful. Other factors were the negotiations to reach a stabilization agreement, the agreement itself, and the disapproval of such agreement by the Secretary of Agriculture.
15. Plaintiff made no refund of tax to its vendees after the tax was invalidated January 6, 1936, or at any other time.
16. No payments were made by the Secretary of Agriculture to any grower of sugar cane under section 8 of the Agricultural Adjustment Act, as amended.
17. Plaintiff sold substantially all of its granulated sugar during a four month period in each year, during the months of November to the succeeding February. The percentages of sales of granulated sugar for each of the said four month periods to the total sales during the following fiscal years are:
Feb. 28, 1933 ......................... 87.96% Feb. 28, 1934 ......................... 100.00% Feb. 28, 1936 ......................... 99.61% Feb. 28, 1937 ......................... 98.21%
18. The four month period, November to February, inclusive, normally is a period of seasonal declines.
The price movement of refined sugar, stated at semi-monthly intervals per hundred pounds, for each of the fiscal years, follows:
-------------------------------------------------------------- | 2/28/33 | 2/28/34 | 2/28/30 | 2/28/37 -----------------------|---------|---------|---------|-------- November 1 ........... | 4.25 | 4.60 | 5.30 | 4.50 November 16 .......... | 4.25 | 4.50 | 5.30 | 4.80 December 1 ........... | 4.15 | 4.50 | 5.10 | 4.80 December 16 .......... | 4.15 | 4.40 | 4.90 | 4.80 January 1 ............ | 4.15 | 4.30 | 5.00 | 4.60 January 16 ........... | 3.95 | 4.30 | 4.75 | 5.00 February 1 ........... | 3.90 | 4.30 | 4.65 | 5.00 February 16 .......... | 3.90 | 4.50 | 4.65 | 5.00 --------------------------------------------------------------
19. The price movement of refined sugar following February 28, 1936, was as follows:
March 3rd and 4th .............................. $4.55 March 5th to 10th .............................. 4.65 March 11th to 24th ............................. 4.75 March 18th to 20th ............................. 4.85 March 31st to July 9th ......................... 5.00 July 10th to August 23rd ....................... 4.75 August 24th to September 14th .................. 4.65 September 15th to September 27th ............... 4.75 September 28th to October 12th ................. 4.72 October 13th to October 15th ................... 4.62 October 19th to October 22nd ................... 4.75 October 23rd to October 29th ................... 4.40 October 30th and 31st .......................... 4.50
20. The quota for 1934 under Section 8a of the Agricultural Adjustment Act was announced on June 12, 1934, as 6,476,000 short tons and the allotment for the Philippine Islands was filled on June 30, 1934; for Puerto Rico on November 20, 1934; for Hawaii on November 30, 1934; and for Cuba on December 18, 1934.
21. The quota for 1935 was announced on January 8, 1935, as 6,359,261 short tons. The allotment for Cuba was filled on August 19, 1935.
22. On October 19, 1935, the Secretary of Agriculture announced that, under restrictions, over quota sugar could be withdrawn from bond and processed. In December 1935, 127,574 tons of sugar were so withdrawn.
23. On June 30, 1937, plaintiff filed a claim for refund (Form 843) for the refund of $23,989.93 assessed against and paid by it as unjust enrichment tax for the fiscal year ended February 28, 1936. The ground upon which this claim was based was as follows:
"That the law, Regulations 95, under Title 3 of the Revenue Act of 1936, under which this tax was paid is unconstitutional and taxpayer is entitled to refund of the amount of tax ($23,291.20) and interest ($698.73) paid."
No facts in support of this claim for refund were submitted to the Commissioner of Internal Revenue by plaintiff prior to its disallowance or at any time subsequent thereto. By registered letter dated August 11, 1938, the claim was disallowed by the Commissioner of Internal Revenue to the extent that refunds had not been allowed with respect thereto as set forth in paragraphs 3(d)(e) and (f) of the petition herein. Prior to the disallowance of the claim for refund, in a letter dated April 21, 1938, advising plaintiff that an overassessment of unjust enrichment tax for the taxable year in the amount of $1,347.54 had been allowed and would be refunded, the Commissioner of Internal Revenue stated in respect of the ground for refund set forth in the claim that it was not within his jurisdiction to pass upon the constitutionality of Federal tax statutes duly enacted by Congress. The overassessments allowed and the refunds made, as set forth in paragraphs 3(d)(e) and (f) of the petition, were the result of an investigation of plaintiff's unjust enrichment tax return filed May 15, 1937, as shown above, involving an examination of the plaintiff's books and records.
24. December 29, 1939, plaintiff filed a second claim for refund (Form 843) for the refund of the unjust enrichment taxes involved in the first claim for refund filed by plaintiff on June 30, 1937, as aforesaid, and which was likewise in the amount of $23,989.93. This second claim was based upon the following grounds:
"1. Said taxing statute, Title III of the Revenue Act of 1936, Sections 501-506, is in violation of the Constitution of the United States in that:
"(a) The said statute does not meet the requirements of Amendment XVI to the Constitution of the United States.
"(b) Said Statute makes an arbitrary and unreasonable classification with respect to the income subject to the tax and the rate of the tax applicable to such income.
"(c) Said levy or so-called tax is not in fact a tax but a penalty, and the same being retroactive is null and void.
"(d) Said so-called tax is arbitrary and unreasonable both as to the basis of the tax and its mode of computation.
"(e) Said Statute deprives claimant of its property without due process of law and for public use without just compensation in violation of Amendment V to the Constitution of the United States.
"2. Claimant did not pass the tax on to others, directly or indirectly; but bore the burden thereof; and data in support of this fact is in course of preparation and will be submitted in due course."
By registered letter dated May 10, 1940, plaintiff's second claim for refund was disallowed in full by the Commissioner of Internal Revenue. The Commissioner again advised plaintiff in his letter of disallowance that it was not within his jurisdiction to pass upon the constitutionality of Federal tax statutes duly enacted by Congress. No facts were submitted by plaintiff to the Commissioner of Internal Revenue in support of its second claim for refund prior to its disallowance; although, subsequent thereto on November 5, 1940, the plaintiff in part I of its protest requested that the unjust enrichment tax be determined in conjunction with the Processing Tax claim for refund under Title VII, as provided by Section 506 of the Revenue Act of 1936. Parts II, III, and IV of the protest were never filed with the Commissioner of Internal Revenue, but a trial of the Processing Tax claim for refund has been had before The Tax Court of the United States.
25. On May 15, 1937, plaintiff filed with the Collector of Internal Revenue for the District of Louisiana a return on Form 945 of tax on unjust enrichment imposed under Title III of the Revenue Act of 1936, 49 Stat. 1734-1739, U.S.C.A. Int.Rev. Code, title 26, §§ 700-706. That return disclosed a net taxable income under the provisions of Section 501(a)(1) of the statute of $35,826.37, in respect of which plaintiff paid an unjust enrichment tax to the Collector of Internal Revenue in the amount of $23,291.20 and interest thereon in the amount of $698.73, as alleged in paragraphs 3(a) and (b) of the petition. The following statements are correct, except as shown in finding 27, and were set forth in that return:
"(1) The plaintiff's net income for the entire taxable year (March 1, 1935, to and including February 28, 1936), from the sale of sugar products with respect to which a processing tax was imposed and paid, and imposed and not paid, amounted to $68,785.45.
"(2) The plaintiff's net income from the sale of sugar products with respect to which a processing tax was imposed on but not paid by it amounted to $59,646.83.
"(3) The plaintiff's net income, presumed to be attributable to shifting to others the burden of the processing tax imposed on but not paid by it, computed in accordance with section 501(e) (1) of the statute, amounts to $53,558.99."
26. Since plaintiff was in business only two years prior to the imposition of the processing tax with respect to the processing of sugar, the computation set forth in the return of the extent to which plaintiff is presumed to have shifted to others the burden of the processing tax imposed on but not paid by it was made on the basis of a two-year base period and not the six-year base period provided by section 501(f)(1) of the statute. The two-year period prior to the imposition of the processing tax used in the return for the purpose of computing the net income presumed to be attributable to shifting the imposed but not paid tax to others furnishes a sufficient base period for the margin comparison and the full six-year base period is not necessary for that purpose.
27. The amount of unjust enrichment tax paid by plaintiff was calculated on the basis of the amount of processing tax imposed on but not paid by it for the taxable year involved, all other bases for determination of net income under the statute being greater than the amount of tax imposed but not paid. In setting out in its return the amount of tax imposed but not paid, plaintiff in its calculations of production subject to tax overstated the amount by $1,582.60, resulting in an over-payment of tax in the amount of $1,266.08, no part of which has been refunded to plaintiff. This matter of the overstatement of plaintiff's net income subject to unjust enrichment tax was first brought to the attention of the Government during the course of the conferences which resulted in the stipulation made by the parties in this suit, and was not known to the Commissioner of Internal Revenue at the time of his disallowance of either the first or the second claim for refund involved herein.
28. The profits of plaintiff from its entire business during the respective fiscal years ending on February 28th, and a segregation of such profits to refined sugar follows in total dollars and cents per pound of refined sugar:
--------------------------------------------------------------------------------------------- | | | Total, | | | 1933 | 1934 | 1933-34 | 1936 | 1937 -----------------------------|-----------|-----------|------------|-------------|------------ Total Profits: | | | | | Profits ................. | ........ | ......... | ........ | $121,116.13 | $168,651.99 Losses ..................... | $739.85 | $1,316.74 | $2,056.59 | ........... | ........... Profits on Refined Sugar: | | | | | Dollars ................. |$18,148.13 | $6,701.30 | $24,849.43 | $85,898.06 | $94,217.29 Cents per pounds ........ | .00316 | .001683 | .002555 | .011634 | ..010109 --------------------------------------------------------------------------------------------- 29. The selling price of refined sugar during the fiscal year ended February 29, 1936, exceeded the average selling price for the years 1933 and 1934 by $0.006052 per pound. This increase on the quantity sold during that fiscal year amounts to $44,682.77.30. The selling price of refined sugar during the fiscal year ended February 28, 1937, exceeded the average selling price for the years 1933 and 1934 by $0.005548 per pound.
31. The cost of processing sugar cane during the fiscal year ended February 29, 1936, was $0.00077 per pound less than the average processing cost for the years 1933 and 1934. The decrease in cost of processing applied to the number of pounds processed in the said fiscal year amounts to $5,685. The quantity of cane processed in that fiscal year was 25.66 per cent more than the average for each of the years 1933 and 1934.
32. The cost of sugar cane for the fiscal year ended February 29, 1936, was $0.000807 less than the average cost for the years 1933 and 1934. The reduction in cost per pound applied to the quantity of cane involved amounts to $5,961.74; and is the net of an increased cost of cane purchased of $6,109.56 and a decreased cost of cane grown by plaintiff of $12,071.30.
33. The sugar cane processed during the fiscal year ended February 29, 1936, yielded 9.686 pounds of sugar more per ton than the cane processed during the years 1933 and 1934. The value of such increased extraction is $10,341.67.
34. The total of all sums paid to the Collector of Internal Revenue, as set forth above with respect to paragraphs 3(a) and 3(b) of the petition, were thereafter by the Collector of Internal Revenue turned over to and deposited in the Treasury of the United States in the usual course of the Collector's business.
The plaintiff sues to recover $22,392.44 paid as unjust enrichment taxes under Title III of the Revenue Act of 1936, 49 Stat. 1734-1739, 26 U.S.C.A. Int.Rev Code, §§ 700-705, for its fiscal year ending February 28, 1936. The history of its claim is as follows. The Agricultural Adjustment Act as amended, 48 Stat. 670, imposed a processing tax on the first domestic processing after June 7, 1934, of sugar cane into direct-consumption sugar. The plaintiff was engaged in that kind of processing, and for the first processing season, that is, until April 30, 1935, it paid the processing tax. After the seasonal shut-down it resumed processing in October 1935, but did not pay the tax on that processing.
On January 6, 1936, the Supreme Court of the United States, in the case of United States v. Butler, 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477, 102 A.L.R. 914, held that the taxing provisions of the Agricultural Adjustment Act were unconstitutional. The taxes which would have been due, but which the plaintiff did not pay, on the 65,102¼ one hundred pound units of sugar which it processed from October 1935 to January 6, 1936, amounted to $34,243.77.
Because many processors had shifted the tax by adding it to the price of sugar sold, or by other means, Congress thought that a good deal of unjust enrichment had resulted from the imposition and invalidation of the processing tax, so it, in Title III, Section 501(a)(1) of the Revenue Act of 1936, 49 Stat. 1734, imposed an 80% tax on abnormal income derived from the sale of commodities to which the processing tax had been applicable, with a limitation that the new tax should not exceed the unpaid processing tax. Since the taxpayer's net income and excess profits had been enlarged by his escape from the processing tax, and his taxes on income and profits had been accordingly increased, he was given credit for those increases, against the unjust enrichment tax. Section 502. The plaintiff filed a return on this tax on May 15, 1937, and, after the correction by the Commissioner of Internal Revenue of some of the plaintiff's computations, paid $22,392.44 of tax and interest. It seeks in this suit to recover that amount.
The unjust enrichment tax statute provided in Section 501(e) a method of determining, prima facie, whether a processor had shifted the burden of the processing tax to others, and thereby enriched himself. The method was to compare his profit, per unit of the processed article, during the period that the tax was in effect, with his profit during a period of years before that period. The application of that method to the plaintiff's situation showed a profit of $53,558.99 in excess of normal. But since the unjust enrichment tax was limited, at the outside, to the amount of the processing tax unpaid, which as we have said, was $34,243.77, the latter sum, less the credits for enlarged income and excess profits taxes, was the presumptive amount of the unjust enrichment tax.
Section 501(i) provided that the presumptive amount of the taxpayer's unjust enrichment, arrived at by the arbitrary computation prescribed by the statute, could be rebutted, by either the taxpayer or the Government,
"* * * by proof of the actual extent to which the taxpayer shifted to others the burden of the Federal excise tax [the processing tax]. Such proof may include, but shall not be limited to:
"(1) Proof that the change or lack of change in the margin was due to changes in factors other than the tax. * * *"
The plaintiff in this case has undertaken the burden of proving that its abnormal profits for the period of the processing tax were due to "changes in factors other than the tax." The facts are stipulated. They show that on the date that the processing tax became effective, June 8, 1934, there was a universal increase in the selling price of refined sugar, standard quality, of 55 cents per 100 pounds, which, less the customary 2% discount for cash, was a net increase of 53.9 cents; that the processing tax on such sugar was 53.5 cents; that the tax on the plaintiff's sugar, which was below standard in quality was 52.6 cents; that the plaintiff's sugar was sold during, as well as before and after, the processing tax period, at a differential of 20 to 45 cents below the current price quoted by the American Sugar Refining Company, a processor of standard grade sugar; that the plaintiff billed the processing tax separately to some purchasers from it, and received $3,709 in payment of those bills, which amount was paid to the Government and is not in issue in this case; that the plaintiff, during the period of the processing tax, effected savings of $5,685 in the cost of processing, $5,961.74 in the decreased cost of cane, not caused by shifting the tax backward to the producer, but by producing cane more cheaply from its own plantations, and $10,341.67 in the increased yield of sugar from the amount of cane used; that the sum of these three items of savings is $21,988.41; that when this sum is subtracted from $53,558.99, the amount of the plaintiff's abnormal profit for the tax period, it leaves $31,570.58, to be accounted for by reason of increases in the selling price of sugar during the tax period over the prices in the base or test period; that this amount is $2,673.19 less than $34,243.77, the amount of the processing tax imposed but not paid; that the selling price of sugar fluctuated considerably before the imposition and after the invalidation of the tax, principally in response to the apparent prospects, from time to time, of the Government's making some move to stabilize the sugar market.
On these facts, the plaintiff has not rebutted the statutory presumption that it shifted the burden of the tax to its purchasers, except as to $2,673.19. After proving its savings of $21,988.41 resulting from conditions not related to the price at which it sold its sugar, it still had $31,570.58 of the abnormal profits attributable to selling its sugar on a larger margin than normal above the cost of production. The plaintiff has not explained why it would have been able to sell on this larger margin if the price of sugar had not been increased to the purchaser at the time of and because of the processing tax. It has not, therefore, sustained its burden of proof except as to $2,673.19.
The Government urges that all of the plaintiff's claim is barred by its failure to make proper claims for refund. We now consider the steps which the plaintiff took to recover its tax, before it filed its suit in this court.
It made its return of unjust enrichment tax on May 15, 1937. It filed a claim for refund on June 30, 1937, asserting the unconstitutionality of the tax. This claim was disallowed by registered letter on August 11, 1938. It filed a second claim for refund on December 29, 1939. This claim was timely, being within three years from the time the return was filed. Section 322(b) (1) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev. Code, § 322(b)(1). It repeated the assertion of unconstitutionality, and stated in a second paragraph
"2. Claimant did not pass the tax on to others, directly or indirectly; but bore the burden thereof; and, data in support of this fact is in course of preparation and will be submitted in due course."
What the plaintiff evidently meant was that it had not passed the processing tax on to others, and that therefore it did not owe the unjust enrichment tax which it had paid and was seeking to get back. In spite of the ineptness of its statement, which is substantially repeated in paragraph six of its petition, we suppose the taxing authorities understood, as we understand, what the plaintiff was trying to say. The plaintiff submitted no data in support of this claim for refund, though it said in its claim that it would do so.
Section 3772 of the Internal Revenue Code, 26 U.S.C.A. Int.Rev. Code, § 3772, provides that no suit in court for the recovery of internal revenue taxes shall be maintained until "a claim for refund or credit has been duly filed with the Commissioner, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof."
Treasury Regulations 95, relative to the tax on unjust enrichment, make applicable, inter alia, Supplement O to Treasury Regulations 94, which contains in Article 322-3 the following requirement:
"The claim must set forth in detail and under oath each ground upon which a refund is claimed, and facts sufficient to apprise the Commissioner of the exact basis thereof. No refund or credit will be allowed after the expiration of the statutory period of limitation applicable to the filing of a claim therefor except upon one or more of the grounds set forth in a claim filed prior to the expiration of such period. A claim which does not comply with this paragraph will not be considered for any purpose as a claim for refund. * * *"
The Government seems to contend that the claim of December 29, 1939, was a nullity because it did not set forth "facts sufficient to apprise the Commissioner of the exact basis thereof." Therefore, the Government contends, the only valid claim for refund was the one filed on June 30, 1937, and disallowed on August 11, 1938, hence this suit, begun on May 5, 1942, was too late, since it was begun more than two years after the rejection of the claim. Section 3772(a)(2) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev. Code, § 3772(a) (2). If we agreed with the Government that the first claim was the only effective claim filed, this suit would fail on the merits, as well as by lapse of time, since the only ground asserted in the first claim was the unconstitutionality of the unjust enrichment tax, which ground is not relied on in this suit.
We think, with some doubt, that the plaintiff's second claim for refund was a claim, in the sense that the plaintiff had a right to sue within two years after its rejection on May 10, 1940. But, because of what we are about to say, the plaintiff's position is not improved by our conclusion on that point. As we have said, the plaintiff did not furnish to the Commissioner of Internal Revenue any evidence whatever tending to show that the tax should be refunded. If the plaintiff may, after the Commissioner's correct and inevitable rejection of its claim on the basis of the showing made to the Commissioner, present evidence to the court which it withheld from the Commissioner, and win its suit in court, the purpose of the statutory scheme requiring that claims for refund be first made to the Commissioner is frustrated. The Government would save interest if it permitted the taxpayer to sue in court without the gesture of filing with the Commissioner an unsupported claim calling for rejection. The obvious purpose of the statutory requirement of filing claims for refund with the Commissioner as a condition precedent to suit is to "afford an opportunity for administrative adjustment without suit." Samara v. United States, 2 Cir., 129 F.2d 594, 597. No such opportunity was afforded by what the plaintiff filed with the Commissioner, and the condition precedent was not fulfilled. The plaintiff may not, therefore, recover even that portion of the tax which is shown, by its evidence here presented, not to have been owed by it.
While preparing the stipulation in this case, the plaintiff discovered, and the defendant concedes, that it had overpaid its tax by $1,266.08 because in its return it had overstated the quantity of sugar on which a processing tax had been imposed but not paid. Recovery of this sum is barred, of course, by the fact that no claim for refund has ever been made to the Commissioner setting up this ground for refund. Section 3772, Internal Revenue Code, 26 U.S.C.A. Int.Rev. Code, § 3772. United States v. Felt Tarrant Mfg. Co., 283 U.S. 269, 51 S.Ct. 376, 75 L.Ed. 1025.
The plaintiff is not entitled to recover. Its petition is therefore dismissed.
It is so ordered.
WHITAKER and LITTLETON, Judges concur.
JONES, Judge, and WHALEY, Chief Justice, took no part in the decision of this case.