Opinion
No. M-102.
May 8, 1933.
Julian C. Hammack, of Washington, D.C., for plaintiff.
Ralph C. Williamson, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen., for the United States.
Before GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Action by the Ford Motor Company, to the use and benefit of the Jewel Tea Company, Inc., against the United States.
Judgment in favor of the defendant dismissing the petition.
This case having been heard by the Court of Claims, the court, upon the report of a commissioner and the evidence, makes the following special findings of fact:
1. The plaintiff, Ford Motor Company, is a corporation duly organized and existing under the laws of the state of Delaware, having its principal office and place of business at Dearborn, Mich.; the use plaintiff, Jewel Tea Company, Inc., is a corporation duly organized and existing under the laws of the state of New York, with its principal office and place of business at Chicago, Ill.
2. Ford Motor Company is now, and has been for many years past, including the time involved herein, a manufacturer of automobiles; Jewel Tea Company, Inc., hereinafter referred to as the Tea Company, is now, and has been for many years past, including the time involved herein, a manufacturer, importer, and distributor of tea, coffee, and other kindred groceries.
3. In 1920, and up until July, 1925, plaintiff was engaged in the manufacture of certain Ford model T bare chassis. The bare chassis were primarily designed and adapted for the manufacture of the passenger or pleasure automobiles sold by the plaintiff, but could be used, and were equally adaptable for the manufacture of automobile trucks. The chassis contained no superstructure nor frame of steel or wood or other material which would by the addition of a few bolsters or planks make it adaptable for carrying heavy loads. During the period involved, the Ford Motor Company did not manufacture a complete automobile truck. There was a demand, however, for light commercial trucks, and plaintiff manufactured extra model T chassis and promoted and encouraged the sale of them for the purpose of securing this business. The bare chassis so sold were almost universally used for commercial purposes. Many manufacturers made commercial bodies especially designed to fit the said chassis. The bare chassis here involved were sold by plaintiff exclusively to Ford dealers. There was no restriction placed by plaintiff upon the dealers as to the manner in which the said chassis should be sold, nor as to the purposes for which they were to be used upon their purchase by consumers from dealers. The plaintiff had no actual knowledge that the chassis sold by it to dealers as aforesaid were to be used in the manufacture of automobile trucks or automobile wagons.
4. On March 15, 1920, plaintiff addressed a communication to the Bureau of Internal Revenue calling attention to T.D. 2989 which relates to the manufacturer's tax applicable to truck chassis, etc., and requested a ruling from the Bureau that, in view of the fact of the plaintiff's actual knowledge from the nature of its business that the chassis in question were almost invariably used in the manufacture of trucks by persons purchasing them from its dealers, the said chassis be held taxable at the 3 per cent. rate applicable to automobile trucks or automobile wagons.
Under date of March 16, 1920, the Deputy Commissioner of Internal Revenue made the following ruling: "In view of this statement, the department holds that your passenger-car chassis sold without bodies to dealers may be sold as automobile trucks or automobile wagons and tax paid by you at three per cent. The fact that chassis sold by you in this condition are practically all used in the manufacture of automobile trucks and automobile wagons is held to constitute knowledge on your part, from the condition in which the chassis is sold, that it is to be so used."
On August 20, 1923, the Acting Commissioner of Internal Revenue wrote plaintiff, revoking the ruling made under date of March 16, 1920, as follows: "Referring to the letter addressed to you from this office under date of March 16, 1920, in which you were advised that in view of your statements to the effect that your model T chassis sold separately was almost invariably used in the construction of a commercial car, the same might be sold by you as a truck chassis, and tax paid under subdivision (1) of section 900 at the rate of 3%, you are advised that since it now appears from the statements made in your letter, as well as reports received in this office from numerous field officers, model T chassis are frequently used by dealers in the production of passenger cars, and that, in many instances, dealers fail to report and pay tax on sales of passenger cars so assembled by them, the ruling furnished you in office letter of March 16, 1920, is hereby revoked, and you are advised that with respect to all sales of model T chassis by the Ford Motor Company and its branches, on and after September 1, 1923, it will be necessary for the company to pay tax at the rate of 5%, unless the chassis are sold as parts, to manufacturers or assemblers of cars, tax free under certificates in the form provided in article 14 of the regulations."
The certificates called for by the Commissioner's rulings and the regulations were not furnished in connection with the sales involved herein.
5. In July, 1925, plaintiff changed the style of its model T chassis and passenger bodies, and also discontinued the policy of supplying exactly the same chassis for commercial car purposes as it used for pleasure car purposes. From that time on it produced two model T chassis, one designed primarily for and used in connection with pleasure bodies and one designed primarily for use as a commercial chassis. It ceased building and supplying passenger bodies for model T commercial chassis, and the changes made in the construction of its passenger bodies were such that, if an attempt were made to fit the passenger bodies to the model T commercial chassis, such extensive mechanical changes would be necessary as to make the effort impracticable.
The old style model T chassis was continued only to supply fleet owners (owners having a large number of commercial cars), for commercial bodies which they might still have on hand or under construction as well as those which might still be serviceable after replacement of the chassis on which they were then mounted. Only sufficient old-style chassis were built after said date to care for such commercial concerns on special order.
On December 4, 1925, plaintiff wrote the Commissioner of Internal Revenue a letter stating in detail the change in its manufacturing policy, and requested the Commissioner to classify its old style model T chassis as a truck subject to a tax of 3 per cent. when sold for a price in excess of $1,000.
The Commissioner, in response to the above letter and request, on January 2, 1926, made the following ruling: "In view of the facts presented by you, the conclusion is reached that any chassis of the type styled `old model T chassis' sold for use in the construction of light delivery trucks are not subject to the tax imposed under section 600 of the Revenue Act of 1924 [ 26 USCA § 881 note] when the sales price is not in excess of $1,000.00. This ruling will be considered as applicable only to sales made by you after the date of the receipt of this letter."
6. During the calendar years between 1920 and 1925, both inclusive, the Jewel Tea Company was changing its transportation equipment from horse and wagon to light delivery motortruck. The company had branches in 43 states, and in making this change placed written orders with dealers in Ford automobiles located in the respective communities where the cars were to be used for certain Ford model T bare chassis, of the type referred to in finding 3, and in finding 5 hereof as the "old-style model T chassis." The orders specified that a body was to be mounted upon the chassis, but did not indicate the type of body. The chassis thus ordered by the Tea Company were purchased by Ford dealers from the plaintiff. The dealers in ordering said chassis from the plaintiff did not specify the use to be made of them. Many of them were ordered by the dealers in combination with passenger car bodies.
Separate arrangements were made by the Tea Company with certain body manufacturers for the manufacture and delivery of truck bodies to be mounted upon the chassis so ordered. The Tea Company usually took delivery of the chassis at the Ford automobile dealer's plant, or, in cases where the plant of the body manufacturer was located nearby, it would take delivery of the chassis at the plant of the body manufacturer who would mount the truck body thereon and deliver same to the Tea Company. In approximately 75 per cent. of the cases the body manufacturer delivered the truck bodies to the respective Ford dealers from whom the Tea Company had ordered the chassis, who mounted the bodies on the chassis for a small fee and delivered the completed truck to the Jewel Tea Company.
7. Between December, 1920, and July, 1923, representatives of the plaintiff called on the traveling supervisor of automobile equipment of the Tea Company and recommended to him the purchase of additional Ford model T chassis for commercial use.
A representative of the Tea Company also contacted plaintiff and its branch offices from time to time for the purpose of securing quick deliveries of the chassis which it had ordered, and in divers instances the Tea Company at the request of the Ford dealers furnished affidavits showing that its orders for chassis were bona fide to the Ford Motor Company in order to expedite delivery of the chassis.
8. Sales made by plaintiff to dealers of the chassis are divided into two classes designated class A and class B. Class A represents chassis sold to dealers as bare chassis. Class B represents chassis sold to dealers in combination with some passenger carrying body. When so sold, the chassis and the bodies were in separate units, and they remained in that form until they reached dealers, although the chassis and the bodies therefor were shipped to dealers in the same freight car.
With the exception of the period between March 15, 1920, and August 20, 1923, when the ruling of March 15, 1920, set forth in finding 4 hereof, with reference to bare chassis sales, was in effect, plaintiff paid the tax rate of 5 per cent. applicable to the sale of passenger car chassis on all sales to dealers of chassis purchased by the Jewel Tea Company. During the excepted period plaintiff remitted only a tax of 3 per cent. on sales of bare chassis, the rate applicable to the sale of automobile truck and automobile wagon chassis. None of the chassis involved herein were sold for an amount in excess of $1,000.00.
The difference between the amount of taxes assessed and paid by plaintiff from 1920 to 1926, both inclusive, on the sales of chassis to dealers which were purchased by the tea company, and the amount of taxes that would be due on the sale of said chassis on the basis of the sale of automobile truck or wagon chassis, is as follows: Class A items, $4,350.08; class B items, $4,447.03; total, $8,797.11.
9. On November 16, 1927, the Ford Motor Company filed claims for refund of the difference between the taxes paid on the sales of the chassis (5 per cent. of the sale price) and the taxes that would be due if the same were held to be sales of automobile truck or wagon chassis (3 per cent. of the sale price), covering the various years and in the total amounts as listed below:
--------------------------------------------------------------- | Class "A" | Class "B" | | items | items | Total -------------------------|-------------|-------------|--------- Calendar year 1920 ..... | $ 37.46 | $ 119.22 | $ 156.68 Calendar year 1921 ..... | ........... | 154.70 | 154.70 Calendar year 1922 ..... | ........... | 130.19 | 130.19 Calendar year 1923 ..... | 160.61 | 292.58 | 453.19 First half, year 1924 .. | 300.31 | 259.14 | 559.45 Second half, year | | | 1924 .................. | 616.86 | 690.80 | 1,307.66 Calendar year 1925 ..... | 2,938.60 | 2,775.60 | 5,714.20 Calendar year 1926 ..... | 296.24 | 24.80 | 321.04 |-------------|-------------|--------- | 4,350.08 | 4,447.03 | 8,797.11 ---------------------------------------------------------------
Plaintiff set forth the following reasons in each of its claims for refund as the basis upon which its respective claims should be allowed:
"All items of the claim included under class `A' were chassis delivered and sold by the Ford Motor Company to its dealers, who in turn delivered and sold them to the Jewel Tea Co., Inc., 5 North Wabash Avenue, Chicago, Illinois, as automobile trucks and automobile wagons. All items of the claim included under class `B' were chassis delivered and sold by the Ford Motor Co. in combination with some type of passenger-carrying bodies to its dealers who in turn delivered and sold them to the Jewel Tea Co., Inc., 5 North Wabash Avenue, Chicago, Illinois, as automobile trucks and automobile wagons. * * *"
The amount of taxes paid by plaintiff during the four-year period preceding the filing of its claims for refund on November 16, 1927, was $4,249.97 on class A items, and $3,928.14 on class B items.
The Commissioner of Internal Revenue on August 31, 1928, disallowed in full the claim for refund.
10. On September 17, 1928, after receipt of notice from the Commissioner of Internal Revenue that its claim for refund had been disallowed, plaintiff's attorney in fact, Mr. Hammack, called at the office of the General Counsel of the Bureau of Internal Revenue and protested the Commissioner's ruling in disallowing the claim. He called the attention of the Bureau attorneys with whom he talked to the Bureau letter of March 16, 1920, in which it was held that the model T bare chassis here involved, sold without bodies to plaintiff's dealers, were taxable at the 3 per cent. rate. Subsequently he procured a copy of the Bureau letter of March 16, 1920, which he submitted personally to attorneys of the General Counsel's Office on or about October 1, 1928. Plaintiff's attorney was informed at that time that the ruling of March 16, 1920, had been revoked by a subsequent ruling of the Bureau of the date of August 20, 1923. After some argument back and forth, plaintiff's attorney was informed that he should file a request for reconsideration of the case in writing. He formally filed with the Bureau such request on November 16, 1928, and attached to the said request copies of the rulings of March 16, 1920, and August 20, 1923, heretofore referred to.
No conferences were thereafter held between plaintiff's attorney in fact and Bureau officials in respect to the matter, and no communications were exchanged between them until March 18, 1929, on which date the Commissioner of Internal Revenue wrote plaintiff a letter stating that the request for reopening and further consideration of the case was denied. The Commissioner in this letter, after stating the reasons urged by plaintiff for a reopening and reconsideration of the case said: "The Bureau is therefore constrained to adhere to its previous rejection of the claim in question and must decline to reopen the same for further consideration."
The Commissioner of Internal Revenue's copy of the above-quoted letter was stamped at the bottom thereof "Closed," such designation not appearing on any prior letters from the Bureau of Internal Revenue to plaintiff with reference to the refund claims involved herein.
The government interposes two defenses to plaintiff's right to recover: (1) That the taxes involved were legally imposed and collected under the provisions of section 900 of the Revenue Act of 1921 ( 42 Stat. 291), and section 600 of the Revenue Act of 1924 ( 26 USCA § 881 note); and (2) that the suit was not instituted within the time required by section 3226 of the Revised Statutes, as amended (26 USCA § 156).
Since we are of the opinion plaintiff's right of action was barred by the statute of limitations at the time of filing the petition, it is not necessary to consider and determine the question as to whether the plaintiff is otherwise entitled to recover.
The claim for refund was disallowed by the Commissioner of Internal Revenue on August 31, 1928. The suit was instituted on March 17, 1931. More than two years having elapsed after disallowance of the claim before suit was brought, the action is clearly barred unless the Commissioner thereafter, within the time he was by law permitted to do so, reopened the case and reconsidered his former action. It is the contention of plaintiff that the Commissioner did this, and that the two-year limitation on the right to bring suit started to run from March 18, 1929, the date on which it is contended the Commissioner finally acted on the claim for refund.
The statute makes no provision as to the reopening and reconsideration of a claim for refund after it has been formally disallowed by the Commissioner of Internal Revenue, but his right to do so is recognized in T.D. 3240, effective at the time reconsideration was requested by plaintiff on September 17, 1928. The right of the Commissioner of Internal Revenue to reopen and reconsider a disallowed claim for refund is also recognized by the courts. Southwestern Oil Gas Co. v. United States (D.C.) 29 F.2d 404; Mobile Drug Co. v. United States (D.C.) 39 F.2d 940; McKesson Robbins, Inc., v. Edwards (C.C.A.) 57 F.2d 147.
The rule established by the decisions is that, when the Commissioner, upon application made after a decision disallowed a claim, again enters upon a consideration of the merits of the case, and later renders his final decision thereon, the taxpayer has two years thereafter under section 3226 of the Revised Statutes (as amended 26 USCA § 156) within which to bring suit. It must appear, however, that the Commissioner has in fact reopened the case and reconsidered it upon the merits. Where, however, the Commissioner after the receipt of a request from a taxpayer to have his case reopened and reconsidered merely re-examines the files of his own office and reviews the papers in the case for the purpose of determining whether there is any basis for the taxpayer's request to have his case reopened, and later notifies the taxpayer of his refusal to reopen the case for further consideration, it cannot be said he reconsidered the case upon the merits. Hickman v. United States (D.C.) 47 F.2d 328. This seems to be what the Commissioner did, and all he did in the instant case. Immediately after receipt of notice of disallowance of its claim by the Commissioner on August 31, 1928, plaintiff through its counsel went to the office of the General Counsel of Internal Revenue and interviewed attorneys there, and orally asked for a reconsideration of the case. Plaintiff's counsel at that time protested the Commissioner's ruling, and called to the attention of the attorneys with whom he talked a former ruling of the Bureau of the date of March 16, 1920, holding that the chassis in question were taxable at the 3 per cent. rate on automobile trucks or automobile wagons. Later, on October 1, 1928, plaintiff's counsel called again at the General Counsel's office and left a copy of this order. Subsequently, on November 16, 1928, plaintiff's counsel filed with the Bureau a formal written request for reconsideration of the case, to which request he attached a copy of the ruling of March 16, 1920, and also a copy of the subsequent order of August 20, 1923, revoking and modifying such order.
No further conferences were held between plaintiff's counsel and Bureau officials, and no letters or communications were thereafter exchanged between them. The Commissioner thereafter, on March 18, 1929, wrote a letter to plaintiff in which it was stated: "* * * The Bureau is therefore constrained to adhere to its previous rejection of the claim in question and must decline to reopen the same for further consideration." The plaintiff places some importance on the fact that the Bureau copy of the Commissioner's letter declining to reopen the case is stamped "closed." This indorsement has no special significance. The plaintiff, as we have seen, had the right at any time within the two-year period following disallowance of the claim within which suit could be instituted to request the Commissioner to reopen the case and reconsider his action. Plaintiff exercised that right, and had requested that the case be reopened and reconsidered. The Commissioner, upon a consideration of the request, declined to reopen the case and consider it further. On his decision not to reopen the case, it was closed so far as further action upon it by the Commissioner was concerned, and the word "closed" was very properly, though not necessarily, stamped on the Bureau copy of the letter notifying plaintiff that the case would not be reopened.
The plaintiff was not misled, and had no reason to believe the case had been reopened and reconsidered by the Commissioner. It had been definitely and in explicit language informed by the Commissioner that he had declined to reopen the case. More than seventeen months then remained of the two-year period within which suit could be instituted under section 3226 of the Revised Statutes (as amended 26 USCA § 156). The plaintiff did not institute suit within the time provided, and its present action, brought after the bar of the statute had fallen, cannot be maintained.
The petition is therefore dismissed. It is so ordered.
BOOTH, Chief Justice, did not hear this case on account of illness, and took no part in its decision.