Opinion
No. E-588.
April 7, 1930.
The plaintiff sues to recover a refund of taxes, with interest, which was allowed to it by the Commissioner of Internal Revenue on November 1, 1924, and certified to the Comptroller General for payment, but which he refused to pay, interposing a counterclaim for an alleged excess of profits made by plaintiff above that allowed by the agreement between plaintiff and defendant on sales of evaporated milk for the Army, Navy, and Marine Corps during the World War.
The case having been heard by the Court of Claims upon the report of a commissioner and the evidence, the court makes the following special findings of fact:
1. The plaintiff is a corporation duly organized and existing under the laws of the state of Pennsylvania, with its principal office at Wellsboro, Tioga county, Pa. Prior to 1918 the plaintiff was engaged in the manufacture of evaporated milk. Since January 1, 1920, it has not operated its plants, but they have been leased to and operated by the Pet Milk Company, a Delaware corporation, and the plaintiff has not since carried on or done business.
2. On or about July 31, 1920, the Commissioner of Internal Revenue assessed, and the collector of internal revenue at Scranton, Pa., demanded and collected from the plaintiff a capital stock or excise tax for the fiscal year ending June 30, 1921, of $1,171.00.
3. On or about July 31, 1921, the Commissioner of Internal Revenue assessed, and the collector of internal revenue at Scranton, Pa., thereupon demanded and collected from the plaintiff a capital stock or excise tax for the fiscal year ending June 30, 1922, of $1,219.00.
4. On or about July 31, 1922, the Commissioner of Internal Revenue assessed, and the collector of internal revenue at Scranton, Pa., demanded and collected from the plaintiff a capital stock or excise tax for the fiscal year ending June 30, 1923, of $1,271.00.
5. On or about July 31, 1923, the Commissioner of Internal Revenue assessed, and the collector of internal revenue at Scranton, Pa., demanded and collected from the plaintiff a capital stock or excise tax for the fiscal year ending June 30, 1924, of $1,282.
6. On or about April 16, 1924, the plaintiff duly filed with the Commissioner of Internal Revenue, in accordance with the provisions of the Revenue Act of 1921, a claim for the refund of all said taxes unlawfully assessed, demanded, and collected as aforesaid.
7. On or about November 1, 1924, the Commissioner of Internal Revenue duly allowed said claim for refund in the full amount thereof, to wit, $4,943, together with interest thereon to the amount of $751.95, making an aggregate allowance in the sum of $5,694.95, and certified such amount to the Comptroller General for payment.
8. September 7, 1917, the United States Food Administration invited the manufacturers of milk to hold a conference with a view to making suggestions as to fixing prices during the war, and a conference was held at Washington, September 26, 1917, of the manufacturers of evaporated and condensed milk. At this conference plaintiff was present. On a roll call vote taken, the manufacturers were unanimously in favor of voluntary regulation.
It was moved that thirty cents per case on evaporated milk and forty cents per case on condensed milk would be a fair and reasonable profit to recommend to the Food Administration, and by a standing vote the industries represented at the meeting unanimously recommended these figures.
A circular, No. 272, United States Food Administration, Public Information Division, states in part as follows:
"Manufacturers of canned milk representing ninety-five per cent of the entire industry in the United States in conference with the United States Food Administration to-day agreed voluntarily and unanimously to submit their business to the supervision of the Food Administration during the period of the war and to take no war profits but to make the profit on their goods sold to the public the same as on goods to the Army and Navy.
"Since the first of May they have been furnishing supplies to the Army and Navy at a price and on a basis of profit determined by the Federal Trade Commission. This they obligated themselves in their conferences to-day to continue throughout the war, and further they agreed to supply the Commission for Relief in Belgium and the American Red Cross at the same prices as that made to the Government.
"The canned-milk men expressed their willingness to cooperate with the Food Administration by limiting the price to the public so as not to return to the industry a greater profit than was received before the war. During that period, they declared, a profit of 30¢ a case on evaporated milk and 40¢ a case on condensed milk was considered fair. In meeting the greatly increased demand on account of needs created by the war, the manufacturers said they had found difficulties in the increased price of fresh milk and the high cost of tin plate. These have forced the increased prices for their product during the last 18 months. The only way in which they as manufacturers can limit the cost of their commodity to the public, they declared, is through the limitation of profits, since they can not control the cost of the raw materials upon which they depend."
9. December 2, 1918, the milk manufacturers' war committee wrote the Food Purchase Board of the United States Food Administration, in part, as follows:
"* * * In view of the fact that the entire agreement between the milk manufacturers' war committee and the Army, Navy, and Marine Corps has not heretofore been reduced to writing in a single document, the committee sets forth the following as its understanding of the agreement, as it has existed in the past and as it shall continue for the above-designated period, with the exception of two slight modifications which will be noted hereafter.
"1. It is the understanding of the committee that the Army, Navy, and Marine Corps shall purchase their requirements as nearly as may be from month to month, proper allowance being made for such reserves as it may be necessary to carry regularly against future needs."
* * * * * *"8. The milk manufacturers agree that profit made on sales to the Army, Navy, and Marine Corps as an average for the period in question shall not be more than 42¢ per case on evaporated milk and 59¢ per case on condensed milk, calculated on the basis of Federal Trade Commission cost accounting as set forth in the pamphlet issued by the Federal Trade Commission under date of July, 1917, entitled `Uniform Contracts for Cost Accounting, Definitions, and Method.'
"The 42¢ per c/s profit on evaporated milk and 59¢ per case profit on condensed milk represents the same margin of profit as a net profit of 30¢ per case on evaporated milk and 40¢ per case on condensed milk, the higher figures being reached by agreement with the Army, Navy, and Marine Corps to meet the Federal Trade Commission basis of accounting, which does not take into account certain items of cost which are regularly borne by the industry.
"At the close of the period during which supplies may be purchased on this basis, following January 1st, 1919, investigation of the costs by the respective companies shall be made by the Federal Trade Commission or some other agency agreed upon by the buyers and manufacturers. In the event that any manufacturer has made, during the period, an average of more than 42¢ per case on evaporated milk and 59¢ per case on condensed milk the excess above such margin of profit shall be refunded by the respective manufacturers to the Army, Navy, or Marine Corps, respectively. In the event a manufacturer has made less than 42¢ per case profit on evaporated, and 59¢ per case on condensed milk, neither the Army, Navy, nor Marine Corps shall be obligated to make any additional payments."
On the facts set forth in findings 8 and 9 is based the agreement.
10. Subsequent to January 1, 1919, the United States Federal Trade Commission, to which the matter of investigation to determine the cost of production and profit was referred, made an audit of plaintiff's books of account. At the outset certain difficulties were encountered by the auditors in calculating the cost of production for the months of November and December, 1917, for the reason that it was the custom of plaintiff to close its books semiannually, and not at the end of each month, and the books failed, therefore, to show separately and definitely the cost for the months in question.
The Federal Trade Commission advised plaintiff of these difficulties and suggested the application of the average unit cost of production for the full year 1918 as a method or basis for ascertaining the cost of production for November and December, 1917. Plaintiff was requested either to approve this method of computing the cost or else submit to the commission figures covering the cost of production for those months. Plaintiff did not submit such figures, but instead made affidavit that the cost per case of the tall size of evaporated milk furnished defendant in November and December, 1917, was 10 cents more than the cost per case of the tall size averaged per month for the year 1918, and voluntarily agreed that the cost per case for said months could be assumed for the purpose of calculations to have been 10 cents more than the average cost for the year 1918. The increased or additional cost in November and December was due to the higher cost of raw milk purchased during said months than the average milk cost during the entire year of 1918.
The United States Federal Trade Commission adopted this arbitrary 10 cent increase in making its calculations of cost production, and it was ascertained and found that plaintiff had theretofore been paid by the War and Navy Departments, on account of purchases of evaporated milk during the term of said price agreement, the total sum of $22,751.39 in excess of the profits allowable under said agreement.
11. Demand was duly made upon plaintiff by the United States to refund to it the excess profits so determined and found to have been paid, but plaintiff refused, and at all times has neglected and failed to refund the said sum to the United States or any part thereof.
12. After the said audit, determination, and finding had been made by the United States Federal Trade Commission, the departments which had made the purchases of evaporated milk from plaintiff during the term of said agreement certified to the General Accounting Office the total amounts which they had paid plaintiff for such purchases, and the General Accounting Office, by settlement certificate No. U.S. 303-W, dated June 2, 1924, and settlement certificate No. 052300-T, dated November 1, 1924, withheld payment of the sum of $5,694.95, otherwise due plaintiff as a refund of taxes erroneously collected, and applied said sum as a partial set-off against plaintiff's indebtedness to the United States in the sum of $22,751.39, representing excess profits paid to plaintiff by the War and Navy Departments prior to January 1, 1919, for the purchase of evaporated milk.
13. Upon the assumption that said agreement was and is valid, and in consideration of the allowance made by the Commissioner of Internal Revenue, there is now due and owing the United States by plaintiff, or its successors in interest, the sum of $22,751.39, less $5,694.95, or a difference of $17,056.44, plus $7,962.98, being interest at six per cent. per annum accrued on $22,751.39 from January 1, 1919, to November 1, 1924, the date of allowance of refund by the Commissioner of Internal Revenue, plus the further sum of $4,264.11, being interest at six per cent. per annum accrued on $17,056.44, from November 1, 1924, to January 1, 1929, making a total of $29,283.53.
G.M. Owlett, of Wellsboro, Pa. (Crichton Owlett, of Wellsboro, Pa., on the brief), for plaintiff.
Percy M. Cox, of Washington, D.C., and Herman J. Galloway, Asst. Atty. Gen., for the United States.
Memorandum.
This is a companion case to Helvetia Milk Condensing Co., Inc., v. United States, 39 F.2d 1012, this day decided, and is controlled by the conclusion in that case. The two cases were argued and submitted together.
WILLIAMS and LITTLETON, Judges did not hear this case and took no part in its decision.