Opinion
No. J-613.
May 2, 1932.
Suit by Pine Hill Crystal Spring Water Company, and also as successor to Hygeia Water Company, against the United States.
Judgment of dismissal.
This is a suit to recover $28,822.30, excise taxes alleged to have been illegally assessed and paid under the provisions of section 628 of the Revenue Act of 1918 ( 40 Stat. 1116) and section 602 of the Revenue Act of 1921 ( 42 Stat. 285).
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 and was during the period here involved a corporation organized and existing under and by virtue of the laws of the state of New Jersey. Plaintiff's charter is registered in the state of New York for the purpose of enabling it to do business in that state. It was engaged in the business of bottling and selling spring water.
2. Plaintiff transported its spring water, in glass-lined tank cars, from its spring in the state of Connecticut to its bottling plant in New York, where it was bottled and delivered by automobile trucks to its customers. The containers used were glass bottles of five-pint and five-gallon capacity. The water was delivered to the consumers just as it came from the spring, and was not processed in any way for consumption. The water was sold for use in offices, homes, manufacturing plants, theaters, and to any other person who desired to purchase and use pure spring water. The selling price of the water in the five-gallon containers was 16 cents per gallon.
3. During the calendar year 1919 the plaintiff filed monthly excise tax returns and paid a tax of 2 cents per gallon on all spring water bottled and sold by it. Said tax was paid as follows:
25 per cent. penalty.
4. On January 31, 1923, Messrs. White and Case, lawyers with offices in New York City, employed by and acting for plaintiff, addressed a letter to the Commissioner of Internal Revenue, reading as follows:
"Our client, Pine Hill Crystal Spring Water Co., of this city, has requested us to obtain from you a ruling as to the taxability, under section 602 of the Revenue Act of 1921, of water bottled and sold by it. Section 602 imposes a tax of two cents a gallon upon:
"`All natural or artificial mineral waters or table waters, whether carbonated or not, and all imitations thereof, sold by the producer, bottler, or importer thereof, in bottles or other closed containers, at over 12½ cents per gallon.'
"The company sells water obtained from a spring located in the Berkshire Mountains in Connecticut. The water is shipped in tank cars from the spring to the bottling plant in this city, where it is put up in bottles of two sizes, namely, five-pint bottles for use in homes and five-gallon bottles for use in office. In certain cases the water in the five-gallon bottles is sold at the rate of sixteen cents a gallon delivered to the customer, and it is concerning the taxability of the water thus sold in the five-gallon bottles that we inquire.
"In order to be taxable under section 602 the water must be a mineral or table water, or an imitation thereof. Although the company in the past has been paying taxes on sales at more than 12½ cents a gallon, it now believes that a correct construction of the statute would relieve from the operation of the tax all sales of its water in the five-gallon bottles. This belief is based on the following facts:
"The water sold by the company is not a mineral water. The dictionary defines mineral water as water impregnated or permeated with mineral constituents. Bearing on this point we inclose a letter to the company from Prof. Daniel D. Jackson, of the department of chemical engineering in Columbia University, which gives an analysis of the Crystal Spring water and compares it with representative types of well-known mineral waters. From this analysis it appears that the usual mineral constituents found in water admittedly mineral in character are practically nonexistent in the Crystal Spring water. As a matter of fact, even the small percentage of minerals found in the water supplied by the public-water system of the city of New York is greater than the percentage of minerals in the Crystal Spring water. All natural water except rain water contains some minerals, but obviously Congress did not intend to exempt from the tax rain water only, and to subject thereto all natural waters containing mineral elements in any slight degree whatever.
"The company's water is merely a high grade of ordinary, natural, spring water, the purity of which is assured by the sanitary method adopted by the company for transporting and bottling it. The purity of the water is what is emphasized in the company's sales literature and not the mineral qualities or ingredients contained therein. It is a well-known fact that the facilities in New York City office buildings for providing clean, pure drinking water are hopelessly inadequate. Many small office suites do not even contain any kind of running water. It is to meet this lack of ordinary pure drinking water that Crystal Spring water is sold. It is no more a mineral water in the accepted meaning of that term than would be ordinary tap water taken from the faucet of any household in the city supplied by the public-water system.
"Professor J.K. Crook, in his work on `Mineral Waters of the United States,' states that the term `mineral waters' refers primarily to waters possessing a medicinal value on account of their solid or gaseous constituents. His book purports to list all of the mineral springs in the United States in operation and omits the Crystal Spring from such list.
"The fact that the company's water has no distinctive mineral taste or color, and in fact contains only a negligible percentage of minerals, eliminates it from the class of mineral waters intended to be taxed by the statute.
"The water sold in the five-gallon bottles is not a table water. The kind of water evidently intended to be taxed under this category is water sold in bottles for table use either in the home or at hotels, restaurants, and other similar places. This taxable class has to do with the use to which the water is put and not with the character of the water. The five-gallon bottles are unquestionably not for table use, but are for use in a water cooler for service in office buildings. The size of the bottle, which weighs over fifty pounds when full, precludes its use for table purposes. Moreover, these large bottles are not only made for office use, but the company knows that they are used only for such purpose because it sells direct to the consumer without the intervention of any jobber or sales agency. The company itself makes a sharp distinction between the water sold for office consumption direct from the cooler and that sold in the five-pint bottles for home consumption. This differentiation is made in the company's advertising literature as well as among the sales employees who are known to be `on family trade' or `on office trade.'
"It is not contended, of course, that table waters include only those consumed by a person when seated at a table. Congress probably intended to include all `fancy' waters put up in small bottles which are commonly consumed at tables in the home or in hotels and restaurants, even though, for example, such water is consumed at a bar. The water sold by the company for office consumption is not a `fancy' water. Its selling price of 16 cents a gallon is sufficient evidence of this fact. Compare this price, for example, with Poland Spring water, which is bottled at the spring and sells for as high as 75 cents a gallon. The Crystal Spring water is not a `luxury,' but, on the contrary, a real necessity in office buildings where ordinary pure drinking water can not be obtained. The statute is not aimed at such articles of merchandise as this but at `fancy' waters generally used for table consumption.
"Furthermore, it is the cost of delivery of the water within the city which brings the price above the taxable limit of 12½ cents a gallon. Where the company supplies a customer having a large office force and thus can deliver a quantity of the five-gallon bottles at one time, the water is sold and delivered at less than 12½ cents a gallon. Where, however, it is necessary to deliver single bottles to small individual offices, and to call regularly on such offices, even though no water may be delivered, the necessary loss of time and trouble in delivery brings the cost to such customers above 12½ cents a gallon. In other words, the cost per gallon varies with the ease of delivery. The company could sell its water f.o.b. its bottling plant in the city at less than the taxable price and does so in the case of large customers. It is the high cost of delivery in the case of small customers that brings certain sales above the taxable price limit. This statement with respect to the cost of delivery and its effect on the selling price of the water is given to indicate that the water is not an expensive fancy table water having mineral or medicinal qualities, but is mere ordinary pure drinking water regarded in office buildings as a necessary of life.
"The five-gallon bottle of water sold by Crystal Spring Water Company is not an imitation of a mineral or a table water. In view of the facts given above it would seem that no further argument is necessary to establish the correctness of this statement. The company's water is not an imitation of anything. It is, purports to be, and is sold as ordinary, pure spring water.
"In conclusion we desire to point out that it was clearly the intention of Congress not to tax all waters sold in bottles at a price of over 12½ cents a gallon, but that Congress intended to limit the tax to two definite and well-known classes of water, namely, mineral and table waters. In order to make the five-gallon bottles of water sold by the Crystal Spring Company taxable it is necessary to stretch the meaning of the words used in the statute to include all `potable waters' or all `spring waters sold for potable purposes.' In view of the long-settled rule that a tax statute is to be strictly construed, such an interpretation of the act is plainly incorrect.
"For your examination we also enclose copies of the company's advertising literature, together with published analyses of two common mineral waters. A comparison of these analyses with the analysis of Crystal Spring water indicates the wide difference in the nature of the ordinary mineral waters and that sold by our client.
"We feel, in view of the facts outlined above, that the water sold in the five-gallon bottles for office use by our client is unquestionably not subject to tax. However, since our client has paid taxes on certain sales of such water in the past, we feel that our opinion should be confirmed by a ruling from your department, and, therefore, request to be advised of such confirmation at your earliest convenience."
On or about February 10, 1923, the Commissioner replied to the foregoing communication, as follows:
"ST-JHA "White Case, 14 Wall Street, New York, N Y
"Gentlemen: This will acknowledge the receipt of your letter dated January 31, 1923, requesting certain information in behalf of your client, the Pine Hill Crystal Spring Water Company, relative to the taxability of spring water sold by that company.
"In reply you are advised that the water sold by the Pine Hill Crystal Spring Water Company in five-gallon containers for use in offices is subject to tax as a table water under subdivision (d) of section 602, revenue act of 1921.
"Respectfully,
"A.C. Holden, "KTC:REV Deputy Commissioner."
On January 12, 1928, the plaintiff made written application to the Commissioner of Internal Revenue to consider the foregoing letter from Messrs. White and Case under date of January 31, 1923, an informal claim for refund by the plaintiff herein. Said letter is made a part of this finding by reference.
Under date of July 23, 1928, the Commissioner rejected the said application by letter reading as follows:
"MT:M:RCB "Jul. 23, 1928. "Pine Hill Crystal Spring Water Company, Hygeia Water Company, 517 East 132nd Street, New York, N Y "(Attention: E.C. Clifford, President.)
"Gentlemen: Receipt is acknowledged of your request of July 12, 1928, that letter under date of January 31, 1923, filed by your attorneys, White and Case, 14 Wall Street, New York, New York, be considered as an informal claim for refund of taxes paid as follows:
By the Pine Hill Crystal Spring Water Co. from January to December, 1919, incl. .. $19,977.04 By the Hygeia Water Company, from January to December, 1919, incl. ............... 8,845.26 __________ Total ................................ $28,822.30
"The letter of Messrs. White and Case referred to was in the nature of a protest against the imposition of the tax under section 602 of the Revenue Act of 1921, upon sales of spring water in five-gallon bottles by the Pine Hill Crystal Spring Water Company. The object of the letter was to secure a ruling from this office confirming the contention of the writers that the water so bottled and sold was not taxable.
"The letter was replied to on February 10, 1923, to the effect that the sales of the water as described were subject to the tax.
"As the letter in the opinion of this office was merely one of inquiry as to the taxability of your product, contained no demand for refund, and named no specific or approximate amounts of tax paid on such product, you are advised that it is not sufficient to constitute an informal claim for refund of tax.
"Respectfully, "[Signed] H.F. Mires, "Acting Commissioner."
On or about April 17, 1929, plaintiff filed a claim for the refund of $28,822.30 alleged to have been erroneously and illegally collected as excise taxes on the sale of spring water for the period January 1, 1919, to December 31, 1919.
Under date of September 27, 1929, the Commissioner of Internal Revenue rejected the aforesaid claim in a letter reading as follows:
"MT-M-RCB "Cls S-20706 20741. "September 27, 1929. "Pine Hill Crystal Spring Water Company, 517 East 132nd Street, New York, New York.
"Gentlemen: Reference is made to your claims for refund of $28,822.30 and $19,816.96 tax paid on the sales of beverages during the years 1917, 1918, 1919, and 1920.
"In order to bring these formal claims within the statutory period of filing, reference is made on the face of each to an informal claim addressed to the Commissioner of Internal Revenue under date of January 31, 1923.
"By reference to the letter of January 31, 1923, which was signed by your attorneys, White and Case, 14 Wall Street, New York, New York, it is found that this document was not an informal claim but was a letter of protest against the imposition of the tax under section 602 of the revenue act of 1921 upon sales of spring water in five-gallon bottles by the Pine Hill Crystal Spring Water Company. The object of the letter was to secure a ruling from this office confirming the contention of the writers that the water so bottled and sold was not taxable. The letter was replied to on February 10, 1923, to the effect that the sales of the water as described were subject to the tax.
"As the communication in the opinion of this office as stated in letter dated July 23, 1928, addressed to your company for the attention of Mr. E.C. Clifford, president, was merely a letter of inquiry as to the taxability of your product, contained no demand for refund, and named no specific or approximate amounts of tax paid on such products, it was not sufficient to constitute an informal claim for refund of tax.
"Section 1112 of the Revenue Act of 1926 provides that all claims for the refunding or crediting of any internal revenue tax alleged to have been erroneously or illegally collected must be presented to the Commissioner of Internal Revenue within four years next after the date of payment thereof.
"As the payments of tax covered by your formal claims were made in the years 1917, 1910, 1919, and 1920, and the claims were not received until April 19 and 25, 1929, respectively, or more than four years after the tax was paid, the claims are rejected in full in accordance with the above referred to statute of limitations.
"Respectfully, "ERK [Signed] Robt. H. Lucas, "Commissioner."
5. In March, 1923, the plaintiff corporation purchased from the trustee in bankruptcy all of the assets and accounts of the Hygeia Distilled Water Company. The said Hygeia Company had been engaged in the business of bottling and selling spring water, obtained from a spring located at Setauket, Long Island. The containers used by this company were of five-pint and five-gallon capacity, and sales were made to offices, homes, stores, etc.
6. During the calendar year 1919 the Hygeia Distilled Water Company filed monthly excise tax returns and paid a tax of 2 cents per gallon on all spring water bottled and sold by it. Said tax was paid as follows:
====================================================================================== Month | Amount | | | | paid | List 726 | Item | Date paid ------------------------------------|----------|------------------|--------|---------- 1919 | | | | Jan ............................... | $ 252.71 | Feb., 1919 ..... | 2-13 | 2-25-19 Feb. .............................. | 189.94 | Mar., 1919 ..... | 2-11 | 3-27-19 Mar. .............................. | 963.14 | June, 1919 ..... | 21-6 | Apr. .............................. | 906.09 | June, 1919 ..... | 21-6 | May ............................... | 987.03 | July, 1919 ..... | 53-3 | 7-2-19 June .............................. | 1,321.77 | Aug., 1919 ..... | 47-14 | 8-1-19 July .............................. | 1,297.33 | Aug., 1919 ..... | 47-14 | 8-28-19 Aug ............................... | 992.64 | Sept., 1919 .... | 535-15 | 9-26-19 Sept .............................. | 907.89 | Oct., 1919 ..... | 596-2 | 10-28-19 Oct ............................... | 751.61 | Nov., 1919 ..... | 142-9 | 11-28-19 Nov. .............................. | 710.00 | Dec., 1919 ..... | 176-7 | Dec. .............................. | 734.30 | Jan., 1920 ..... | 327-8 | 1-23-20 -------------------------------------------------------------------------------------- 7. A portion of the amount claimed in the refund claim filed by the plaintiff on August 17, 1929, and referred to in finding 4, represented taxes paid by the Hygeia Company on the sale of spring water.8. The plaintiff, in this proceeding, seeks to recover only the taxes paid by it and the Hygeia Company on water sold in five-gallon containers. It does not claim refund of the tax paid on the water in the five-pint containers, and concedes that such tax was properly collected and paid. The plaintiff further concedes that the water bottled in the five-pint containers was properly designated "table water."
Harry S. Hall, of New York City, for plaintiff.
Joseph H. Sheppard, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
This case turns upon the question as to whether the plaintiff filed in time a proper claim for refund. Plaintiff contends that the letter of January 31, 1923 (finding 4), is a sufficient and legal refund claim. This issue was involved in the case of Philipsborn v. United States, 53 F.2d 133, 72 Ct. Cl. 545, and we think that the plaintiff's case comes within that decision. See, also, Baltimore Ohio Railroad Co. v. United States, 260 U.S. 565, 43 S. Ct. 169, 67 L. Ed. 406.