The rule of strict construction will not be pressed so far as to
reduce a taxing statute to a practical nullity by permitting easy
evasion. P. 251 U. S.
The Munitions Manufacturer's Tax payable under the Act of
September 8, 1916, c. 463, § 301, 39 Stat. 780, by persons
"manufacturing" shells, etc., and computed as an excise of 12 1/2
percent upon the net profit from the sale or disposition of such
Page 251 U. S. 502
within the United States, applies to the profits derived from
sale of shells under contract to the British government by one who
performed the manufacture in its early stage only, and had the
subsequent operations performed by subcontractors, furnishing them
the steel so partly manufactured, with some of the other materials,
retaining ownership of materials when furnished, and control of the
operations, and owning the shell when completed. P. 251 U. S.
This liability is not affected by the fact that the
subcontractors paid a similar tax on their profits. P. 251 U. S.
258 F. 533 affirmed.
The case is stated in the opinion.
MR. JUSTICE McKENNA delivered the opinion of the Court.
Petitioner brought this action against Lewellyn, who is
Collector of Internal Revenue for the Twenty-Third District of
Pennsylvania, to recover the sum of $271,062.62, with interest from
December 29, 1917, paid to him, under a demand made by him, as
collector for an excise tax assessed under § 301 of Title III of
the Act of September 8, 1916, known as "munition manufacturer's
Petitioner made a verified return under protest, reciting its
belief that the tax should be abated for the following reasons: (1)
it (petitioner) did not manufacture munitions; (2) the munitions
taxed were manufactured by certain independent contractors; (3) the
profit derived by petitioner was from the sale of the munitions,
not from their manufacture.
The tax was not abated, and petitioner paid it under
Page 251 U. S. 503
The facts are stipulated: petitioner, through its president, who
went to England, entered into three contracts with the British
government dated, respectively, January 26, September 29, and
October 7, 1915, for the manufacture and delivery f.a.s. New York,
of a certain number of high explosive shells.
The work to complete the shells consisted of the following
operations: (1) obtaining suitable steel in bar form; (2) cutting
or breaking the bars to proper length; (3) converting the bars or
slugs into a hollow shell forging by means of a hydraulic press;
(4) turning the shell upon a lathe to exact dimensions; (5) closing
one end of the forging to form the nose of the shell; (6) drilling
out the case of the shell and inserting a base plate; (7) threading
the nose of the shell and inserting the nose bushing and inserting
in the nose bushing a wooden plug to protect the thread thereof;
(8) cutting a groove around the circumference of the shell and
inserting thereon a copper driving band and turning the band to
required dimensions; (9) varnishing, greasing, and crating the
Petitioner was not equipped, nor did it have facilities, for
doing any of the described work except the manufacture of steel
suitable for the shells in bar form, and therefore, to procure the
manufacture of the shells, it (petitioner) did certain work and
entered into numerous contracts in relation to the various steps in
making a completed shell.
These steps are not necessary to give. The question in the case
is not a broad one, and all of the details of the stipulation are
not necessary to its decision. The essential elements of fact we
have given, and whether they bring petitioner within the munitions
Tax Act we shall proceed to consider.
The act is as follows:
"Sec. 301. (1) That every person manufacturing . . . (c)
projectiles, shells, or topedoes of any kind . . . or (f) any part
of any of the articles mentioned in . . . (c) . . . shall pay
Page 251 U. S. 504
for each taxable year, in addition to the income tax imposed by
Title I, an excise tax of twelve and one-half percentum upon the
entire net profits actually received or accrued for said year from
the sale or disposition of such articles manufactured within the
United States. . . ."
The act is explicit in its declaration; perplexity and
controversy come over its application. One must be a "person
manufacturing" to incur the tax, but who is to be regarded as such
person in the sense of the act? Or, to put it another way, when is
"manufacturing" (the word of the act) done, and when is
"manufactured" (the word of the act) attained? In elucidation of
the words, the specifications enumerate nine operations to produce
a shell -- that is, a completed shell (except for explosive charge
and detonating device) such as petitioner contracted to deliver to
the British government. And all of the operations are asserted to
be necessary, and all must be performed seemingly by the same
person in order that he may be designated as a "person
manufacturing." We put aside for the purpose of testing the
contention the provision of the act making a person manufacturing
"any part of any of the articles mentioned" subject to "a tax."
The contention reduces the act to a practical nullity on account
of the ease of its evasion. Besides, petitioner minimizes what it
did. It was the contractor for the delivery of shells, made the
profits on them and the profits necessarily reimbursed all
expenditures on account of the shells. It was such profits that the
act was intended to reach -- profits made out of the war and taxed
to defray the expense of the war. Or, as expressed by the court of
appeals, Congress "felt that the large abnormal profits incident to
these war contracts created a remunerative field for temporary
taxation." Petitioner, it is true, used the services of others, but
they were services necessary to the discharge of its obligations
and to the acquisition of the profits of such discharge. And
petitioner kept control
Page 251 U. S. 505
throughout -- never took its hands off, was at pains to express
the fact, and retained its ownership of all of the materials
furnished by it, and the completed shell belonged to it until
delivered to the British government. And further, the steel
furnished by it was advanced above a crude state -- advanced to
slugs. The nicking by an outside company we consider of no
consequence, for after nicking they were redelivered to petitioner
and by it "broken or separated" into slugs.
And petitioner supplied its respective subcontractors with other
materials -- "transit plugs," "fixing screws," and "copper tubing."
It is, of course, the contention of petitioner that this was
furnishing, not manufacturing, and that the literal meaning of
words can be insisted on in resistance to a taxing statute. We
recognize the rule of construction, but it cannot be carried to
reduce the statute to empty declarations. And, as we have already
said, petitioner's contention would so reduce it. How universal
must the manufacturing be? Will the purchase of an elemental part
destroy it? And how subsidiary must the work of the subcontractor
be not to relieve the contractor -- take from him the character of
a "person manufacturing"? And such is the tangle of inquiries we
encounter when we undertake to distinguish between what a
contractor to deliver a thing does himself and what he does through
others as subsidiary to his obligation.
It is, after all, but a question of the kind or degree of agency
-- the difference, to use counsel's words, between "servants and
general agents" and "brokers, dealers, middlemen or factors." And
this distinction between the agents counsel deems important, and
expresses it another way as follows:
"'Every person manufacturing' means the person doing the actual
work individually, or through servants or general agents, and that
the ownership of the material worked upon does not alter this
meaning of the word. "
Page 251 U. S. 506
We are unable to assent to this meaning of the word. It takes
from the act a great deal of utility, and makes it miss its
purpose. Of course, it did not contemplate that "person
manufacturing" should use his own hands -- it contemplated the use
of other aid and instrumentalities, machinery, servants, and
general agents, availing thereby of the world's division of labor,
but it contemplated also the world's division of occupations, and,
in this comprehensive way, contemplated that all of the world's
efficiency might be availed of, and, when availed of for profits,
the latter could not thereby escape being taxed. And where, indeed,
was the hardship of it? The tax was on profits, and measured by
It is, however, alleged, and the stipulation shows, that the
subcontracting companies paid a tax on their profits, and profits
were testified to be the difference between what was paid the
subcontracting companies for the work and their cost in doing it.
And it thus appears, it is urged, that petitioner has been taxed
upon the theory that it manufactured the shells, and the
contracting companies "have been taxed for actually performing all
the manufacturing necessary to complete the same shells."
But it is sufficient answer to say that the tax here in issue is
the tax on the profits of the petitioner, not on the profits of the
subcontractors. The question whether such subcontractors were
correctly assessed concerns them, and not the petitioner, who is
resisting a tax on the profits actually made by him, and none
We consider further discussion unnecessary.
MR. JUSTICE DAY and MR. JUSTICE VAN DEVANTER dissent.