The Internal Revenue Codes of 1939, § 3405 (c), and 1954, §
4111, placed a 10% excise tax on sales of "self-contained air
conditioning units" and gave the Commissioner of Internal Revenue,
with the approval of the Secretary of the Treasury, power to
prescribe needful rules and regulations for the enforcement of the
provisions relating to such taxes. The Commissioner published
revenue rulings in 1948 and 1954 holding that the statute taxed air
conditioning units which had certain physical features, were
designed for installation in a window or other opening, and had "a
total motor horsepower of less than 1 horsepower."
Held:
1. These rulings were valid. Pp.
363 U. S.
711-712.
2. The case is remanded to the Court of Appeals for
consideration of the question what is meant by "horsepower" and any
other questions which may remain. P.
363 U. S.
712.
3. This disposition of the case is without prejudice to such
action as the lower courts may deem appropriate to prevent
taxpayers, should they ultimately prevail, from obtaining a
windfall by reason of taxes collected by them but not paid to the
Government. P.
363 U. S.
712.
266 F.2d 58, 267 F.2d 802, reversed.
Page 363 U. S. 710
PER CURIAM.
This suit was instituted by petitioners in the District Court
for a refund of excise taxes collected on the sales of two air
conditioning units sold in 1954 and 1955. Section 3405(c) of the
Internal Revenue Code of 1939, 26
Page 363 U. S. 711
U.S.C. (1952 ed.) § 3405(c), placed a 10% tax on
"[s]elf-contained air conditioning units." [
Footnote 1] Section 3450 gave the Commissioner, with
the approval of the Secretary, power to prescribe needful rules and
regulations for the enforcement of the provisions relating to such
taxes. Pursuant to this power, the Commissioner published revenue
rulings in 1948 [
Footnote 2]
and in 1954 [
Footnote 3]
holding that the statute taxed air conditioning units which had
certain physical features, were designed for installation in a
window or other opening, and had "a total motor horsepower of less
than 1 horsepower." These rulings represented the Commissioner's
construction of the Act until a different construction, applied
prospectively only, was expressed in regulations issued in 1959.
[
Footnote 4]
The parties stipulated that the statute applied only to
"self-contained air conditioning units of the household type," and
that each of the two units in question had an actual motor
horsepower of one horsepower. The taxpayers contended that the
words "motor horsepower" in the revenue rulings meant actual
horsepower; the Government contended that they meant the nominal
horsepower given by the manufacturer or "rated" horsepower assigned
on the basis of standards established by trade associations. The
District Court construed the revenue rulings as referring to
actual, not nominal or rated, horsepower and found, in accordance
with the stipulation, that each each of the two units had an actual
horsepower in excess of one horsepower. It found additionally that
even the "rated" horsepower of the two units in question was
greater than one horsepower. On appeal, the Court of Appeals
reversed. 266 F.2d 58; 267 F.2d 802. It did not reach the question
as to the meaning of the revenue rulings, for it held that
"household type" was the controlling statutory criterion, that the
horsepower of the units is irrelevant to that issue, that the units
in question were clearly of the household type because they were
"made to meet the needs of a household," and that the revenue
rulings, insofar as they referred to horsepower, were therefore
void. The case is here on petition for a writ of certiorari, 361
U.S. 899.
There is much said in the briefs and in oral argument about this
case as a test case. It is said that taxes on the sale of about
50,000 units turn on this decision. We intimate no opinion as to
the taxes on any sales except the two involved here. The only
issues before the Court are the construction and validity of the
revenue rulings. Hence, we do not reach the question as to what
other defenses might have been made. Respondent urges in this
Court, contrary to the stipulation below, that the statute taxes
all self-contained air conditioning units, not merely those of the
household type. We need not consider which view of the statute is
correct, for, under either view, we think the horsepower test is a
permissible one. We hold that the revenue rulings which were in
force from 1948 to 1959 [
Footnote
5] were not void. The factor of horsepower, in our opinion, may
have had some relation to size in the then stage of engineering
development, and size might well have been relevant to what was
then a "self-contained air conditioning unit." There is, indeed,
evidence that the "less than one horsepower" test was designed to
draw the line between household and commercial types of air
conditioning equipment. Moreover, it appears that the rulings in
question were issued after consultation with industry
representatives, who asserted that horsepower was a
Page 363 U. S. 712
factor relevant to the definition of the statutory term as they
understood it. The Commissioner consistently adhered to the
horsepower test for more than 10 years, and Congress did not change
the statute, though it was specifically advised in 1956 that that
was the test which was being applied. [
Footnote 6] We cannot say that such a construction was not
a permissible one,
cf. Universal Battery Co. v. United
States, 281 U. S. 580,
especially where it continued without deviation for over a decade.
Cf. United States v. Leslie Salt Co., 350 U.
S. 383. The District Court found that,
"Among engineers, the horsepower of a motor does not mean its
nominal horsepower rating, but means the actual horsepower which
the motor will deliver continuously under its full normal
load."
The Court of Appeals did not reach that question nor review that
finding in view of its conclusion that the horsepower test was not
valid. Accordingly, we remand the case to the Court of Appeals for
consideration of that and any other questions which may remain. And
we add that our disposition is without prejudice to such action as
the lower courts may deem appropriate to prevent taxpayers, should
they ultimately prevail, from obtaining a windfall by reason of
taxes collected by them but not paid to the Government.
Reversed.
[
Footnote 1]
This was reenacted in § 4111 of the 1954, Code, 26 U.S.C. §
4111.
[
Footnote 2]
S.T. 934, 1948-2 Cum.Bull. 180.
[
Footnote 3]
Rev.Rul. 54-462, 1954-2 Cum.Bull. 410.
[
Footnote 4]
This test of horsepower was excluded from the Treasury
Regulations promulgated in 1959 under the 1954 Code by T.D. 6423,
1959-2 Cum.Bull. 282.
[
Footnote 5]
See notes
2 and |
2 and S. 709fn3|>3,
supra.
[
Footnote 6]
Hearings, Subcommittee, House Ways and Means Committee on Excise
Taxes, 84th Cong., 2d Sess. 163-165.
MR. JUSTICE FRANKFURTER, dissenting.
I would dismiss the writ of certiorari as improvidently
granted.
The petition urged the substantial question of retroactivity in
the Commissioner's exercise of his lawmaking power, in that he
attacked in court a prior interpretation by him of the taxing
statutes whereby the tax now claimed
Page 363 U. S. 713
was not due. As the case finally was presented here, no
substantial question of retroactivity was presented. Insofar as the
retroactivity initially asserted depended upon the reliance of the
petitioners, that is apparently governed by § 1108(b) of the
Revenue Act of 1926, 44 Stat. 114, controlling excise taxation, and
is, in any event, not now in issue, for the petitioners stipulated
in the trial court and reiterated here that the Commissioner was in
no way "estopped" to attack the invalidity of the ruling as
petitioners and the District Court construed it. Insofar as the
retroactivity asserted was the more general unfairness of a change
in the Commissioner's interpretation, it cannot be presented in
this case, because, from the start it, has been manifest that the
ruling is, to say the least, ambiguous (the Commissioner tried to
clarify it in 1957) and reasonably susceptible of both
interpretations urged for it, so that any judicial determination of
its meaning was bound to affect some taxpayers retroactively. Nor
was or is there any basis in the record for saying that the Court
of Appeals' rejection of the horsepower test
in toto was
more severely retroactive in its effect than either construction of
the ruling might have been.
The only other contention presented for review is the
substantive statutory determination of the Court of Appeals, as to
which that court apparently failed to give due weight to the
interpretative function of the Commissioner. In light of the
confused and cloudy record in this case, this failure cannot be
said to be clearly presented, since the Commissioner's approach has
resulted in a rule which the Court of Appeals found to be
"inconclusive and uncertain." (266 F.2d 62.) Had all this been
clear from the start, it would have been apparent, to me at least,
that, assuming the Court of Appeals to be wrong, there was not such
a departure "from the accepted and usual course of judicial
proceedings . . . as to call for an exercise of this court's power
of supervision." Rule 19, par. 1(b).
Page 363 U. S. 714
Moreover, this litigation bears many of the earmarks of a
feigned suit. Despite the desire of the parties to "test" a
question of law, we ought to avoid adjudication in a case with so
checkered a course of positions taken by the parties where the
particular controversy may well be less than real. The consent
required by § 6416(a)(3) of the Internal Revenue Code of 1954, a
precondition for this action, was obtained from the attorney and
auditor of the petitioners. It is not too broad an inference to say
that the petitioners were, in effect, writing their own consent for
bringing this suit. Without further proof, such sales and consent
hardly establish the immediate interest of the petitioners in the
outcome of this lawsuit,
i.e., money loss due to an
illegal exaction, not some other suit sought to be made to turn
upon it, which is a requisite to adjudication.
Cf. Atherton
Mills v. Johnston, 259 U. S. 13,
259 U. S. 15.
Responsibility for the confusing shifts of position during
litigation which characterize this record may not unfairly be
attributed to the extent to which this action was contrived, and to
the stipulations affecting the really substantial interests which
were apparently the chief concern for using this action as a pilot
litigation. Whether or not a case is feigned must ultimately turn
on inferences from the record and history of a litigation. The
appearance that it may be, even if not demonstrably calling for
dismissal of the proceeding, ought to make the Court doubly
unwilling to give its judgment on the substantive questions to be
dug out of so dubious a litigation on such a record.
I would dismiss.
MR. JUSTICE CLARK, whom THE CHIEF JUSTICE and MR. JUSTICE BLACK
join, dissenting.
The Congress, in 1941, levied an excise tax on "[s]elf-contained
air conditioning units." § 3405(c), Internal Revenue Code of 1939.
The legislative history shows that
Page 363 U. S. 715
the Congress intended the tax to
"apply to all mechanical refrigerators and refrigerating units
(including self-contained air conditioning units) whether of
household or other type."
H.R.Rep. No. 1040, 77th Cong., 1st Sess., p. 32. In 1948, the
Commissioner issued a ruling, reissued in 1954, which defined
self-contained air conditioning units as those with "a total motor
horsepower of less than 1 horsepower."
This suit involves only two self-contained air conditioning
units, but, by stipulation of the parties, it is a "prototype or
test" case to determine the extent of the coverage of the excise
tax under § 3405(c) as to self-contained air conditioning units.
Petitioners contend that "total motor horsepower," as used in the
rulings, meant actual horsepower, rather than that for which the
motor is rated by the manufacturer. It was stipulated that each
unit had over one actual horsepower, but a manufacturer's rating of
three-fourths horsepower. The Government contended that an
interpretation that actual horsepower applied would make the
rulings "fly in the face of the statute." It argued that the ruling
should be interpreted
"in [consonance] with the statute, so as not to require the
Court to strike down the ruling as a nullity and as something that
is unreasonable, void, and of no effect. [
Footnote 2/1]"
This, the Government asserted, required that "total motor
horsepower" be interpreted as manufacturer's rated horsepower. The
trial court, however, enforced the rulings as requiring the
application of the actual horsepower test. The Court of Appeals
reversed, holding that the horsepower test was not permissible
under the statute, and that the rulings were void.
The Government's contention that the statute covers all
self-contained air conditioning units is brushed aside by this
Court with a finding that such a position is
Page 363 U. S. 716
"contrary to the stipulation" which declares the statute
restricted to units of the "household type." The Court finds that
it "need not consider which view of the statute is correct, for,
under either view, we think the horsepower test is a permissible
one." It holds that the rulings "were not void." Thus, despite the
fact that § 3405(c) refers solely to "[s]elf-contained air
conditioning units" and fails to mention "household type," the
Court refuses to resolve this question of statutory construction
raised by the Government. It simply remands the case to the Court
of Appeals for a determination of whether the ruling meant by its
language to refer to actual horsepower, as the District Court
found, or to the manufacturer's rated horsepower as posted on the
motor itself. I cannot see how any horsepower test under the
rulings would be permissible, since it is not mentioned in the
statute and is entirely inconsistent with the statute's full
coverage. This test was formulated by the industry in meetings that
culminated in a letter from the York Corporation to the
Commissioner. This letter revealed that York considered the
language "[s]elf-contained air conditioning units," as used in §
3405(c), to mean "exactly what the common everyday accepted usage
of the term implies -- the unit must be complete within itself."
The suggested definition which York made was later promulgated in
almost identical language by the Commissioner. York represented it
to be "sufficiently broad in its scope to include without exception
all self-contained air conditioning units which are now being
manufactured." Petitioners admit that they were "at all times
material hereto engaged in the manufacture and sale of
self-contained air conditioning units." It is further admitted that
the units involved here were self-contained ones, "in the sense
that all the works are in the same box." They certainly came within
the terms of § 3405(c) as reflected in the York representations. If
these representations brought about an
Page 363 U. S. 717
erroneous ruling inconsistent with § 3405(c), then it is void,
and we should so declare it, as did the Court of Appeals.
Finally, these rulings do not have the force of regulations,
and, as petitioners admit, they cannot "overrule a statute."
However, if the manufacturer does not collect the tax on a sale
because of his reliance on a ruling of the Commissioner holding the
sale nontaxable, then "[n]o tax shall be levied, assessed, or
collected" on that sale. § 1108(b), Revenue Act of 1926. [
Footnote 2/2] It follows that, if the
petitioners did not collect the tax imposed by § 3405(c) because of
the Commissioner's rulings, no tax can now be levied or collected
on the same. The Government specifically concedes that, if
respondents
"had relied
to their detriment -- by treating as
nontaxable the sale of units with an actual horsepower output of
one or more [which is the interpretation placed on the ruling by
petitioners and the trial court] -- they would be protected [under
§ 1108(b)] against any retroactive change in administrative
position."
Conversely, if the manufacturer did not rely on the rulings of
the Commissioner and collected the tax under § 3405(c), then he
could not now interpose invalid rulings to bar the Government's
recovery from him of the tax he has already collected.
In this connection, no one seems to know to what extent the tax
has been collected by the industry. Petitioners now seem to admit
that they made substantial collections, and the record discloses
that other major manufacturers determined "taxability . . . by
reference to rated
Page 363 U. S. 718
horsepower, whether or not the actual horsepower was different
therefrom." It therefore appears that large sums of money have been
collected and are now being retained by the manufacturers. This
case is based on only two units, purchased by persons connected
with the petitioners. Under the stipulation, nevertheless, the
result of this case will control the tax on some 50,000 other units
not involved here. While the customers who paid the tax might sue
the manufacturer therefor, the likelihood of such actions would be
highly remote under the circumstances here.
Thus far, the Government has received the tax only on the two
units involved here. There are no "consents" save on these same two
units -- and these consents were obtained from a lawyer and an
accountant of the taxpayers. The entire record and course of this
litigation are cloudy, and the parties cannot even agree as to what
they "agreed" upon in their stipulations. In light of these
circumstances, I think it highly unfortunate that today the Court
should enter an order which may permit the manufacturers to keep as
a windfall considerable amounts they have charged their customers
for "excise taxes."
[
Footnote 2/1]
See R. pp. 130-132.
[
Footnote 2/2]
§ 1108(b) of the Revenue Act of 1926, c. 27, 44 Stat. 9,
114:
"No tax shall be levied, assessed, or collected . . . on any
article sold or leased by the manufacturer . . . if at the time of
the sale or lease there was an existing ruling, regulation, or
Treasury decision holding that the sale or lease of such article
was not taxable, and the manufacturer, . . . parted with possession
or ownership of such article, relying upon the ruling, regulation,
or Treasury decision."