Reporter's Statement of the Case

The Reporter's statement of the case:

Mr. John E. Hughes for the plaintiff.

Mr. James A. Cosgrove, with whom was Mr. Assistant Attorney General Frank J. Wideman, for the defendant.

The court made special findings of fact as follows:

I. Plaintiff is an Illinois corporation located in the city of Chicago. During the period here involved, plaintiff was engaged, among other things, in the business of manufacturing and selling gears.

II. During the period January 1922 to February 1926, both inclusive, the plaintiff paid excise taxes upon the sales of its gears under the provisions of section 900 (3) of the Revenue Act of 1921, and section 600 (3) of the Revenue Act of 1924. The taxes were paid in monthly installments upon the sales of all gears manufactured by the plaintiff, without regard to the types of gears sold or the purposes for which they were designed or used. The total amount of taxes paid was $49,074.68. Recovery for any of the taxes paid prior to January 5, 1923, is barred by the statute of limitations. An itemized statement of the taxes paid subsequent to that date is as follows:

III. The gears manufactured and sold by plaintiff were of the types generally known as transmission gears, differential gears, pinion gears, and timing gears. All these gears were in common industrial use long prior to the advent of the automobile. There have been no inventions involving changes in gear principles since the advent of the automobile.

IV. The gears involved in suit were sold by plaintiff to both manufacturers and jobbers, about sixty percent of the sales being to the former, and forty percent to the latter. Some of the gears sold were of standard types and sizes and were regularly kept in stock by plaintiff, while some of them were manufactured in accordance with blueprints and specifications submitted by purchasers. It was the practice of the plaintiff when an order for gears was received to ascertain whether or not the type and size of the gears ordered were in stock. If so the order was filled from the stock on hand. If the particular size and type of gears ordered were not in stock they were manufactured specially by the plaintiff from the blueprints and specifications furnished.

V. The manufacturers of industrial machinery to whom plaintiff sold gears included manufacturers of gear-cutting machinery, pumps, carbonating machinery, laundry ma

Reporter's Statement of the Case

chinery, milling and mining machinery, weaving and spinning machinery, can-making machinery, cigarette-making machinery, washing machines, farm machinery, printing machinery, house-lighting plants, and gas marine engines, to be used by them in the manufacture of their various products. None of these gears were designed or manufactured for the special purpose of being used as, or to replace a component part of a motor vehicle. They were commercial articles and nothing in their design or construction made them primarly adaptable for use on automobiles, although many of them. were suitable for such use. At least 60 percent of the taxes involved was paid on sales of gears to manufacturers of industrial machinery.

VI. In addition to the various types of industrial gears manufactured and sold by plaintiff it copied certain types and sizes of gears used in various makes and models of automobiles, which it advertized and sold for replacement purposes. The plaintiff disposed of these gears through jobbers. Plaintiff's "D & B" silent timing gears, "D & B" silent crank and generator gears, cam gears and idler gears are of this class. It manufactured, advertized, and sold such gears for practically all makes and models of automobiles and automobile trucks. It published and distributed catalogues devoted exclusively to these gears, in which the various makes and models of automobiles and automobile trucks were listed, indicating in each instance the particular size and type of the replacement gear to be used. With the exception of a few isolated instances it is not shown that the so-called "silent timing gears " listed in plaintiff's catalogues were suitable or could by reason of their dimensions be used for nonautomotive purposes. These gears, because of their design and construction, were primarily adapted for use on motor vehicles.

VII. Plaintiff did not keep a record showing the particular types of gears included in the various sales upon which the taxes were paid. The original invoices of sales by which this could have been shown have been lost or destroyed and are not in evidence. There is no satisfactory proof segregating the types of gears sold to jobbers upon which a finding

Opinion of the Court

can be made as to what amount of the taxes paid upon such sales was paid on sales of gears other than those primarily adapted for use on automobiles.

VIII. The plaintiff bore the economic burden of the taxes and did not collect the amount paid, either directly or indirectly from its purchasers.

IX. On December 30, 1926, plaintiff filed a claim for refund of the aforesaid taxes on the ground that the taxes were "paid on the sale of gears and other articles erroneously taxed as parts or accessories, such articles being ordinary commercial articles and not subject to the manufacturer's excise tax." The claim was rejected by the Commissioner of Internal Revenue on August 24, 1927.

The court decided that plaintiff was entitled to recover.

WILLIAMS, Judge, delivered the opinion of the court: This is an automobile "parts or accessories case. The rule as to what constitutes a part or accessory for an automobile is announced by the Supreme Court in Universal Battery Co. v. United States, 281 U. S. 580, and has been uniformly followed by this and other courts in numerous cases, unnecessary to cite here. The test is the primary adaptability of the article sought to be taxed for use in motor vehicles. If it is primarily adapted for such use it is to be regarded as a part or accessory for an automobile even though there are other uses of the article for which it is not so well adapted. On the other hand an article equally adapted to a variety of uses and commonly put to such uses, one of which is use in motor vehicles, cannot be so classified.

Plaintiff paid taxes on the sales of all its gears generally without reference to type, size, or purpose for which the particular gear was used. It is clear the gears sold to manufacturers of industrial machinery for use by them in the manufacture of their own products cannot be classified as parts or accessories for automobiles. Neither can the standard types of gears sold to jobbers, which were equally adapted to a variety of uses and commonly put to such uses, including use in motor vehicles, be so classified. Frost Gear

Opinion of the Court

& Forge Co. v. United States, 73 C. Cls. 750, 52 Fed. (2d) 1022. It is likewise clear that plaintiff's silent "D & B" timing gears listed in its various catalogues as replacement parts for automobiles were primarily adapted for that use and fall within the court's definition of "parts or accessories" for automobiles. Perfection Gear Co. v. United States, 70 C. Cls. 422, 41 Fed. (2d) 561.

The taxes having been paid on sales of gears generally, some of which were taxable as parts or accessories for automobiles, and some of which were not, plaintiff can recover only such amount as has been shown, with a reasonable degree of accuracy, to have been paid on sales of gears not subject to the tax.

Plaintiff kept no record of the particular types of gears comprising the various sales upon which the taxes were paid other than the original invoices of sales. These have been lost or destroyed, and plaintiff has not been able from its books and records to make a detailed segregation of the gears sold. There is no other proof upon which such segregation can be made with any reasonable certainty. There is, therefore, no satisfactory proof upon which a finding can be made as to the total amount of the taxes paid by plaintiff on sales of gears other than those primarily adapted for use on automobiles. It is, however, clearly established by parole testimony that 60 percent of the sales upon which the taxes were paid was made to manufacturers of industrial machinery. It is further shown that many of the gears sold to manufacturers were larger and more expensive than the standard types of similar gears sold to jobbers. It is evident that at least 60 percent of the taxes involved was paid on sales of gears to manufacturers, and we have so found. None of these gears were primarily adapted for use on automobiles, and the plaintiff is entitled to recover the amount of the taxes paid on such sales.

The remaining 40 percent of the taxes was paid on sales of gears to jobbers. These sales included both gears primarily adapted for use on automobiles and gears not primarily adapted to such use. As has been stated, plaintiff made no segregation on its books and records of the types