*672 1. In determining the extent, if any, to which petitioner under section 501:e):2) of the Revenue Act of 1936 shall be presumed prima facie to have shifted to others the burden of the tax imposed by section 3 of the Bituminous Coal Conservation Act of 1935, held, the proper tax was imposed
2. Upon the evidence, held, that as to certain contract sales petitioner has rebutted the statutory presumption provided by section 501:e):2) of the Revenue Act of 1936 that presumably it had shifted to others the tax on such sales imposed by section 3 of the Bituminous Coal Conservation Act of 1935; and that as to the remaining sales petitioner has not rebutted the statutory presumption, and is, therefore, liable for the tax on unjust enrichment under section 501:a):1) of the Revenue Act of 1936.
3. The tax on unjust enrichment imposed by Title III of the Revenue Act of 1936, held, constitutional.
*571 The Commissioner has determined deficiencies in petitioner's unjust enrichment tax for the years 1935 and 1936*673 in the amounts of $1,046.36 and $2,259.69, respectively. These deficiencies are the result of the Commissioner's determination that petitioner shifted to others the burden of Federal excise taxes imposed but not paid in the amounts of $1,579.14 and $3,526.81, respectively, for the years 1935 and 1936. In explanation of these deficiencies the Commissioner in his deficiency notice stated in part that of all the facts in your case, it is held that you are subject to unjust enrichment tax under the provisions of section 501:a):1) of the Revenue Act of 1936, on net income of respective years involved.
Petitioner, by appropriate assignments of error, contests the correctness of the entire deficiencies for both years, and raises the constitutionality of the unjust enrichment tax.
At the hearing the Commissioner moved for an increase in the deficiency for 1936 from $2,259.69 to $2,575.68 on the ground that the net income for 1936 representing Federal excise taxes imposed but not paid, the burden of which was shifted to others, was $3,962.59 instead of $3,526.81 as previously determined.
*572 FINDINGS OF FACT.
Petitioner is a corporation, organized and existing under the*674 laws of the Commonwealth of Kentucky, with its office and place of business at Louellen in Harlan County, Kentucky. It filed unjust enrichment tax returns on Form 945 for the calendar years 1935 and 1936, but did not report any unjust enrichment tax liability on such returns.
During the taxable years 1935 and 1936, and for many years prior petitioner was, and at all times since has been, engaged in the mining of bituminous coal from its mines in Harlan County, Kentucky, from two different seams of coal, one known as the High Splint Seam and the other as the Harlan Seam. Petitioner does not own the coal in fee, but operates under a lease, paying a royalty to the landlord of 12 1/2 cents per ton for the High Splint coal mined and 10 cents per ton for the Harlan coal mined.
Since April 1, 1931, petitioner has marketed about two-thirds of its entire production through the Cleveland-Cliffs Iron Co. :herein sometimes referred to as Cleveland-Cliffs), of Cleveland, Ohio, and has marketed the remainder of the production itself. The original contract between petitioner and Cleveland-Cliffs was entered into on April 1, 1931, and stipulated that the latter company should receive a commission*675 equal to 8 percent of the sale price of the coal sold by it. The terms of the original contract have never been changed.
Petitioner had very little to do with the sale of that part of its coal sold through Cleveland-Cliffs. Those sales were made generally by that company, petitioner having no contact whatever with those customers. When Cleveland-Cliffs had made a sale of petitioner's coal to a customer, it would give petitioner a shipping order designating, among other things, the consignee, the route, the character of equipment in which the shipment was to be made, and the grade and price of coal to be shipped. Upon receipt of such an order petitioner had only the choice of filling the order at the price named by Cleveland-Cliffs, or refusing to ship it upon the ground that the price was below the market. If petitioner elected to fill the order, Cleveland-Cliffs was shown as the consignor. Petitioner did not bill the purchaser to whom it shipped coal on the order of Cleveland-Cliffs for the sale price of such coal, but billed Cleveland-Cliffs for the selling price thereof, as reported by that company, less the 8 percent commission, and looked exclusively to Cleveland-Cliffs*676 for payment, and that company was required to make payment whether it collected from those to whom the coal was sold or not.
The greater part of petitioner's coal sold by Cleveland-Cliffs, as well as that sold by petitioner, was sold on what is known as spot sales - that is, sales for immediate delivery, or for delivery within a relatively short period of time. The remaining sales were on contracts *573 providing for the delivery of the order over a considerable period of time.
The bituminous coal mining industry has always had a produstion capacity far in excess of normal demand and consumption, and because of this situation bituminous coal has generally been sold in a highly competitive market. So highly competitive is the market that prices change from month to month, from week to week, and from day to day, and such was the condition in the years 1935 and 1936. The larger part of the coal mined in Harlan County is sold outside the state, and in every market it comes in active competition with the coal of other fields, and in many cases with coal which moves to such competitive markets at a more favorable freight rate than that enjoyed by the Harlan coal.
The coal*677 produced by petitioner is not of such superior grade or quality as to command a premium over the prevailing market prices of competing coals.
Prior to and during the tax period petitioner, in addition to making block coal :the larger sizes), also made egg as well as nut and slack coal, and no one grade could be made without producing the other grades. Block coal commands a higher price than the smaller sizes. The mine had no storage facilities, and therefore could not operate unless petitioner was able to move and dispose of all those grades; and, hence, if the mine cintinued to operate, each of the different grades had to be sold, whatever the price.
It is impractical for a coal mine to close down when prices are not satisfactory, for the reason that such a closedown entails heavy expense to keep the mine in operating condition, and also results in the loss and scattering of its working force, with the corresponding loss in production capacity when the mine reopens.
The principal demand for the larger block sizes is for household or domestic use. The egg, nut, and slack sizes are used principally for industrial purposes.
The demand, and hence the best price, for block*678 coal is usually during the cold weather season of each year, extending from about October to the first of the following April.
On August 30, 1935, Congress passed the Bituminous Coal Conservation Act, hereinafter sometimes referred to as the Guffey Act. Section 3 of that act imposed an excise tax on the sale of bituminous coal of 15 percent of the sale price at the mine, or, in the case of captive coal, the fair market value of such coal at the mine, and provided for a credit or drawback of 90 percent of the tax if the coal producer accepted and complied with the code regulating the conduct of its business. The tax was each calendar month, on or before the first business day of the second succeeding month.
*574 Pursuant to the Guffey Act a coal commission was established, which promulgated rules and regulations to which the coal producers could subscribe and thereby receive the benefit of the 90 percent credit on their coal taxes. Petitioner did not become a member of the code promulgated under the Guffey Act, but, together with other Harlan County coal operators, attacked the constitutionality of the act in a suit in the United States District Court for the Western*679 District of Kentucky, in which action the court granted a temporary injunction against the collection of the tax imposed by section 3 of that act pending the final determination of the constitutionality of the act, upon condition that during the litigation petitioner would pay into court 1 1/2 percent of the sale value at the mine of the coal produced by it, which was done. The act was declared unconstitutional on May 18, 1936, 1 and thereupon petitioner withdrew the money deposited in court, and never paid any portion of the tax imposed by section 3 of the act. The tax thus imposed by section 3 of the Guffey Act, but not paid, during the effective period of the act, amounted to $1,579.41 for the two months of November and December 1935, and to $3,962.59 for the period January 1 to May 18, 1936.
During the six calendar years 1929 to 1934, inclusive, herein sometimes referred to as the base period, petitioner mined and sold a total of 1,860,285.70 tons of coal at a total selling price of $3,087,978.32, or at a realization averge price per ton of $1.66. The total material cost :depletion and royalties) of*680 the coal mined and sold during the base period was $275,952.62. The total labor cost for the base period was $1,809,586.01, or an average labor cost per ton of $0.9727.
During the years 1935 and 1936 petitioner's tonnage of coal mined and sold, selling price, realization average price per ton, material cost, labor cost, and labor cost per ton, all on a monthly basis, except material cost, which is shown on an annual basis, were as follows:
| 1935 | ||||||
| --------------------------------------------------------------------------- | ||||||
| Realization | ||||||
| Tonnage | average | Labor | ||||
| mined | Selling | price | Material | Labor | cost | |
| Period | and sold | price | per ton | cost | cost | per ton |
| January | 18,820.85 | $44,562.89 | $2.368 | $24,585.58 | $1.306 | |
| February | 19,413.10 | 44,675.78 | 2.301 | 22,782.69 | 1.174 | |
| March | 14,038.80 | 29,175.22 | 2.078 | 20,915.87 | 1.490 | |
| April | 8,584.80 | 16,611.73 | 1.935 | 16,038.66 | 1.868 | |
| May | 19,481.55 | 38,145.31 | 1.958 | 23,618.59 | 1.212 | |
| June | 21,100.70 | 40,835.06 | 1.935 | 24,833.92 | 1.177 | |
| July | 22,436.90 | 43,775.72 | 1.951 | 27,388.13 | 1.221 | |
| August | 29,316.80 | 56,556.70 | 1.929 | 33,854.43 | 1.155 | |
| September | 28,972.25 | 57,770.16 | 1.994 | 33,801.25 | 1.167 | |
| October | 37,873.10 | 81,270.16 | 2.146 | 44,953.81 | 1.187 | |
| November | 26,212.55 | 53,577.97 | 2.044 | 30,574.47 | 1.166 | |
| December | 25,366.85 | 52,689.81 | 2.077 | 29,894.89 | 1.179 | |
| ------------------------------------------------------------------------------ | ||||||
| Total | 271,618.25 | $559,646.51 | $2.060 | $42,895.73 | $333,242.29 | $1.277 |
| ------------------------------------------------------------------------------ |
| 1936 | ||||||
| January | 38,849.30 | 81,453.87 | 2.097 | 44,147.57 | 1.136 | |
| February | 35,870.80 | 76,461.86 | 2.132 | 41,368.41 | 1.153 | |
| March | 25,510.30 | 50,789.06 | 1.991 | 30,788.49 | 1.207 | |
| April | 13,300.06 | 22,372.54 | 1.682 | 26,224.53 | 1.972 | |
| May | 36,532.65 | 70,133.25 | 1.920 | 44,937.27 | 1.230 | |
| June | 42,353.85 | 80,889.31 | 1.910 | 49,822.30 | 1.176 | |
| July | 40,752.15 | 77,920.80 | 1.912 | 48,294.44 | 1.185 | |
| August | 42,654.70 | 82,080.54 | 1.924 | 48,222.52 | 1.131 | |
| September | 35,291.55 | 70,741.73 | 2.004 | 41,548.78 | 1.177 | |
| October | 36,058.15 | 74,698.31 | 2.072 | 44,678.30 | 1.239 | |
| November | 37,758.25 | 76,391.29 | 2.023 | 44,163.20 | 1.170 | |
| December | 35,719.65 | 76,165.52 | 2.132 | 43,501.21 | 1.218 | |
| Total | 420,651.40 | 840,098.08 | 1.997 | $62,869.61 | 507,697.02 | 1.207 |
*575 A higher percentage of the smaller sizes of coal was sold during some of the months of the tax period than during some of the months immediately preceding the tax period. For example, in the table of figures shown above for the year 1935 the realization average price per ton of coal for the month of October is $2.146, whereas for the month of November, which was after the Guffey tax went*682 into effect, the realization average price per ton of coal was $2.044, which was $0.102 less per ton for November than for October. This decrease in the realization average price per ton of coal in November 1935 over the month of October 1935 was not primarily due to any decreases in price which petitioner put into effect in the sales of its coal, but was due to the sale in November of a higher percentage of the smaller sizes of coal than in October.
On March 23, 1935, petitioner, through its coal sales agent, Cleveland-Cliffs, entered into a contract with the Louisville & Nashville Railroad Co., sometimes hereinafter referred to as the L & N, to furnish the latter for engine fuel 10 cars of 4-inch mine run spot coal per week from the High Splint seam, commencing April 1, 1935, at a price of $1.75 per ton. The contract was subject to cancellation by either party on 48 hour's notice. The contract was in effect on November 1, 1935, and remained in effect all during the period the Guffey Act was in effect, during which period there was no increase in the price of coal made under this contract. Running contemporaneously with this contract, petitioner had spot orders for power house*683 fuel from the L & N amounting to from 8 to 15 cars per week for 2-inch nut and slack at a price of $1.50 per ton. This arrangement started early in 1935 and ran through May 18, 1936, during which time there was no change made in the price originally set at $1.50 per ton. During the period from November 1, 1935, to May 18, 1936, petitioner delivered under these spot orders to the L & N about 15 cars of 50 tons each per week.
On April 1, 1935, petitioner entered into a contract with the Charles Buddeke Coal Co. to furnish the latter during the period from April 1, 1935, to March 31, 1936, approximately 200 cars of 2-inch nut and *576 slack at a price of $1.40 per ton. The contract contained the following clause:
Any increase or decrease in the present cost of production, sale or delivery of said coal due to changes in wage scales upon which the price herein fixed is based or to Federal or State legislation, taxation, regulation or rulings, will be added to or deducted from the price herein fixed.
Petitioner made no increase in price under this contract. Effective January 1, 1936, it decreased the price called for in the Buddeke contract from $1.40 per ton to $1.25*684 per ton, and on March 31, 1936, the contract was extended for 12 months from April 1, 1936, upon the same terms but at a price of $1.20 per ton. During the period from November 1, 1935, to May 18, 1936, petitioner delivered to the Buddeke Co. about 4 cars of 50 tons each per week.
On June 7, 1935, petitioner entered into a contract with Bonnie Bros., Inc., to furnish the latter, beginning at once for 12 months as ordered, from 1 1/2 to 3 cars per week of 2-inch nut and slack from the Harlan seam at a price of $1.35 per ton. The contract contained a clause similar to the one quoted above from the Buddeke contract. Notwithstanding this clause, petitioner did not make any increase in price under its contract with Bonnie Bros., Inc., either in 1935 or 1936. During the period from November 1, 1935, to May 18, 1936, petitioner delivered under this contract about 3 cars of 50 tons each per week.
Except for the sales to L & N, the Buddeke Co., and Bonnie Bros., Inc., as set forth above, the remainder of petitioner's sales were spot sales, and were made at the daily market price of coal as of the date of sale.
On August 30, 1935, J. G. Butler of Cleveland-Cliffs wrote to D. B. *685 Cornett, president of petitioner, to the effect that he had talked with two other concerns which were willing to advance coal prices 10 cents per ton and that "Therefore, we will advance our prices" to certain amounts set out in the letter for different grades. The closing paragraph of the letter was as follows:
We are, as agreed by phone the other day, quoting prices for thirty days from the date of sale. This on account of the expected signing of the Guffey Bill within a day or two, and we would, of course, like to have as much cushion as we can from the time that there is a fixed change in price.
As of October 1, 1935, which was the month immediately preceding the effective date of the tax imposed by section 3 of the Bituminous Coal Conservation Act of 1935, petitioner, in common with other coal operators in Harlan County and in order to be in line with the surrounding and competing coal fields, granted a general wage increase to its coal miners and day laborers. Petitioner's general manager estimated that these wage increases amounted on the average to an increase of 15 cents per ton in the cost of mining and producing coal. Petitioner, *577 in order to shift this*686 increase in wages to its customers, increased the price of its spot sales of coal in a like amount. Petitioner did not increase the price of its contract coal.
Respondent's exhibits J1, J2, and J3, which are invoices of coal sold by petitioner to Cleveland-Cliffs and shipped to various customers of the latter and are dated September 30, 1935, October 31, 1935, and November 29, 1935, respectively, show prices at which, among other sizes, 5-inch block coal was sold to customers on the respective dates. These prices show an increase between September 30, 1935, and the later dates of October 31, and November 29, 1935, of 25 cents per ton in the prices for this grade of coal. Similar increases in prices were made on 2-inch block coal. Although petitioner put into effect after October 1, 1935, price increases on its spot coal designed to pass on to its customers an estimated increase of 15 cents per ton in the labor cost of mining and loading coal, the evidence does not demonstrate that during the months that the Guffey tax was in effect the labor cost to petitioner of mining and loading coal was increased as much as 15 cents per ton.
The tax imposed by section 3 of the Guffey*687 Act was not billed as a separate item to Cleveland-Cliffs or to any of its customers, or to any of the customers to whom petitioner itself sold coal. Petitioner never demanded that Cleveland-Cliffs or any purchaser of its coal should pay or account for the tax as a separate item, and petitioner does not have and has never had any agreement, written or oral, from Cleveland-Cliffs or from any purchaser of its coal to pay any portion of the tax. Petitioner has made no agreement, express or implied, orally or in writing, to refund any part of the sales price of the coal sold by it to any purchaser thereof in event of the recovery of the tax or a decision of its invalidity.
The commission paid to Cleveland-Cliffs was not reduced by the amount of the tax imposed by section 3 of the Guffey Act, or any part thereof, but petitioner continued to pay the same commission during the tax period as theretofore.
The royalty paid during the effective period of the Guffey Act was not reduced by the amount of the tax imposed by that act, or any part thereof, but petitioner continued during that period to pay the same rate of royalty as theretofore.
The parties have stipulated that, for the*688 purpose of section 501(a)(1) of the Revenue Act of 1936, the net income from the sale of coal for the entire calendar years 1935 and 1936 was in excess of the amount of tax imposed, but not paid, under the provisions of the Guffey Act on the sales of coal in the calendar years 1935 and 1936, respectively.
The parties have also stipulated that, for the purpose of section 501(e)(3) of the Revenue Act of 1936, the net income, as defined in section 501(c) of the Revenue Act of 1936, from the sales of coal *578 during the period from November 1 to December 31, 1935, inclusive, and from the sales of coal during the period from January 1 to May 18, 1936, the periods when the sales were subject to the tax imposed under the Guffey Act, was in excess of the amount of the tax imposed for such periods, respectively.
The proper unit of commodity to be used in the statutory marginal computations is the
The "average margin" for the base period, as that term is defined in section 501(f)(1) of the Revenue Act of 1936, is correctly computed as follows:
| 1. Name of commodity | Coal |
| 2. Aggregate number of units of commodity | |
| for the six prior years (tons) | 1,860,285.70 |
| 3. Aggregate selling price of articles reported in item 2 | $3,087,978.32 |
| 4. Aggregate cost of articles reported in item 2 | $275,952.62 |
| 5. Average margin (item 3 minus item 4) | $2,812,025.70 |
| 6. Average margin per unit (item 5 divided by item 2) | $1.5116095 |
*689 As provided by section 501(e)(2) of the Revenue Act of 1936, the extent to which the statute presumes petitioner shifted to others the burden of the Guffey tax is correctly computed as follows:
| 1935 | 1936 | |
| 1. Name of commodity | Coal | Coal |
| 2. Number of units (tons) sold during year | 271,618.25 | 420,651.40 |
| 3. Selling price of units in item 2 | $559,646.51 | $840,098.08 |
| 4. Cost of units in item 2 (depletion and royalties) | 42,895.73 | 62,869.61 |
| 5. Item 3 minus item 4 | $516,750.78 | $777,228.47 |
| 6. Amount per unit (item 5 divided by item 2) | $1.9024892 | $1.8476783 |
| 7. Adjustment to amount per unit | 0 | 0 |
| 8. Margin per unit (item 6 minus item 7) | $1.9024892 | $1.8476783 |
| 9. Average margin per unit for 6 prior years | $1.5116095 | $1.5116095 |
| 10. Excess of margin per unit (8 minus 9) | $0.3908797 | $0.3360688 |
| 11. Number of units of commodity represented | ||
| by the articles for which the computation | ||
| is being made (tons) | 51,579.40 | 133,125.85 |
| 12. Net income presumed to be attributable | ||
| to shifting to others the burden of the | ||
| Guffey tax (item 10 times item 11) | $20,161.34 | $44,739.44 |
| 13. Amount of Guffey tax | $1,579.41 | $3,962.59 |
| 14. Net income presumed to be the extent to which | ||
| the burden of the tax was shifted to others | ||
| (item 12 or 13, whichever is the lesser) | $1,579.41 | $3,962.59 |
*690 From the foregoing facts we find that on the sales made to the L & N, the Buddeke Co., and Bonnie Bros., Inc., petitioner did not shift any of the Guffey tax applicable to such sales; that the tax applicable to such sales for the period November 1 to December 31, 1935, is $323.97; that the tax applicable to such sales for the period January 1 to May 18, 1936, is $734.70; that the balance of the tax imposed, but not paid, for 1935 in the amount of $1,255.44 was shifted to others; and that the balance of the tax imposed, but not paid, for 1936 in the amount of $3,227.89 was shifted to others.
Any part of the stipulated facts not embodied in the foregoing findings is incorporated herein by reference.
*579 OPINION.
BLACK: The issue presented is controlled by section 501 of the Revenue Act of 1936. The deficiencies in question were determined under subsection (a)(1) of section 501.
The Commissioner in his deficiency notice determined the extent of the shift of the burden of the Guffey tax under section 501(e)(1) and method I of article 13 of Regulations 95, and concluded therefrom that petitioner had shifted to others the entire 1935 tax of $1,579.41 and $3,526.81*691 of the 1936 tax of $3,962.59. This was the method used in Tennessee.
The parties agree, however, that the statutory presumption of the extent of the shift should be determined under section 501(e)(2) and method II of article 13 of Regulations 95. This is apparently due to the fact that petitioner in filing its unjust enrichment tax returns had elected to compute its net income under section 501(c)(2). In this connection article 13, among other things, provides:
The extent to which a Federal excise tax burden was shifted to others and therefore the extent to which net income computed pursuant to article 7, 8, or 9 may be subject to tax is presumed to be an amount computed in accordance with one of two alternative methods. The first method is provided in section 501(e)(1) and the second in section 501(e)(2). If the taxpayer elects under section 501(c) to compute net income under paragraph (2) of that section, then in computing the extent to which Federal excise tax burdens were shifted, the method provided for in section 501(e)(2) should be followed. Similarly, if the method of computing net income provided for in section*692 501(c)(1) was adopted, then in computing the extent to which Federal excise tax burdens were shifted, section 501(e)(1) should be followed.
The article then sets out in considerable detail how the computations should be made under method I and method II, respectively. The latter method was used in .
Although the parties agree that method II should be used in the instant proceeding, they do not agree upon the proper "unit of commodity" that should be used in making the computations. Petitioner contends that the proper unit of commodity is the "sales dollar," whereas the Commissioner contends it is the "ton of coal." If tons of coal mined are to be used as the units in respect of which the tax was imposed, the resulting prima facie showing is, as set out in our findings, that petitioner shifted the entire burden of the tax for both years. If, however, in making the computation the sales dollar is used as the unit in respect of which the tax was imposed, the resulting presumption is, as shown by petitioner's Exhibit 10, admitted in evidence, that petitioner shifted the burden of $1,328.35 of the tax for 1935 and of $3,753.24*693 of the tax for 1936. On this point we agree with the Commissioner, and we have made a computation of the margin *580 in our findings of fact. Section 501(e)(2) of the Revenue Act of 1936 reads in part as follows:
* * * from the aggregate selling price of all articles with respect to which such Federal excise tax was imposed and which were sold by him during the taxable year (computed without deduction of reimbursement to purchasers with respect to such Federal excise tax) there shall be deducted the aggregate cost of such articles, and the difference shall be reduced to a margin per unit in terms of the basis on which the Federal excise tax was imposed. The excess of such margin per unit over the average margin (computed for the same unit) shall be multiplied by the number of such units represented by the articles with respect to which the computation is being made; * * * [Italics ours.]
The words which we have italicized above are the provision of the statute upon which petitioner relies as a basis for its contention that in the instant case the unit for margin comparisons should be sales dollars instead of tons of coal. In this connection petitioner says:
It*694 is perfectly apparent, therefore, that the excise tax imposed by the Guffey law was imposed on the basis of selling price or sales value, and that under the express provisions of Section 501(e)(2) in order to reduce the gross margin to margin per unit, sales dollars rather than tonnage sold is the correct divisor. * * *
We think petitioner misconstrues the purpose of the use of the words "in terms of the basis on which the Federal excise tax was imposed." For example, in , the taxpayer was not selling barrels of flour, he was selling baking products such as bread, pies, and cakes. But the margin comparison was not made in terms of sales dollars of bread, pies, and cakes. It was made in terms of "barrels" of flour. Therefore, what the taxpayer was selling in that case had to be, in accordance with the statute in question, "reduced to a margin per unit in terms of the basis on which the Federal excise tax was imposed."
Article 17 of Regulations 95, relating to the tax on unjust enrichment, is in line with our understanding of this particular provision of the statute. That article reads in part as follows:
Articles expressed in*695 terms of units on the basis of which the Federal excise tax was imposed. - Articles, for example, handkerchiefs, cigars, hams, flour, cornstarch, may be expressed in terms of the commodity or material from which they were manufactured or produced. Thus, handkerchiefs, cigars, or hams may be expressed in pounds (or fraction of a pound) of cotton, tobacco, or hog, respectively; and flour and cornstarch may be expressed in bushels or pounds (or fraction of a bushel or pound) of wheat or corn, * * *.
Petitioner was producing and selling coal. The unit of measurement of that commodity is the ton, and it was tons of coal that petitioner sold. The Guffey tax was imposed upon the sale of coal, and was measured by a given percentage of the sale price at the mine, or, in the case of captive coal, the fair market value of such coal at the *581 mine. It seems reasonable that the margin unit should be tons of coal and that is what the Commissioner has used in making the margin computations here. We hold, therefore, that the statutory presumption, as shown by the margin computations, is that petitioner shifted the entire burden of the Guffey tax for both years, and, unless this*696 presumption is rebutted, the deficiency for 1935 will stand and the Commissioner's claim for an increased deficiency for 1936 will be allowed if any increased deficiency is shown to be due.
Section 501(i) provides that either party may rebut the presumption established by subsection (e) by proof of the actual extent to which the taxpayer shifted to others the burden of the tax, and that "Such proof may include, but shall not be limited to" the character of proof set out in subsections (i)(1) and (i)(2).
We think that petitioner has proven that it did not shift any of the Guffey tax applicable to the sales made to L & N, the Buddeke Co., and Bonnie Bros., Inc. The tax applicable to such sales for the period November 1 to December 31, 1935, is $323.97, and is computed as follows:
| Cars | Total | Reduced to | Selling | Total | |
| per | cars, | tons at 50 | price | Selling | |
| Buyer | week | 8.7 weeks | tons per car | per ton | price |
| L & N | 10 | 87.0 | 4,350 | $1.75 | $7,612.50 |
| L & N | 15 | 130.5 | 6,525 | 1.50 | 9,787.50 |
| Buddeke | 4 | 34.8 | 1,740 | 1.40 | 2,436.00 |
| Bonnie B | 3 | 26.1 | 1,305 | 1.35 | 1,761.75 |
| Total selling price for | |||||
| period in 1935 | 21,597.75 | ||||
| Guffey tax imposed but not | |||||
| paid at 1 1/2 percent | 323.97 |
*697 The tax applicable to such sales for the 20-week period January 1 to May 18, 1936, is $734.70, and is computed in the same manner as the tax applicable to the period in 1935. These sales were made on contracts entered into prior to the enactment of the Guffey Act and during the effective period of that act petitioner did not increase the price of or lower the grade of coal sold to these customers. To the extent of the tax applicable to such sales the presumption has been rebutted. Tennessee
We do not think, however, that petitioner has rebutted the statutory presumption attaching to the Guffey tax applicable to its remaining sales. These were spot sales and were made at the daily market price of coal prevailing as of the date of sale, and, until proven otherwise, the prices received for such sales must, under the marginal computations made under section 501(e)(2), be presumed to include the Guffey tax imposed but not paid. In other words, petitioner's "selling price less cost of material" for the taxable years 1935 and 1936 exceeded its "selling price less cost of material" for the six prior years *582 by $0.3908797*698 per ton for 1935 and by $0.3360688 per ton for 1936. A part of this excess was due to the increased cost of labor during the taxable years over the cost of labor for the base period. During the taxable years petitioner's cost of labor per ton was $1.227 for 1935 and $1.207 for 1936. During the base period of six years it was an average of $0.973 per ton. This represented an increase per ton for the taxable years over the base period of $0.254 and $0.234, respectively, which would still leave unexplained a substantial part of the statutory excess of margin per unit as follows:
| 1935 | 1936 | |
| Excess of margin per unit | $0.391 | $0.336 |
| Increased cost of labor | .254 | .234 |
| Excess of margin unexplained | .137 | .102 |
The Federal excise tax imposed by section 3 of the Guffey Act for 1935 and 1936, when reduced to a per ton basis, amounts to approximately 3 cents per ton for both years, computed as follows:
$1,579.41 divided by 51,579.40 (tons) equals $0.0306209
$3,962.59 divided by 133,125.85 (tons) equals $0.0297657
It is at once apparent that the excess of margin per unit in this proceeding for both years is large enough to absorb the entire increased cost of*699 labor, and in addition thereto the Guffey tax, with a remaining unexplained balance of excess of margin per unit of $0.107 for 1935 and $0.072 for 1936.
Petitioner has offered no proof of other increases in costs of production except labor, and, even assuming that the entire increased cost of labor was shifted to others, there is a considerable excess of margin per unit or "cushion" left for absorption of the tax. Cf. Tennessee
Petitioner in its brief makes the point that the average realization price per ton of coal was less during the months immediately following the effective date of the Guffey tax than it was in the month of October 1935, just prior to the effective date of the tax. From this premise petitioner strongly argues that the presumption which follows the marginal computations under the statute has been rebutted. If this decrease in the average realization price per ton during the period named had been due to decreases in price which petitioner put into effect during such period, it would indeed be strong argument to support petitioner's contention that it did not pass on to its customers the Guffey tax. Cf. *700 , a case where the taxpayer corporation proved that it decreased the selling price of its coal 20 cents per ton on November 25, 1935, a short time after the Guffey tax went into effect. But petitioner has not *583 shown that the decrease in the average realization price per ton of coal during the period named was due to decreases in price which it put into effect, but, on the contrary, we think the evidence shows that this decrease was due to a higher percentage of the smaller sizes of coal being sold during the months in question than during the month of October 1935. This being the state of the evidence, we do not think that petitioner has successfully rebutted the presumption raised by the marginal computations made under the statute.
Petitioner concedes that on or about October 1, 1935, it increased its price on spot sales of coal by an amount sufficient to pass on to its customers an estimated increase of 15 cents per ton in the cost of mining and loading coal by reason of wage increases put into effect at that time.
Petitioner's president, D. B. Cornett, who was the moving spirit in the conduct of petitioner's*701 business, testified however that in making this increase in the selling price of its spot coal, it was not intended to include anything for the Guffey coal tax. We have no reason to doubt the good faith of this testimony. The fact remains, however, that the price increases which were put into effect on the selling prices of spot coal appear to have been in excess of what was required to take care of the increased labor costs. These price increases seem ample to cover the Guffey coal tax as well. The margin computations, as we have already pointed out, seem to well establish that fact.
Therefore, it seems immaterial to us that in making these increases in price in the sales of its spot coal it was only the intention of petitioner to shift to its customers the increased wage cost and not the small increase per ton which resulted from the imposition of the Guffey tax. In the recent case of , the taxpayer was making a similar contention as to the product which it was selling.
The court, in ruling against the contention of the taxpayer that it had succeeded in rebutting the presumption that*702 it had shifted the tax to its customers in the form of an increase in the selling price of the articles sold (in that case cotton-content merchandise), among other things, said:
The concrete definitely controlling consideration therefore is the established fact that the inventory valuations and the prices were raised coincident with the tax, and by the collection of the increased prices the tax was passed on. Though the plaintiff is persuaded that it did not intend to pass the tax on, and that it raised its inventory and prices solely to re-establish normality and to offset its increased expenses and bad debts and because the rise in the market permitted it to do so, its proof was insufficient to establish that it had not been relieved of the tax burden, nor reimbursed therefor, nor that such burden had not been shifted directly or indirectly within the intendment of the statute. ; ; Honorbuilt Products Co. v. Commissioner, 3 Circ. 119 F.(2d) 797; *703 .
*584 So, to sum up, except as to the tax on coal sold to the L & N, the Buddeke Co., and Bonnie Bros., Inc., we hold that petitioner has not successfully rebutted the presumption raised by the margin computations.
Petitioner's claim that the tax imposed by title III of the Revenue Act of 1936 is unconstitutional because of its indefiniteness and uncertainty can not be sustained. Tennessee
The deficiencies should be recomputed accordingly.
Decision will be entered under Rule 50.
Footnotes
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