*1093 The Bituminous Coal Conservation Act of 1935 imposed an excise tax on coal, effective November 1, 1935. On October 1, 1935, petitioner increased its coal prices. Held, that the increase in prices was to absorb increased labor costs and no part of the excise tax burden was shifted to petitioner's vendees so as to render petitioner liable for the unjust enrichment tax imposed by section 501, Revenue Act of 1936.
*638 Petitioner challenges an unjust enrichment tax deficiency of $1,146.97 asserted by respondent for 1935. The issue is whether petitioner bore the burden of the tax imposed by the Bituminous Coal Conservation Act of 1935 or shifted the tax to its vendees.
*639 The case was submitted on a partial stipulation of fats, oral testimony, and exhibits from which we make the following findings of fact.
FINDINGS OF FACT.
Petitioner is an Iowa corporation with offices in Des Moines, Iowa. Since 1918 it has been engaged in mining coal on leased land.
*1094 During November and December 1935 and the early part of 1936 petitioner was subject to the provisions of the Bituminous Coal Conservation Act of 1935, which was invalidated on May 18, 1936, by the Supreme Court of the United States in . Said act became effective November 1, 1935. Thereunder, petitioner was liable for a tax of 15 percent of its net sales, but was allowed a credit of 13 1/2 percent of its net sales if it complied with other provisions of the act. Petitioner complied therewith and was, therefore, subject to a tax of 1 1/2 percent of its net sales on and after November 1, 1935. For November and December 1935 this tax would have been $1,872.60 if the Supreme Court had not declared the act unconstitutional.
Petitioner did not pay the tax imposed by the Bituminous Coal Conservation Act of 1935. The Commissioner held that the provisions of Title III of the Revenue Act of 1936 (tax on unjust enrichment) applied with respect to amounts not paid and required petitioner to file a return of tax on unjust enrichment (Form 945) for the year 1935. A timely return was filed by petitioner in February 1937, showing no*1095 tax due for 1935.
During 1935 petitioner was a member of Iowa Coals, Inc., a corporation organized by the operators of some 21 coal mines for the purpose of studying marketing conditions as they affected the production and sale of Iowa coal under the highly competitive conditions existing in that state. By the terms of a written contract entered into on July 22, 1935, between petitioner and Iowa Coals, Inc., the latter was authorized to fix and determine the minimum prices at which petitioner's coal would be sold to consumers. The first price list of Iowa Coals, Inc., was dated September 1, 1935. Prior thereto and at that time the coal operators were negotiating with the coal miners regarding a new wage scale. Thereafter, a wage agreement was entered into between the miners and the operators which inceased the wages paid the miners, effective on or about October 1, 1935. A survey by the voard of directors of Iowa Coals, Inc., indicated that the increased wages would increase the cost of production in the various coal mining districts of Iowa from 24 to 32 cents per ton. To offset this increased cost of production Iowa Coals, Inc., notified its *640 members that increased*1096 prices for the various grades of coal would become effective October 1, 1935.
On September 30, 1935, the selling price of petitioner's coal was increased as follows:
| Prepared coal | 25 cents per ton |
| Steam coal | 15 cents per ton |
| Cash shales of coal at mines | 40 cents per ton |
The above increases in prices were made on all deliveries of coal made subsequent to September 30, 1935, including all deliveries made on sale contracts entered into prior to, and unfilled as of September 30, 1935, which sale contracts included the following paragraphs:
The prices are based on the present freight rate of ?? per ton from our mine at to . Any increase or decrease in the freight rate will be for your account.
The foregoing prices are also based on the wage scales, hours of service, etc., in effect on this date. If during the life of this agreement any changes are made in such wage scales, hours of service, Federal or State regulations affecting the cost of production, sale or delivery of coal caused thereby shall be added to or deducted from the prices shown above and will be adjusted on the date or dates such change or changes are effective.
Neither the increase*1097 in price on existing unfilled sale contracts as of September 30, 1935, nor the tax imposed by the provisions of the Bituminous Coal Conservation Act of August 30, 1935, is shown as a separate item on the billing books of the petitioner.
On September 30, 1935, petitioner increased the wages to its employees. During the period October 1 to December 31, petitioner paid total wages amounting to $125,226.74. Wages for this period computed under the wage scale in effect prior to september 30, 1935, would have been $108,798.55.
During the period October 1 to December 31, 1935, petitioner sold 39,299.7 tons of prepared coal, 28,380.85 tons of steam coal, and 1,000 tons of cash sales coal at mines.
Petitioner's net sales for the taxable year 1935 were 188,501 tons of coal at a total net selling price of $480,237.84, or an average selling price of $2.55 per ton. Royalties paid during 1935 amounted to $18,362.48, or an average cost of 10 cents per ton.
Petitioner's net sales for the six years 1929 to 1934, inclusive, were 1,178,690 tons of coal at a total net selling price of $2,879,731.60, or an average selling price of $2.44 per ton. Royalties paid during this period of six*1098 years amounted to $102,279.08, or an average cost of 9 cents per ton.
A comparison of petitioner's operations for the taxable year 1935 *641 with its average operations for the six years 1929 to 1934, inclusive, is shown by the following table:
| Year 1935 | Six-year average, 1929 to 1934, incl. | ||||
| Amount | Per ton | Amount | Per ton | Increase, or decrease (*) per ton | |
| Net sales, 1 exclusive of increase in selling prices effective Oct. 1, 1935 | $465,755.78 | $2.47084 | $479,955.27 | $2.44317 | $0.02767 |
| Increase in selling prices effective Oct. 1, 1935 | 14,482.06 | .07683 | .07683 | ||
| Total net sales | 480,237.84 | 2.54767 | 479,955.27 | 2.44317 | .10450 |
| Less royalties | 18,362.48 | .09741 | 17,046.52 | .08677 | .01064 |
| Margin | 461,875.36 | 2.45026 | 462,908.75 | 2.35640 | .09386 |
| Cost of sales: | |||||
| Labor exclusive of increase in wage scale Oct. 1, 1935 | 324,133.69 | 1.71954 | 350,811.06 | 1.78577 | * .06623 |
| Additional labor cost due to increase in wage scale effective Oct. 1, 1935 | 16,428.19 | .08715 | .08715 | ||
| Supplies | 45,150.14 | .23953 | 41,111.66 | .20928 | .03025 |
| Repairs | 13,844.00 | .07344 | 10,082.30 | .05132 | .02212 |
| Insurance | 7,838.41 | .04158 | 12,296.25 | .06259 | * .02101 |
| Depreciation | 18,224.72 | .09668 | 22,193.74 | .11297 | * .01629 |
| Total cost of sales | 425,619.15 | 2.25792 | 436,495.01 | 2.22193 | .03599 |
| Operating profit | 36,256.21 | .19234 | 26,413.74 | .13447 | .05787 |
It is stipulated that "A computation compiled in accordance with the provision of Section 501(e)(2) of the Revenue Act of 1936 shows a presumptive margin in favor of the respondent of $0.09386 per ton of coal * * *."
It is further stipulated:
* * * that the net income limitations are not pertinent in this case. In the event the Board finds that any part of petitioner's net income for the year 1935 is attributable to shifting to others the burden of the taxes imposed by the Bituminous Coal Conservation Act of 1935, the amount of income subject to the Unjust Enrichment Tax shall be computed by multiplying the amount of the shift per unit by 45,610 units, subject, however, to the limitations contained in Section 501(e)(3) of the 1936 law.
The increase in the price of coal sold during the period in question was not on account of the tax imposed by the Bituminous Coal Conservation Act of 1935.
OPINION.
ARNOLD: The issue presented is controlled by section 501 of the Revenue Act of 1936, the pertinent portions of which are set forth in the*1100 margin. 1 The tax imposed by section 501(a) was designed to reach *642 net incomes unjustly derived from excise taxes passed on to others but not paid to the Government. Section 501(a) deals with three kinds of unjust enrichment (1) excise taxes shifted to vendees but not paid, (2) reimbursement by vendors where tax was in turn shifted to vendees, and (3) refunds or credits by the Government where tax had been shifted to others. This taxpayer clearly falls within the first classification *643 as it received no reimbursements of excise taxes from its vendors, and no refunds or credits from the Government.
*1101 The comparative table of petitioner's operations for 1935 and for the six years prior thereto shows that petitioner's 1935 margin increased over its six-year average margin by $0.09386 per ton. Accordingly, under section 501(e) a presumption arises that petitioner shifted the burden of the Bituminous Coal Conservation Act tax to its customers. However, section 501(i) permits petitioner to rebut the presumption by proof of the actual extent to which it shifted to others the burden of the tax.
Petitioner's proof to rebut the presumption consists of a showing that its sole price increase during the taxable year was to offset an increase in wages granted to coal miners. Both the wage increase and the price increase became effective October 1, 1935. The proof shows that petitioner's price increase amounted to $0.07683 per ton, while its wage increase or additional labor costs amounted to $0.08715 per ton. In other words petitioner's operations for 1935 would have shown a larger profit if both increases were eliminated from consideration. Petitioner's witnesses testified unequivocally that the burden of the tax was not shifted and that the price increase was for the purpose of*1102 partially compensating petitioner for additional labor costs. Their testimony is uncontradicted, and must be considered together with the other proof offered by petitioner.
In our opinion the petitioner has established that the burden of the tax was not shifted to its vendees. The evidence shows that neither the imposition of the excise tax nor its invalidation affected petitioner's billings, its contracts or its dealings with its customers. Respondent's contention that the price increase of October 1, 1935, made due allowance for the tax to be imposed on November 1, 1935, is overcome by the obvious fact that the price increase of that date did not even cover increased production costs, i.e., sales increased after October 1, 1935, by $14,482.06; but labor costs increased after October 1, 1935, by $16,428.19. Under such circumstances we do not believe it can reasonably be said that a portion of the price increase of October 1, 1935, represented the shifting of the burden of the excise tax to petitioner's vendees. The price increase was to partially compensate petitioner for increased labor costs. Petitioner was not, therefore, unjustly enriched within the meaning of section*1103 501, Revenue Act of 1936.
We are not persuaded that , cited and relied on by respondent, controls our decision. In that case the Circuit Court of Appeals for the Third Circuit affirmed a decision of the Processing Tax Board of Review, which found that the taxpayer had shifted the burden of the tax. The court held that substantial evidence existed to support *644 the findings of the Board of Review. However, the court carefully pointed out that "There is nothing in the record to show that the increase in price was due to any increase in the cost of raw materials, of labor or of manufacture generally." Here, we have found as a fact that the price increase was due to an increase in labor costs. To the same effect is ; ; .
In *1104 , and , the taxpayers were held liable for a failure of proof. In , the proof established that the taxpayer shifted part of the tax and bore a portion thereof and the Board allocated the reimbursements of taxpayer's vendors accordingly.
The authorities cited establish that the unjust enrichment tax imposed by section 501(a) will not apply if the taxpayer's proof demonstrates that it bore the burden of the excise tax and did not shift that burden to its vendees. Since the proof here demonstrates that petitioner bore the burden of the tax,
Decision will be entered for the petitioner.
Footnotes
1. During 1935, 188,501 tons were sold, while 196,448 tons was the average amount sold per year during the prior 6-year period. ↩
1. SEC. 501. TAX ON NET INCOME FROM CERTAIN SOURCES.
(a) The following taxes shall be levied, collected, and paid for each taxable year (in addition to any other tax on net income), upon the net income of every person which arises from the sources specified below:
(1) A tax equal to 80 per centum of that portion of the net income from the sale of articles with respect to which a Federal excise tax was imposed on such person but not paid which is attributable to shifting to others to any extent the burden of such Federal excise tax and which does not exceed such person's net income for the entire taxable year from the sale of articles with respect to which such Federal excise tax was imposed.
* * *
(e) For the purposes of subsection (a)(1), (2), and (3), the extent to which the taxpayer shifted to others the burden of a Federal excise tax shall be presumed to be an amount computed as follows:
(1) From the selling price of the articles there shall be deducted the sum of (A) the cost of such articles plus (B) the average margin with respect to the quantity involved; or
(2) If the taxpayer so elects by filing his return on such basis, 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; but * * *
* * *
(f) As used in this section -
(1) The term "margin" means the difference between the selling price of articles and the cost thereof, and the term "average margin" means the average difference between the selling price and the cost of similar articles sold by the taxpayer during his six taxable years preceding the initial imposition of the Federal excise tax in question, except that if during any part of such six-year period the taxpayer was not in business, or if his records for any part of such period are so inadequate as not to furnish satisfactory data, the average margin of the taxpayer for such part of such period shall, when necessary for a fair comparison, be deemed to be the average margin, as determined by the Commissioner, of representative concerns engaged in a similar business and similarly circumstanced.
(2) The term "cost" means, in the case of articles manufactured or produced by the taxpayer, the cost to the taxpayer of materials entering into the articles; * * *
* * *
(i) Either the taxpayer or the Commissioner 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 Federal excise tax. Such proof may include, but shall not be limited to:
(1) Proof that the change or lack of change in the margin was due to changes in factors other than the tax. Such factors shall include any clearly shown change (A) in the type or grade of article or materials, or (B) in costs of production. If the taxpayer asserts that the burden of the tax was borne by him while the burden of any other increased cost was shifted to others, the Commissioner shall determine, from the respective effective dates of the tax and of the other increase in cost as compared with the date of the change in margin, and from the general experience of the industry, whether the tax or the increase in other cost was shifted to others. If the Commissioner determines that the change in margin was due in part to the tax and in part to the increase in other cost, he shall apportion the change in margin between them.
(2) Proof that the taxpayer modified contracts of sale, or adopted a new contract of sale, to reflect the initiation, termination, or change in amount of the Federal excise tax, or at any such time changed the sale price of the article (including the effect of a change in size, package, discount terms, or any other merchandising practice) by substantially the amount of the tax or change therein, or at any time billed the tax as a separate item to any vendee or indicated by any writing that the sale price included the amount of the tax, or contracted to refund any part of the sale price in the event of recovery of the tax or decision of its invalidity; but the taxpayer may establish that such acts were caused by factors other than the tax, or that they do not represent his practice during the period in which the articles in question were sold.
* * * ↩