*1318 During 1936 petitioner received reimbursements from two of his vendors representing amounts of Federal excise tax burdens included in prices paid by petitioner to such vendors in 1935. Upon the basis of the evidence and the application of subsections (e)(2) and (i)(1) of section 501, Title III, of the Revenue Act of 1936, determination is made of the part of the processing taxes petitioner absorbed, and the part he passed on to his vendees and is taxable on in computing his unjust enrichment tax.
*514 This proceeding involves a deficiency of $3,073.24 in unjust enrichment tax for the taxable year ended December 31, 1936, imposed by Title III, section 501(a)(2), of the Revenue Act of 1936. In a statement attached to the deficiency notice the respondent advised petitioner as follows:
This determination of your unjust enrichment tax liability has been made upon the basis of information on file in the Bureau.
The records of the Bureau disclose that the following reimbursements were received during the taxable year:
| Sperry Flour Co | $3,831.85 |
| Corn Products Sales Co | 9.70 |
| Total | 3,841.55 |
*1319 Such income is subject to tax in accordance with the provisions of section 501(a)(2) of the Revenue Act of 1936, which reads as follows:
(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:
(2) A tax equal to 80 per centum of the net income from reimbursement received by such person from his vendors of amounts representing Federal excise-tax burdens included in prices paid by such person to such vendors, to the extent that such net income does not exceed the amount of such Federal excise-tax burden which such person in turn shifted to his vendees.
The extent to which the burden of the tax was shifted to others is presumed to be the amount shown by the computation provided by section 501(e) of the Revenue Act of 1936. Schedules have been provided in the return, form 945, for the purpose of making this computation. Inasmuch as you failed to furnish the information required by these schedules, and in the absence of evidence to show that you did not shift the burden of the tax to others, the reimbursements in the amount*1320 of $3,841.55 are deemed to be net income taxable under section 501(a)(2) of the Act.
The petitioner, by an appropriate assignment of error, contests this determination of the Commissioner.
*515 FINDINGS OF FACT.
Petitioner is an individual doing business as Riverside Baking Co., located in Riverside, California, where he is engaged in the bakery business.
During the calendar year 1936 petitioner received the amount of $3,831.85 as a reimbursement from one of his vendors, Sperry Flour Co., representing Federal excise tax burdens included in prices paid by petitioner to such vendor in the purchase of flour, which flour was used by petitioner in his baking business during the taxable year 1935.
During the calendar year 1936 petitioner also received $9.70 as a reimbursement from another vendor, Corn Products Sales Co., representing Federal excise tax burdens included in prices paid by petitioner to such vendor in the purchase of articles from such vendor.
There were no expenses or fees incurred by petitioner in obtaining the reimbursements of $3,831.85 and $9.70, respectively.
The "margin" per barrel of flour used by petitioner during the year 1935 was $10.58, *1321 computed in accordance with the provisions of section 501(e)(2) of the Revenue Act of 1936 as follows:
| Margin per unit | |||
| Number of barrels used | 7,288 | ||
| Aggregate selling price | $168,006.88 | $23.05 | |
| Aggregate cost | $94,694.84 | ||
| Less reimbursement (sec. 501(f)(2)) | 3,831.85 | ||
| 90,862.99 | 12.47 | ||
| Margin | 77,143.89 | 10.58 |
The above aggregate cost of $94,694.84 represents the cost to petitioner of flour purchased during 1935, exclusive of the Federal excise tax of $1.38 per barrel of flour which petitioner's vendors had passed on to petitioner.
The "average margin" per barrel of flour used by petitioner during a period of four years and nine months (1928-1932) prededing the initial imposition of the Federal excise tax on the milling of wheat was $9.14, computed in accordance with the provisions of section 501(e)(2) of the Revenue Act of 1936 as follows:
| Margin per unit | ||
| Number of barrels used | 36,662 | |
| Aggregate selling price | $685,873.94 | $18.71 |
| Aggregate cost of flour | 350,813.52 | 9.57 |
| Average margin | 335,060.42 | 9.14 |
Although section 501(f)(1) of the Revenue Act of 1936 in defining the term "average margin" refers*1322 to a period of "six taxable *516 years preceding the initial imposition of the Federal excise-tax in question", petitioner and respondent have stipulated that the shorter period of four years and nine months is sufficient for the purposes of this proceeding. 1
The excess of the above margin of $10.58 over the above average margin of $9.14 is $1.44. Under section 501(e)(2) of the Revenue Act of 1936, it is therefore "presumed" that petitioner shifted the entire Federal excise tax of $1.38 per barrel of flour to others.
Petitioner's "costs of production" as that phrase is used in section 501(i)(1)(B) of the Revenue Act of 1936 during the base period and during the taxable year 1935, respectively, were as follows:
| Costs of production | 1928 | 1929 | 1930 |
| Gas | $1,190.90 | $1,253.23 | $1,696.71 |
| Ice | 207.63 | 112.50 | |
| Laundry | 292.68 | 493.00 | 639.56 |
| Bakery pay roll | 9,503.73 | 13,634.43 | 16,746.90 |
| Wrapping | 2,620.11 | 5,503.14 | 6,709.63 |
| Total | 13,815.05 | 20,996.30 | 25,792.80 |
The above amounts expended for gas were for baking only. The ice*1323 was used for cooling the dough. Petitioner's books did not show the cost of ice separately except for the years 1928 and 1929. During the years 1930, 1931, 1932, and 1935 the cost of ice was charged into general expenses. The laundry was for laundering of flour sacks used as rags in the bakery. The above amounts expended for pay roll represented compensation to bakers and certain workmen who actually operated in the baking of the baked gooks and did not include any amount paid executives or office help. The expenditures for wrapping were for paper and cellophane used to wrap the bread after it was baked.
After giving consideration to the above costs of production, the actual margin per unit for the taxable year 1935 and the actual average margin per unit for the base period were $5.61 and 6.13, respectively, computed as follows:
| Taxable Year 1935: | Margin per unit | |
| Margin (supra) | $77,143.89 | $10.58 |
| Costs of production | 36,239.21 | 4.97 |
| Actual margin | 40,904.68 | 5.61 |
| Base Period (1928-1932): | ||
| Average margin (supra) | 335,060.42 | 9.14 |
| Costs of production | 110,425.80 | 3.01 |
| Actual average margin | 224,634.62 | 6.13 |
*517 OPINION.
*1324 BLACK: The question in this proceeding is whether the respondent erred in determining that, under section 501(a)(2) of the Revenue Act of 1936, petitioner was subject to an unjust enrichment tax equal to 80 percent of $3,841.55, representing reimbursements of Federal excise tax burdens received by petitioner during the calendar year 1936 from two of his vendors, which reimbursements had been included in prices paid by petitioner to such vendors during the taxable year 1935. The provisions of section 501(a)(2) are set forth in our opening statement. Section 501(d) provides:
(d) The net income from reimbursement * * * specified in subsection (a)(2) * * * shall be computed as follows: From the total payment or accrual (1) of reimbursement to the taxpayer from vendors for amounts representing Federal excise tax burdens included in prices paid by the taxpayer to such vendors * * * there shall be deducted the expenses and fees reasonably incurred in obtaining such reimbursement * * *.
There were no expenses or fees incurred in obtaining the reimbursements in question and petitioner concedes that the "net income" referred to in section 501(a)(2) is the total amount of the reimbursements, *1325 namely, $3,841.55. This net income is taxable at 80 percent "to the extent that such net income does not exceed the amount of such Federal excise-tax burden which such person [petitioner] in turn shifted to his vendees."
The respondent determined that petitioner shifted all of the Federal excise taxes in question to his vendees. Petitioner contends that the burden of such taxes was borne by him and that he did not shift any of them to others. This presents an issue of fact, the burden of proof of which is upon petitioner. ; ; .
Petitioner offered no evidence relative to the Federal excise tax involved in the reimbursement of $9.70 from the Corn Products Sales Co. We, therefore, approve the respondent's determination as to this reimbursement and hold that petitioner is liable for an unjust enrichment tax equal to 80 percent of the net income from such reimbursement.
The Federal excise tax involved in the reimbursement of $3,831.85 from the Sperry Flour Co. is a processing tax on flour equal to $1.38 per barrel of flour. Petitioner's*1326 vendors passed this tax of $1.38 per barrel on to petitioner as a separate additional cost of the flour which petitioner manufactured into bakery products and sold during the taxable year 1935. The question is whether petitioner in turn passed the tax on to his vendees.
*518 Additional provisions of section 501 of the Revenue Act of 1936 are as follows:
(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:
* * *
(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*1327 number of such units represented by the articles with respect to which the computation is being made; * * *
* * *
(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, * * *
(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; or, in the case of articles purchased by the taxpayer for resale, the price paid by him for such articles (reduced in both cases by the amount for which he is reimbursed by his vendor).
(3) The term "selling price" means selling price minus * * *.
* * *
(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*1328 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.
Petitioner and the respondent have agreed, in an exhibit which is a part of the record, that under the computation provided for in section 501(e)(2) the "margin per unit" for the taxable year 1935 2 was $1.44 *519 in excess of the "average margin (computed for the same unit)" for the base period preceding the initial imposition of the Federal excise tax in*1329 question. The details of computation are shown in the findings of fact.
Since $1.44 is in excess of the Federal excise tax in question of $1.38 per barrel of flour, it is presumed under section 501(e)(2) that petitioner shifted the entire tax burden to his vendees. This presumption, however, is not conclusive. Section 501(i), supra, provides that either the taxpayer or the Commissioner may rebut it. Petitioner contends that he has rebutted it by proving the "costs of production" for the respective periods, set out in our findings. He contends that when such costs of production are considered, as is permitted by section 501(i)(1)(B), the actual margin per unit for the taxable year 1935 is 52 cents less than the actual average margin per unit for the base period, and that this indicates that he did not pass any of the processing tax on flour of $1.38 per barrel on to others. Details of petitioner's computation*1330 of the actual margins made from his books for the respective periods are shown in the findings of fact and need not be repeated here.
We think the items which petitioner has included as representing costs of production are all proper items to be considered. We do not think, however, that the consideration of those items proves that petitioner did not shift any of the processing tax of $1.38 per barrel of flour on to his vendees. The computation shows that petitioner's costs of production for the taxable year 1935 increased $1.96 per unit over what they were during the base period. Petitioner's position seems to be that by making proof of what he terms the actual margin in 1935 as compared to the actual margin for the base period, he has proved that he shifted the increased cost of those items which went into production such as gas, labor, etc., to his vendees, whereas he, himself, absorbed the $1.38 per barrel processing tax. We think petitioner's contention that the entire tax of $1.38 per barrel was borne by him is based upon the assumption without proof that petitioner shifted $1.44 of the $1.96 increased costs of production per unit rather than any of the processing tax. *1331 Petitioner's sales per unit for the taxable year 1935 increased $4.34 ($23.05 minus $18.71) over what they were for the base period. Of this increase, $2.90 represented a shift by petitioner to his vendees of the additional cost of flour exclusive of the processing tax. This left a net increase in the margin per unit of $1.44. We think that on the evidence in the record we must find that this change in margin of $1.44 was due in part to a shift of the processing tax of $1.38 per unit and in part to a shift of the increase in costs of production of $1.96 per unit, and that in accordance with section 501(i) the change in margin should be apportioned between the tax and the increase in costs of production. We think *520 138/334 of $1.44 or 59 cents should be apportioned to the shift in processing tax and 196/334 of $1.44 or 85 cents should be apportioned to the shift in increased costs of production. Upon this basis we find that 59/138 of the reimbursement of $3,831.85 received by petitioner from the Sperry Flour Co. or $1,638.25, was shifted by petitioner to others.
Respondent does not contend that it would not be in order for us to apportion the change in margin between*1332 the tax and the increase in cost of production, in a proper case, notwithstanding no attempt was made to make such an apportionment in the deficiency notice. What he contends in his brief on this point is that petitioner has not made out a case rebutting the presumption which arises upon proof of the average margin computed under section 501(e) and therefore no apportionment is in order. For reasons which we have already stated, we think petitioner has successfully rebutted the presumption named, at least, in part. Respondent in his brief argues that if we reach the latter conclusion then we should apportion as contemplated by section 501(i)(1). On that point respondent says in his brief: "Even if it should be determined that the change in margin was due in part to the Federal excise tax burden and in part to the increase in the cost of some other item, the change in margin should be apportioned between them."
With this contention we agree and we have made the apportionment along the lines which we think the statute contemplates.
We, therefore, hold that petitioner is subject to an unjust enrichment tax equal to 80 percent of $1,647.95 ($1,638.25 plus $9.70) rather than 80*1333 percent of $3,841.55, as determined by the respondent.
Reviewed by the Board.
Decision will be entered under Rule 50.
Footnotes
1. Article 1(j) of Regulations 95 permits the use of a period shorter than six years in certain instances. ↩
2. The year 1935 is used for the reason that it was during 1935 that the articles were sold with respect to which the reimbursement was received. See instruction No. 3, under schedule C-3, method II, Form 945, entitled "Return of Tax on Unjust Enrichment." ↩