(dissenting in Part)-
In this opinion, Continental Oil Company will be referred to as Continental, Continental Oil Company of Nevada as Nevada, and Conoco Oil Company as Conoco.
Nevada was organized to protect the name, Continental Oil Company. At the time the purported sale was made to it in June, 1932, it was not engaged in the sale of gasoline, oil, or other petroleum products and had no facilities for so doing The purported sale to it could have had but one purpose the avoidance of the excise tax. Hence, I agree with the conclusions of the majority with respect to the purported sale to Nevada. See Higgins v. Smith, 308 U.S. 473, 476, 60 S.Ct. 355, 84 L.Ed. 406.
It is my opinion, however, that there were substantial and material differences between the sales to Conoco and the sale to Nevada. Conoco was organized in 1929 under the laws of Delaware. At the time of its orgamzation, another Continental Oil Company was chartered m Illinois, Indiana, and Kentucky. JLhis prevented Continental - . . , . . . from doing business m its own name m those three states. Conoco was organized . „ , ,• , , , to carry on the marketing of petroleum j . j , , ° j. , , , products produced and manufactured by >. ,. , , • ,, . . ,-Tn. • T j-Continental m the states of Illinois, Indiana, A xr- , 1 i • .i, . , • ,, and Kentucky and m other states m the Great Lakes Region. Conoco maintained offices in Chicago from which its business was transacted. It had about fifty employees. From the date of its incorporation, it owned real and personal property in its own name in the states in which it did business, consisting of service stations, trucks, and other equipment, all bearing its name. Its general policies were deter-mined by its officers and directors in Ponca City, Oklahoma, but its marketing operátions were conducted from its offices in Chicago. It paid the wages and salaries of its employees and the taxes on its property from its Chicago offices. It kept separate books relating to its individual corporate affairs. Its accounts receivable ledgers, personnel records, bills payable ledgers, and merchandise ledgers were kept in the Chicago offices. It sold to jobbers, retailers, and consumers and had storage facilities at about seventy-five points where it received tank car shipments. It had its own “ account in Chicago which was maintained from funds derived from its sales. Excess funds over current require-ments were transferred to Continental in payment for petroleum products purchased. Its business was, and for three years had been, the purchase and sale of oil and gasoline as a dealer. It had previously purchased practically all its requirements from Continental.
The excise tax on sales of gasoline was imposed only on sales by an importer or producer.
0ther deaJers in H oi] and other petroleum products who were not importers Qr ducers and who were selHn in com_ tition with Conoc0) purchased between Jmie 1932 and June 2Q 1932 j stocks f H ran„in„ from tw0 t0 four times ga f ’ ranging irom “7 tou”lmes as much as they had theretofore purchased . 1M . j ,« £. _ , , • m a like period, or thereafter purchased m a ijke period. In order for Conoco to corn-pete with them on an equal cost basis, it was necessary for it to likewise purchase, prior June 21, 1932, stocks of gasoline jargeiy jn excess of its current demands, A like situation existed when the sale was made to Conoco in 1933. The amount 1 j ^ ~ , chased was approximately Conoco s re-. , r r . , , ^ gemente for a sixty-day period. Iheentire stock so purchased was disposed of ... . , , . within a period ot six months, ihe pro-. , J^ „ , K , ceeds of the sales by Conoco were deposited . e m its bank account m Chicago, &
The Commissioner found that the sales to Conoco were free from fraud and ruled that they were not taxable. This was in keeping with the settled practice of the Treasury Department to impose excise taxes *566on intercompany transactions, including sales from parent to subsidiary.1
Later the Commissioner modified his original ruling and held that Continental was liable for the tax to the extent the sales, to Conoco exceeded its normal demands of three to .four million gallons of gasoline per month.
In Higgins v. Smith, 308 U.S. 473, 476, 60 S.Ct. 355, 357, 84 L.Ed. 406, the court said:
“The Government urges that the principle underlying Gregory v. Helvering finds expression in the rule calling for a realistic approach to tax situations. As so broad and unchallenged a principle furnishes only a general direction, it is of little value in the solution of tax problems. If, on the other hand, the Gregory case is viewed as a precedent for the disregard of a transfer of "assets without a business purpose but soley to reduce tax liability, it gives support to the natural conclusion that transactions, which do not vary control or change the flow of economic benefits, are to be dismissed from consideration.” (Italics mine.)
Here the sales to .Conoco served a proper and legitimate business purpose. By purchasing in excess of its normal demands, Conoco placed itself in a position to meet, on an equal basis, its competitors who had made like purchases. Had it not done so, it would have had to purchase gasoline after June 21, 1932, at an increased cost of one cent per gallon and after June 17, 1933, at an increased cost of one-half cent per gallon, and sell it in competition with other dealers who had purchased at a lesser cost before such increases became effective. That the selling price of gasoline was increased the amount of the tax when the tax became effective is not material. It was the cost, not the selling price, that would have affected Conoco.
The undisputed testimony was that Conoco did not fix the selling price other than to follow the price fixed by the Standard Oil Company of Indiana, which was the dominant' marketeer in Conoco territory, and the price at which Conoco sold was fixed by its own officers and directors and not by Continental.
It is true of the approximate 18,000,000 gallons of gasoline sold to Conoco, it resold aproximately 704,000 gallons to Continental, but these transfers were effected by actual sales and Continental either paid' or credited Conoco therefor and when Continental sold the gasoline which it repurchased, it paid the tax thereon.
For the reasons indicated, it is my opinion that the Continental was entitled to judgment for the excise tax paid on the. gasoline which it sold to Conoco.
See Pickwick Corporation v. Welch, D.C.Cal., 21 F.Supp. 664, 670.
Sec. 619(b) of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Code, § 3441, in part reads:
“(b) If an article is— H* # si*
“(3) sold (otherwise than through an arm’s length transaction) at less than the fair market price;
the tax under this title [chapter] shall (if based on the price for which the article is sold) be computed on the price for which such articles are sold, in the ordinary course of trade, by manufacturers or producers thereof, as determined by the Commissioner.”
The Treasury Department, in a ruling construing Title 4 of the Revenue Act of 1932, said:
“That Congress had full knowledge of the conditions existing with reference to affiliated corporate .groups is further established by the fact' that in the income tax law special provisions appear relatmg to such groups, under which they are authorized to file consolidated returns. The general laws recognize corporations as separate entities and, in the absence of special legislation, such as is incorporated in the income tax provisions of the Act relating to affiliated groups, each corporation, as a separate legal entity, must file a separate return for the purpose of the excise tax.” (Internal Revenue Cumulative Bulletin XI-2, pp. 513, 514.)
Art. 15 of Regulations 46 provides:
“Where, through the existence of special arrangements between a manufacturer and a purchaser (as in the case of intercompany transfers at cost or at a fictitious price), the price for which articles are sold by the manufacturer does not reflect a fair market price, the sale is-regarded as one made ‘otherwise than through an arm’s-length transaction.’ Im such cases the tax shall be computed upon a fair market price, which, under the Act, the Commissioner is empowered, to determine.”