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February 5, 1954


The opinion of the court was delivered by: KAUFMAN

In this suit for tax refund the Collector of Internal Revenue assessed an additional retailer's excise tax against the plaintiff for the period of December 1942 to March 1946 in the amount of $ 6,281.95.

The plaintiffs paid the tax plus interest thereon in the sum of $ 1,269.87 and they now bring the suit against the defendant to recover the amount paid plus interest.

 The plaintiffs in this case are partners in the business known as J. Leventhal & Bro. and at various times during the period of December 1942 to March 1946 Mr. Alfonso Carvajal brought a number of people to the plaintiffs' place of business. Most of these people were South Americans visiting the United States. Certain fur coats and garments were ultimately sold and the question is whether these furs were sold to these customers by the plaintiffs, or whether the plaintiffs sold the furs at wholesale to Mr. Carvajal and he in turn as a retail dealer resold the furs to these customers.

 The plaintiffs contend that they sold the furs at wholesale to Mr. Carvajal and that he in turn sold the furs as a retailer to these customers.

 The Government, on the other hand, contends that Mr. Carvajal was not a retail dealer but was merely a broker who brought customers to the plaintiffs' place of business, and that the plaintiffs sold the garments to these customers directly.

 The defendant contends that Mr. Carvajal got a commission of 10 per cent for acting as a broker in these cases, whereas the plaintiffs contend that this was not a commission at all but a trade discount for payments of the bills within the period of ten days.

 There does not seem to be any dispute between the parties as to the meaning of Section 2401 of the Internal Revenue Code, 26 U.S.C.A. § 2401, which imposes a tax on the retail sale of certain articles of fur, so the decision here will turn on the question of whether the plaintiffs made such retail sales.

 I am convinced here that the plaintiffs have well sustained their burden of establishing that the sales in question were made to Carvajal for resale by him and that they were not subject to the excise tax imposed by Section 2401.

 It was Carvajal, not the ultimate purchaser of the furs, who placed the order and who paid the bill. It was Carvajal to whom credit was extended. It was Carvajal who had control over the ultimate price to be paid by the purchaser. In at least two instances it has been established that Leventhal did not know who Mr. Carvajal's customer was, or if he knew, certainly had no direct dealing with him, but that the transactions were completely through Mr. Carvajal, who ordered the coats directly and who paid the bills.

 It should be noted that Regulation 51, Section 320.4, makes clear that under Section 2401 even a consignee is considered the retail seller for excise tax purposes when the consignor has no control over the price or terms of sale to the ultimate consumer. This is noted in order to indicate that even in the event that it is determined that Carvajal was a consignee he would be considered a retail seller here for excise tax purposes.

 It appears quite clearly that there had been a long and extended business relationship between the plaintiffs and Carvajal, which covered a period of some 25 years. I am ready to accept the explanation by the plaintiffs that this old and established relationship was the reason for not obtaining retailers' exemption certificates under Regulation 51, Section 320.23, at the time that the sales to Carvajal were made. Plaintiffs I believe explained that in their opinion there was no question that their transactions with Carvajal were wholesale transactions just as were some sales to various New York department stores for which plaintiffs similarly felt it unnecessary to obtain retailers' exemption certificates. However, as soon as the transactions with Carvajal were questioned the retailers' exemption certificates were obtained from Mr. Carvajal. And I cannot accept Mr. Carvajal's statement that he was not cognizant of what he was signing when he provided such certificates to plaintiffs. But I do believe he is telling the truth when he said he did not realize the effect of signing the retailers' exemption certificates, yet, nevertheless, I do believe that he realized that he was stating the truth when he asserted that he was indeed the retailer with respect to those transactions.

 The 10 per cent discounts taken by Carvajal, as a result of prompt payment by him for the furs purchased, were entered in Exhibits A-1 to A-4 as a commission by the plaintiffs; yet it is quite clear to me from everything I have heard and seen here that it was undoubtedly a mistake of judgment on the part of the bookkeeper. All the other records indicate quite clearly that the transactions with Carvajal were treated as a wholesale sale to him of goods, and the records indicate that he took a discount of 10 per cent. In almost every case of those individuals listed on Exhibits A-1 to A-4, Leventhal directly billed the customer and then paid out a 10 per cent commission to those listed on Exhibits A-1 to A-4.

 I am not prepared to say that this happened in every case, but as I recollect, it has not been refuted that it happened in almost every instance. At any rate, I am convinced that Leventhal had treated these transactions at all times as wholesale transactions, and Carvajal has testified that at no time was there any arrangement between them to ...

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