The opinion of the court was delivered by: LEVET
Both the plaintiff and defendant move for summary judgment in this action for refund of federal excise taxes brought by the plaintiff-taxpayer Waterman-Bic Pen Corporation. The parties have entered into a stipulation of all the relevant facts pertaining to the taxpayer's claim and there remain no genuine issues as to any material facts.
The taxpayer, a manufacturer of pens and other writing instruments, during the period from November 20, 1958 through March 31, 1960 paid the manufacturer's excise tax on various of its products subject to the tax. Of the amount so paid, the taxpayer seeks a refund of $ 13,827.89.
The claim for refund arises from a 'cooperative advertising plan' engaged in by the taxpayer with its distributors, dealers and other customers during this period. Pursuant to the plan, the taxpayer agreed to reimburse its dealers, subject to a certain maximum, for expenditures incurred by the dealer in advertising the taxpayer's products. The plan was optional. If the dealer chose to participate he would receive reimbursement for his advertising costs if he complied with certain terms, conditions and requirements specified by the taxpayer, which included the following:
(1) The prices at which the taxpayer's products were advertised were required to be a 'full list' price;
(2) The space or time charged were required to be used solely for the taxpayer's products, although a proportionate reimbursement was allowed when the taxpayer's product was advertised with other products;
(3) The advertising costs were required to be reasonable;
(4) Proof of performance was required to be submitted to the taxpayer before reimbursement would be made.
Upon receipt by the taxpayer of evidence that its products were advertised in accordance with the plan, the taxpayer would reimburse its dealer by crediting the dealer's account in the specified sum up to a maximum of 10% Of the net amount of the order.
During the period in suit the taxpayer expended in excess of $ 137,000 in reimbursing dealers under the cooperative advertising plan and an additional $ 63,000 on its own advertising program.
The taxpayer contends that the amounts it credited to its customer's accounts to reimburse the expenditures incurred in advertising the taxpayer's products constitute price readjustments which entitled the taxpayer to a refund under Section 6416(b)(1) of the Internal Revenue Code of 1954.
A. THE 1954 CODE AND REGULATIONS.
The relevant code sections governing the taxpayer's claim for refund are Sections 4216(a) and 6416(b)(1) of the Internal Revenue Code of 1954.
Section 4216(a) provides:
'(a) Containers, packing and transportation charges. -- In determining, for the purposes of this chapter, the price at which an article is sold, there shall be included any charge for coverings and containers of whatever nature, and any charge incident to placing the article in condition packed ready for shipment, but there shall be excluded the amount of tax imposed by this statute, whether or not stated as a separate charge. A transportation, delivery, insurance, installation, or other charge (not required by the foregoing sentence to be included) shall be excluded from the price only if the amount thereof is established to the satisfaction of the Secretary of his delegate in accordance with the regulations.'
Section 6416(b)(1) reads:
'Certain taxes on sales and services
'(b) Special cases in which tax payments considered overpayments. -- Under regulations prescribed by the Secretary or his delegate credit or refund, without interest, shall be made of the overpayments determined under the following paragraphs:
'(1) Price readjustments. -- If the price of any article in respect of which a tax, based on such price, is imposed by chapter 31 or 32, is readjusted by reason of the return or repossession of the article or a covering or container, or by a bona fide discount, rebate or allowance, the part of the tax proportionate to the part of the price repaid or credited to the purchaser shall be deemed to be an overpayment.'
Section 6416 was amended in 1960 and now provides in pertinent part: 'If the price of any article * * * is readjusted by reason of * * * a bona fide discount, rebate, or allowance, including * * * a readjustment for local advertising * * *, the part of the tax proportionate to the part of the price repaid or credited to the purchaser shall be deemed to be an overpayment.' Section 2 of Public Law 86-781, 74 Stat. 1018. The plaintiff concedes the amended statute does not apply to its claim.
Treasury Regulations 330.1-1 to 330.1-3
provided in pertinent part:
' § 330.1-1 Determination of Price for Purposes of Manufacturers ...