The opinion of the court was delivered by: WORTENDYKE
Plaintiff, a New Jersey corporation, seeks recovery in this action of the amount of Federal excise taxes paid by the plaintiff upon sales of merchandise during the period October 1 to December 31, 1954, amounting to $ 924.90, together with interest thereon accruing subsequently to May 1, 1959, the date of assessment. It is admitted that the District Director of Internal Revenue made demand for payment on May 8, 1959, and that the said $ 924.90 was paid by the plaintiff to the District Director on May 21, 1959, accompanied by a claim for refund which was amended November 20, 1959. It is further admitted that the assessment was based upon the provisions of Chapter 19 of the Internal Revenue Code of 1939, 2400 et seq., 26 U.S.C. 2400 et seq., and that the claims for refund were disallowed in full on January 6, 1960. Plaintiff predicates jurisdiction in this Court upon the provisions of 28 U.S.C. 1340 and 1946.
Plaintiff contends that the sales of merchandise upon which the tax was assessed took place without the United States and were not made by the plaintiff; and that the tax transactions consisted of importations within the exemption provided in 19 U.S.C.A. 1321 and in 8.3(b) and 9.6 of Title 19 of the Code of Federal Regulations.
The defendant denies the jurisdiction of this Court, and alleges that on May 1, 1959 an excise tax assessment in the total amount of $ 45,954.45 for the period April 1, 1954 through December 31, 1957 was made against the plaintiff, and that only a part of that assessment, to wit $ 924.90, was paid. It also denies that the transactions referred to in the complaint were exempt from the tax assessed as contended by the plaintiff.
By way of counterclaim, the defendant seeks recovery from the plaintiff of the unpaid balance of the tax assessed on May 1, 1959, in the sum of $ 45,029.55, together with interest and costs.
At the pretrial conference, the plaintiff stated that it operated an 'Of the Month Club' enterprise in which persons subscribe for a specified number of months and receive a 'gift' from a different foreign country for each month of the period of their subscription. The 'gift' in each case is mailed directly to the 'Club Member' from a foreign source of supply. Plaintiff stated the issues to be 'whether these sales fall within the compass of the Federal Retail Sales Tax, Retail Excise Tax.' It is the contention of the plaintiff that the statute imposes the tax only upon sales ( Indian Motorcycle Co. v. United States, 1931, 283 U.S. 570, 51 S. Ct. 601, 75 L. Ed. 1277) made within the United States, and that the place of sale is the place where title is transferred, namely, where the items of merchandise are placed in the mail in the foreign country for transmission to the subscriber in the United States. Plaintiff took the further position that it had never taken title to the merchandise, but that it was shipped directly by the foreign supplier to the subscriber in the United States; thus precluding the repose of title in the plaintiff at any time. Plaintiff does concede, however, that payment for each item is made to the manufacturer or supplier of the merchandise by the plaintiff, which also prepares labels bearing the name and address of the Club 'member' and sends these labels to the supplier for its use in mailing the merchandise to the addressee.
The controlling issue with respect both to the complaint and to the counterclaim is found in the question whether any tax became due upon the transactions upon which the taxes were assessed.
In lieu of trial the parties have entered into a written stipulation of the facts upon which the Court is requested to base its decision.
The parties agree that some of the items of merchandise sent to plaintiff's 'members' would be subject, by their nature, to an excise tax, and that neither the Club nor the foreign supplier charged or collected the amount of the tax, or any part thereof, against or from the ultimate recipients of the merchandise.
On May 1, 1959, the District Director of Internal Revenue for the District of New Jersey assessed Federal Retailers Excise Taxes (26 U.S.C. 4001 et seq.) against the plaintiff for the second quarter of 1954, through the fourth quarter of 1957, in the total amount of $ 45,954.45. On May 19, 1959, the plaintiff paid the tax assessed for the fourth quarter of 1954 only, together with penalties and interest thereon, in the amount of $ 924.90, leaving an unpaid balance of $ 45,029.55. On May 20, 1959 the taxpayer filed a claim for refund of the payment of $ 924.90 for the fourth quarter of 1954, and an amended claim for this refund was filed on November 23, 1959. On January 6, 1960, plaintiff's claims for refund were disallowed.
The transactions upon which the taxes in question were assessed are described in the stipulation as follows:
Plaintiff entered into contracts with members of the general public, hereinafter referred to as Members, by the terms of which a Member was entitled to receive, for each month of the period of his membership, an item of merchandise manufactured in a foreign country to be shipped directly to the Member from abroad. Payment for such merchandise was made to the plaintiff in advance, at the time the application for membership was forwarded by the Member to the plaintiff. Upon acknowledgment of receipt of the membership application, plaintiff prepared labels bearing the Member's name and address which were forwarded to various manufacturers abroad, selected by the plaintiff, to be used by such manufacturer for the purpose of addressing the merchandise which it transmitted by mail directly to the addressee.
Plaintiff solicited membership in its Club by advertisements in newspapers and magazines, as well as by mail. Generally the Club Member was not previously advised respecting the items of merchandise which he would receive during the period of his membership.
Negotiations were entered into by representatives of the plaintiff with the foreign manufacturers of the merchandise items which were to be shipped to Club Members, and these negotiations resulted in the entry of the plaintiff into a formal contract with each manufacturer setting forth the price to be charged by the manufacturer to the Club, and the quantity and mode of shipment of the merchandise. In the event a Club Member received an item in a damaged condition and made complaint thereof to the Club, the plaintiff would request the manufacturer to replace the merchandise with a new item at the manufacturer's expense. It was the general practice of the plaintiff to cause the foreign manufacturers to send to the Club Members items which were duty-free by reason of having a customs value of $ 1 or less, in accordance ...