peak-sales period which it experienced, then such earning potential is vitally material. The record discloses a gross production loss of $ 800,000.00, with an estimated profit loss of $ 124,928.00, and unproductive plant expenses of $ 62,590.00. Combined the latter two figures make a computed loss of $ 187,518.00. Percentagewise, this represents a 10.2% Loss of what Nesco's profit factor would have been but for the strike, a considerably significant and substantial factor under most any business circumstances. There was no proof, other than conjecture, of materiel shortage which would have occasioned such a production loss. There was testimony that, while steel supply was still on an allocation basis in 1947, Nesco's prior ownership and continued friendly liaison between it and the management of the steel foundry situated at Granite City, Illinois, placed it in a favored position for steel acquisition. Additionally, it had assurance of steel supply from its usual suppliers, so that steel stock from Nesco's sources was well within its current production needs for the period of strike. This is borne out by Nesco's full production both before and after the strike of 1947.
In Oxford, the qualifying event was a drought. The argument was made there, as here, that the profit loss was trivial, as the taxpayer had had a good profit year, despite the drought, as well as a year more profitable than some of its other base period years. The Court pointed out that triviality refers to interruption of production or operation, and that cost and profit margins are used to gauge the extent and significance of such interruption, stating at p. 681:
'In thus taking account of Oxford's increased costs as well as its lost sales we are not making an exact determination of the extent to which Oxford's profit position was changed, as would have had to be done in determining constructive income under the World War II Act; we use them only to help determine whether Oxford made a showing of interruption in the normal productive process from an admittedly qualifying event, which was 'significant and not trivial'.'
Aside from the factor of increased costs of operation because of the drought in Oxford, the Court concluded that the taxpayer's pretax profit loss for 1948, one of its base period years, was 8,8% Less than it would have been but for the drought. In the instant case, because of the 1947 strike in Nesco's base period, its pretax loss of profits was 10.2%. The demonstration, accountingwise, of lost profits is not pertinent in ascertaining the amount of excess profits tax relief which may be warranted; such is arrived at on the basis of industry average. The causal pertinency goes to the question of eligibility, and the criterion of significant rather than trivial interruption of production, output or operation.
Oxford, supra. Defendant challenges plaintiff's computations of increased costs and loss of profits, but offers no contrasting proof.
Of like complexion is the question of steel shortage in 1947 raised by the defendant without any factual foundation. The record does disclose, however, that critical national distribution of steel did not prevent Nesco's Jacksonville plant from increasing its steel inventories, $ 168,573.28 at April 30, 1947 and $ 183,298.27 (i.e. $ 61,208.41 $ 122,089.86) at July 31, 1947,
which inventories were maintained at a three-months' supply. The conclusive proof of steel availability is Jacksonville's output of electrical appliances in May, 1947 of $ 316,172.00 and in July, 1947 of $ 271,131.00.
The strike months crippled the Jacksonville plant at its preseason production peak of Thanksgiving and Christmas when, but for the strike, it would have been increased and immediately consumed in a waiting and demanding market. Sales in the heavy consumer Eastern Section of the United States in the Fall of 1947 were lost to competitors without recoupment. Post-season products from resumed operations were directed to the West and Midwest.
There seems little doubt that factually, plaintiff has made out a case entitling it to tax relief. As stated in Oxford, at p. 681:
'The object of the various excess profits tax relief provisions under both statutes (World War II Act, and Korean Act) is to ensure that the finally derived average base period net income should reflect what the taxpayer would have earned in the excess profits tax year but for the war which fortuitously increased his profits, and that, to that end, the actual income for base period years which were not representative for a reason defined in the statute should be replaced by a constructive income.' (Citations omitted; parenthesis supplied.)
It is quite clear that the tax laws generated by World War II, and the Korean Action, as well as the regulations promulgated thereafter, sought to establish standards and formulae for the determination of corporate excess profits tax relief that were not without problems of application. Indeed, this was recognized in 1951, when the Senate Finance Committee in seeking to establish an amendment to section 442 by adding sub-section (h) which was to be an 'automatic' formula, stated:
'(These existing provisions) frequently may involve extremely difficult evidentiary problems, particularly with respect to a determination of the extent that any single event has affected the taxpayer's normal production, output or operation.'
The analytic grasp of these somewhat complex tax concepts is reflected in the opinion of Judge Friendly in Oxford. There, the essential purpose of the particular tax relief legislation under consideration is elucidated, and guide-lines indicated with such compelling simplicity of statement, as to render unnecessary this Court's undue preoccupation with ascertainment of Congressional intention. The legislative objective was to provide tax relief to a taxpayer upon the happening of a qualifying condition for eligibility, and to prescribe precise formulae for the determination of specific tax relief. That such formulae presents problems in methodology is not a phenomenon in tax legislation. This is so, whether a particular formula be arithmetically automatic, as was sought to be accomplished in 1951 by section 442(h), or objective on base period experience, as well as subjective with respect to what might have been -- but for the peculiar event prerequisite to eligibility. That Congress intended only a demonstratively objective past performance standard of measure, as contended by the defendant, is an illusion. That subjective considerations may be invoked in applying qualifying formulae for tax relief does no violence to objective legislation of Congress. The application of an equation between what production, output or operation would have been, but for a certain event, is merely making use of projections in accepted business practice, and is a familiar, necessary and valuable accounting and marketing technique. As succinctly stated in Burford-Toothaker, supra, 262 F.2d at page 893:
'Congress did not mean to write into this objective formula (442(a)(1)) any legal casuistry. It was dealing with the very practical matter of taxes in practical day-to-day business operations. The test was simply: did the exceptional event cause a substantial non-trivial interruption or diminution in every day operations? That, in turn, was to be determined in a practical way on practical business probabilities. In this light, with no explanation other than the strike for the sudden and complete cessation of deliveries, followed by normal resumption in the succeeding months, it is artificial to reason on rigid notions of proximate cause that the strike did not, in law, bring this about * * *'
Such business probabilities are but analogues of cost-accounting. Without a realistic harmonizing of these objective and subjective economic concepts, business could not long survive. The collective experience of the Senate Finance Committee in the exercise of its business acumen in designing the legislation in question, as well as of Congress in its legislative wisdom, displays an awareness of these economic factors, as distinguished from metaphysical contemplation, in providing excess profit tax relief to a particular taxpayer under given economic circumstances. Purpose, method and application of tax legislation should not be confused. Legislative panacea was not intended, for it may be presumed that Congress was aware, as is the judiciary always, that the application of legislation to particular cases presents particular problems of construction. That was the approach of the Court in Oxford, and such is the view of the Court here.
In conclusion, it is the finding of this Court that plaintiff has sustained the burden of proof incumbent upon it to show entitlement to tax relief for the periods in question under sec. 442(a)(1) Excess Profits Tax Act, supra.
The foregoing shall constitute findings of fact and conclusions of law.
Plaintiff may submit an appropriate order with actuarial figures, either upon notice or by consent.