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MINIATURE VEHICLE LEASING CORP. v. UNITED STATES

March 29, 1967

Miniature Vehicle Leasing Corp., a corporation of New Jersey, Plaintiff
v.
United States of America, Defendant


Shaw, District Judge.


The opinion of the court was delivered by: SHAW

Plaintiff brings this action pursuant to 28 U.S.C. § 1346(a)(1) claiming the right to refund of excise tax alleged to have been erroneously or illegally assessed and collected. The assessment of tax was upon the sale by plaintiff of Volkswagen automobiles in the United States. The automobiles were imported by plaintiff from a distributor in England. 26 U.S.C. § 4061(a)(1) provides for the imposition of such tax at the rate of 10% of the price at which the importer sells the automobiles subject to exceptions defined by the provisions of 26 U.S.C. § 4216(a)(b).

 The pertinent facts may be briefly summarized as follows:

 During the taxation quarter ending June 30, 1960 plaintiff imported 30 Volkswagen automobiles which it procured from a distributor in England. Six of these automobiles were sold to Sun Motors in Alexandria, Virginia, at a price of $1575 per car. Twenty-four were shipped to E. M. Stafford, Inc. (Stafford) and sold by Stafford at auction. Title to each car as sold passed directly from plaintiff to the purchaser. Stafford retained a commission of $25 on each car sold. The average remission per car from Stafford to plaintiff on the 24 vehicles was $1631.42.

 The automobiles were manufactured in Germany. A domestic corporation, Volkswagen of America, has an exclusive franchise with the manufacturer to purchase and import Volkswagens. It is by reason of this that plaintiff found it necessary, if it were to sell Volkswagens, to import from a distributor in England. Excise taxes assessed by defendant against Volkswagen of America and plaintiff were computed upon the price at which each, as an importer, sold the cars. Volkswagen of America was assessed a tax averaging $109.67 per car and plaintiff was assessed an average of $144.77 per car. The automobiles imported and sold by each are substantially identical. The minor differences which would be related to the value of each automobile are not relevant to the crucial issue presented. Plaintiff does not challenge as incorrect the arithmetical computation of tax. *fn1" The inequity, alleged to be discriminatory, is predicated upon the theory that defendant should not be permitted in taxing plaintiff to use a sales price higher than that used in computing tax assessed against Volkswagen of America because the net result as between plaintiff and Volkswagen of America was discriminatory. Stated otherwise, plaintiff urges that the price at which Volkswagen of America sold its imported automobiles is the price upon which the assessment against plaintiff should have been computed. The argument challenges the alleged unconstitutional application of the taxing statute and is grounded upon the provisions of the Fifth Amendment and upon Article 1, Section 8 of the United States Constitution. The latter provides:

 
"The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises . . . . but all Duties, Imposts and Excises shall be uniform throughout the United States."

 This provision of the Constitution was not intended to assure the equality of tax burden upon individual taxpayers of similar class. "Geographical uniformity, not uniformity of intrinsic equality and operation" is all that was intended. See Fernandez v. Wiener, 326 U.S. 340, 359, 90 L. Ed. 116, 66 S. Ct. 178 (1945); Knowlton v. Moore, 178 U.S. 41, 104, 44 L. Ed. 969, 20 S. Ct. 747 (1900).

 The tax imposed by 26 U.S.C. § 4061(a)(1) is uniformly imposed in all of the States at a rate of 10% of the selling price. Plaintiff's problem springs from a disparity in the tax base to which a uniform tax rate is applied. The disparity in tax base is evidently due to the fact that plaintiff, as an importer, cannot buy directly from the manufacturer and, as a consequence, incurs increased costs which are reflected in the sale price upon which the excise tax is computed. An analogous situation was presented in Fitch v. United States, 323 U.S. 582, 89 L. Ed. 472, 65 S. Ct. 409 (1945) where the court stated at page 586:

 
" . . . discrimination, to the extent that it may exist, is an unavoidable consequence of an excise tax based on the wholesale selling price. Such cost factors as labor, materials and advertising naturally vary among competing manufacturers; different costs and different methods of doing business in turn may cause the wholesale selling prices to lack uniformity. And if these prices are taxed without adjustment for differing cost factors, tax inequalities and discriminations inevitably result. But where, as here, a flat tax is placed on the wholesale selling prices and no statutory provisions are made for relief from the resulting natural tax inequalities, courts are powerless to supply it themselves by imputing to Congress an unexpressed intent to achieve tax uniformity . . . ."

 The claim of plaintiff under the Fifth Amendment is likewise without merit. Congress may prescribe what shall be taxed and a uniform percentage to be applied to it in computation of the tax. What shall be taxed in this case is a selling price. The fact that a uniform percentage tax exacts more from plaintiff who sells at a higher price than a competitor may be painful; it is not unconstitutional. In Helvering v. Lerner Stores Co., 314 U.S. 463, 468, 86 L. Ed. 343, 62 S. Ct. 341 (1941) the Supreme Court stated that:

 
"A claim of unreasonable classification or inequality in the incidence or application of a tax raises no question under the Fifth Amendment, which contains no equal protection clause. LaBelle Iron Works v. United States, 256 U.S. 377, 41 S. Ct. 528, 65 L. Ed. 998; Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 401, 84 L. Ed. 1263, 60 S. Ct. 907."

 But plaintiff does not rest upon the foregoing contentions raised by the allegations of its initial complaint filed November 6, 1963. On September 30, 1965 it filed an amended complaint raising for the first time in this litigation the application of 26 U.S.C. § 4216(b)(1)(B) *fn2" to sales made through Stafford. By memorandum and at pretrial on January 12, 1966 plaintiff injected the further issue of whether the tax assessed against it violated a treaty of friendship between the United States and Germany. *fn3"

 Defendant argues that there was no sale on consignment because Stafford was merely acting as a sales agent. Assuming that there is any merit to this argument on the facts as presented, it would follow that the price Stafford obtained for the automobiles would be plaintiff's price for the purposes of taxation. Hence, the Court perceives no difference here between a direct sale by plaintiff through an agent or a sale made by a consignee. For all practical purposes a consignee is an agent of the consignor and since the term "consignment" as used in the statute is not defined in the Internal Revenue Code or by regulations, the Court must look to the ordinary meaning of the word. Consignment was defined in In Re Taylor, 46 F.2d 326 (E.D. Mich. 1931) at page 328 as follows:

 
"A contract of consignment has an entirely different meaning and effect. It imposes no obligation upon the consignor to sell or upon the consignee to buy any property, and it effects no sale or transfer of title, conditional or absolute, from consignor to consignee. It merely creates a bailment, between the consignor as bailor and the consignee as bailee, of property of the bailor, with authority in the bailee as his agent to sell such property to third persons and with the duty to account to him for the proceeds of any such sale. On such a sale the title passes, not from the consignor ...

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