Opinion
No. 44663.
January 5, 1942.
Ralph P. Wanlass, of Washington, D.C. (Walter G. Moyle, of Washington, D.C., on the brief), for plaintiff.
J.H. Sheppard, of Washington, D.C., and Samuel O. Clark, Jr., Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for defendant.
Before WHALEY, C.J., and WHITAKER, MADDEN, and LITTLETON, JJ.
Proceeding by Fischbeck Soap Company against the United States to recover taxes paid.
Judgment for plaintiff.
This case having been heard by the Court of Claims, the court, upon the evidence adduced and the report of a commissioner, makes the following special findings of fact:
1. During the period involved in this suit, June 1932 to March 1933, both inclusive, plaintiff was a corporation organized and existing under and by virtue of the laws of the State of California, with its principal place of business in San Francisco in that state. During that period plaintiff was engaged in the manufacture and sale of soap under the trade name "Queen Lily."
2. Queen Lily soap was manufactured and sold in a white bar, approximately 4½ inches long, 2½ inches wide, and 1¾ inches thick. The bar weighed approximately 13 ounces, and contained indentations to permit convenient division into three parts. It was sold in a wrapper on which appeared the following legend:
"WASHES WITHOUT RUBBING
"H. Fischbeck Co., the manufacturers of the Queen Lily Soap, are the proprietors of the first and only soap that washes without rubbing. It was introduced on this Coast in the year 1869 by the inventor. From our long experience, and with improved machinery, the great reduction in material and labor, we are now able to offer this brand at a greatly reduced price, and in quality and finish vastly superior to any heretofore manufactured by us.
"In using all other kinds of soap, it is necessary to wash the clothes perfectly clean before boiling, or the dirt will become Set or Boiled into the fabric, and cannot be washed out.
"In using the Queen Lily Soap it is Impossible to Boil the dirt in, it Boils It Out. The finest Linens, Cambrics, and Laces washed with this Soap come from the wash sweet, pure, and uninjured.
"For the Toilet and Bath it has no equal — unlike most other soaps, which leave the skin parched and dry, and liable to crack; it imparts flexibility and moisture to the skin.
"It has no equal for washing flannel goods. It is excellent for washing paint work. It removes grease and pitch from fabrics. For cleaning and shampooing the head it produces wonderful effects.
"Do not rub the clothes when you take them from the soaking water, put them into the boiler just as they are; after they have boiled from fifteen to twenty minutes, take them from the boiler and put them into a tub; pour just sufficient cold water on them so that you can handle them, then examine them. Socks and other articles that are stained many require a little rubbing."
In large type in two places on the label the following words appeared:
"EASY ON THE CLOTHES "EASY ON THE HANDS".
3. During the period June 1932 to March 1933 plaintiff failed to file excise tax returns under Title IV of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev. Acts, page 603 et seq., covering the sales of Queen Lily soap. A deputy collector of Internal Revenue, pursuant to the provisions of section 3176 of the Revised Statutes, 26 U.S.C.A.Int.Rev. Code, §§ 3612, 3634, deeming Queen Lily soap subject to taxation under the provisions of section 603 of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev. Acts, page 608, prepared and filed excise tax returns for the plaintiff on May 4, 1934 covering the aforesaid period. The returns disclosed a tax liability in amount of $1,065.92, which, together with interest and penalties, was duly assessed in the amount of $1,667.14 and paid on April 20, 1935.
4. On September 14, 1936 plaintiff filed with the Collector of Internal Revenue a claim for refund in the amount of $1,670.86, on the ground that Queen Lily soap was not taxable as a toilet soap. The claim was rejected by the Commissioner of Internal Revenue on May 8, 1937.
5. The Federal Standard Stock Catalogue, Section IV (Part 5), being Federal Specification for floating white toilet soap for the use of the departments and independent establishments of the Government in the purchase of this commodity, contains the following, in substance:
"B. GRADE.
"B-1. White, floating soap shall be of but one grade.
"D. GENERAL REQUIREMENTS.
"D-1. White, floating soap shall be a cake soap, at least as good in every respect as one made from soda and a mixture of high-grade tallow with 25 to 30 percent of coconut oil, of good light color, without objectionable odor, thoroughly saponified, and so prepared as to float on water.
"E. DETAIL REQUIREMENTS.
"E-1a. Matter volatile at 105° C. shall not exceed 34 percent. Deliveries which yield more than 34 percent volatile matter will be rejected without further test.
"E-1b. The sum of free alkali, total matter insoluble in alcohol, and sodium chloride shall not exceed 2.0 percent.
"E-1c. Free alkali, calculated as sodium hydroxide (NaOH), shall not exceed 0.15 percent.
"E-1f. Chloride, calculated as sodium chloride (NaCl), shall not exceed 1 percent.
"E-1g. Matter insoluble in water shall not exceed 0.2 percent.
"E-1h. Rosin, sugar, and foreign matter shall not be present.
"E-1i. The acid number of the mixed fatty acids prepared from the soap shall be not less than 212.
"E-1k. The percentage of matter volatile at 105° C. will be computed on the basis of the soap as received, but all other constituents will be calculated on the basis of material containing 28 percent of volatile matter."
6. Under date of March 7, 1940 the chemist for the Bureau of Internal Revenue at Washington submitted to the Bureau, in connection with the determination of the taxability of the soap herein involved, his report of the chemical analysis of the sample of soap manufactured and submitted for the purpose by plaintiff, which is as follows:
Matter Volatile at 105° C. (Water) ............. 23.97% Matter insoluble in Alcohol (Sodium Carbonate) ................................... 1.54% Sodium Chloride ................................ 0.10% Anhydrous Soap ................................. 74.39% Matter insoluble in Water....................... Trace Acid number of mixed fatty acids ............... 227 Free alkali .................................... None Free acid ...................................... None
A chemical analysis of Queen Lily soap as of September 22, 1939, made by Curtis-Tompkins, chemists employed by plaintiff in California, is as follows:
Matter Volatile at 105° C. (Water) ............. 21.32% Sodium Carbonate ............................... 2.52% Sodium Chloride ................................ 0.06% Anhydrous Soap ................................. 67.16% Matter insoluble in Water ...................... 0.05% Sodium Borate .................................. 2.02% Glycerol ....................................... 6.72%
7. In the manufacture of this soap there was added a sufficient scent or perfume to neutralize the odor of the fats. This scent was not discernable unless the soap was held close to the nose. The acid number of mixed fatty acids indicates that a mixture of oils was used in the manufacture of the soap, and the number "227" indicates that one of the oils was cocoanut oil. The absence of free alkali indicates absence of free caustic soda, which if present would irritate the skin, both if the soap were used for toilet purposes and if it were used in washing clothes by hand. The absence of free acid indicates that the soap had been thoroughly and clearly saponified. It is a white floating soap.
8. Plaintiff had manufactured Queen Lily soap under substantially the same formula and used substantially the same wrapper since before 1904, and up to and including the period involved in this suit.
9. The analysis of the Bureau shows volatile matter at 23.97 percent, and the Curtis-Tompkins analysis made for plaintiff shows 21.32 percent, which is not a material difference. The analysis of the Bureau chemist shows 74.39 percent, while that of Curtis-Tompkins shows 67.16 percent of anhydrous soap, which difference may be explained by analyzing soap from different batches, or by using a different method of arriving at the determination of the amount of volatile matter at 105° C.
The Bureau analysis shows sodium carbonate 1.54 percent, while the Curtis-Tompkins analysis shows 2.52 percent, which is an appreciable difference for that particular item. The Curtis-Tompkins analysis shows glycerol 6.72 percent, no test having been made as to this by the Bureau. Used in the amounts shown in the analyses, the item of sodium carbonate would not be injurious to the skin. Glycerol enhances the quality of the soap with respect to its effect on the skin.
The soap contains slight amounts of a derivative of benzine, turpentine, and ammonia, but in the Bureau analysis no specific test was made for gasoline, turpentine, or ammonia, except that these should have been detected in the determination of free alkali, and none were so found.
There is no ingredient shown in either analysis in amounts or percentages that would be injurious to the skin when or if used as a toilet soap.
10. Queen Lily soap was largely sold through the wholesale and retail trade grocery stores, and was held out by them as a laundry soap, and segregated with laundry soap on the shelves in their stores. It was purchased by housewives for a laundry soap.
Plaintiff's salesmen represented Queen Lily soap exclusively as a laundry soap, but stated that it was not harmful to the hands. In newspaper and other advertising Queen Lily soap was represented exclusively as a laundry or household soap.
11. In March 1933 plaintiff's supply of wrappers was exhausted. It had new wrappers printed, which omitted that part of the old wrapper which reads as follows:
"For the Toilet and Bath it has no equal — unlike most other soaps, which leave the skin parched and dry, and liable to crack; it imparts flexibility and moisture to the skin."
The wrapper in which the soap was wrapped was printed on cheap paper similar to that used by newspapers. It had the appearance of wrappers in which other laundry soaps are wrapped, and was not at all similar to the wrappers in which toilet soaps are wrapped.
12. Plaintiff did not increase its price of Queen Lily soap at the time the Revenue Act of 1932 became effective. The tax involved herein was not included by plaintiff in the selling price of the soap, and has not been collected from plaintiff's vendees. After payment, the tax was charged on plaintiff's books to the general expense account, and subsequently charged to profit and loss.
13. Under date of August 23, 1935, D.S. Bliss, Deputy Commissioner of Internal Revenue, sent a letter to counsel for taxpayer in which he said:
"Reference is made to your letter dated July 30, 1935, in which you request to be advised as to whether certain language submitted by you may be used on the label of Queen Lily Laundry Soap without bringing the product within the scope of section 603 of the Revenue Act of 1932.
"The statement you wish to use is as follows:
"`Queen Lily is all soap — contains no alkali or harmful fillers, which are so injurious to the skin. Queen Lily is easy on the hands, being absolutely pure, lasts longer, does not require rubbing and can be safely used on the most delicate fabrics and fine woolens. Not only will your clothes last longer when you use Queen Lily but notice with what a minimum of effort you have completed your dishwashing and laundering without any injurious effect on your hands.'
"It is held that Queen Lily Laundry Soap when sold under a label containing the above reading matter will not be subject to the tax imposed by section 603 of the Revenue Act of 1932."
The formula used in the manufacture of Queen Lily soap at this time was practically the same as during the period here involved.
14. The percentages or quantities of the ingredients as shown in the analyses cause Queen Lily soap to come within the requirements for toilet soap as set forth in Federal specifications for toilet soap.
The question presented is whether or not the plaintiff's soap, called "Queen Lily," is a toilet soap and is used or applied or intended to be used or applied for toilet purposes and, therefore, taxable under section 603 of the Revenue Act of 1932, 47 Stat. 169, 261, 26 U.S.C.A. Int.Rev. Acts, page 608, which reads as follows:
"Sec. [§] 603. Tax on Toilet Preparations, etc.
"There is hereby imposed upon the following articles, sold by the manufacturer, producer, or importer, a tax equivalent to 10 per centum of the price for which so sold: Perfumes, essences, extracts, toilet waters, cosmetics, petroleum jellies, hair oils, pomades, hair dressings, hair restoratives, hair dyes, tooth and mouth washes (except that the rate shall be 5 per centum), dentifrices (except that the rate shall be 5 per centum), tooth pastes (except that the rate shall be 5 per centum), aromatic cachous, toilet soaps (except that the rate shall be 5 per centum), toilet powders, and any similar substance, article, or preparation, by whatsoever name known or distinguished; any of the above which are used or applied or intended to be used or applied for toilet purposes."
We are satisfied from the proof that it might be used for toilet purposes, but we are also satisfied that its predominant use is as a laundry soap. Its use for toilet purposes is rare. The manufacturers of it intended it for use as a laundry soap only. The testimony shows that it was never advertised as anything but a laundry soap, and the plaintiff's salesmen never sold it for anything other than laundry soap. Neither in the advertising in the newspapers, nor by window displays, nor in the sales talks of the salesmen was it ever held out as useful for toilet purposes, but only for laundry and household purposes. It was sold to wholesale grocers, who bought it as a laundry soap, and they sold it to their retail customers as a laundry soap. It was carried on their shelves with other laundry soaps and never with toilet soaps. Consumers purchased it for laundry or household uses.
The above is testified to by plaintiff's employees, the manager, the sales manager, and salesmen, and also by wholesale grocers who purchased it, and by plaintiff's advertising man, and by a representative of a newspaper which carried the advertising. The sole evidence to the contrary is the recitation on the wrapper in which the soap was wrapped, which reads as follows:
"For the Toilet and Bath it has no equal — unlike most other soaps, which leave the skin parched and dry, and liable to crack; it imparts flexibility and moisture to the skin."
An examination of this wrapper, however, discloses that this was thrown in incidentally as still another use which might be made of the soap. The chief claim made in the wrapper was that it was good for washing clothes. The directions for its use were confined exclusively to its use in washing clothes.
The wrapper itself is not such a wrapper as would be used on a toilet soap. It was made of paper of the grade used by newspapers and presented the appearance of wrappers on other laundry soaps. It is a cheap wrapper; it looks nothing like the wrappers around toilet soaps. The proof shows that this company started manufacturing this soap in the 1860's, and that they have used practically the same wrapper ever since. Whether or not it was held out as a toilet soap many years ago, we are satisfied that it was not so held out during the period in question. The recitation in the wrapper that it was a good toilet soap was merely a survival of a claim made many years back.
It is well settled by both article 22 of Regulations 46 and court decisions that soaps advertised and sold primarily for general cleaning or laundry purposes, and which have only an incidental use as a toilet soap, are not taxable under the Act. Sharp Dohme, Inc., v. Ladner, 3 Cir., 82 F.2d 733; Motter v. Mentholatum Co., 10 Cir., 71 F.2d 1013; United States v. Takara Laboratories, 9 Cir., 100 F.2d 1022.
We are satisfied that this soap was not held out for use as a toilet soap during the period in question, notwithstanding the above-quoted recitation on the wrapper in which the soap was wrapped.
In March 1933 the plaintiff's supply of wrappers containing this recitation had been exhausted and new wrappers were printed which omitted this recitation. Since that time the Commissioner of Internal Revenue has asserted against it no tax under this section.
We hold that the sale of this soap is not taxable under the quoted provision of the Revenue Act, and that plaintiff, therefore, is entitled to the refund sought.
This is not inconsistent with our holding in Flash Chemical Co. v. United States, 23 F. Supp. 440, 87 Ct.Cl. 350. Finding 7 in that case shows that this soap was advertised equally as a soap for the hands as for household use. The opinion states that 75 percent of its use was for cleaning hands, and only 25 percent for general household use. The opinion expressly stated that its use for toilet purposes was not merely incidental. In the present case the testimony shows that this soap was not held out as a toilet soap during the period in question and that its use for this purpose was only occasional and incidental.
Judgment will be entered against the defendant in favor of plaintiff in the sum of $1,667.14, with interest as provided by law. It is so ordered.