
    SWIFT & COMPANY v. THE UNITED STATES
    [No. 232-53.
    Decided October 2, 1956]
    
      
      Mr. L. Beyner Samet for the plaintiff. Mr. Joseph 0. Kennedy, Mr. Clarence E. Dawson, Mr. Weston Vernon, Jr., and Mr. Arthur H. Goldberg were on the briefs.
    
      Mr. George Willi, with, whom was Mr. Assistant Attorney General Charles K. Bice for the defendant. Mr. Andrew D. Sharpe was on the brief.
   LaRAmoke, Judge,

delivered the opinion of the court:

The plaintiff sues to recover $7,246.67, with interest, which was paid as transportation of property tax during the period commencing October 1,1948, and ending December 31,1949. This is a test case. The sole issue is whether the phrase “the amount paid * * * for the transportation * * * of property” as used in section 3475 of the Internal Revenue Code of 1939, as amended, 26 U. S. C. § 3475 (1946 Ed.), includes charges by the carrier for the supplying of ice and salt in the bunkers of refrigerator cars and the accessorial services of switching and demurrage.

During the period involved in this suit plaintiff shipped its products to various points within the United States over the lines of certain carriers by rail. The carrier’s freight bills for this transportation consisted of the following com-ponente, each, stated separately thereon: (1) the line haul charge, i. e., the charge for rail movement of the commodity involved over the distance that it was transported; (2) charges for demurrage and, in the case of perishable commodities, charges for ice supplied by the transporting carrier together with charges for switching incidental to placement of the ice in the cars containing plaintiff’s commodities ; and (3) a transportation tax equal to three percent of the aggregate charges. The three percent tax was applied only to charges for services rendered plaintiff by the carriers transporting its property. To the extent that plaintiff supplied ice to refrigerate its property while aboard the carrier’s cars there was no icing charge made by the carriers and no transportation tax collected thereon.

During the period involved the carriers transporting plaintiff’s property collected from it a total of $7,246.67 in transportation tax attributable to freight charges, aggregating $241,555.75, that were for demurrage, icing salt, and incidental switching. The carriers duly paid this tax over to the collector and plaintiff timely filed a claim for its refund. The claim was rejected and this suit was timely instituted.

The pertinent part of section 3475 provides:

There shall be imposed upon the amount paid within the United States after the effective date of this section for the transportation, on or after such effective date, of property by rail, motor vehicle, water, or air from one point in the United States to another, a tax equal to 3 per centum of the amount so paid, except that, in the case of coal, the rate of tax shall be 4 cents per short ton. Such tax shall apply only to amounts paid to a person engaged in the business of transporting property for hire, including amounts paid to a freight forwarder, express company, or similar person, but not including amounts paid by a freight forwarder, express company, or similar person for transportation with respect to which a tax has previously been paid under this section. * * *

The pertinent part of Treasury Regulation 113, 26 CFR 143.1(d) (1949Ed.),provides:

The term “transportation” as used in this part means the movement of property by a person engaged in the business of transporting property for hire, including interstate, intrastate, and intra-city or other local movements, as well as towing, ferrying, switching, etc. In general, it includes accessorial services furnished in connection with a transportation movement, such as loading, unloading, blocking and staking, elevation, transfer in transit, ventilation, refrigeration, icing, storage, demurrage, lighterage, trimming of cargo in vessels, wharfage, handling, feeding and watering livestock, and similar services and facilities.

The plaintiff challenges this part of the regulation as being invalid because it is an attempt by the Commissioner of Internal Eevenue to broaden the meaning of the term transportation as used in section 3475 by assimilating it to the definition of transportation as defined by Congress in the Interstate Commerce Act, 24 Stat. 879, as amended by the Hepburn Act, 34 Stat. 584, 49 U. S. C. § 1. The plaintiff contends that the ordinary and commonly understood meaning of the term transportation does not include icing or salting or switching and demurrage, and that it would be necessary for Congress to enlarge the ordinary meaning in order to include such items. The plaintiff asserts that the ordinary meaning of the term transportation was enlarged for purposes of interstate commerce by the Hepburn Act. However, we really do not know whether the ordinary meaning was enlarged by the Hepburn Act since the term transportation was defined before and after the amendment by rather specific language. The definition of transportation contained in the Interstate Commerce Act before amendment provided that “The term ‘transportation’ shall include all instrumentalities of shipment or carriage.” In 1906 it was enlarged by the Hepburn Act to include, inter alia, and in addition to the original definition, “all services in connection with the receipt, delivery, elevation, and transfer in transit, ventilation, refrigeration or icing, storage, and handling of property transported.” The Cleveland, Cincinnati, Chicago & St. Louis Railway Company v. Dettlebach, 239 U. S. 588, and Ellis v. Interstate Commerce Commission, 237 U. S. 434, cases merely state that the statutory definition was enlarged, not that either of the definitions represent the ordinary meaning of the term.

There is some dispute as to whether the definition of the term transportation contained in the above regulation was borrowed by the Commissioner from the definition contained in the Hepburn Act. Whether or not the definition was borrowed is immaterial. Certainly the statutory definition of transportation contained in an act designed for the purpose of regulating interstate commerce does not control the meaning of that term in a different act designed for the purpose of imposing a tax on shippers.

It is a cardinal rule that the ordinary and commonly understood meaning shall be attributed to the terms employed in a statute unless the terms are ones of art or defined by the statute. The term transportation is not defined by the taxing-statute, and as far as we know is not a term of art. Thus our problem is to determine whether its ordinary and commonly understood meaning is the all inclusive one attributed to it by the defendant, the very narrow one given to it by the plaintiff, or perhaps one somewhere between the two.

The plaintiff refers to Edelman v. Boeing Air Transport, Inc., 289 U. S. 249; Independent Warehouses, Inc. v. Scheele, 331 U. S. 70; and In re New York, Ohio & Western Railway Co. et al. v. City of New York, 161 F. 2d 518, as indicating that some of these accessorial services or products are subject to a state tax, the validity of which has been sustained as not being a burden on transportation in interstate commerce. The court stated in the In Re New York Ohio & Western Railway Co. case that “The demurrage represents a service apart from transportation * *

The plaintiff also argues that since some of these products or services are subject to local taxes, a Federal tax on them also would result in double taxation which should be avoided unless required by express terms of the statute. It relies on United States v. Supplee-Biddle Hardware Company, 265 U. S. 189. Although that case is distinguishable on the ground that in that case both a Federal estate and Federal income tax were sought on the same amounts, there is some significance to the fact that many of the states do impose a tax on these same items.

It is also significant that section 3475 by its terms only taxes the amount paid the carrier. Therefore, if the shipper or any one other than the carrier performed these services, or furnished these products, a tax thereon would not be imposed. ■We can see no logical reason why Congress would have intended to impose a transportation taz on the shipper when the carrier ices, loads or unloads, etc., the car and not impose a tax on the shipper when the shipper or someone else performs the identical services. Such a tax would be discriminatory against the carriers for no ostensible reason.

We do not believe that Congress intended to give the term transportation the same scope or breadth in section 3475 as it did in the acts regulating interstate commerce. The definition of transportation contained in the above regulation is too broad. The contention of defendant that this regulation should be deemed to have received legislative approval is without merit. A treasury regulation interpreting a transportation tax act in 1918 to 1921 when the act was repealed could hardly be considered to have been approved by Congress in 1942 when another transportation tax act is passed. The fact that Congress reenacted this section in the 1954 Code without any substantive change does not give approval to the regulation because there is no showing that this problem was called to the attention of Congress.

The case of Procter & Gamble Co. v. United States, 281 Fed. 1014, relied on by defendant in support of its construction, was dismissed on the ground that the taxpayer paid the tax voluntarily and without protest. The dictum in the two-paragraph opinion did state that the transportation tax was payable on demurrage, citing only interstate commerce regulatory cases. We believe the dictum was wrong.

We believe that Congress intended to impose a tax on the amount paid for actual transportation and not on all of the additional services that may be furnished by the carrier. We believe that payment for any movement of cargo from one point on the line to another, including, but not limited to, such things as lighterage, switching, backhauling, are amounts paid for transportation. Amounts paid for ventilation, refrigeration, icing and salting, are payments for those services and not payment for transportation within the meaning of section 3475. The above-mentioned services are not intended to be all inclusive, but only illustrative of the distinction between amounts paid for actual transportation and amounts paid for additional services. While the writer of this opinion believes the above should include demurrage, the majority of the court believes otherwise. Thus demurrage is not included in the services which are not taxable.

The application of the above construction to the instant case results in a proper tax on switching, but an improper tax on icing and salting.

The plaintiff is entitled to recover the tax paid on the amount paid for icing and salting, with interest as provided by law, and judgment will be entered accordingly.

The amount of recovery is reserved for further proceedings in accordance with rule 38 (c) of this court.

MaddeN, Judge; Whitaker, Judge; Littleton, Judge; and JONES, Chief Judge, concur.

FINDINGS OF FACT

The court having considered the evidence, the stipulation of facts entered into by the parties, the report of Commissioner W. Ney Evans, and the briefs and argument of counsel, makes findings of fact as follows:

1. In this action plaintiff, an Illinois corporation, seeks to recover $7,246.67 in taxes paid by it during the period commencing October 1, 1948, and ending December 31, 1949, in connection with the transportation of property.

2. Section 3475 (a) of the Internal Revenue Code of 1939 imposes a tax equal to three percent of the amount paid “* * * for the transportation of property by rail * * * from one point in the United States to another,” and subsection (c) of the same section requires that such tax “* * * shall be paid by the person making the payment subject to the tax,” and that the carrier receiving a payment for the transportation of property “* * * shall collect the amount of the tax imposed from the person making such payment, and shall * * * make a return, under oath * * * and pay the taxes so collected to the collector * * *.”

3. Section 143.1 (d) of Regulation 113 issued in 1943 by the Commissioner of Internal Revenue defined “transportation” as used in section 3475 (a) of the Internal Revenue Code of 1939 as follows:

* * * The term “transportation” as used herein means the movement of property by a person engaged in the business of transporting property for hire, including interstate, intrastate, and mtracity or other local movements, as well as towing, ferrying, switching, etc. In general, it includes accessorial services furnished in connection with a transportation movement, such as loading, unloading, blocking and staking, elevation, transfer in transit, ventilation, refrigeration, icing, storage, demurrage, lighterage, trimming of cargo in vessels, wharfage, handling, feeding and watering of livestock, and similar services and facilities.

4. (a) During the period in suit plaintiff shipped meat and other of its products and property (some of which was perishable) to points within the United States over the lines of certain carriers by rail. Included in the charges to plaintiff by these carriers was an aggregate of $241,555.75 for refrigeration charges (consisting of charges for the furnishing of ice and salt and for switching in connection therewith) and for demurrage. On the freight bills presented to plaintiff by the carriers, these charges (for refrigeration and for demurrage) were separated from the charges for line haul applicable to the transportation of plaintiff’s property; and on each such bill each carrier added, as a separate item and under the label of transportation tax, an amount equal to' three percent of the total charge for the line haul rate plus the aggregate charges for refrigeration services and de-murrage.

(b) Plaintiff paid the sum of $7,246.67 to the carriers as representing three percent of the aggregate charges for refrigeration and demurrage of $241,555.75.

(c) The carriers paid $7,246.67 to the appropriate Collector of Internal Revenue in monthly payments commencing on or about November 30, 1948, and ending on or about January 31,1950.

(d) No part of the $7,246.67 has ever been returned to plaintiff, nor has plaintiff consented to the allowance of a credit or refund thereof to any carrier.

5. (a) Plaintiff timely filed (on November 6, 1952) with the appropriate Director of Internal Revenue a claim for the refund of $7,252.58, stating the following reasons for allowance of the claim:

Said carriers erroneously added a tax of 3% to said charges and collected from claimant the aggregate sum of $7,252.58 as a tax owing by claimant under Code Section 3475 (a), and which amount said carriers paid to the Collector of Internal Revenue at Chicago, Illinois, during the month following the month in which the carriers collected the same from claimant.
As Code Section 3475 (a) imposes a tax of 3'% only on the amount paid for “transportation of property,” it was erroneously imposed by the carriers on the cost of icing service, and demurrage, which is not a cost for the transportation of property, and consequently should be refunded to the claimant with interest.
No repayment of the taxes for which refund is claimed, or any part thereof, has been made to the claimant by the collecting carrier and the claimant has not consented to the allowance of credit or refund to the collecting carrier.

(b) The Director of Internal Revenue denied the claim and duly gave to plaintiff formal notice of the disallowance.

6. The tax payments which plaintiff seeks by this action to recover were paid to the several carriers as three percent additions to charges for refrigeration services (including the furnishing and placing of ice and salt and the switching of cars incident thereto) and for demurrage. It is not estab-listed by the evidence that any of the demurrage charges related to refrigerated cars.

7. (a) In the course of plaintiff’s normal business operations refrigerator cars were (and are) sometimes initially iced by it as shipper. When this occurs, no charge for icing is made by the carrier, and, there being no charge, no tax is collected by the carrier or paid by the shipper. When the car is initially iced by the carrier, however, the charge is made and the tax added.

(b) When a refrigerator car is held over and becomes subject to a charge for demurrage, any additional ice the car may need must be furnished by the shipper, in which event there is no charge for icing by the carrier and no tax thereon is collected or paid.

(c) The carrier enters a charge against the shipper for icing and switching whenever the carrier furnishes the service. While this may or may not occur when the car is initially iced and made ready for shipment, the carrier customarily renders such service while the shipment is en route. Whenever the carrier performs the service and makes the charge, the tax of three percent is added and collected by the carrier from the shipper.

(d) Ice purchased by either the shipper or the carrier for use in railroad car bunkers has been subjected to local sales taxes.

CONCLUSION OF LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that the plaintiff is entitled to recover the tax paid on the amount paid for icing and salting, with interest as provided by law, and judgment will be entered to that effect. The amount of recovery will be determined pursuant to rule 38 (c) of the Rules of this court.

In accordance with the foregoing opinion and on the filing of a memorandum report by the commissioner recommending that plaintiff recover $5,297.84, judgment for the plaintiff was entered on April 3, 1957, for $5,297.84. 
      
      A stipulation of facts filed by the parties Is the basis of findings 1 through 5 herein. The remaining findings are based upon evidence offered by plaintiff. In their stipulation the parties agreed that this action “arises under a law of Congress,” and that “jurisdiction of the subject matter is conferred upon this court by section 1491 (2) or (3) of the Judicial Code,” while “jurisdiction to hear and determine this cause at this time is conferred upon this court by section 3772 (a) (2) of the Internal Revenue Code of 1939 and by section 6532 (a) (1) of the Internal Revenue Code of 1954.”
     
      
       26 U. S. C., § 3475 (1946 Ed.).
     
      
       26 CFR 143.1 (d) (1949 Ed.).
     
      
       Cf., 49 U. S. C. 1 (3) (a).
     
      
       A schedule attached to the parties’ stipulation lists 12 rail carriers, together with the tax collected by each on specific charges (also listed) during the period in suit. Since the figures are not in dispute, details of the schedule are omitted from these findings.
     
      
       The discrepancy between. $7,252.58 and $7,246.67 is not explained. Plaintiff concedes the latter amount is correct.
     
      
       Other formalities established by the stipulation or by the evidence are that there has been no transfer of this claim by plaintiff, and no action on it, other than as stated herein, by the Congress or any of the departments.
     
      
       In this action plaintiff challenges the validity of the pertinent regulation (finding 3) Insofar as it purports to Include In transportation such acces-sorial services as refrigeration (including switching incidental thereto), storage, and demurrage.
     
      
       This is a test case for similar claims now pending.
     
      
       The switching charge is a flat or standard charge for each refrigerator car that is serviced at an icing station. It applies whether or not any switching is done.
     