
    JOHN F. JELKE CO. v. THE UNITED STATES
    [No. E-565.
    Decided April 4, 1927]
    
      On the Proofs
    
    
      Taxes; oleomargarine act; “Balcers' Select” and “Si Pivff”. — The ruling- of the Commissioner of Internal Revenue that plaintiff’s products known as “ Bakers’ Select ” and “ Hi Puff ” are taxable under the oleomargarine act held justified by the evidence, and final.
    
      The Reporter's statement of the case:
    
      Messrs. A. Coutter Wells and W. Parker Jones for the plaintiff.
    
      Mr. Joseph H. Sheppard, with whom was! Mr. Assistant Attorney General Herman J. Galloway, for the defendant.
    
      The court made special findings of fact, as follows:
    I. The John F. Jelke Co., plaintiff herein, was, during the years 1920 to 1924, inclusive, and ever since has been, and is, a corporation duly organized under the laws of the State of Illinois, having its principal place of business in the city of Chicago, and has been continuously, and is, engaged in the manufacture and sale of a cooking compound known as Bakers’ Select and Hi Pxiff.
    II. The Commissioner of Internal Revenue, assuming to act under the authority of the act of August 2, 1886 (24 Stat. 209), required during the years 1920 to 1924, inclusive, and continues to require plaintiff to pay a tax on all of the said cooking compound manufactured and removed from its factory for domestic consumption under the trade names of Bakers’ Select and Hi Puff at the rate of one-fourth cent per pound as uncolored oleomargarine.
    III. During the period January 1, 1921, to December 31, 1922, inclusive, plaintiff manufactured and removed from its factory for domestic consumption 2,553,273 pounds of Bakers’ Select or Hi Puff, and during the period January 1, 1923, to June 30, 1925, inclusive, plaintiff manufactured and removed from its factory for domestic consumption 3,860,000 pounds of Bakers’ Select or Hi Puff and affixed thereto, as required by the Commissioner of Internal Revenue, uncolored-oleomargarine stamps to the value of $6,383.18 and $9,650, respectively, amounting in all to $16,033.18.
    IY. None of the cooking compound known as Bakers’ Select or Hi Puff manufactured and removed as aforesaid was returned to plaintiff’s factory or exported from the United States.
    Y. During the period December 15, 1920, to June 30, 1925, plaintiff purchased from the United States and paid for uncolored-oleomargarine stamps to the total value of $477,753.63.
    YI. On or about December 13, 1924, plaintiff filed with the collector of internal revenue at Chicago, Ill., a claim for the refund of taxes paid in the sum of $6,512.50, which included the sum of $6,383.18, taxes paid on thei quantity of Bakers’ Select and Hi Puff manufactured and removed from its factory for domestic consumption during the period January 1, 1921, to December 31, 1922, as aforesaid; and on or about July 23, 1925, plaintiff tiled with the said collector at Chicago a claim for the refund of taxes paid, as aforesaid, in the sum of $9,650, on the quantity of Bakers’ Select and Hi Puff manufactured and removed from its factory for domestic consumption during the period January 1, 1923, to June 30, 1925, contending that Bakers’ Select and Hi Puff was exempt from taxation under the act of August 2, 1886, because it was not “ made in imitation, or semblance of butter ” and was not “ calculated or intended to be sold as butter or for butter,” but was a cooking compound which had been placed on the market in good faith as such and did not resemble butter in its general characteristics.
    VII. The Commissioner of Internal Revenue rejected both of said claims under date of September 11, 1925.
    VIII. The Commissioner of Internal Revenue made his decision rejecting said claim on the basis of an analysis of the products by an analytical chemist in his office.
    IX. The products Bakers’ Select and Hi Puff are identical. In the making their ingredients are cottonseed oil (40 per cent), oleostearin (23 per cent), skim milk (balance), with a later addition of salt. Cottonseed oil is that derived from the seed of the cotton plant. Oleostearin is obtained by applying pressure to beef fat, which extracts what is called oleo oil, leaving the oleostearin as the tough fibrous residue. The oleo oil is a soft, pale yellow fat which has a melting point at 25° C. as compared to a melting point of 45° to 50° for oleostearin. Skim milk is that which is left from whole milk after the butterfat or most of the butterfat has been removed.
    X. Plaintiff’s product is and has always been made in the manner following:
    A batch consisting of the percentage proportions hitherto named or approximately 1,400 pounds of cottonseed oil, 800 pounds of oleostearin, and 1,000 pounds of skim milk, is placed in a vat and agitated until the ingredients are thoroughly mixed. This mixture is then allowed to flow out of the vat, and as it does so it strikes cold water, w'hich causes it to congeal. It is then shoveled into wagons, drained, and placed in a cool storage room over night. The next day 300 pounds of salt is added to the mixture as it passes through several sets of rollers. This manipulation works out the water as it works in the salt. The greater portion of the product thus obtained is packed into 32 and 62 pound tubs, the remainder being wrapped in 5-pound blocks and packed in cases of two sizes holding 30 and 60 pounds, respectively. Very occasionally, by special request, small sample packages are prepared, or an order for a barrel is filled.
    The blocks which are designed to be wrapped in 5-pound lots are placed on shelves and go into the cooler where they remain over night before wrapping.
    XI. In its final form the plaintiff’s product is of a glazy white shade, similar to that of lard, and is stiff, gummy, waxy, and fibrous.
    It is offered for sale to and is used only by wholesale and retail bakers and institutions having baking departments, for the sole purpose of providing a shortening for Avhat is called puff pastries — i. e., such pastries as patty shells, cream slices, cream horns, turnovers, and, in general, all doughs that have a lift or spring.
    The high melting point, due to the presence of the large percentage of oleostearin, is responsible for this lift or spring which is imparted to the dough.
    XII. The plaintiff’s product has a barely discernible lactic-acid flavor and aroma. This it derives from the ripening process of the skim milk. This same flavor and aroma is found more positively in butter, but is, however, not the dominant or distinguishing characteristic of the butter flavor or aroma. Butter flavor as distinguished from milk flavor is more aromatic than acid and is one of the manifestations of the presence of butyric acid, not found in plaintiff’s product.
    A large part of the flavor and aroma of plaintiff’s product is dissipated when subjected to the heat necessary in baking puff pastries, so that this aroma and flavor are not imparted in any perceptible degree to the pastry product resulting after baking. Such form of pastry is designed to have a flat or neutral taste, and a discernible odor or taste would not be desired by the baker for the reason that the flavor of the pastry when ready for sale is intended to be supplied wholly by the filling which it contains, such as custards, jellies, etc.
    XIII. The plaintiff’s product would, generally speaking and for all practical purposes, be identical with a product made by the same methods but wherein water was substituted in place of milk. If water were so substituted, the lactic-acid taste and aroma would not. be present. The use of milk produces, probably, a better emulsion, with the result that a product so made may possess better qualities for manipulation at the hands of the mixer of the dough in the bakeries. This quality is perhaps, however, so barely perceptible even to trained fingers that it may be termed negligible.
    The plaintiff company manufactures a product under another name identical with the ones in issue, except for the substitution of water for milk. It has, however, never changed the formula which it puts out under the name Hi Puff and Bakers’ Select. This policy has been adopted for the reason that these products were first made about 20 years ago with the same formula as is now used, and before it was known that water could be substituted, and, as a matter of business principle, plaintiff company does not desire to make a substitution of any nature after it has built up a trade with the product made in accordance with the original formula.
    XIY. Butter is a soft fat usually (either naturally or artificially) yellow in color and is a product made from cream. It can not be made from skim milk because of the absence therein of the essential ingredients of butter, namely, fats. It is used as a spread for bread and in cooking and baking in all forms. Because of its high melting point, plaintiff’s product can not be used as a substitute for butter as a spread for bread under ordinary living-room temperatures, nor for the usual cooking and baking purposes, its sole practical use being for the purpose hitherto set forth. As to this use, butter might be substituted for the purposes of an aid to the mixture of the dough for puff pastries, but would not provide the necessary lift or spring because of its low melting point. If a product such as plaintiff’s were not available and butter had to be used as a substitute, puff pastries would not be marketable at any time other than during cold temperatures.
    
      Butter when subjected to heat becomes gradually softer and softer while plaintiff’s product stands up and does not become soft until very near the melting point. Butter is considered the perfect emulsion. If on an assumed scale of 0 to 100, the lowest form of emulsion be placed at 0 and butter at 100, plaintiff’s product would range at about 10 on the scale. The lowest form of salable grades of oleomargarine used for general cooking would range from 30 to 50, and the better grades at from 85 to 90 on such a scale. These inferior grades of oleomargarine contain about 5 per cent oleostearin.
    Besides the differences heretofore noted, plaintiff’s product and butter are found to differ in the following:
    Plaintiff’s product has a melting point of 46° C.; butt,er has a melting point of from 28° to 36° C.
    Plaintiff’s product has a Reichert-Meissl number of 0.11; butter, according to Federal standard, has a Reichert-Meissl number of not less than 24.
    Plaintiff’s product contains 1.17 per cent salt; butter will vary from 0.5 per cent to 6 per cent salt.
    Plaintiff’s product contains 9.61 per cent moisture; butter will vary from 12 per cent to 16 per cent moisture.
    Plaintiff’s product, when chewed, clings to the teeth and will not readily dissolve in the mouth; butter, when chewed, does not cling to the teeth and readily dissolves in the mouth.
    XV. Oleomargarine, as it was known prior to October 2, 1886, was first produced as a substitute for butter for the use of troops during the Napoleonic campaigns. The essential feature of the process of its manufacture was the churning of oleo oil in ripened milk. Oleo, oleomargarine, and butterine were different names for the same thing. Neutral, prior to the above date, was a very fine grade of product made from pig fat. It does not appear what lardine and suine had been known as prior to said date.
    XVI. The $477,753.63 worth of uncolored-oleomargarine stamps purchased by the plaintiff from the defendant during the period December 15, 1920, to June 30, 1925 (Finding V), were used to the amount indicated in Finding III on packages of the products here in question sold for domestic consumption during that period.
    
      The court decided that plaintiff was not entitled to recover.
   Moss, Judge,

delivered the opinion of the court:

The plaintiff, John F. Jelke Co., during the years 1920 to 1924, inclusive, and for many years theretofore, manufactured and sold to bakers a cooking compound designated and known to the trade as “ Bakers’ Select,” upon which product plaintiff has continuously paid a tax of one-fourth cent per pound under what is called the oleomargarine act of August 2, 1886.

In 1924 plaintiff filed claims for the refund of taxes aggregating $16,162.50 on the ground that its product did not come within the provisions of the oleomargarine act and was therefore exempt from taxation. These claims were rejected by the Commissioner of Internal Revenue, and this action is for the recovery of said sum.

Section 2 of the act of August 2, 1886, known as the oleomargarine act (24 Stat. 209), provides as follows:

“ That for the purposes of this act certain manufactured substances, certain extracts, and certain mixtures and compounds, including such mixtures and compounds with butter, shall be known and designated as ‘oleomargarine,’ namely: All substances heretofore known as oleomargarine, oleo, oleomargarine oil, butterine, lardine, suine, and neutral; all mixtures and compounds of oleomargarine, oleo, oleomargarine oil, butterine, lardine, suine, and neutral; all lard extracts and tallow extracts; and all mixtures and compounds of tallow, beef fat, suet, lard, lard oil, vegetable oil, annatto, and other coloring matter, intestinal fat, and offal fat made in imitation or semblance of butter, or when so made, calculated or intended to be sold as butter or for butter.”

Section 8 of said act, as amended by section 3 of the act of May 9,1902, 32 Stat. 193, is the provision of law under which the tax in this case was collected. It is as follows:

“That upon oleomargarine which shall be manufactured and sold, or removed for consumption or use, there shall be assessed and collected a tax of ten cents per po'und to be paid by the manufacturer thereof; and any fractional j)art of a pound in a package shall be taxed as a pound: Provided, When oleomargarine is free from artificial coloration that causes it to look like butter of any shade of yellow said tax shall be one-fourth of one cent per pound. The tax levied by this section shall be represented by coupon stamps; and the provisions of existing laws governing the engraving, issue, sale, accountability, eifacement, and destruction of stamps relating to tobacco and snuff, as far as applicable, are hereby made to apply to stamps provided for by this section.”

It is the contention of the Government that the determination by the commissioner of the question involved herein is final and conclusive under section 14 of the act of August, 1886, above mentioned. That section is as follows:

“ That there shall be in the office of the Commissioner of Internal Revenue an analytical chemist and a microscopist, who shall each be appointed by the Secretary of the Treasury, and shall each receive a salary of two thousand five hundred dollars per annum; and the Commissioner of Internal Revenue may, whenever in his judgment the necessities of the service so require, employ chemists and microscopists, to be paid such compensation as he may deem proper, not exceeding in the aggregate any appropriation made for that purpose. And such commissioner is authorized to decide what substances, extracts, mixtures, or compounds which may be submitted for his inspection in contested cases are to be taxed under this act; and his decision in matters of taxation under this act shall be final. The commissioner may also decide whether any substance made in imitation or semblance of butter and intended for human consumption contains ingredients deleterious to the public health; but in case of doubt or contest his decision in this class of cases may be appealed from to a board hereby constituted for the purpose and composed of the ^Surgeon General of the Army, the Surgeon General of the Navy, and the Commissioner (now Secretary) of Agriculture; and the decisions of this board shall be final in the premises.”

The ingredients used in the manufacture of plaintiff’s product are cottonseed oil, 40 per cent; oleostearin, 23 per cent; and the remainder, skim milk. A small per cent of salt is added after the above ingredients are mixed.

The manufacture of plaintiff’s product is accomplished by mixing cottonseed oil, oleostearin, and skim milk in .the proportions named above, and in large quantities, in a container in which the materials are churned until the ingredients are thoroughly mixed. As it flows out of the container it strikes cold water, which causes it to congeal. It is then drained and placed in a cool storage room for about 24 hours. A certain quantity of salt is then added to the mixture as it passes through several sets of rollers. This manipulation works out the water as it works in the salt. It is then ready for packing and preparation for market. The finished product has a lactic-acid flavor and aroma. The same flavor and aroma are found in butter, although it is not the dominant or distinguishing characteristic of butter.

It will be noted that cottonseed oil (vegetable oil) and oleostearin (beef fat) are specifically mentioned in section 2 of the oleomargarine act.

Plaintiff’s product is taxable if (a) “made in imitation or semblance of butter,” or (Z>) “ when so made, calculated or intended to be sold as or for butter.” It is not necessary that both conditions be present. If “made in imitation or semblance of butter ” it is subject to tax under the oleomargarine act, and that seems to be the sole question for determination.

Obviously the purpose of the oleomargarine act is to impose a tax on all fat mixtures and compounds composed of the ingredients specified in section 2 of said act if made in imitation or semblance of butter. Water may be used instead of skim milk, and the product would, for all practical purposes, be identical with that produced by the use of skim milk. What, then, could be the purpose of using the more expensive mixing medium, except to obtain the slight butter semblance resulting from the use of .skim milk? Plaintiff's product was subjected to a chemical analysis by the Commissioner of Internal Revenue, who held that it had a semblance of butter and was therefore taxable. Congress definitely specified in unmistakable terms the powers of the commissioner in this regard. The “ commissioner is authorized to decide what substances, extracts, mixtures, or compounds which may be submitted for his inspection in contested cases are to be taxed under this act [sec. 14 of the oleomargarine act], and his decision in matters of taxation under this act shall be final.” Undoubtedly Congress must have realized the difficulty which the commissioner might experience in the administration of the oleomargarine act, and it therefore provided for an analysis of mixtures and compounds mentioned in the act by a specific agency to determine the taxability of same within the meaning of the act.

Without determining whether or not the ruling of the commissioner under this act would in all cases be final, certainly the conclusion reached by him in the instant case is amply justified by the facts, and in the absence of any suggestion that his action herein was arbitrary or capricious his ruling should be regarded as final.

It is therefore the judgment of the court that plaintiff’s petition should be, and the same is hereby, dismissed. And it is so ordered.

GRAjham, Judge; Hat, Judge; Booth, Judge; and Campbell, Chief Justice, concur.  