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United States Supreme Court


No. 454

Argued: February 8, 1935    Decided: January 14, 1935

[ Footnote 1 ] The problem is discussed by Stone, J., with a reference to many treatises on finance, in his dissenting opinion in Indian Motocycle Co. v. United States, 283 U.S. 570, 581 , 51 S.Ct. 601.

[ Footnote 2 ] Bulletin 74 deals with the operations of department stores for 1927. One set of tables includes stores whose sales are in excess of a million dollars. They are divided into four classes (one million to two million; two million to four million; four million to ten million; ten million and over). Referring to these classes, the report says (page 10): 'While noticeable differences appeared in net profit for stores grouped according to volume of sales, these differences were even greater in the case of total net gain both as a percentage of net sales and as a percentage of net worth. In each instance these figures varied directly with the volume of sales, and a distinctly more favorable showing was made by the larger firms.' Another set of tables includes stores whose sales were under a million dollars. Among these the most favorable net profit showing was that of the group with volume of sales between one-quarter and one-half million. Between half a million and a million the ratio of increase declined. Even there, however, the showing was more favorable than for stores under a quarter of a million, where the average was one of loss. Bulletins 78, 83, and 85 state the operations for later years with results not greatly different. Even in years of loss, the percentage of loss had in the main a tendency to be lower as the volume of the sales increased. 'It is quite clear that the larger stores operated on a distinctly more satisfactory basis than the smaller stores, and that success as measured by earnings varies directly with size.' Bulletin 85, p. 8.

[ Footnote 3 ] The prevailing opinion in effect concedes 'that averaging the results of the concerns making the reports it is true 'generally speaking,' as the court below put it, that profits increase with sales.'

[ Footnote 4 ] A loss of $9,023 would have been suffered by one of the petitioners if the tax had been paid in 1932, but the finding is that for that year the business was conducted without reasonable skill, and that with a change of the methods of management the loss was turned into a profit. At most, the operations of that year might call under the Kentucky decisions for a modification of the judgment. The petitioners seek an injunction that will annul the statute altogether.

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