[251 U.S. 501, 502] Mr. H. V. Blaxter, of Pittsburgh, Pa., for petitioners.
Mr. Assistant Attorney General Frierson, for respondent.
Mr. Justice McKENNA delivered the opinion of the Court.
Petitioner brought this action against Lewellyn who is collector of internal revenue for the Twenty-Third district of Pennsylvania, to recover the sum of $271,062.62, with interest from December 29, 1917, paid to him, under a demand made by him, as collector for an excise tax assessed under section 301 of title III of the Act of September 8, 1916, known as 'munition manufacturer's tax.'
Petitioner made a verified return under protest, reciting its belief that the tax should be abated for the following reasons: (1) It ( petitioner) did not manufacture munitions; (2) the munitions taxed were manufactured by certain independent contractors; (3) the profit derived by petitioner was from the sale of the munitions, not from their manufacture.
The tax was not abated and petitioner paid it under protest. [251 U.S. 501, 503] The facts are stipulated: Petitioner, through its president, who went to England, entered into three contracts with the British government dated, respectively, January 26, September 29, and October 7, 1915, for the manufacture and delivery f. a. s. New York, of a certain number of high explosive shells.
The work to complete the shells consisted of the following operations : (1) Obtaining suitable steel in bar form; (2) cutting or breaking the bars to proper length; (3) converting the bars or slugs into a hollow shell forging by means of a hydraulic press; (4) turning the shell upon a lathe to exact dimensions; (5) closing one end of the forging to form the nose of the shell; (6) drilling out the case of the shell and inserting a base plate; (7) threading the nose of the shell and inserting the nose bushing and inserting in the nose bushing a wooden plug to protect the thread thereof; (8) cutting a groove around the circumference of the shell and inserting thereon a copper driving band and turning the band to required dimensions; (9) varnishing, greasing, and crating the completed shell.
Petitioner was not equipped, nor did it have facilities, for doing any of the described work except the manufacture of steel suitable for the shells in bar form, and, therefore, to procure the manufacture of the shells it (petitioner) did certain work and entered into numerous contracts in relation to the various steps in making a completed shell.
These steps are not necessary to give. The question in the case is not a broad one and all of the details of the stipulation are not necessary to its decision. The essential elements of fact we have given and whether they bring petitioner within the munitions Tax Act we shall proceed to consider.
The act is as follows:
The contention reduces the act to a practical nullity on account of the ease of its evasion. Besides petitioner minimizes what it did. It was the contractor for the delivery of shells, made the profits on them and the profits necessarily reimbursed all expenditures on account of the shells. It was such profits that the act was intended to reach-profits made out of the war and taxed to defray the expense of the war. Or, as expressed by the Court of Appeals, Congress 'felt that the large abnormal profits incident to these war contracts created a remunerative field for temporary taxation.' Petitioner, it is true, used the services of others, but they were services necessary to the discharge of its obligations and to the acquisition of the profits of such discharge. And petitioner kept control [251 U.S. 501, 505] throughout-never took its hands off, was at pains to express the fact, and retained its ownership of all of the materials furnished by it, and the completed shell belonged to it until delivered to the British government. And further, the steel furnished by it was advanced above a crude state- advanced to slugs. The nicking by an outside company we consider of no consequence, for after nicking they were redelivered to petitioner and by it 'broken or separated' into slugs.
And petitioner supplied its respective subcontractors with other materials-'transit plugs,' 'fixing screws,' and 'copper tubing.' It is, of course, the contention of petitioner that this was furnishing, no manufacturing, and that the literal meaning of words can be insisted on in resistance to a taxing statute. We recognize the rule of construction, but it connot be carried to reduce the statute to empty declarations. And, as we have already said, petitioner's contention would so reduce it. How universal must the manufacturing be? Will the purchase of an elemental part destroy it? And how subsidiary must the work of the subcontractor be not to relieve the contractor-take from him the character of a 'person manufacturing'? And such is the tangle of inquiries we encounter when we undertake to distinguish between what a contractor to deliver a thing does himself and what he does through others as subsidiary to his obligation.
It is after all but a question of the kind or degree of agency-the difference, to use counsel's words, between 'servants and general agents' and 'brokers, dealers, middlemen or factors.' And this distinction between the agents counsel deems important and expresses it another way as follows:
It is, however, alleged, and the stipulation shows, that the subcontracting companies paid a tax on their profits and profits were testified to be the difference between what was paid the subcontracting companies for the work and their cost in doing it. And it thus appears, it is urged, that petitioner has been taxed upon the theory that it manufactured the shells and the contrat ing companies 'have been taxed for actually performing all the manufacturing necessary to complete the same shells.'
But it is sufficient answer to say that the tax here in issue is the tax on the profits of the petitioner, not on the profits of the subcontractors. The question whether such subcontractors were correctly assessed concerns them and not the petitioner who is resisting a tax on the profits actually made by him and none other.
We consider further discussion unnecessary.
Mr. Justice DAY and Mr. Justice VAN DEVANTER dissent.