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Opinion of the Court

11. Plaintiff is a citizen of the United States, and as administratrix of the Estate of Eric S. Ekstrom, Trustee for the stockholders of Mechanics Machine Company, is the owner of the claims sued on, no part of which has been sold or assigned, except by Mechanics Machine Company to Eric S. Ekstrom, as set forth in Finding 1, supra.

The court decided that the plaintiff was entitled to re

cover.

GREEN, Judge, delivered the opinion of the court:

This is an action to recover with interest the sum of $54,451.90 paid by the Mechanics Machine Company as manufacturers' excise taxes under section 900 of the revenue act of 1921 and section 600 of the revenue act of 1924. The Mechanics Machine Company from January 1921, until its dissolution, was an Illinois Corporation engaged in the manufacture and sale of transmissions and parts therefor, also universal joints and parts therefor. On June 30, 1928, the directors and stockholders of the Mechanics Machine Company voted to dissolve the corporation. At the same time they turned over all of the corporate assets, including the claims herein involved, to Eric S. Ekstrom, who was then president of the company, in order that he might dispose of the assets, pay the corporate debts, and distribute the balance to the company's stockholders. After that date the company did no business and its charter was forfeited on September 24, 1930, by the State of Illinois. Ekstrom remained liquidating trustee until his death on January 12, 1936. Prior to that time he had paid all the corporate debts and completed all of his assignment except that which pertained to the collection and distribution of the claims involved in this suit. His widow and administratrix, Grace M. Ekstrom, was substituted as party plaintiff herein by order of this court dated August 17, 1936.

Refund claims covering payments made for taxes on sales during the years 1921 to 1926, inclusive, were duly filed. All of the claims were rejected except the claim filed on April 4, 1925, for a refund of $4,933.60. This claim was allowed in the sum of $4,876.03 with interest.

Opinion of the Court

Within two years after the rejection of the other refund claims, the original petition was filed on January 23, 1928.

It appears that the Machine Company made and sold universal joints and a mechanism called the "Jumbo" transmission together with attachments for connecting these several mechanisms with other machinery and paid taxes on the sales thereof as shown in the findings. One issue in the case is as to whether these sales were properly taxable. The defendant also alleges that the party now prosecuting the action is not entitled to maintain it and that the plaintiff has been guilty of laches.

A universal joint is a flexible coupling permitting motion at varying angles while transmitting power from a driving member to a driven member. It is a matter of common knowledge that all automobiles make use of universal joints in transmitting the power from the engine to the wheelsusually the rear wheels-the line of the engine shaft being at an angle with the shaft connecting with the differential which operates in giving motion to the wheels. The principle employed in the universal joints is very old and known since the tenth century. For many years prior to the advent of the automobile they had been used in numerous mechanisms and at the time the taxes involved were levied were made and sold by the Machine Company and other manufacturers in commercial quantities to be used on a great variety of machines, a number of which are listed in Finding 7. The joints here involved are the seven standard sizes of universal joints made by the Mechanics Machine Company. These standard joints differed from each other only in weight and capacity, were all of the same design, and all designed to be used as a coupling between two shafts operating at different angles from one another in any kind of machinery requiring such a transmisison of power. They were not specially designed for use in automobile mechanisms as it required no special design for such use and they were equally adapted for use in other mechanisms as well as for use in automobiles. The extremities of universal joints necessarily were made to fit the extremities of the machinery with which they were to be connected but the same type of fittings employed by automobiles was also

Opinion of the Court

used for connections with other machinery. In this connection it should be noted that joints specially made for automobile manufacturers and sold to them are not involved herein. No taxes were paid on these joints. They were sold under tax exemption certificates, the tax being paid by the automobile manufacturer when they became part of the car. No changes in the universal joints on which the plaintiff paid the tax were required to make them operate satisfactorily in mechanisms not used for automobile purposes and they could be used interchangeably without alteration in assembling machinery in either case. Under familiar rules the sales of universal joints were not taxable.

The other matter in controversy relates to taxes levied upon sales of what are called "Jumbo" transmissions.

These transmissions were made by the Machine Company for the Price-Hollister Company, a sales company which bought the entire output of the Machine Company.

The term "transmission," as used in this case, means a set of gears operating between a driving shaft and a driven shaft either for the purpose of increasing or decreasing the speed of the revolutions of a shaft or reversing the rotary movement thereof. At the time the Jumbo transmission was designed the Ford Model T power plant was being extensively used as a stationary engine furnishing power for a number of purposes not connected with an automobile. The Price-Hollister Company concluded that there would be an active demand for a transmission to be attached to the planetary transmission of the Model T motor in such form as to supply the demand for a sturdy flexible unit that would increase the number of uses of the Model T Ford engine especially as a stationary power plant. At that time there were thousands of Ford Model T engines which were lying unutilized in storage in various parts of the country. The design of the Jumbo transmission facilitated the use of these unused Ford engines as stationary engines and also increased the use of any Ford truck or automobile into which the transmission was built, by converting it into a power unit which could readily be moved from one stand to another.

64834-38-CC-vol. 86- -3

Opinion of the Court

The Jumbo transmission was composed of a transmission case, or housing, and eight gears, four of them being mounted integral. The drive gear, two sliding gears, and the idler gear were directly above the integral gears. There was an opening in the side of the transmission case through which power could be taken by meshing with the idler gear a gear of the correct pitch, mounted on a shaft. This opening was called the "power take-off" opening, and made it possible by methods known to any ordinary mechanic to divert power from the Ford Model T internal combustion engine to wherever it was required. By meshing propersized gears with the idler gear in the transmission, any amount of torque required could be delivered out of the power take-off openings.

This transmission was sold by the Price-Hollister Company not only to car dealers and machine shops but also to retail merchants, garages, and makers of machines not used for automobile purposes for use on a great variety of machines listed in Finding 10.

The statute makes sales of "parts" or "accessories" of automobiles taxable but does not define these terms. For an explanation of their meaning we must look to the regulations.

The Supreme Court has given a definition of what constitutes a part or accessory to an automobile in Universal Battery Co. v. United States, 281 U. S. 580, 583, wherein it is said:

The administrative regulations issued under § 900 uniformly have construed the term "part" in that section as meaning any article designed or manufactured for the special purpose of being used as, or to replace, a component part of such vehicle, and which by reason of some characteristic is not such a commercial article as ordinarily would be sold for general use, but is primarily adapted for use as a component part of such vehicle. The regulations also have construed the term "accessory" as meaning any article designed to be used in connection with such vehicle to add to its utility or ornamentation and which is primarily adapted for such use, whether or not essential to the operation of the vehicle.

These regulations were approved.

Opinion of the Court

It seems to have been considered by the Commissioner of Internal Revenue and argued on behalf of defendant that because the Jumbo transmisison was primarily designed and adapted for use in connection with the Ford Model T engine and was in fact used in some instances as a part of a car or truck, it follows that the transmission was an automobile part and taxable as such. That this is not enough is apparent on reading the regulation; see also Milwaukee Motor Products, Inc. v. United States, 66 C. Cls. 295, 302. In order to make the part taxable it must, under the regulations, be designed for the special purpose of being used as, or to replace, a component part of a self-moving vehicle and be such an article as would not ordinarily be sold for general use, but be primarily adapted for use as a component part of such vehicle. This description can not be applied to the Jumbo transmission as will be seen when we consider later its construction, adaptation, and use,

The regulations further provide [Regulations 47 (Revised), Article 14] that

Any article which has reached a state of manufacture wherein it is in itself a component part or accessory and is of such a nature that it may be used or attached by an ordinary repair man or individual user as distinguished from a manufacturer or producer is subject to tax as a "part or accessory".

Here again we shall find on examination that this regulation excludes the Jumbo transmission.

The findings show that the Jumbo transmission could not be installed in an automobile or truck by an ordinary repair man or individual user but on the contrary required a highly skilled mechanic to make a number of precision operations, fittings, alterations, and changes in the chassis of the car, all of which necessarily would require considerable expense. In fact it could not be used in an automobile as originally constructed. Under the regulations the transmission under consideration would not be taxable because it could not be fitted into an automobile by an ordinary repair man. This same fact, we think, shows that it could not have been designed for the "special purpose" of being used as a component part of an automobile and

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