Cory Corporation v. Sauber/Opinion of the Court

This suit was instituted by petitioners in the District Court for a refund of excise taxes collected on the sales of two air-conditioning units sold in 1954 and 1955. Section 3405(c) of the Internal Revenue Code of 1939, 26 U.S.C. (1952 ed.) § 3405(c), 26 U.S.C.A. § 3405(c), placed a 10% tax on '(s)elf-contained air-conditioning units.' Section 3450 gave the Commissioner, with the approval of the Secretary, power to prescribe needful rules and regulations for the enforcement of the provisions relating to such taxes. Pursuant to this power, the Commissioner published revenue rulings in 1948 and in 1954 holding that the statute taxed air-conditioning units which had certain physical features, were designed for installation in a window or other opening and had 'a total motor horsepower of less than 1 horsepower.' These rulings represented the Commissioner's construction of the Act until a different construction, applied prospectively only, was expressed in regulations issued in 1959.

The parties stipulated that the statute applied only to 'self-contained air conditioning units of the household type' and that each of the two units in question had an actual motor horsepower of one horsepower. The taxpayers contended that the words 'motor horsepower' in the revenue rulings meant actual horsepower; the Government contended that they meant the nominal horsepower given by the manufacturer or 'rated' horsepower assigned on the basis of standards established by trade associations. The District Court construed the revenue rulings as referring to actual, not nominal or rated, horsepower and found, in accordance with the stipulation, that each each of the two units had an actual horsepower in excess of one horsepower. It found additionally that even the 'rated' horsepower of the two units in question was greater than one horsepower. On appeal the Court of Appeals reversed. 7 Cir., 266 F.2d 58; 267 F.2d 802. It did not reach the question as to the meaning of the revenue rulings, for it held that 'household type' was the controlling statutory criterion, that the horsepower of the units is irrelevant to that issue, that the units in question were clearly of the household type because they were 'made to meet the needs of a household,' and that the revenue rulings, insofar as they referred to horsepower, were therefore void. The case is here on petition for a writ of certiorari, 361 U.S. 899, 80 S.Ct. 209, 4 L.Ed.2d 155.

There is much said in the briefs and in oral argument about this case as a test case. It is said that taxes on the sale of about 50,000 units turn on this decision. We intimate no opinion as to the taxes on any sales except the two involved here. The only issues before the Court are the construction and validity of the revenue rulings. Hence we do not reach the question as to what other defenses might have been made. Respondent urges in this Court, contrary to the stipulation below, that the statute taxes all self-contained air-conditioning units, not merely those of the household type. We need not consider which view of the statute is correct for under either view we think the horsepower test is a permissible one. We hold that the revenue rulings which were in force from 1948 to 1959 were not void. The factor of horsepower in our opinion may have had some relation to size in the then stage of engineering development and size might well have been relevant to what was then a 'self-contained air-conditioning unit.' There is indeed evidence that the less-than-one-horsepower test was designed to draw the line between household and commercial types of air-conditioning equipment. Moreover, it appears that the rulings in question were issued after consultation with industry representatives, who asserted that horsepower was a factor relevant to the definition of the statutory term as they understood it. The Commissioner consistently adhered to the horsepower test for more than 10 years, and Congress did not change the statute though it was specifically advised in 1956 that that was the test which was being applied. We cannot say that such a construction was not a permissible one, cf. Universal Battery Co. v. United States, 281 U.S. 580, 50 S.Ct. 422, 74 L.Ed. 1051, especially where it continued without deviation for over a decade. Cf. United States v. Leslie Salt Co., 350 U.S. 383, 76 S.Ct. 416, 100 L.Ed. 441. The District Court found that 'Among engineers, the horsepower of a motor does not mean its nominal horsepower rating but means the actual horsepower which the motor will deliver continuously under its full normal load.'

The Court of Appeals did not reach that question nor review that finding in view of its conclusion that the horsepower test was not valid. Accordingly we remand the case to the Court of Appeals for consideration of that and any other questions which may remain. And we add that our disposition is without prejudice to such action as the lower courts may deem appropriate to prevent taxpayers, should they ultimately prevail, from obtaining a windfall by reason of taxes collected by them but not paid to the Government.

Reversed.

Mr. Justice FRANKFURTER, dissenting.