             OFFICE    OF THE AlTORNEY        GENERAL    OF f%xAs
                                     AUSTIN
-cIlurc
 -IOU                 OFFICE OF THE ATTORNEY GENERAL OF TEXAS

                                     AUSTIN


          Honorable George H, Sheppard
          Comptroller of public Aooounts
          Austin, Texas

          Dear Sir:                   Opinicn No. O-4056
                                      R0: Whether or not the ten per oent
                                           additional charged the buyer by
                                           merohants in order to cover the
                                           Federal tax should be included
                                           in the "receipts from the sale"
                                           on which the 2 per cent State
                                           sales tax on radios end cosmetics
                                           (Art, 7047-L, V.AC.S.) is calculated.

                    This is in reply to your request for our opinion on
          the question of whether or not, when certain articles are sold
          at retail, the extra charge collected by merchants because of
          the recent Federal Revenue Act of 1941, levying a ten per cent
          tax, should be included in computing the tax on the sale of
          radios and cosmetics due the State of Texas under Article X,
          House Bill No. 6, Forty-seventh Legislature, 1941, oodified as
          Article 7047-L of Vernon's Annotated Revised Civil Statutes of
          Texas. If a radio or a quantity of cosmetics sold at retail
          for ten ($10.00) dollars before the Federal Revenue Act of 1941
          went into effect, and if said radio or said quantity of oosmet-
          ios sold at retail for eleven ($11.00) dollars after the Act
          went into effect, the one ($1.00) dollar being added to cover
          the ten per cent Federal tax, would the State tax be oaloulated
          on a sale price of ten ($10.00) dollars or on a sale price of
          eleven ($11.00) dollars?

                    The State tax in question, to-wit, said Article 7047-L,
          V.A.C.S., reads in part as follows:

                   %eotion 1. Each person, partnership, assooia-
              tion, or corporation selling at retail new radios or
              new cosmetics, shall make quarterly on the first days
              of January, April, July end October of each year, a
              report to the Comptroller under oath of the owner,
Honorable George H. Sheppard, Pa&e 2



     manager, or if a corporation, an officer thereof,
     showing the aggregate gross receipts from the sale
     of any of the above named items for the quarter next
     preceding; and shall at the same time pay to the
     Comptroller * luxury excise tax equal to two (2) per
     cent of said gross receipts as shown by said report.

          I'** *

         "Nothing herein shall be construed so as to
    require payment of the tax on gross receipts herein
    levied more than onoe on the proceeds of the sale
    of the same article of merchandise, A retail sale
    EISused herein, means a sale to one who buys for
    use or consumption, and not for resale:. Gross re-
    ceipts of a sale means the sum which the purchaser
    Pays, or agrees to pay for an article or commodity
    bought at retail sale."

          The Federal taxes in question are levied under the terms
of "Public Law 250, Chapter 412, Seventy-seventh Congress, First
Session," known as the "hevenue Act of 1941," effective October
1, 1941. That part of the Act with whioh we are concerned levies
two types of taxes, to-wit, (1) a manufacturers and producers tax,
and (2) a sales tax.

          That part of th? "Revenue Act of 1941" that concerns
radios is S&ion   545, which amends Section 3404 of the Internal
Revenue Code, and reads as followsa

          "There shall be imposed upon the following arti-
     cles (including in each CBSR, except in the case of
     musical instrurr,ents,
                          parts or accessories therafar
     sold on or in cocnection with the sale thereof) sold
     by the manufacturer, producer, or importer a tax
     equivalent to 10 per centum of the price for which
     sold:

          "(a) Radio receiving sets, automobile radio re-
     ceiving sets, combination radio and phonograph sets,
     and phonographs.

          "(b) Chassis, cabinets, tubes, reproducing
     units, power packs, antennae of the 'built-inc.type
Honorable George H. Sheppard, Page 3



     and phono~aqhm~r~~nj-~,E., wh.i&.%x WLL+R&J~~fv
     use on or in ccnnection with, or as component parts
     of, any of the articles enumerated in subsection
      (a), whether CP not primarily adaptsd for such use,

          "(c)   Phonograph records.

          "(d) Musical instruments."

          That part of the "Revenue xct of 1941" that oonoerns
cosmetics is a part of Section 552, which adds 8 chapter 19 to
the Internal Revenue Code, and reads 8s follows:

          "Sec. 2402. (a) Tax. - There is hereby imposed
     upon the following articles sold at retail a tax
     equivalent to 10 per centum of the price for which
     so sold: Perfumes, *ssenoes, extracts, toilet waters,
     cosmetics, petroleum jellies, hair oils, pomades,
     hair dressings, hair restoratives, hair dyes, arome.-
     tic cachous, toilet powders, and any similar substance,
     article, or preparation, by whatsoever naxieknown or
     distinguished; any of the above which are used or ap-
     plied or intended to be used or applied for toilet
     purposes.

          I'** *

          "Sec. 2403. (a) Fvery person who sells at retail
     any article taxable under this chapter shall make
     monthly returns under oath in duplicate and pay the
     taxes imposed by this chapter to the collector for
     the district in which is located his principal place
     of business * * * .

          fl* * *

          "(c) In determining, for the purposes of this
     chapter, the price for which an article is sold, there
     shall be included any charge for coverin& and con-
     tainers of whatever nature, and any charge incident
     to placing the article in condition packed ready for
     shipment, but there shall be excluded the mount of
     tax imposed by this chapter, whether or not stated as
     a separate charge. A transportation, delivery, in-
     surance, installation, or other charge (not required
Honorable George H. Sheppard, Page 4



     by the foregoing sentence to be included) shall
     be excluded from the price only if the amount
     thereof is established to the satisfaction of the
     Commissioner, in accordance with the regulations.
     There shall also be excluded, if stated as a sep-
     arate charge, the amount of any retail sales tax
     imposed b:fany State or Territory or political
     subdivi(lionof the forekoinb, or the District of
     Columbia, whether the liability for such tax is
     in-posedon the vendor or the vendee."

          Let us examine the State law, to-wit, Article 7047-L,
V.A.C.S. It says th&t each person, etc., "sellin& at retail new
radios or new cosmetics, shall make quarterly * * * a report * * *
showing the a&regate &ross receipts from the sale of any of the
above named items * * *; and shall * * * pay to the Comptroller
a luxury excise tax equal to two (2) per cent of said brass re-
ceipts * * *.'I It is important for us to determine what reoeipts
are "from the sale," We believe it is a question ?f what part
of the money passes is the sale price,

          Section 545 of the Federal Revenue Act of 1941, which
is the part that concerns radios, is a manufacturers and producers
tax, It is levied against the manufacturer, producer or importer.
The tax is measured by the amount the manufacturer, producer or
importer receives for it when he sells the article, but, neoerthe-
less it is a tax ag,ainstsaid manufacturer, producer or importer.
The courts have held in many instances that taxes levied by stat-
utes worded like said Section 545 are against the manufacturer,
producer or importer, Lash's Products Company VS. United States,
278 U. S. 175, 73 L. Ed. 251, 49 Sup. Ct. R. 100; Thurman V,
Swisshelm, 36 Fed. (Zd) 350; Con-Rod Exchange, Inc., V* Henrioksen,
28 Fed. Supp. 924; and People v. ';'erner,
                                         364 Ill. 594, 5 N. E.
(2d) 238. An amount equivalent to such a tax is usually added to
the price of the article by the manufacturer in the same manner
that he aids other costs incurred in prodwin& the article, for
example, increased rents, ad valorem taxes, unemployment oompen-
sation taxes, and many other i.temsor cost; and each person in
turn buyink and reselling the article passes this added cost on
until it reaches the consumer. The consumer cannot pass it on.
In the case of taxes of this kind the consumer usually p&ys them
in the form oi an increased cost to the oonsumer. The tax becomes
8 part oi;the sale price. Ihis view is clearly illustrated by the
language of Justion Holmes in the case of Lash's Products Company
V. United States, supra, in which he saidr
Honorable George H. Sheppard, Page 5



          "This is a.suit to reoover the amount of cer-
     tain taxes paid under the Revenue Aot of 1918 (Act
     of February 24, 1919, C. 18, 1 628, 40 Stat. 1057,
     1116). By $ 626 there is imposed on 'soft drinks,
     sold by the manufacturer, * * * in bottles or other
     closed containers, a tax equivalent to 10 per oentum
     of the price for which so sold.1 This tax was paid
     by the petitioner, calculated at ten per oentum of
     the sum actually received by it for the goods sold.
     But the petitioner had notified its customers before-
     hand that it paid the ten per cent tax and it contends
     that in this way it passed the tax on and that the
     true price of the goods was the sum received less the
     amount of the tax. 'Thephrase 'passed the tax on1 is
     inaccurate, as obviously the tax is laid and l~emains
     on the manufacturer and on him alone. Heckman & Co.




The same view was taken by the Supreme Court of Illinois in the
case of People v. Werner, supre, in which the court said:

         "* * * Section 617 of the internal revenue laws
    (26 U.S.C.A.p$ 3601-3629, see 26 U.S.C.A. 1 1420 et
    seq. note) levies a federal excise txx of one cent per
    gallon on the producer or importer of gasoline and pre-
    scribes for his registration and thjrconditions under
    which he shall furnish bonds, make returns, and pay the
    tax to the federal collector of the district. No ex-
    cise tax is imposed upon or paid by the retailer of gaso-
    line, It may be true that the federal excise tax upon
    gasoline which is paid b:ythe producer or importer is,
    upon its sale to the retailer, added to the cost of the
    product as a separate charge, in the same manner as
    transportation, delivery, insurance, or other charges
    are added. The itemization of these separate charges,
    or any of them, in the invoices sent by the producer or
    importer to the retailer, does not change the fact that
    the producer or importer has paid the tax to the fed-
    eral tovemment and has thereby, in effect, raised the
    cost of the gasoline to the retailer. The federal ex-
    cise tax has thernfor~emade the t;asolinecost one cent
    per gallon more to the retailer, just as import and
r




    Honorable George H, Sheppard, Page 6



        other taxes levied by the federal government are add-
        ed to the price of cigars, cigaretts, clothing, or
        automobiles sold by producers or importers to retail-
        ers, The retailer, whether of tobacco, gasoline,
        clothing, or automobiles, has no duty or burden of
        collecting or paying over to the federal government
        any manufacturer's, importer's, or excise taxes -
        they have already been paid before he gets the nrti-
        cle, and they are as much a part of the cost to him
        as are freight, express, insurance, or other charges
        which enter into and increase the cost of such arti-
         cles.   * * * n


    A similar view was taken by the court in the case of Elmer Candy
    Company Y. Fauntleroy, 19 Fed, (2d) 664.

              It is our conclusion that the ten per cent increase in
    the amount collected on the sale of a radio, because of the Fed-
    eral tax, is a part of the sale price.

              We reach a different conclusion in the case of cosmetics.
    Section 552 of the Federal Revenue Act of 1941, which concerns
    radios, is a retail sales tax. It is a tax on the retail sale,
    and although the seller remits the amount of the tax to the Gw-
    ernment the tax is collected from the buyer in the retail sale,
    to-wit, the consumer. In this o&se the consumer pays the tax with-
    out any disguise. In construing a Federal sales tax on gasoline
    that was similar in wording to this particular Federal sales tax
    on cosmetics the Supreme Court of Michigan in the ease of Standard
.   Oil Co. Y. State, 283 Mich. 85, 276 N. ?:. 908, said:

              ' * * + The trial court held that both of the
         above-mentioned federal taxes are taxes on the sale
         of gasoline and lubricating oil and not taxes upon
         their manufacture and permitted plaintiff to recover.

              "Appellants admit that the federal excise tax
         above mentioned is not a tax on the manufacturer, but
         is a tax on the sale.

                 11* * *

              'I* * * when sales we made directly from producer
         to oonsumer, the sales tax attaches the instant 8 sale
         is made. In view or the fact that the federal e*cise
    c
.



        Honorable George H. Sheppard, Pabe 7



             tax and the State sales tax attach at the instant a
             sale is made, it follows that the federal tax has not
             become a part of the sale price, but is a fund, which
             when collected is payable by the manufacturer to the
             federal government. Such fund does not become a part
             of the 'gross proceeds' realized by the manufacturer
             from the sale, ad is not subject to taxation within
             the meaning of Act No. 167, Pub. Acts 1933.

                  fl* * *

                  "The conclusion is inevitable that the federal
             excise tax may not be considered as a part of the re-
             tail prioe, and the judgment of the trial court is af-
             firmed." (Underscoring ours)

                  It is our conclusion that the ten per cent increase in
        the amount collected on ~the6~10 of cosmetics, because of the
        Federal tax, is -
                        not a part'of the sale price.

                  Our answer to your inquiry is that the Federal tax in
        regard to radios is a manufacturers and producers tax, and the
        tax is actually paid by the manufacturer or producer and added
        to the selling price as a part of the cost of production. Said
        increase in cost to the consumer is a part of the sale price. But
        on the other hand, the Federal tax in regard to cosmetics is a
        retail scles tax, and the tax is actually paid by the buyer, to-
        wit, the consumer. Said increase in cost to the consumer is not
        a part of the sdle price. In both cases the consumer pays an
        amount equivalent to the Federal tax; but, in the oise of'radios
        it is in the form of an increased price because of an increased
        production cost caused by a tax on the producer, md in the case
        of cosmetics it is in the form of an undisguised sales tax borne
        directly by the consumer, In computing tho State tax on the sale
        of radios it should be calculated on the amount paid by the pur-
        chaser including the amount added because of the Federal tax; but
        in computing the State tax on the sale of cosmetics it should be
        calculated on the amount paid b:rthe purchaser excluding the
        amount added because of the Federal tax.

                                                   Yours very truly
        APPROVED NOV 7, 1941
                                               ATTORNEY GENERAL OF TELAS

        (S) Grover Sellers
        FIRST ASSISTANT                (S) By Cecil C. Rotsch
        ATTORKJiYGENLRAL                              Assistant

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