CORY CORPORATION v. SAUBER

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Argument of Edwin A. Rothschild

Chief Justice Earl Warren: Number 436, Cory Corporation et al. Petitioners, versus Ernest J. Sauber.

Mr. Rothschild.

Mr. Edwin A. Rothschild: Mr. Chief Justice, may it please the Court.

This is an excise tax case which involves more than a question of revenue.

It involves questions, which, I think, touch on the integrity of the process of judicial review.In fact, one of the principal questions raised is what questions are before this Court.

The taxpayers, whom I represent, recovered a refund judgment in the District Court for the Northern District of Illinois on excise tax assessed and paid on to our conditioning units.

This was a test case.

The Government appealed and obtained the reversal of the District Court on issues of law and fact which were not presented to the trial court.

And we applied for certiorari and raised the questions that appear in our petition for certiorari.

There were five of them.

And the Government responded to that petition saying that the Court of Appeals was right.

Between the time of the filing of the Government's brief in opposition to certiorari and the filing of its brief on the merits, 12 days ago, the Government changed its position again and admitted error in the basic rationale of the Court of Appeals but, nevertheless, seeks to salvage the reversal of the District Court.

On no grounds, they were not presented either to the District Court or to the Court of Appeals.

And I think that the record shows an -- a trial de novo in the Court of Appeals in an attempt to obtain a new trial de novo in this Court after the certiorari papers were filed.

The facts are simple.

Taxpayers file suit in the District Court, as I stated, for the refund of excise tax paid on the sales of two air conditioners sold in 1954 and 1955.

And by stipulation with the Government, these refund suits were test suits to determine the applicability of the excise tax to more than 50,000 similar units on which excise taxes had been assessed but not paid.

The statutes Section 3405 (c) of the 1939 Code and Section 4111 of the 1954 Code impose a -- this impose excise taxes on various types of household type equipment impose a 10% tax on the sale of self-contained air conditioning units.

And until 12 days ago, when the Government's brief on the merits was filed, both parties agreed that this tax applied only to units of a household type.

Now, since 1948 and until really, until a few months ago and a new regulation was issued in response to the decision of the Court of Appeals, the Internal Revenue Service has consistently administered the tax under published revenue rulings which provide that the -- and I'm quoting from the ruling now, "type of self-contained air conditioning units subject to tax" is the unit of certain specified physical characteristics, window type and such, that has a total motor horsepower of less than 1 horsepower, and the parties have stipulated that consistently since 1948, this tax has had been administered so that the Commissioner has not know -- as it consistently exempted air conditioners with a motor horsepower of 1 horsepower or more.

Now, at the trial and incidentally, the only issue raised by the pleadings was the question of horsepower, that is whether the units of the taxpayer were 1 horsepower or less than 1 horsepower.

And there are only two standards for determining what horsepower is.

One is the actual horsepower that you can measure under standard operating conditions when the machine is in operation, and the other is the rated horsepower of the electric motor which drives the compressor which runs the air conditioning unit.

The rated horsepower means the rating standards published by the National Electrical Manufacturers Association have published standards for the guidance of their members in rating and putting horsepower ratings on the electric motors which drive the compressors and the air conditioners.

Justice Charles E. Whittaker: By that, do you mean a label or some kind on the motor?

Mr. Edwin A. Rothschild: Well, the -- the label is what I would call nominal horsepower reading.

In other words, each motor manufacturer who makes an electric motor assigns to it a nominal horsepower rating.

Now, he can, if he -- and he is more or less expected to follow the industrial standards, the NEMA rating standards but he doesn't have to.

And in this case, he didn't.

In other words, perhaps, I can explain it just by referring to the facts of this case.

The issue at the trial of this case was whether, under the rating standards, the NEMA standards of the National Electrical Manufacturers Association, the air conditioners in question should have had a 1 horsepower rating.

The District Court, and this was the only, incidentally, the only contested issue of fact in the case, the District Court held against the Government, held that they did have a 1 horsepower rating under the NEMA standards.

Nevertheless, the motor manufacturers who made the motors signed them a nominal rating of three quarter horsepower and the issue at the trial was that the -- had these motor manufacturers mislabeled their motors or had they done so correctly?

The Government's trial counsel, and I'd like to quote his own words because I think the issue at the trial is rather crucial in this case, had framed the evidence.

It said as follows, and I'm quoting from page 105 of the record, "We say that a 1 horsepower motor is used in the ruling means the motor that can be rated as a 1 horsepower motor.”

Chief Justice Earl Warren: That can be what?

Mr. Edwin A. Rothschild: Rated, R-A --

Chief Justice Earl Warren: Rate.

Mr. Edwin A. Rothschild: Rated, yes.

We have tried to prove today that these motors, under the NEMA standards, cannot be rated as 1 horsepower motors.

And on the next page of the record, we were talking about this nominal three quarter horsepower rating, Government counsel again said, “That is the rating that was put on them by the manufacturers of the electric motors in conformance with the NEMA standards.”

You can find that's on page 106 of the same record.

Now, the issues that were raised on appeal were simply eliminated from the trial by another stipulation that was made between trial counsel and myself, while I was trial counsel below, as I am here.

At the very beginning of the case which followed a pretrial conference when we did narrow the issues.

Government trial counsels stipulated that the revenue rulings were entirely valid as the Government construed them.

And as I've already shown from quotations from the Government's counsel statements, the Government construed them as applying these NEMA ratings.

And this completely removed from the trial of the case a vast number of miscellaneous issues of evidence which, of course, were not needed to be tried.

The District Court, the only issue of fact left that was tried in the District Court was one and that was whether our air conditioners had a NEMA rating of 1 horsepower.

The trial --

Chief Justice Earl Warren: Is the NEMA rating the normal or the -- the

Mr. Edwin A. Rothschild: That's the standard, yes.

Chief Justice Earl Warren: That's -- that's the actual?

Mr. Edwin A. Rothschild: That's -- that's the -- that's the -- the industrial standard rating.

Actual horsepower is something that you determine by measurement, and we contented incidentally for that at the beginning of the case, and we still think that's proper.

But -- and it was stipulated that -- that our motors have an actual horsepower of 1 horsepower.

But the issue was -- at the trial was whether if -- if the industry standards, the NEMA rating standards had been applied where there are units would have had a NEMA rated horsepower of 1 horsepower.

And the District Court held that they have.

Chief Justice Earl Warren: May I ask this, why -- why the difference?

Why do you use two in your business?

Why do you use two standards?

One an industry standard and one -- one an actual standard?

Mr. Edwin A. Rothschild: Well, it's really a question of interpreting rather the revenue rulings.

The industry by and large follows the NEMA ratings.

That's the -- the NEMA ratings are -- are published as a guide for the guidance of motor manufacturers in rating their motors.

We -- we --

Chief Justice Earl Warren: Was that normally for tax purposes?

Mr. Edwin A. Rothschild: Well, for -- the fact of the matter, Your Honor, is this is a new case as far as tax purposes are concerned because I don't believe its ever -- there's ever been a -- a contest where it appeared that the label, that is the nominal horsepower rating, was inconsistent with the NEMA standard rating.

Here, you see they rated the units of three quarter horsepower.

If they followed the NEMA standard, there wouldn't have been any question.

They did not follow the NEMA standard in this case.

Chief Justice Earl Warren: What was the actual horsepower?

Mr. Edwin A. Rothschild: The actual horsepower is more than 1 horsepower.

Chief Justice Earl Warren: How much more?

Mr. Edwin A. Rothschild: Oh, a couple of points more.

It's in the --

Chief Justice Earl Warren: Well, not -- not substantially.

Mr. Edwin A. Rothschild: No, not substantially.

Chief Justice Earl Warren: Yes.

Mr. Edwin A. Rothschild: There's a pretty close correlation between the rating standards they just do it in a different way, the NEMA rating standards and the actual horsepower.

Justice William J. Brennan: Well, do I understand you, Mr. Rothschild, that the purposes of the tax, if the tax is exacted it, it's under 1 horsepower.

Is that it?

Mr. Edwin A. Rothschild: That's correct.

Justice William J. Brennan: That is if it's 1 horsepower precisely or more, then there's no tax?

Mr. Edwin A. Rothschild: That's right.

And that's the way the tax has been administered from the beginning.

Justice Hugo L. Black: Is that what your test case is about?You talked a lot about what this record shows, but I understood you to say at the beginning, this was a test case to determine some point of law.

Mr. Edwin A. Rothschild: Well, the -- was -- simply, the -- the test case was to determine whether there are some 50,000 air conditioners on which the Commissioner has levied assessments.We haven't paid the tax on those because we say they're not taxable because they're 1 horsepower units.

Because of the procedural difficulty on an excise tax case in getting an adjudication, you have to pay the tax and sue for refund.

We stipulated with the Government that the applicability of the tax, as adjudicated by the results on the -- of the trial on these two units, would govern the applicability of the -- of the tax to these additional 50,000 units on which the assessments have been made.

Justice Hugo L. Black: What is the -- what is the point of law you are trying to get determined?

Mr. Edwin A. Rothschild: The point of law?

Justice Hugo L. Black: Yes.

Mr. Edwin A. Rothschild: Well, the point of -- the principle point, Your Honor, is that the point of law that was passed on by the District Court is one that was agreed to by the Government, that is that the NEMA standards applied that these were -- these -- these units were exempt under the NEMA standards.

And therefore, there really wasn't anything for the Government to appeal on because the Government does not challenge the finding of fact of the District Court that these are 1 horsepower units under the NEMA standards.

In order to appeal, the Government was required to change its position and repudiate that stipulation that I just called to Your Honors' attention.

On appeal, the Government said, “Our rulings are void even if they -- even if you will interpret them to include the NEMA ratings,” and they said, “These -- these air conditioners are taxable because they are of a household type, irrespective of their horsepower rating.”

Now, that was an --

Justice Hugo L. Black: Whether it's -- whether it's one (Voice Overlap)

Mr. Edwin A. Rothschild: Whether it's one, two, three --

Justice Hugo L. Black: -- two or three.

Mr. Edwin A. Rothschild: -- or -- that's right.

It doesn't matter.

Justice Hugo L. Black: And that -- that is your main point of law?

Mr. Edwin A. Rothschild: Well, our --

Justice Hugo L. Black: I'm -- I'm not talking now about what would decide this particular case on the basis that the Government started off one way and then stepped over and took another and then took a third.

Mr. Edwin A. Rothschild: Well, our point of law in our original brief, Your Honor, was the Court of Appeals was wrong in its decision even assuming that it -- that it --

Justice Hugo L. Black: What did it hold with reference to that point?

Mr. Edwin A. Rothschild: The Court of Appeals held that the rulings were void.

The Court of Appeals held that rated or actual horsepower is immaterial.

The Court of Appeals held that the Commissioner of Internal Revenue lack the power to set up a horsepower test because -- principally because the word “horsepower” wasn't mentioned in the statute.

Justice Hugo L. Black: The statute simply provides for tax on household appliances.

Mr. Edwin A. Rothschild: Well --

Justice Hugo L. Black: What now to --

Mr. Edwin A. Rothschild: self -- self-contained air conditioning units.

Justice Hugo L. Black: Self-contained air-con and didn't -- doesn't say anything at all about what size?

Mr. Edwin A. Rothschild: That's right.

It doesn't say anything about what size.

And the Court of Appeals held that the horsepower test was simply invalid because it wasn't the -- the Commissioner didn't have that much power.

The Court also held the household type.

And at this point, Your Honors, the Government was still contending for household type.

The household type was a word that everybody understands and you didn't need any ruling to explain it.

Justice William J. Brennan: Well, how did household type get into this, it's a regulation?

I understood you to say the statute is self-contained air conditioning (Voice Overlap) --

Mr. Edwin A. Rothschild: The statute is self-contained air conditioning --

Justice William J. Brennan: It says nothing about horsepower rating.

It says nothing about household or other type, does it?

Mr. Edwin A. Rothschild: Not -- not in so many words.

It's -- the statute, however, is the word tax on self-contained air conditioning units, was part of a statute which taxed other kinds of household type items like household refrigerators.

And it was reenacted in the 1954 Code under the heading “Household type equipment, Etcetera”

And that is why and for -- there are -- also, there are some administrative history too.

This matter was brought to the contention of Congress in 1956.

But that is why, Your Honor, both the Government and ourselves, from the very beginning of this case until 12 days ago, agreed that the statute was limited to the household type.

Justice William J. Brennan: Now, what's the Government position now, that it -- there's no limitation at all?

Mr. Edwin A. Rothschild: That's right.

Justice William J. Brennan: Either horsepower or household or anything else?

Mr. Edwin A. Rothschild: That's right.

Justice Hugo L. Black: Now, where is the statute if you don't find it at all?

Mr. Edwin A. Rothschild: Well, the statute --

Justice Hugo L. Black: Would you mind pointing out the language of the statute?

Mr. Edwin A. Rothschild: The language of the statute appears in -- well, in our -- we have in our appendix page 39 of our main brief both and -- that's --

Justice Hugo L. Black: Which part --

Mr. Edwin A. Rothschild: -- that's the --

Justice Hugo L. Black: -- which part --

Mr. Edwin A. Rothschild: -- original of 1939 Code.

Justice Hugo L. Black: Which part of that on page 39?

Mr. Edwin A. Rothschild: You have to go down to C.

Household --

Justice Hugo L. Black: C on page 40?

Mr. Edwin A. Rothschild: C on page 40, yes.

Justice Hugo L. Black: Is that the whole definition?

Mr. Edwin A. Rothschild: That's all there is.

Then on -- in 1954, it was reenacted and that's on page 41 of the same appendix, Your Honor, Internal Revenue Code 1954, Household Type Equipment, Etcetera, and then we have the -- virtually the same language.

Chief Justice Earl Warren: But what --

Justice Hugo L. Black: Well, is there any difference in the language?

Mr. Edwin A. Rothschild: Except for the subheading, no.

And the -- the household type units with which this is associated.

Chief Justice Earl Warren: Well, is that --

Justice Felix Frankfurter: Let's see if I understand --

Chief Justice Earl Warren: I beg your pardon.

Justice Felix Frankfurter: No.

Mr. Edwin A. Rothschild: Yes.

Chief Justice Earl Warren: Is that stipulation that you speak of a stipulation of fact or of law?

Mr. Edwin A. Rothschild: The stipulation of -- of the -- that the -- the --

Chief Justice Earl Warren: About the household?

Mr. Edwin A. Rothschild: Oh, that it -- it implied the household types?

Chief Justice Earl Warren: Yes.

Mr. Edwin A. Rothschild: That was a stipulation of law.

Chief Justice Earl Warren: Well, then, it's your position that they stipulated themselves out of court by their legal concessions, is that right?

Mr. Edwin A. Rothschild: That's right.

I -- I've --

Chief Justice Earl Warren: If this is a test case, should we abide by that if they're wrong?

Justice Felix Frankfurter: Where is that stipulation, Mr. --

Mr. Edwin A. Rothschild: The stipulation appears in the briefs.

Well, there are two stipulations, Your Honor, both of which have been repudiated.

The first stipulation --

Justice Felix Frankfurter: I'd like to see them before I find out whether they were repudiated.

Mr. Edwin A. Rothschild: All right, the first stipulation, Your Honor, is the one that was made in the trial court.

And that does -- that's at page 56 of the record.

Mr. Stetson was the attorney for the Government and after we had our conference, we -- he -- he made this stipulation, “Your Honor,” and this is to the trial court, “there is one more matter which I think we agreed on as a stipulation.I would like to dictate a stipulation into the record, if I may, which is this, if the Court should determine that the ruling must be interpreted in a manner as contended by the plaintiffs, that's actual horsepower,” as distinguished from NEMA --

Chief Justice Earl Warren: Correct.

Mr. Edwin A. Rothschild: -- rating, I'm interpolating there.

“The plaintiffs will not argue that the Government doesn't stop to argue -- argue that the ruling is invalid,” and I said, “So construed,” and he said, “As so construed”.

In other words, he reserved the right to attack the validity of the ruling only to the extent that it incorporate actual horsepower and then I said, “I'll agree to that,” and we did that in order to shorten proof in issues.

My understanding is that the Government's position is the ruling is entirely valid as the Government construes it but not as we construe it.

“Is that correct?”

And he said that is correct.

Justice Hugo L. Black: And how did the Government construed it?

You say they --

Mr. Edwin A. Rothschild: Oh, the Government construed it in the language of the attorney that I read before as incorporating the NEMA's rating standards.

He said that -- we say that this incorporates the NEMA standards.

And that's --

Justice Felix Frankfurter: May I --

Mr. Edwin A. Rothschild: I'm sorry, sir

Justice Felix Frankfurter: May I ask you?

Of course -- and what they then -- whatever it was that they stipulated, was that a stipulation regarding the 1939 Act, is that it?

Is that what I'm talking about correctly?

The stipulation --

Mr. Edwin A. Rothschild: (Voice Overlap) --

Justice Felix Frankfurter: -- as to how that statute can be construed or as to what the regulations were?

What is it?

Mr. Edwin A. Rothschild: Well, it's the stipulation as to what --

Justice Felix Frankfurter: I don't know it.

I don't know it, but I don't.

Mr. Edwin A. Rothschild: It's a stipulation as to both acts, Your Honor, and --

Justice Felix Frankfurter: The stipulation and as the Chief Justice asked as to what the statute, how the statute is to be construed, is that it?

Mr. Edwin A. Rothschild: That's right.

But it's more than that, Your Honor.

It's a waiver of defense.

In other words, he agreed that the Government would not assert as a defense to this law suit either that our units were taxable if they had a NEMA rating --

Justice Felix Frankfurter: That's the ultimate question of law.

How could you stipulate away the whole meaning of a statute which is under contest?

I just don't understand.

Mr. Edwin A. Rothschild: Well, there -- there's also --

Justice Felix Frankfurter: Let me remind you -

Mr. Edwin A. Rothschild: There's also a question of fact, Your Honor, which is this.

Justice Felix Frankfurter: I can understand if they're agree to tell me that by this stipulation, you were cut off from putting in witnesses or making claims of --

Mr. Edwin A. Rothschild: Of course.

Justice Felix Frankfurter: -- otherwise, you would have made it.

Is that what you're saying?

Mr. Edwin A. Rothschild: Of course that -- yes, Your Honor, that's exactly what I'm saying.

I'm saying that we didn't put in any evidence to show that there are units where -- of a household type independently of the revenue ruling that was involved.

We didn't put in any -- any witnesses to show that our units were not self-contained within the meaning of the statute if the -- if it has that more limited meaning.

These issues were never tried because the Government stipulated that their rulings were valid and we've narrowed the issue down to this one point, the horsepower point.

Justice Felix Frankfurter: Then, tell me this.

Am I wrong in drawing the inference that I do draw from what you just said, namely, that assuming you're right about everything you've said in this implication, you -- you are not entitled to ask us to give a stipulated construction of the statute but you maybe entitled to say that the case should go back so that the issues maybe properly canvassed.

Which are you asking us to do?

Mr. Edwin A. Rothschild: Well, I'm asking you to do more of the latter than the former because I -- I admit that this Court is not bound by a stipulation of law.

Of course, that's well settled.

But I am saying that -- that when the case is tried on issues and those -- and specific defenses which could've been raised are waived and --

Justice Felix Frankfurter: And it might be irrelevant to have fair determination of the legal question.

You must take that in.

Mr. Edwin A. Rothschild: Which might be, except that the Government was perfectly cognizant of everything they've raised right now.

Justice Felix Frankfurter: What I mean it -- which might be from the point of view of this Court --

Mr. Edwin A. Rothschild: Yes.

Justice Felix Frankfurter: -- as a matter of law.If you are shut off from putting in defenses or making claims and to study by the way in which you could sustain presumably --

Mr. Edwin A. Rothschild: Yes.

Justice Felix Frankfurter: -- by a position of the Government took on which the Court acted --

Mr. Edwin A. Rothschild: Yes.

Justice Felix Frankfurter: -- and this Court cannot say that that is irrelevant to the issue.

We don't care even if you prove that, it would've made no difference.

Mr. Edwin A. Rothschild: Yes.

Justice Felix Frankfurter: You are entitled to get to that chance.

Is that what you're saying?

Mr. Edwin A. Rothschild: That's right.

If -- if this Court holds that -- well, first of all, if this Court holds that the Government's new contentions should be considered, which I -- I think under your past practice, you -- you would not normally do so and -- but --

Justice Felix Frankfurter: But why, because we made the stipulations to law?

Mr. Edwin A. Rothschild: Because they tried the case on different issues and the trial court and they're trying it on this Court, Your Honor, and therefore it's --

Justice Felix Frankfurter: That may be a good reason for sending it back but it isn't a good reason for this Court to give a wrong constructions of the statute.

Mr. Edwin A. Rothschild: I don't think Your Honors have to do that.

I think Your Honors can -- first of all, I don't think it's a wrong construction --

Justice Felix Frankfurter: Well, I mean --

Mr. Edwin A. Rothschild: -- but -- but I'm assuming that it is, yes.

Assuming that it is --

Justice Felix Frankfurter: I didn't want to know what it is that you may properly press upon this Court for a decision.

And as the Chief Justice indicated, the fact that they stipulated their view of the statute doesn't foreclose us in saying that that's not an admissible construction of the statute.

And it may be that it's so inadmissible that it's immaterial even if you've been allowed to having made it, you couldn't have put in that proof for that claim because so it's so fancible.

I'm not saying it is.

I don't want to imply it.

I just want to know what it is exactly that you're putting to the Court.

Mr. Edwin A. Rothschild: Well, I -- I --

Justice Felix Frankfurter: Certainly, you're not putting to the Court that we must give a construction to the statute because the Government misconceived the scope of the statute.

Mr. Edwin A. Rothschild: No, I am suggesting that -- to the Court that the Government be tried -- that the Government try the cases and have this -- this Court review the issues that were presented to the trial court and the issue that was presented to the trial court was not the issue that was presented either to the Court of Appeals or to this Court, and this Court has held many times that this Court will not consider, regardless of the merits of an issue, will not consider issues raised for the first time on appeal and certainly issues raised for the first time after the filing of a petition for certiorari.

Justice Felix Frankfurter: But in the Swift case, which is somewhere around 278 US --

Mr. Edwin A. Rothschild: Yes, I'm aware.

Justice Felix Frankfurter: -- this Court held on its own notion --

Mr. Edwin A. Rothschild: Yes.

Justice Felix Frankfurter: -- sua sponte from the bench --

Mr. Edwin A. Rothschild: That's right.

Justice Felix Frankfurter: -- that the whole theory on which the litigation was conducted is to be swept aside because conflict between them put up a litigation to this Court which did not represent what the litigation should have been.

Mr. Edwin A. Rothschild: Well, I'm aware of that, Your Honor.

Justice John M. Harlan: Well, I got a little different impression, maybe all wrong, but I understood your case was something different, namely, forget all about the stipulation.

Mr. Edwin A. Rothschild: Yes.

Justice John M. Harlan: I thought the position was that here, you have a broad ambiguous statute.

Mr. Edwin A. Rothschild: That's right.

Justice John M. Harlan: That here, you also have a longstanding government regulation and that the Court of Appeals, forgetting all about the stipulation, and that the Court of Appeals had no business disregarding that regulation and saying that a horsepower was immaterial and therefore that the case ought to go back to the Court of Appeals to try out the one issue that remains, namely, whether there was government regulation means rated or nominal horsepower.

Now, that has nothing to do with stipulations or estoppels or --

Mr. Edwin A. Rothschild: That's right.

Justice John M. Harlan: -- or anything else, am I wrong?

Mr. Edwin A. Rothschild: No, you're absolutely right, Your Honor.And that -- that's the -- I -- and that's -- that of course is the first point in our main brief, but I was assuming you were assuming that -- that I was to hold that that -- that I was to assume that that was wrong.

Now, that's -- that's the -- that's the --

Justice Felix Frankfurter: But that hurdles all questions of Justice Harlan had just said and hurdles all questions of stipulation.

Mr. Edwin A. Rothschild: Well, certainly, that's -- that's right.

That's one -- one way of treat the Court of -- let me start over.

Justice Felix Frankfurter: But you started out by -- by being appropriately outraged if your starting point was correct that the Government is -- that this is a question of judicial review.

Mr. Edwin A. Rothschild: I think it is.

Justice Felix Frankfurter: Well, not --

Mr. Edwin A. Rothschild: But --

Justice Felix Frankfurter: -- according to the statements that you've just accepted.

Mr. Edwin A. Rothschild: Well, I think that we have a -- we have a number of reasons, Your Honor, why the -- why the Court of Appeals should be reversed and the first one, irrespective of -- of the fact that there -- there was a trial in the Court of Appeals that was never tried in the District Court, the fact is that the reason given for the Court of Appeals was wrong and as Justice Harlan points out, not only was this statute administered and interpreted by the Department of Internal Revenue for 10 years to mean horsepower but this matter was expressly called to the attention of Congress to a congressional committee in 1956, and the spokesman for the industry pointed out to Congress, so there can't be any question about that, expressly pointed out to Congress that the -- that the -- that this -- this was the way the statute was being administered.

He says --

Justice Felix Frankfurter: But that's -- that's the conventional claim made here that administrative construction, sometimes the Government use it and sometimes the taxpaying (Voice Overlap) --

Mr. Edwin A. Rothschild: Yes.

Justice Felix Frankfurter: -- that administrative construction compels these laws on a dubious statute or an ambiguous statute.

And that would be true if in this case, counsel of the Government hadn't opened his mouth.

Mr. Edwin A. Rothschild: That's right.

Justice Charles E. Whittaker: Mr. --

Mr. Edwin A. Rothschild: Those are alternative grounds, Your Honor.

I'm sorry if I wasn't clear.

Justice Charles E. Whittaker: May I ask you, sir?

Mr. Edwin A. Rothschild: Yes.

Justice Charles E. Whittaker: Of course you don't contend, I assume, that if, as a matter of law, the -- the Treasury decisions were void that we should not pronounce the meaning and the fact of the statute ourselves, do you?

Mr. Edwin A. Rothschild: No.

Justice Charles E. Whittaker: All right, now, then, if the statute is plain and leaves no room for any conditioning by the Commissioner, then we should pronounce it effect -- its effect, should we?

Mr. Edwin A. Rothschild: Yes (Voice Overlap) --

Justice Charles E. Whittaker: All right, now then, let me ask you next.

Had you passed along to your customers on these sales an added tax of 10%?

Mr. Edwin A. Rothschild: On the two air conditioners involved, Your Honor, we have because we're not claiming that.

There -- there we are -- we are bringing our action under a section which the only section which permits the refund suit on excise taxes must be brought with the consent of the ultimate consumer.

And there, we are entitled to bring a refund suit with the consent of the ultimate consumer.

That's on the two taxes we paid.

Justice Charles E. Whittaker: Yes.

Mr. Edwin A. Rothschild: See, we paid those before we knew that they'd been mislabeled.

Justice Charles E. Whittaker: Yes.

Mr. Edwin A. Rothschild: And then we pick them for -- for test suits.

Justice Charles E. Whittaker: Yes.

Mr. Edwin A. Rothschild: On the other suits –

Justice Charles E. Whittaker: Yes.

Mr. Edwin A. Rothschild: -- on the other 50,000 air conditioner units, we have not paid the taxes.

Justice Charles E. Whittaker: And were passed it on?

Mr. Edwin A. Rothschild: No, Your Honor.

Justice Charles E. Whittaker: All right.

Justice Charles E. Whittaker: Now, then, did you rely --

Mr. Edwin A. Rothschild: Now, let me say that I'm talking outside of the record because that can't be an issue yet.

Justice Charles E. Whittaker: Well, did you rely on Section 1108 (b) of the 1926 Act in your conduct and on these Treasury decisions?

Mr. Edwin A. Rothschild: We relied on the revenue ruling, yes, Your Honor.

And we think we could invoke 1108 (b) if, in a proper case, if and when suits for refunds are bought, and if and when we have to pay taxes on these 50,000 units and then bring a suit for refund, then -- then that's the first time we can invoke 1108 (b) and in that case, we would of course.

But at this point, that can't be an issue because there is no machinery protesting the applicability of the tax.

Justice Charles E. Whittaker: The cases have to go back or at least had purpose, would it?

Is that what you -- you --

Mr. Edwin A. Rothschild: Well, now, actually, we would have start new suits.

Justice Charles E. Whittaker: You do.

Mr. Edwin A. Rothschild: Because we'd have to -- in other words, we'd have to pay the tax, we'd have to pay over a million dollars of tax to the United States on a tax that we claim as wholly inapplicable.

There's nothing we can do about it.

And then file -- claim for refund and at the end of six months, if that claim hasn't allowed, then, for the first time, we can bring the same kind of suits we brought here on 50,000 or more air conditioning units.

And that's the first time that we can raise the issue of 1108 (b).

We just can't do it any other way.

The whole purpose of making this a test case was to determine the tax -- the applicability of the tax to these units and thereby avoid the necessity of going through thousands of separate proceedings in order to obtain refund suits on similar units.

Chief Justice Earl Warren: Very well, Mr. -- Mr. Rothschild.

Mr. Edwin A. Rothschild: My time is up.

I'm sorry.

Chief Justice Earl Warren: Mr. Heffron.

Argument of Howard A. Heffron

Mr. Howard A. Heffron: Yes, sir.

Justice Felix Frankfurter: So that -- could I interrupt you?

Would you mind stating at the outset what you conceive to be the pertinent issue that this case present on this record before this Court.

Mr. Howard A. Heffron: Oh, I think it -- it may present the issue of how do you --

Justice Felix Frankfurter: I don't -- don't you know what they -- when you say they may present, what, in your views, are the issue which you think this Court should adjudicate in this case on this question, not what it makes?

Mr. Howard A. Heffron: I say may because I think there are alternative issues here.

One of which may be reached.

And if it is reached, the other need not be.

But I will present both issues.

First, what does the ruling mean when it says total motor horsepower of one or more exempts from tax or conversely that a total motor horsepower of less than one qualifies for tax.

What does total motor horsepower mean in terms of the various possible standards which maybe conceived of in measuring the horsepower of a motor used in an air conditioner?

Now, there are several alternatives.

One alternative is engineering horsepower.

You take the motor, you use predetermined test conditions, you make various measurements, and you compute horsepower mathematically.

Another method is to look at a little metal plate which appears on the compressor itself which is what the air conditioner manufacturer receives.

That metal plate has a designation horsepower.

In this case, that metal plate reached three-quarter horsepower.

So we're faced first with the question of which of these two possibilities is referred to in the ruling?

Then we reach the second question, in our view, only if the construction of the ruling is resolved in favor of that set forth by the air conditioner manufacturer, that is if the ruling is construed to refer in terms of motor horsepower to the engineering horsepower, we have here admittedly air conditioning units whose motors exceed 1 horsepower.

Therefore, under that interpretation of the rulings, they would be exempt from the tax.

The next question which is presented is, if these rulings are to be construed in such a way as to exempt these units from the tax, are they valid under the statute or are they, as the Government contends, inconsistent with the statute and void because there is no rational connection between self-contained air conditioning units which is the only language in the statute and engineering horsepower?

Now, those are the two issues.

Justice John M. Harlan: You say horsepower is an irrelevant factor.

Mr. Howard A. Heffron: Well, we say that the rulings refer to the so-called nominal horsepower.

And we say that for a variety of reasons.

In the fist place, the tax is imposed upon the manufacturer of the air conditioning unit.

Now, the manufacturer buys a compressor from a compressor manufacturer and it uses it in the assembly of the finished unit.

The compressor which he receives has a little metal plate on it which designates the horsepower.

Now, the compressor manufacturer didn't -- doesn't dream that horsepower up out of thin air.

He receives the horsepower from the motor manufacturer.

The manufacturer of the motor determines the horsepower to designate for this motor.

He informs the compressor manufacturer.

The compressor manufacturer then puts a metal plate on his motor and calls it as, in this case, a three-quarter horsepower compressor.

The air conditioning manufacturer receives the compressor and he then designates it as a three-quarter horsepower air conditioning unit.

He relies wholly upon the plate horsepower which he receives as counsel for the air conditioner manufacturer conceded below at page 105 of the record.

The compressor manufacturer takes the same rating and puts it on a plaque on the outside of the housing.

And if you are going to sell an air conditioner with that compressor in it, you can't very well sell it for something other than the rating the compressor manufacturer puts on it.

Now, we're taxing air conditioning manufacturers not motor manufacturers.

The air conditioning manufacturer is not concerned with the motor.

He's not concerned with the specifications.

He doesn't test the motor.

He doesn't have access to the specifications under which the motor are tested from which you could compute the horsepower in an engineering set.

He's not concerned with that because he relies upon the compressor manufacturer who furnishes him a finished compressor which embodies the (Inaudible).

This compressor is adapted to the air conditioning requirements of the air conditioner manufacturer.

So if we're looking for a test, which the Internal Revenue Service was here concerned with which would be ease of application which would permit certainty when the air conditioning manufacturer who, after all, self-assesses the excise tax, the simplest thing, which was apparent to the Commissioner at the time, was to tell the air conditioning manufacturer, “Well, look at the plaque on the compressor.

And if it says it is less than one, collect the tax from your vendee.

If it says it is an excess of one, you need not collect the tax from your vendee.”

Now, that is the issue with respect to the meaning of the ruling.

Justice Felix Frankfurter: Now, let me -- if I may ask you to lead me through this thing, as would an eager child, these cases arise out of the 1939, 1954 Act.

Is that right?

Mr. Howard A. Heffron: Yes, sir.

Justice Felix Frankfurter: And you say that the Acts themselves are ambiguous.

Is that right or not?

I can't merely, by reading a statute, give an answer to the question, is that right, or do you?

Mr. Howard A. Heffron: You could give an answer to the question --

Justice Felix Frankfurter: Are you contending --

Mr. Howard A. Heffron: -- with respect to the record in this case.

The term “self-contained” may be ambiguous but not with respect to its application to the units in question here.

We --

Justice Felix Frankfurter: So that I don't have to go beyond -- go over to regulations and practice, do I?

Mr. Howard A. Heffron: Not in our view.

Justice Felix Frankfurter: All right.

But suppose --

Justice William O. Douglas: That -- what is the meaning of one -- one or more horsepower?

Justice Charles E. Whittaker: That's not in the statute.

Justice William O. Douglas: That's in the regulation.

Mr. Howard A. Heffron: Yes.

No, I -- I say -- we say that the term “self-contained air conditioning unit” in this statute as applied to the air conditioning units, which are the subject of this suit which have the characteristics described in the stipulation of fact, are clearly taxable.

Justice Felix Frankfurter: Why have so -- what is it that -- that enables me to satisfy the question in this case by the phrase “self-contained”?

How do I know it's self-contained?

Mr. Howard A. Heffron: Well, there are several reasons for that.

In the first place, the --

Justice Felix Frankfurter: Not travelling outside of the statute.

Mr. Howard A. Heffron: No.

I would say this, and I think this -- may I answer how would you know it were household type if you considered yourself --

Justice Felix Frankfurter: But you -- you're not reducing a -- a phrase that isn't in the statute.

Mr. Howard A. Heffron: I will not refer to it again.

Justice Felix Frankfurter: I'm trying to have you go from statute to regulation to practice in order to find out what is in controversy, what requires me to construe the regulation to the practice in order to answer this question.

Mr. Howard A. Heffron: The statute --

Justice Felix Frankfurter: You said a minute ago, I don't have to bother about any of these things.

All I have to do is to take self-contained unit and I get the answer.

Is that right?

That's what you told a minute ago.

Mr. Howard A. Heffron: Together with the pertinent facts, which are set forth in the stipulation, it is stipulated, for example, that the air conditioning units in issue here are encased in a single assembly that they incorporate within this assembly all the means for dehumidifying and cooling an enclosure that they can be installed in front of a window or other opening.

In other words, all the factual characteristics necessary, whatever self-contained air conditioning unit may mean in a peripheral case, for example, where there are accessories needed, whatever it may mean in that sort of case, that issue is not presented here because every characteristic, which anyone could rationally ascribe to a self-contained air conditioning unit, is evidenced by the record in this case as applicable in these units.

Justice Felix Frankfurter: What you are saying is that self-contained certainly means, what Ethel Barrymore said in a different context, that's all there is, and that's all there is, it's enough not, is that right?

That's what self-contained means, that it -- it is complete within itself.

You don't have to travel, you don't have to do anything else, you don't have to qualify in any other appliance or any other device or any other technique there it is.

Mr. Howard A. Heffron: I'm saying the minimum --

Justice Felix Frankfurter: Isn't that what self-contained means?

Mr. Howard A. Heffron: Yes.

The minimum area, the minimum area, which you could ascribe to coverage by this language, would be a unit which is complete within itself and these units --

Justice Charles E. Whittaker: Another thing -- I -- I don't quite understand.

Are you saying that whether it's a half horsepower or three-quarter horsepower, a one and a half horsepower has no relevancy whether or not it's self-contained?

Is that what you're saying?

Mr. Howard A. Heffron: We say this, that if the ruling is --

Justice Hugo L. Black: I'm not talking about the ruling.

Mr. Howard A. Heffron: Yes.

You're talking about --

Justice Hugo L. Black: I'm talking about a -- a unit.I have a number of them, and some of them are one side and some are another.

I can't see what's difference of it.

Mr. Howard A. Heffron: If you refer, Your Honor --

Justice Hugo L. Black: What does the -- what does the horsepower have to do with whether or not it's self-contained?

Mr. Howard A. Heffron: We say the horsepower has nothing to do with it.

Justice Felix Frankfurter: (Inaudible)

Mr. Howard A. Heffron: We say that the horse power test in actual horsepower terms or in any terms for that matter is not rationally connected with the statute.

What the Commissioner was looking for here was simply a -- a symbol of all the characteristics necessary which would be easy for air conditioning manufacturers to use in self-assessing the tax.

Now --

Justice William O. Douglas: What does the regulation, at the bottom of page 55 of the brief's (Inaudible)

Mr. Howard A. Heffron: Your Honor is referring to subdivision (c).

Justice William O. Douglas: Yes.

(Inaudible) would mean air conditioning units as defined in paragraph (c) which have a total motor horsepower of one or more horsepower as to the case in a (Inaudible) types of cooling capacity of 10,000 and more (Inaudible)

Mr. Howard A. Heffron: Well, Your -- Your Honor is now referring --

Justice Potter Stewart: Is that the irrelevancy -- irrelevant?

Mr. Howard A. Heffron: As a result of this litigation and the cloud cast over the administration of this statute by this very suit, the Commission had determined that he would've -- he would scuttle these rulings all together.

Justice Felix Frankfurter: That's the point.

Mr. Howard A. Heffron: And he --

Justice Felix Frankfurter: You don't --

Mr. Howard A. Heffron: -- did --

Justice Felix Frankfurter: -- (Inaudible) any regulations for the statute, do you?

Mr. Howard A. Heffron: He -- he scuttled -- well, he scuttled the rulings in terms of horsepower.

You don't need horsepower.

Justice William O. Douglas: As I understand it, what you are saying is right or wrong that the Commissioner has now reached a conclusion that in determining a self-contained unit, it cannot be made to defend consistently with the statute on the amount of horsepower that it supposed to have.

Mr. Howard A. Heffron: That's correct.

Justice William O. Douglas: And he -- he is supplying that retroactively to (Voice Overlap) --

Mr. Howard A. Heffron: He has in scuttling the rulings and announcing a new test which would -- that is not dependent upon horsepower at all.

The Commissioner determined that he would not make the application of the new test retroactive.

Justice Felix Frankfurter: But why -- why --

Mr. Howard A. Heffron: And that is all that the reference --

Justice Felix Frankfurter: Why is he (Voice Overlap) --

Mr. Howard A. Heffron: -- means.

Justice Felix Frankfurter: -- to issue any test if the statute affords the test?

What's he adding to the statute if the statute speaks with clarity?

Mr. Howard A. Heffron: This fact that the statute speaks with clarity with respect to units of the kind in issue here which have the characteristics I mentioned a moment ago, but in the state of the industry as it exist, there are peripheral problems with respect to the larger units which require water lines to be connected to the (Voice Overlap) --

Justice Felix Frankfurter: I don't have to worry about it in this suit.

Mr. Howard A. Heffron: That -- nothing of the kind is present in this suit.

Justice John M. Harlan: Well, we let us put it less politely.

What the Commissioner is saying is that he is repudiating his own regulation because he now considered it to be invalid, is that fair?

Mr. Howard A. Heffron: Well, I --

Justice John M. Harlan: He's had a regulation with regards to horsepower as rightly wrong.

He specifies horsepower as being a factor in the application of this tax.

Mr. Howard A. Heffron: I think it is appropriate.

I would draw the conclusion --

Justice John M. Harlan: Now, he is walking away from the regulation saying it's invalid.

Mr. Howard A. Heffron: The Commissioner has determined he will not use a horsepower test --

Justice John M. Harlan: (Voice Overlap) --

Mr. Howard A. Heffron: -- of any kind in connection with the statute.

Justice Felix Frankfurter: How can the Commissioner subtract from what Congress has commanded if the statute is what you're saying is then no regulation of his can cut it down.

It can illuminate it if it's doubtful.

But it can't cut it down if it's clear.

Justice William O. Douglas: Well, as an engineer --

Mr. Howard A. Heffron: That's our position here.

Justice Felix Frankfurter: All right.

Justice William O. Douglas: As an engineering matter, is it a practical matter that this horsepower had anything to do with whether or not these units are self-contained?

Mr. Howard A. Heffron: It is possible to conceive of units which have a high enough horsepower, I suppose, that they might require auxiliary equipment.

But this one, I refer to when I say that the horsepower test is not rationally connected with the statute unless, under the state of the industry, the horsepower test in fact results in dividing self-contained from non-self-contained units.

And the state of this record demonstrates the horsepower test does nothing of the kind with respect to the units in issue here.

Justice William O. Douglas: Although it might in some cases.

Mr. Howard A. Heffron: It might in appropriate cases.

Justice Hugo L. Black: Couldn't in a house unit like you put in your window?

Mr. Howard A. Heffron: We believe it could not.

We believe that is why the Commissioner of --

Justice Hugo L. Black: Is that the kind you're imposing it on?

Mr. Howard A. Heffron: These are self-contained units.

There may be larger units which would be used in retail stores.

Justice Hugo L. Black: Some of them (Voice Overlap) they even advertised them too now, aren't they?

Mr. Howard A. Heffron: There may be larger ones used in retail stores which are contained with all components in the same casing, simply (Voice Overlap) --

Justice Hugo L. Black: What is the affect?

Are -- are you -- are you proposing to impose a tax which is retroactive?

I do not understand on that.

Mr. Howard A. Heffron: Well --

Justice Hugo L. Black: By your abandonment of the regulation.

I -- I don't quite understand.

Mr. Howard A. Heffron: This case presents a -- a special problem in that respect because it does involve the excise tax.

And there is a special statutory provision which protects manufacturers from the imposition of the excise tax retroactively in cases where they relied.

I mean, we're dealing here with manufacturers who are producing thousands of units.

They self-assessed the tax.

They collected from their vendee.

They need an easy test which they can use to determine what is taxable and what is not because if they sell that unit without collecting the tax, they sell an irreparable damage.

Justice Hugo L. Black: Do you conceive --

Mr. Howard A. Heffron: Now --

Justice Hugo L. Black: -- if they have sold it and relied on this and not collected the tax that they're not liable?

Mr. Howard A. Heffron: We would conceive that under the statute, if they could show that they had relied, they would not be liable.

And the Government --

Justice Hugo L. Black: And it only affects them in the future.

Mr. Howard A. Heffron: Yes.

Now, the Government, as a matter of fact, conceded at the trial that this ruling was ambiguous.

And so, you -- the stage was set.If the taxpayer was to make this contention, every invitation was extended to him.

Will you contend that I -- I looked at your ruling?

I resolved the ambiguity in favor of non-taxability.

This was a rational, reasonable conclusion.

I sold these units.

I did not collect the tax.

Now, it is unfair for the Government to attempt to assess over $2 million worth of excised taxes.

I can't collect it from my vendees anymore.

That would've been a simple way of resolving this case, and we wouldn't be here today.

Justice Felix Frankfurter: Is that issue in the case at all?

Mr. Howard A. Heffron: It's only in the case in the sense that the taxpayer has never made that contention and has never showed that he did not collect the tax from the vendees.

Justice Felix Frankfurter: Do you mean -- do you mean it's not in the case?

Mr. Howard A. Heffron: It is not in the case and this Court can regard the question of retroactivity is out of the case.

This taxpayer is not in the position where he suffered irreparable damage.

As a matter of fact, the taxpayer, by failing to assert that he did not collect the tax, we believe the conclusion is unmistakable.

The tax was collected here.

Justice Felix Frankfurter: So that the -- so that the --

Mr. Howard A. Heffron: So that this is --

Justice Felix Frankfurter: -- case comes before us as though we have to decide what he would have to pay next year on this kind of units.

Mr. Howard A. Heffron: Precisely, because the taxpayer has not relied upon the rulings with -- with all the talk in his brief of an unbroken line of administrative practice which would exempt these units from tax with this blatant assumption throughout the --

Justice William O. Douglas: (Voice Overlap) has some stipulation on page 51.

Mr. Howard A. Heffron: Well, the stipulation simply assume the language of the ruling itself but it does not resolve the ambiguity.

Justice William O. Douglas: This is not an ex parte statement.

This is signed by the -- your attorney as well.

Mr. Howard A. Heffron: Yes, but no, I was referring to the fact that the stipulation simply refers to the language of the ruling.

It does not purport to resolve the issue of how you construe the ruling.

It simply --

Justice William O. Douglas: Well, that's -- the words has consistently held as pretty --

Mr. Howard A. Heffron: Yes, has consistently held that an air conditioning unit which has a total motor horsepower of 1 horsepower.

The question is, what does total motor horsepower mean?

Now, that stipulation does not purport to resolve that question.

It simply says whatever the practice has been, it has been consistent.

The issue was, what does total motor horsepower mean?

Now, with all the taxpayer's assertions that there's been an unbroken consistent line of administrative practice which would exempt units of this character from the tax, he is unable to make the assertion that he relied on such an unbroken line of administrative practice and did not collect the tax.

Justice Felix Frankfurter: Suppose he -- suppose he were to make such a claim, what would he -- he make that -- he has to -- what will he do, ask for return of what he -- he couldn't make that claim and say that claim would imply that he relied on it and therefore, he didn't pass it on to the -- to me and to other people.

And therefore, for -- for you to exact it now would be violative of the provisions to which you call our attention.

Now, where would he assert that before the -- the Treasury go to the Commission of Internal Revenue --

Mr. Howard A. Heffron: There would be no --

Justice Felix Frankfurter: -- and those were the only thing.

If it's denied, then the case would come here of a demand or an imposition by the Government unfairly, illegally in that he relied upon a clear regulation which even if it was wrong or invalid, nevertheless, puts him out of pocket.

Mr. Howard A. Heffron: Yes, and he has never made that claim at any stage in these proceedings.

Justice William O. Douglas: Well, he paid under protest.

I don't know what more he want.

Mr. Howard A. Heffron: Well --

Justice William O. Douglas: He is protected by the regulation.

Mr. Howard A. Heffron: Under -- under the statute, one who sues for refund with respect to excise tax is required to show as follow.

Justice Felix Frankfurter: Where is that?

What page?

Mr. Howard A. Heffron: This is page 50 of the Government's brief at the bottom of the page, Section 6416.

It says, "No credit or refund of any tax, of any excise tax shall be allowed unless the person who paid the tax establishes, one, that he is not included the tax in the price of the article or service."

Justice Hugo L. Black: Do I understand that the tax has been included in these two machines?

Mr. Howard A. Heffron: Yes.

Now, the --

Justice Felix Frankfurter: What do you mean the -- the customer paid for it?

Mr. Howard A. Heffron: Yes.

Chief Justice Earl Warren: How about the (Voice Overlap) --

Mr. Howard A. Heffron: That is -- this issue is not -- is not with respect to the taxpayer's money.

This is not the manufacturer's money which is in issue here.

Justice William O. Douglas: These are all --

Mr. Howard A. Heffron: These are dollars which he collected from vendees.

Justice William O. Douglas: These are all -- all in the alternative, as I see it.

Mr. Howard A. Heffron: Yes, but my -- my point simply was, Mr. Justice, that the taxpayer had he been relying upon an estoppel doctrines here that he did fail to collect the tax because of the ruling.

He would have been in the position to assert that he has not included the tax.

Now, he did not make that assertion.

Justice Felix Frankfurter: But you're -- you're answering --

Justice William O. Douglas: He doesn't have to say he has not collected it.

Justice Charles E. Whittaker: And where has he had an opportunity to put that in issue up to now, Mr. Heffron?

Mr. Howard A. Heffron: He's had an opportunity in the District Court.

This is an excise tax.

And the way you contest the validity of excise tax exactions is by refund suits.

Now, he was furnished with a proposed assessment from the Treasury Department.

He had every opportunity there to raise this issue.

Failing that, he paid the tax and he sues for refund here and his claim for refund would be the appropriate place to indicate the basis upon which he seeks a return of this tax.

Justice Felix Frankfurter: Do I understand, in your answer to Justice Black, that he passed on his tax to his customers that he paid the tax under protest that if he now succeeds, he would've already gotten the amount of the tax from the customers and Uncle Sam will double it, is that right?

Mr. Howard A. Heffron: Well, there will be no doubling because --

Justice Felix Frankfurter: Well, if he passed it on and he's now (Inaudible) --

Mr. Howard A. Heffron: (Inaudible).

Justice Felix Frankfurter: -- then he'll have -- then he'll have had it from his customers and then from the Treasury.

Mr. Howard A. Heffron: Yes, but he will have paid it over to the Government as the basis for his suit for refund with respect to the two units in issue here.

He collected the tax from the vendees.

He then paid that tax to the United States and sues for refund.

Justice Felix Frankfurter: Oh, yes, he puts in.

Mr. Howard A. Heffron: He gets that back, but it is a windfall --

Justice Felix Frankfurter: Anyhow -- but -- but --

Mr. Howard A. Heffron: -- in the sense that it's not his money.

Justice Felix Frankfurter: But he will -- he will have a windfall and that he didn't pay the tax.

Mr. Howard A. Heffron: That -- that is correct.

Now, that is why we say there is no issue of estoppel or retroactivity here.

This Court is free to regard this case as if it were coming up here without any change of position and just determined on the merits whether or not this --

Justice Hugo L. Black: What about the -- what are those 50,000 units he's talking about?

Who has them now?

Mr. Howard A. Heffron: Those units have been sold.

Justice Hugo L. Black: Have been sold?

Mr. Howard A. Heffron: Yes.

Justice Hugo L. Black: And that's what he's talking about that there.

Mr. Howard A. Heffron: That -- that is the respect in which this is a test case.

The taxpayer stipulated that he --

Justice Hugo L. Black: They have been told and if he has paid out the tax and passed it on, you say that he couldn't get it back.

He's paid out that tax and not passed it on, what do you say?

Mr. Howard A. Heffron: Well, if he has paid the tax -- if he had to, that -- that is not in issue here.

In fact, the only tax which has been paid to the Government is that on two units, they're $29 in change actually in issue on the complaint in this action.

The action is a test case in that it has been stipulated that decision is to whether these two units are taxable will control the 50,000 other units --

Justice Hugo L. Black: If he sold --

Mr. Howard A. Heffron: -- which have been sold.

Justice Hugo L. Black: If he sold 50,000 and has collected the tax from the customer on all of them --

Mr. Howard A. Heffron: Yes.

Justice Hugo L. Black: -- it's your contention he'd owe that to the Government?

Mr. Howard A. Heffron: Yes.

Justice Hugo L. Black: If he has sold the 50,000 units and not paid any tax on any of them, you say then that --

Justice Felix Frankfurter: 6416 helps them, you can get it back on the 6416.

Mr. Howard A. Heffron: Say, if he has not collected the tax, he has a special statutory basis to urge that you may not now change the rules on me.

I didn't collect the tax relying on your ruling.You can't now change that and say you should have collected the tax.

Justice Felix Frankfurter: That's 6416, is it?

Mr. Howard A. Heffron: That's the Revenue Act of 1926 which is at page 44 of Government's brief.

Justice John M. Harlan: Is it --

Justice Felix Frankfurter: What is 6416?

Mr. Howard A. Heffron: That is a general provision relating to conditions for suits for refund of excise taxes.

Justice Felix Frankfurter: In which he -- suppose Justice Black's condition is satisfied, this is a test suit for the 50,000, can he now show no matter what this Court decides, suppose the Court decides against him on this issue, does the stipulation or anything else barring him to -- for making a complain that as to the 50,000 or any part thereof, he in fact did not pass the tax onto the customers?

Mr. Howard A. Heffron: Yes.

He has -- the only issue which has ever been in this case from the outset, the only issue presented by the claim for refund here by the complaint, by the stipulation of fact by the District Judge's findings has been one issue and one only and that is whether or not the rulings exempt the taxpayers' units from the tax, and if they do, are they valid?

Are they consistent with the statute?

That is the only issue the taxpayer in his claim for refund limits himself to that single ground and makes no other contention of the nature that has been discussed here.

Chief Justice Earl Warren: Mr. Heffron, let me ask you once more.

I said, I am -- to straighten my mind.

Has this manufacturer collected from the people he sold these 50,000 machines to the tax that we're discussing here in this case?

Mr. Howard A. Heffron: No.

The taxpayers' counsel in response to an answer stated he had collected the tax with respect to the two units in issue here.

He has stipulated that these two units are test units to determine the applicability of the statute to all of his other units.

He has, at no time, raised the contention that --

Chief Justice Earl Warren: I don't care whether he has raised a contention or not, but are we not entitled to know when we're dealing with this case whether he has actually passed that on to -- to the people who bought those things and whether he would get a windfall if he won in this case or -- or whether he would suffer the loss of a million dollars by having to pay the -- the Government a million dollars that -- that he didn't think he had to pay relying on the Government's regulation.

Now, there's a great difference between the two and can't -- can't we find out, can't we know whether he -- he did pass it on to those -- those purchasers in the 50,000?

Mr. Howard A. Heffron: Well, we have assumed that he did not and we do that because --

Justice Felix Frankfurter: That he did not what?

Mr. Howard A. Heffron: That he in fact -- I beg your pardon, that he has in fact collected it --

Justice Felix Frankfurter: All right.

Mr. Howard A. Heffron: -- from the customers.

We assume --

Chief Justice Earl Warren: You assume that he has.

Mr. Howard A. Heffron: We assume that because this is a matter for the plaintiff to allege in support of his refund suit.

Chief Justice Earl Warren: -- by his refund --

Mr. Howard A. Heffron: He has never done that.

He has barred on to all the rules with respect to tax refund suits for making that claim at any time now.

Justice William O. Douglas: Public utility company very often collects rates but that doesn't -- there's no defense to its reduction because it has already collected and windfalls are -- and reimbursement to the consumers is a part of the whole process.

Mr. Howard A. Heffron: Well, we --

Justice Hugo L. Black: I thought the law --

Mr. Howard A. Heffron: -- we are not --

Justice Hugo L. Black: Am I wrong?

So help me.

I thought the law required that he collected that excise tax to collect it from the customer.

Chief Justice Earl Warren: Yes, require.

Mr. Howard A. Heffron: Well, that is -- it does not require him.

In fact, it is passed on to the vendee.

Justice Hugo L. Black: In that way?

Mr. Howard A. Heffron: Yes, that is why the statute requires as a condition to bringing a suit for refund that you either assert that you did not collect it from the vendee or procure the vendees' consent to bringing the action.

Justice Hugo L. Black: Is it your position or is the Government to take this position, it is for making the people pay back money to the Government, pay money to the Government where under the circumstances which he's indicated here?

Suppose -- suppose he has collected -- suppose he sold this and collected the tax from the consumer, you say then that the Government has a right to get it back, is that it?

Mr. Howard A. Heffron: Yes.

Justice Hugo L. Black: As oppose he has sold them without collecting it from the consumer on the basis that the statute didn't require him to collect, what's the Government's position there?

Mr. Howard A. Heffron: If that in fact were sold, and we don't believe it's sold, if it were so, he could have asserted under the --

Justice Hugo L. Black: But I'm not talking about what he could've done --

Mr. Howard A. Heffron: Well --

Justice Hugo L. Black: -- can he do it now?

Mr. Howard A. Heffron: No, he cannot do it now.

Justice Hugo L. Black: You mean on these two?

Mr. Howard A. Heffron: He cannot do it on any.

Justice Hugo L. Black: This is a test case.

It governs all these units.

Justice William O. Douglas: Why is this not raised in your answer then if this is your defense?

I don't find them.

Mr. Howard A. Heffron: Well, because this would be -- this is a ground for the taxpayer to have urged in support of his refund suit.

This would have been the way he could have had this case decided without embarking upon a controversy over rulings or administrative practice.

He simply had to make this factual assertion, which is within his knowledge, “We did not collect the tax from our vendees.

Justice Hugo L. Black: You didn't raise this in the -- below or in the District Court as near as I can with the record.

Mr. Howard A. Heffron: This would be a ground which the -- under our view, the plaintiff must assert in his claim for refund.

Justice William O. Douglas: You never said that below.

Justice Charles E. Whittaker: But if you tried the case on agreed issues below how on the world that he have an opportunity to raise any such thing?

Mr. Howard A. Heffron: He had all the opportunity to raise it in the claim for refund.

This is the -- this is the basic document which a taxpayer files in -- in stating to the Commissioner why he is entitled to his money back, why the tax was illegally imposed.

He can state 10 reasons.He can state one reason.

Justice William O. Douglas: This is the first time this point emerges.

I -- I don't understand why if this is a defense, it wasn't brought out below or tendered or offered or argued.

Mr. Howard A. Heffron: Well, we suggest that simply to indicate that there is no question of retroactivity in this case because the taxpayer has not lay the essential factual foundations upon which he could base it, but this is not.

This is a matter which would be set forth in the claim for a refund.

That's one of the reasons why he is entitled to a refund.

He could have two grounds.

One ground is, as we construe the ruling, we are exempt from the tax and that ruling, as so construed, is valid.

Now --

Justice William J. Brennan: Is there any way we can have you fellows start this thing all over again?

Mr. Howard A. Heffron: Well --

Justice William J. Brennan: I've never seen this, by this confusing case that's up in here.

Mr. Howard A. Heffron: Well --

Justice Felix Frankfurter: And I'd like to put another thing to you.

It may not -- a manufacturer may, on the guides of passing on a tax, put an extra imposition upon his customers and he may have -- the manufacturer may have done that in this case and still claim that he is not subject to this tax even though he could have told his customer and he was so that there are two questions in this case.

One, is he subject to a tax?

Never mind what he's relation with his customers are.

Two, if in fact he exacted -- if in fact he relied on a tax which he now challenges, even though he relied, that even though the Government rightly now taxes him on the representations made, the Chief Justice has questioned this Court, he relied improperly on his duty to not to pass on a tax which you're now charging with --

Mr. Howard A. Heffron: No --

Justice Felix Frankfurter: -- so that the fact that he passed it on, doesn't settle all the questions in this case, doesn't it?

Mr. Howard A. Heffron: No, it does not and I don't -- we haven't asserted that it does.

Justice Felix Frankfurter: Certainly go within the -- the power, the taxability under the statute.

Mr. Howard A. Heffron: We say there is no question of whether he collected the tax in this case.

It is not in the case because it is not part of his cause of action.

He hasn't relied upon any such contention.

This would be a reason why the exaction of the tax is unlawful.

He is bound by the allegations in his claim for refund and in the complaint.

He has never made the smallest suggestion of such a question.

As a matter of fact, he repudiated it at the trial.

Justice Felix Frankfurter: It is relevant --

Mr. Howard A. Heffron: He said, "Whether we collected the tax is not in this case at all."

The only question we raised is the ruling.

Justice Felix Frankfurter: It is relevant to the claim that the Government and the Commissioner is now going back on his regulation.

He says his regulation walks out on him for some such phrase as Justice Harlan used that -- that you yourself said.

The Commissioner is now scuttling regulations.

If his regulations failed him or properly or in -- in a business way lead a manufacturer to pay us -- to pass on that tax to the customer, it would be unfair now to make him out of -- put him out of profit, is that right?

Mr. Howard A. Heffron: That is correct.

Justice Felix Frankfurter: And therefore, there are two very distinct questions.

One, whether in fact there was a reliance on what now turns out to be an invalid or an enforceable regulation and then he must come within the statutes which showed that he did rely on, would be out of pocket.

And two, a totally unrelated question, what is the taxability of this kind of things?

Mr. Howard A. Heffron: And it is our position that the only issue properly before this Court is to and only that because if the Court will examine the claim for refund, the complaint, the pleadings, the way this case was tried, there was only one issue ever asserted by the taxpayer as a reason why he ought to recover and that is the ruling exempts my units.

He never said, "And alternatively.

If you find it, it does not exempt my units.

I urge because of my reliance that I'd be granted the refund."

He never made that alternative assumption that he is barred by -- by all the rules relating the tax refund suits for making it.

It is not in the claim for refund.

Now, he -- he drafted his claim for refund.

It was open to him to assert any number of grounds why he should recover.

He has never made that assertion.

He has not even making it in this Court.

He is not asserting now that he in fact collected the tax in -- under the provisions of the -- of the estoppel section in the Revenue Act of 1926.

Justice John M. Harlan: Taking -- taking your premises what you just said and assuming that you were held that the regulation was valid, would the position of this case be send it back to the Court of Appeals to try out the issue as to whether a nominal or actual horsepower was a testing to the regulation?

Mr. Howard A. Heffron: I'm -- I'm sorry I -- I didn't understand the --

Justice John M. Harlan: If --

Mr. Howard A. Heffron: -- first part.

Justice John M. Harlan: -- the regulation is a valid regulation despite the Government's present position, then would not the proper disposition be to send this case back for determination as to the dispute between, namely, whether it's actual horsepower or nominal horsepower that the regulation refers to.

Mr. Howard A. Heffron: No, we -- we would say no because I can't conceive of the finding that the ruling is proper without also determining whether or not the horsepower is determined in terms of actual horsepower or nominal horsepower if --

Justice John M. Harlan: Well, we can't determine that.

Mr. Howard A. Heffron: Well, that --

Justice John M. Harlan: That's for the lower court to determine that issue.

It was never determined by the Court of Appeals because they said horsepower was an irrelevancy and that the regulation was invalid.

Mr. Howard A. Heffron: Well, we are here to sustain the view of the Court of Appeals.

Justice John M. Harlan: Well, I understand that.

Mr. Howard A. Heffron: I mean that is an alternative position here.

One position is that the ruling, if construed in terms of nominal horsepower, imposes the tax and even though that test may too narrowly restrict the statute, that -- that would not be an issue here because it does apply to these units.

On the other hand, if it is an actual horsepower test, it is clearly invalid because these units which are taxable by every conceivable criterion would be exempt from the tax.

So we say there is no basis upon which to remand it to the District Court here.

These units are taxable under the statute by any test that can be conceived of.

The horsepower test is not rationally consistent with the statute.

Therefore, the Court of Appeals was correct in reversing the District Court in holding that the units were taxable.

That's our basic position.

Chief Justice Earl Warren: Mr. Heffron, in the trial court, you stipulated that the -- or the Government stipulated that these units were of the household type.

Chief Justice Earl Warren: Now, may I ask you this question?

If it had not been for that stipulation, would there been -- have been any issues open to counsel or to the taxpayer that are not open to him in the case with the stipulation?

Mr. Howard A. Heffron: No, precisely the same issues would be involved.

The taxpayer would still be contending that under the ruling, however -- whatever the statute says, under the ruling, and this is his sole contention, "Your ruling exempts my units from tax."

Now, there's nothing in the ruling which refers in terms to household type.

There is nothing in the statute.

It has always been open for -- to the taxpayer to say, "My unit is not self-contained for reasons A, B and C.

All of my unit is not household type for reasons D, E and F."

He has never said that.

He has said only one thing and one thing only at every stage and that is “Because of the horsepower test in your rulings, my units are exempted."

Now, if this -- if this Court should hold the statute, it only applies to self-contained units, there would be no further issues to litigate here.

Justice Hugo L. Black: Well, let me ask you this now.

Excuse me.

Chief Justice Earl Warren: Go -- go finish.

Justice Hugo L. Black: I understand his contention that you are estop and I understand your contention that in someway we are estop by you having agreed that this 50,000 would be the same as the two.

Now -- however, there's a provision with reference to appeal that we construed in (Inaudible) which called attention to the fact that the statute says that we dispose of the case as justice requires.

Now, let us assume that we hold the statute is -- is valid under your claim, not under his, that would mean, of course, that he did pass on the tax in the two and he would not be entitled to have that retried anymore to but why do we have to say that with the situation changing as it has, they shouldn't have a chance to have the case reopened for that to be tried out in the court below if -- whether he passed it on or not, except by -- should you stipulate it so that if justice required it, we shouldn't do that?

Justice Felix Frankfurter: In your stipulation -- does your stipulation -- is your stipulation a stipulation that bars them from saying as to the none two cases, the other 50,000, they didn't pass it on?

I don't think your stipulation does that.

It merely says that this is a stipulation as to the scope and the efficacy of the -- of the ruling of the Commission, is that right?

Mr. Howard A. Heffron: Yes.

Well, the taxpayer can no longer file a claim -- no, I beg your pardon.

I'm going to say, if the stipulation means anything here, the only reason the Commissioner refrained from collecting the tax on these units was because of a stipulation that this was a test case and the disposition of the tax with respect to these --

Justice Felix Frankfurter: On the merits --

Mr. Howard A. Heffron: -- two units would control the others.

Justice Felix Frankfurter: -- of the legality of the tax.

On the merits of the legality of the tax not to be passed it on and therefore, he's not out of pocket.

Mr. Howard A. Heffron: I said with regard to the rights of the plaintiffs to obtain a refund here and they would be limited again by the pleading -- by the claim for refund which is the basic document which they drafted to shape the issues in this litigation.

Justice Felix Frankfurter: In this case, but would they as to the 50,000?

Mr. Howard A. Heffron: Yes, we say they would.

Justice Hugo L. Black: Why should the Government want a holding for these 50,000 units on this so-called ambiguous stipulation?

If you conceive that under the law, he may have a right to get refund because he has not passed them on, why should the Government take that position?

Mr. Howard A. Heffron: Well, we don't conceive that under the -- under any view of the law, they have a right to refund here.

Justice Hugo L. Black: I -- I understand that.

Well, I understand you do conceive that in a test over this that if he has not passed this tax on, he would have a right to show that under the section to which you referred in order to get a refund.

Mr. Howard A. Heffron: I say -- we -- we say he had a right to show that and did not avail himself of that opportunity.

Justice Hugo L. Black: That he had a right -- had a right below but you want to hold him on the 50,000 on the basis of the two.

Justice William J. Brennan: Are you saying, Mr. Heffron, we could not authorize him to amend that claim of refund if that's so important in order to set up the facts which would bring him within the right to a statutory relief?

Mr. Howard A. Heffron: No.

I'm not -- I'm not suggesting that.

Justice William J. Brennan: He could do that, couldn't he, as to the 50,000 units?

Mr. Howard A. Heffron: I suppose this Court could direct me.

Justice William J. Brennan: All right.

Mr. Howard A. Heffron: But we do say that as this litigation was tried, the taxpayer never raised that claim.

He never raised it.

That would be tantamount to a taxpayer suing and saying, "The reason why I'm entitled to refund is because the transaction is not taxable for X.”

Having gone up to this Court and losing, he is given an opportunity to go back to the District Court and say, "Well, I have another reason which I never mentioned before as to why these units are not taxable."

Justice Hugo L. Black: What problem is that if that's -- if he's entitled to something under the law that Congress has passed?

Mr. Howard A. Heffron: Well, we say that it is so clear that these units are --

Justice Hugo L. Black: Well, I doubt this test, [Laughs] you would take it the law is clear and so forth.[Laughter]

Mr. Howard A. Heffron: Well -- well --

Justice Hugo L. Black: But the -- also, the law is clear, isn't it, I understood you from that statute as a man who pays the tax, an excise tax and he's relied on a ruling of the remedy which turns out to be bad, the Congress is seen fit to give him a special relief under the section to which you refer us.

Now, if that's true in this case, why should the Government insist that he'd be cutoff from that because of that test?

Mr. Howard A. Heffron: Well, because that -- that issue came into this case simply by way of the Government's attempting to show this Court that there was no collection of the tax on the theory that if there was such -- that if the taxpayer has failed to collect it, they would have asserted it and won their case based on this estoppel ground.

Justice Felix Frankfurter: But isn't the --

Mr. Howard A. Heffron: But they never asked for the benefit of this statute.

Justice Felix Frankfurter: But isn't a fact that they were -- isn't a fact that the bone of contention in this controversy was the taxability of these units, is that right?

That's what the litigation was about.

Mr. Howard A. Heffron: The -- the right --

Justice Felix Frankfurter: If this litigation was the Government's claim to have a right to tax and their claim that, as a matter of statutory construction and regulation, you did not have a right to tax.

Mr. Howard A. Heffron: There --

Justice Felix Frankfurter: Wasn't that the issue?

Mr. Howard A. Heffron: That is correct.

Justice Felix Frankfurter: And therefore, the question, his collateral question, each side was so -- he was as -- he was as confident on his reading of the law as you are of yours and the question whether he's entitled to get a refund because he would be out of pocket wasn't in -- perhaps in the conscious contemplation of the parties.

Mr. Howard A. Heffron: Well, we -- we say that it -- that it was.

But in any event, we say that a position which would grant him --

Justice Felix Frankfurter: How do you know it was?

You're saying it was because he didn't raise that as a claim.

Mr. Howard A. Heffron: Well, this was raised below.

In the District Court, he had an opportunity.

The Government counsel, in his closing remarks to the District Judge, said, "Why hasn't he alleged that he failed to collect the tax?

We've conceded that this ruling is ambiguous.

Why hasn't he alleged it to you, District Judge?

Why doesn't he make that claim now?"

And the response was, and this is in the record and the Court can read it there, the response was, "There is nothing in the record about what we did about this tax and that's not in the case."

And that is why the taxpayer --

Justice Felix Frankfurter: That's exactly why he wanted to get a ruling for the future.

Mr. Howard A. Heffron: Because --

Justice Felix Frankfurter: They didn't merely wanted to be put hold for a stuff that -- money they spent, they wanted to get a ruling for the future.

Mr. Howard A. Heffron: As a matter of fact, the Court will see from the record that this taxpayer stated below, "There is no issue of the estoppel.

We will not prevent you from arguing that your ruling -- that the ruling, if construed, to exempt us from tax is invalid."

He stated that below.

He has never sought the benefit of this provision.

As a matter of fact, he repudiated the suggestion that he produced evidence to show that he, in fact, failed to collect the tax from his vendees.

The closing remarks --

Justice Felix Frankfurter: (Voice Overlap) full time --

Mr. Howard A. Heffron: This --

Justice Felix Frankfurter: -- without either of you arguing the real merit of the case that is before us, namely, what's the scope of the statute.

Chief Justice Earl Warren: Very well.

Mr. Rothschild, I'm -- I want to ask you a question.

I don't want you to reargue your case.

Rebuttal of Edwin A. Rothschild

Mr. Edwin A. Rothschild: I won't, Your Honor.

Chief Justice Earl Warren: You took your time, but I want to ask you the case because I want to know before we adjourn.

And I'm speaking now to these 50,000 units.

Mr. Edwin A. Rothschild: That's correct.

Chief Justice Earl Warren: Did you pass a tax on to your -- to your purchasers and collected on the theory that you are going to pay it to the Government and now seek to -- to deprive the Government of the right to collect that tax and to keep that money or did you, relying upon the regulations and rulings of the Department, failed to pass that on to your -- to your purchasers in which event you would now owe the Government a million dollars or so out of your own pocket?

Which of the two is correct?

Mr. Edwin A. Rothschild: The latter, Your Honor.

Chief Justice Earl Warren: The latter is true?

Mr. Edwin A. Rothschild: Yes.

Now, I know -- I know you don't want to reargue.

May I ask --

Chief Justice Earl Warren: Yes.

Mr. Edwin A. Rothschild: -- may I state just one thing?

Chief Justice Earl Warren: Yes, yes, you may answer that question rather boldly.

Mr. Edwin A. Rothschild: That's right.

In connection with that question on why it is not in the record, is that proper?

Chief Justice Earl Warren: Yes, but that is your answer that you would now be stuck for a million or so dollars --

Mr. Edwin A. Rothschild: That's right.

Chief Justice Earl Warren: -- that you have not passed on to your customers.

Mr. Edwin A. Rothschild: And that is the -- that is the point.

Justice Felix Frankfurter: And as -- as to this two -- the two -- the inferences in the litigation, what is that fact there that you (Voice Overlap) --

Mr. Edwin A. Rothschild: On these two units?

We certainly did as I explained to, I think was Justice Whittaker.

These were units that happened to have been sold to -- directly to a lawyer and to an accountant of the taxpayer before it came to our attention that -- that these units were exempt under the rulings because they had been mislabeled.

We simply selected these two units which had a $29.93 was paid to the Government without a protest passed on to the consumer and collected from him on these units.

And it was after we decided to bring a test suit that we happened to pick these two units, and it was after that point that we sold the $50,000 units, and we brought these suits on these two test units simply to test the taxability of the 50,000.

And there is no conceivable procedural way in which we could've put on any evidence such as Mr. Heffron says, "We should have put on to prove that we had suffered a loss in the 50,000 without going through 50,000 claims for refund in -- in the same manner."

Justice Felix Frankfurter: Tell me this.

Is it -- is it strange that I should think that it is strange that you should stipulate that 50 -- as to 50,000 cases, they should be governed by these two instances as a test suit when there's such a cardinal difference between the two?

Mr. Edwin A. Rothschild: No, because the only -- the only similarity, Your Honor, and the only reason that -- that we stipulate it was because these suits in these air conditioners, the 50,000 in physical content, in size, in horsepower were the same as the two and --

Justice Felix Frankfurter: But -- but there was all the difference in the world and in the one case, you wouldn't be out of pocket and in the other cases, you would be.

Mr. Edwin A. Rothschild: Well, we'd be out of pocket.

In a sense, we pay back $29.93 but that --

Justice Felix Frankfurter: Well, I know but -- but --

Mr. Edwin A. Rothschild: But --

Justice Felix Frankfurter: -- if a case is a test case, then presumably it has the same ingredients as those for which it is a test case.

Mr. Edwin A. Rothschild: Well, it's a test case for one purpose, Your Honor.

It was a test case to determine the applicability of the excise tax to units of the size described in the stipulation of facts.

Justice Felix Frankfurter: But suppose you were wrong in your law, you could still recover for the 50,000.

Mr. Edwin A. Rothschild: If we're wrong in our law, Your Honor, and we are -- and here's -- here's what will happen.

If we're wrong and the Government wins this case, then we will have to pay by over a million dollars of taxes, file claims for refund, hope that we can persuade the Treasury, which I don't think we will, that we should -- that they shouldn't charge us this tax, then we would have to file tests -- additional suits and make affirmative proof that we -- that we absorbed the tax on all of these 50,000 units.

Justice Felix Frankfurter: But you just said to the Chief Justice that you haven't -- that you didn't (Voice Overlap) --

Mr. Edwin A. Rothschild: Well, I've got to prove that in 50,000 cases.

Justice Felix Frankfurter: All I'm saying is if it does strike (Voice Overlap) --

Mr. Edwin A. Rothschild: I mean it's not in the record.

Yes.

Justice Felix Frankfurter: It just strikes me.

It's a little odd that you didn't need yourself an act of the (Inaudible) so important to the matter.

Mr. Edwin A. Rothschild: Well, that's the only act that we have, Your Honor.

We -- we made a test suit to determine the applicability of the tax.

Justice Felix Frankfurter: -- based out a very important basis on which you could recover a million dollars.

Mr. Edwin A. Rothschild: No, we couldn't possible recover it on that basis --

Chief Justice Earl Warren: Now, Mr. --

Mr. Edwin A. Rothschild: -- on this procedure.

Chief Justice Earl Warren: -- Rothschild, may I ask you one -- just one more --

Mr. Edwin A. Rothschild: Yes, sir.

Chief Justice Earl Warren: -- more question?

You complained of the shift in the Government's position on the stipulation that they made concerning the household type of --

Rebuttal of Howard A. Heffron

Mr. Howard A. Heffron: That is right.

Chief Justice Earl Warren: -- of these units.

Will you answer me this question if you can, please?

Rebuttal of Edwin A. Rothschild

Mr. Edwin A. Rothschild: Yes.

Chief Justice Earl Warren: If that -- if that stipulation had been -- not been made by the Government --

Mr. Edwin A. Rothschild: Yes.

Chief Justice Earl Warren: -- would there have been any issues available to you in this lawsuit that were -- that were actually foreclosed by reason of this stipulation?

Mr. Edwin A. Rothschild: Well, certainly, Your Honor.

Household type, whether or not these air conditioners were primarily designed for -- to meet the needs of a household was a question of fact which was not tried because of the Government's stipulation.

The other question is whether they are self-contained which is the new issue raised by the Government on its brief on the merits.

Self-contained is now a word of art because the Government has actually an exhibit saying that it covers anything from a small portable to 1000 horsepower plant.

And the only expression of the industry as to the meaning of self-contained, and that's urged by the Government's issues of fact, the only expression of the industry takes in horsepower and the Government itself says horsepower applies so that if self-contained -- so that if these units are just self-contained as a matter of law as the Government contains now, why would they be relying as they do in their brief, Your Honor, on the horsepower test on the understanding of the industry and on the intention of the Commissioner?

Those are issues of fact which were not raised in the trial court which are raised in this Court and which we have had no opportunity to meet.

Chief Justice Earl Warren: Thank you.

Mr. Edwin A. Rothschild: That's true on both.

Justice Hugo L. Black: Let me ask you one question --

Mr. Edwin A. Rothschild: Yes, Your Honor.

Justice Hugo L. Black: -- about that issue of fact.

I thought it was conceded that these whole household room units.

Mr. Edwin A. Rothschild: They are room units.

Justice Hugo L. Black: Well, why -- why do you say there'd be a question as whether or not they were household appliance?

Mr. Edwin A. Rothschild: Because the larger -- and this -- the evidence shows this, Your Honor, in the record.

The larger units are considered commercial units.

Justice Hugo L. Black: There is an arbitrary line --

Justice Hugo L. Black: I'm not talking about the horsepower question.

I'm just talking about whether they were households.

Mr. Edwin A. Rothschild: Well, that's -- that's the principal distinction between household and commercial is size.

That's been carried --

Justice Hugo L. Black: Do you mean when it get above -- you -- when it get above one ton, they are not household?

Mr. Edwin A. Rothschild: When you get up to one or one and a half, you will find their primary use is -- is not in house -- and that was certainly true when the regulation was passed in 1948, the -- there's consumption.

Justice Hugo L. Black: Now, I want to ask you one other question.

Mr. Edwin A. Rothschild: Yes.

Justice Hugo L. Black: Curiosity maybe.

Mr. Edwin A. Rothschild: Yes.

Justice Hugo L. Black: Doesn't that tax go up on June the 1st?

Mr. Edwin A. Rothschild: No, Your Honor, unless I'm wrong.

Justice Hugo L. Black: On the household units?

It's been advertised that it's going up on June the1st in all the places.

And they told me it was going up June the 1st, it'd be by now.[Laughter]

Do you say it's not going up?

Did -- did Congress not increase it right -- recently?

Mr. Edwin A. Rothschild: Oh, no, I think it's still 10%.

I would refer to the Government.

I don't know.

Is there any evidence?

Justice William J. Brennan: That means this case is done.

Rebuttal of Howard A. Heffron

Mr. Howard A. Heffron: That reference is probably to the applicability of the new regulations.

Justice Hugo L. Black: Oh, the new regulations.

That's what --

Mr. Howard A. Heffron: (Voice Overlap) --

Justice Hugo L. Black: -- is being talked about.

Rebuttal of Edwin A. Rothschild

Mr. Edwin A. Rothschild: All would impose the tax on units which had (Inaudible) not been taxable under the rulings.

Rebuttal of Howard A. Heffron

Mr. Howard A. Heffron: Well, yes.

Justice Hugo L. Black: On June the 1st.

Mr. Howard A. Heffron: Well, that -- that must be --

Rebuttal of Edwin A. Rothschild

Mr. Edwin A. Rothschild: Oh, that is in effect already but it only applies to units which were sold by the manufacturer subsequent to a given date.

Justice Hugo L. Black: Subsequent to the time this --

Rebuttal of Howard A. Heffron

Mr. Howard A. Heffron: That's right.

Rebuttal of Edwin A. Rothschild

Mr. Edwin A. Rothschild: This new regulation --

Justice Hugo L. Black: -- ruling (Voice Overlap) --

Mr. Edwin A. Rothschild: -- that came out.

And the new regulation, by the way, also creates an administrative definition of self-contained as Your Honors will know.

Chief Justice Earl Warren: Thank you, Mr. --

Mr. Edwin A. Rothschild: Thank you.

Thank you gentlemen.

Chief Justice Earl Warren: -- Mr. Rothschild.[Laughter]