MEMORANDUM - 1932 ise tax on shoteg (a 2t the for Browning taxes tax). Under this of tax The base sold to importer of shotguns rulings in comparable manufacturer the the jobber. to the Browning based upon venue took that the Browning purposes and the e and g drawn the Arms Company and mark-up exce true the amount out receive controversy Company paid withdrawn, tax sales Browning agreement namely; Section manufacturers which of under under the the Commissioner' amounts being amicably 1945. the import guns, contract J. and arable to at issue s M. sell guns the prices being; to are the Browning Arms used by manu- ther other ny decisions con- Memorandum on - compa have procedures any cisions that been rendered past “ of Tax -I.R.C. or sold Sold at on prevent that prevent Section Sold La) Po e & ee Basis will will nullif} from being it basis used in of the 3hhl retai consignment (otherwise transaction) than at through less PESSE the bee Sey aa computed than under Pests an arm's thi cha) on Ene price such articles are sold in of trade by me nut ee turers the or for which eee course rt bet importer’ as the manu! Jurer Company have and, therefore, status the J. in M.. & the same as a manufacturer. Se 3; corporations wil ales the same categor y M. S. Browning es and policie r Findings ae dominant Bur jois, = © 3 Ow were ucts dictated sold to by } th subsidia The e | hi price fair of its pro- as es S @ > Ca U © ha ©) 2 SS o +. ; ct oS. wn ing 2> shotg gun,be i£meL ile,aves & ww OF 286! ized ——- The the enact: i ent 4 o 5: * Com pa nv Ps £ Al e) yr dn echt thi a) % -2 we | xc begt ise tax s <8 gs pee | a — fur ope rat 41Oon w =t nen law, the anufa Ce about ctured, * > | yic Albrec h t & until € manuf a Ctr ¥*% <> h .o zd. group dec selli @t & & roup Woo the thro ven a) ti me o Pda Memorandum - The the Court held that <=> va the sales but allowed s) 2 length market Commissioner of furs shown to ths rm's a as in the eee ibs were (arm's fair the price taxal not company's td length 2 ary connotes a sale between interests". nition "transactions which do not vary control or change the flow of .economic benefits may be ignored by the Commissioner”. This. As é\ eheRee, however, made accepts the ormi e of at at which Compana but Sales allowed Corporation (subsidiary) ale trade ded Oil ¢** Compar subsequent the parent company through 1 nter-co mpany C orporation; con i fe a3 slry ac = ulred by a © @ tle (=) a} 4 Del Ss ge Ore the pric (> od S a. he point sales have t * Nd th e > Ci Q e —S & hater Re te peen 6b com put ed 7. 4 tinge in vne subsidiaries, i=) would on Sg nave +4 3 C 4 im L oan tsFr Coo in one Fa cS 7 Pm based price. + hat an d.tax e i corporation disregarded 43 3 controlled on FF by ; sal es controlled ) the oned i uv s a4 Pe)~ compet i tors oe a be VF aX6G 5 by th C ;OU ts as BROWNING INVENTIONS JRScA g STANDARDeee EQUIPMENT HEAVY MACHINE GUNS nce eee Be AUTOMATIC PISTOL VICE-PRES. VICE-PRES. MARRINER A. BROWNING, MATT S. BROWNING, etearioee eh, enon BENG ARTILLERY.Ne ANTI-AIRCRAFT aioe ae. ST. LOUIS 3, MO. October 25, 1945. Mre c/o Me First Ogden, Deer Ac Browning, Je Me & Me Se Browning Security Coe, Bank Bldge, Utahe Mr. 3 Browning: - Please refer From your to your letter letter I take of October it that 19th regarding in the opinion of Excise Tax. our counsel the J. Me and M. Se Browning Company could act as importer and jobber, selling the gun exclusively to the Browning Arms Company just as long as the price was kept in line with a Similar article. Remington's method of billing and computing Excise Tax is as follows: | Jobbers Price oo vcss trade cess codes Giscount, ces vcaeeoue. Less 10% eccecececes Less 5% year ond discount,.ccccceee Less freight allowance, 4.2356 39025 1496 37029 -ccccesecess oL7 37212 Excise Tax L1%Z,ccccccvecscccccccccces Net, | 4.208 00 +00$41.20 In our case there would be no freight allowance to figure, but on a comparable basis this would only make a difference of 2¢ in the tax and make the tax $4.10. In approaching the subject in this manner, I would think the cost to the Je Me & Me Se Browning Company would not enter into the figuring; however, the importer could not operate at a loss just to establish a tax basee On a $24.50 Factory price the Je Me & Me S. Browming Company cost would be as follows: Pactory Advalorem Price secs cccesccscsecnsccessctec0 Duby 226%,-ccosccsescsces SeSl Specific Duty,occcccvvescesseeseves Freight Insurance in,cccccccesvecee Total, e@ F000 1200 $54.01 With a net selling price of $37.29 as shown above, the profit to the importer would be $3.28. This is rather close and very much deviation in the way of Factory price or U. S. jobbers price would change this profit into a loss. PLEASE ADDRESS ALL CORRESPONDENCE TO THE COMPANY, ST. LOUIS 3,MO. 1805 1855 1859 PRESIDENT VAL A. BROWNING, COMPANY ARMS LIGHT MACHINE GUNS FOUNDERS JONATHAN BROWNING JOHN M. BROWNING MATT HEW S. BROWNING EXECUTIVE OFFICERS MGR BROWNING St. Octe as ARMS Louis, 235, COMPANY, Mo., L945. Should the tax base, Remington's we proceed the Excise jobbers price best regards, on the as basis Tax this explained of year the above, a gun, of course, is well worth fighting for, in anything further the attorneys have to say With Browning Arms their would would tax per Company gun. be selling price On the basis $4.10. and I will certainlybe on this subject. Sincerely, DBE: MMO be $5.00 This of 90¢ interested Mir. Douglas & Sroanine <> be Keferring ar e checking into 6 p inion of our tax <0 the met her counse’ “offhand an ime article ie © DO rter sold at about the game th 4 n by is country was being ot %.. on 2 neal he t nat : Sur counsel the scems import er He could seit tO any and 4 Py pI Tes ARS a et 8rig de 2O company, ra like Velope the & But e1gi keep think Gd 61th sel in whom 4 the event ever he what . bo 2 Out tax, Whe’ af using CX2 #e@ Can to ¢aa c based Pe eS Ss oe in our case, Arms company. but be ae amount. bas +12,Le ba Soc. he the F -, f 23-4 Nad he he 2 F, ta 5 1 dhe, ost Riot automatic, amount to, costine ond, sellins price @ figure you scGll exclusively is done, will | out figurin; ae aS 5 WELLS, BAXTER & MILLER CERTIFIED PUBLIC ACCOUNTANTS SEYMOUR WELLS, C.P.A. LYNN E.BAXTER,C.P.A. DONALD A MILLER,C.P.A. 1218-21 Mr. Bigelow Ogden, Dear Mr. FIRST SECURITY BANK OGDEN, UTAH June 1947 26, DErIGrS CITY AND SALT LAKE OGDEN, BUILDING UTAH Browning, Utah. Browning: We have reviewed our files for the purpose of determining whether or not a gun barrel is subject to the Federal excise tax of 11% and have the following information to report based upon our experience to date regarding this subject: time a tentative This question first arose in 193k decision was reached as follows: and at that If a gun were sold and later, ona separate order, an extra barrel were sold for the same gun, it was felt that no tax would accrue on the sale of the barrel. If a complete outfit were sold, including two barrels at the same time, it was felt that if the extra barrel were priced separately and invoiced as a separate item there might be a tax on the sale of the extra barrel inasmuch as both barrels were fitted to the same action. group that Revenue. a ruling It was should office Mr. Hoyt, On December 11, 1940 a hearing Chief of the Miscellaneous Tax of of Internal Revenue. The the consensus of be obtained from Bureau was opinion among the Bureau of represented by the Internal was held in Unit in the Mr. the Bureau Hoyt and an informal ruling on the question of and stated that the Bureau's position the was Messrs. Eckstrand and Clarke, both attorneys. Mr. Zimmerman represented the Department of Justice and the Browning Arms Company was represented by Messrs. Moyle, Baxter and Wanlass. At this conference Mr. M. E. Hoyt gave us ability of spare parts taxthat if the spare parts are in addition, and not attached, to the completed gun the sales are not taxable. If the additional part is attached to the gun and becomes part of the completed firearm, then it is taxable. Special sights and other attachments made a part of the gun would be taxable as part of the gun under this interpretation, but extra barrels not a part of the gun are not taxable. This ruling seems to resolve had been fitted to the all doubt as to may be extra barrels as such. If an extra barrel were shipped along with a gun,and both the barrel attached to the gun at time of shipment and the extra some doubt as barrel. Even barrel to in action, there the taxability or non-taxability of the extra this case it would appear that the extra barrel Mr. Bigelow Browning should not be taxed, complete firearm. —2= as the tax is imposed June under the 26, law 1947 ona It is, therefore, our opinion, based upon a review of the question, that all extra barrels should be considered as parts and are not subject to excise tax whether they are shipped separately or along with a completed gun. This would also be the case if a customer sent in his action for fitting of an extra barrel inasmuch as this sale would be in the nature of a repair or service job. We recommend that in billing care should be taken to bill separately extra barrels when they are shipped along with a complete gun. helpful and hesitate to We trust the above information will be if we can be of any further assistance, please call upon us. Very WELLS, CERTIFIED truly J BAXTER PUBLIC & yours, MILLER ACCOUNTANTS ea found do not nae MEMO SUBJECT: f. Excise Bigelow June 26, Tax Conference with Gordon Baxter Browning 1947 Extra Barrels It is noted that farch 6, 1946 on Shipped from the includes excise extra barrel is is considered a unit. The unit according to the circulars and price lists dated Remington products, that they supply a Model ll factory with an extra barrel at a price which tax on both the extra barrel and the gun. When the shipped by them with a new gun, the former no longer part; it participates in the price of the gun as a then is composed of the gun with its two barrels. When Remington supplies shotgun in use or at the factory fits a barrels separately for guns already new barrel to a gun returned, the excise The price of the tax as barrels a part supplied would furnished according to this dealer, and retail level. Gordon was asked to check tax with relation to sale problem is attached, be. in last these instances price described is figured without is lower at structure method on barrels jobber, our position on the management of excise of extra barrels. His appraisal of this Pro-excise tax. Browning Arms Company buys extra barrels excise tax free from the J.M. & M.S. Company which imports them as parts. The Browning Arms Company then,upon customer's request, fits one of these barrels to the action of a new gun which already has one factory fitted barrel. The fitting of this extra barrel by Browning Arms requires only minor shop work. The gun is then billed to the customer without payment second, 1. the price of the extra barrel fitted in St. Louis. The Browning Arms Company has performed a manufacturing of excise tax on the extra barrel by BeA. Company. The invoice to the customer itemizes the price of the gun at its original factory bitted process in fitting an extra be liable for excise tax on either J.M. or separately first, barrel, and barrel to a gun. Would this extra barrel? it Con-excise tax. See Gordon's memo dated June 26, 1947 referring to a The conclusion of this hearing on this problem December 11, 1940. hearing makes it difficult to explain why Remington follows the above Neglecting an attempt at explanation of described procedure. Remington's procedure, Gordon feels that there are factors in our position which would oblige us to be in a different excise tax position the J.M. Company Our novel position is as follows: than Remington. has no idea at the time it places its specifications with FN of what Will be the customer's requirement of specifications on his combinaThe customer's requirements are tion of a gun with an extra barrel. known only when the customer communicates them to Browning Arms Company. Page Memo June 2 on Excise 26, 1947 Tax Conference with Gordon Baxter Moreover, guns are only sold with extra barrels; this combination is not a high volume item. It would, therefore, be thoroughly unbusinesslike and impractical for the J.M. Company to import the large number of guns with extra barrels which would be necessary to satisfy the wide variety of unpredictable requirements by customers. It then can reasonably conduct its business only by bringing in guns and extra barrels. The vast majority of its extra barrels.are destined to be used as repair replacements in the Browning Arms' shops as barrel shipments to various gunsmiths and dealers. The J.M. Company cannot by any reasonable business conduct, attempt to fit extra barrels to guns. : The Browning Arms Company may not. be considered a manufacturer and, therefore, liable to excise tax merely because it fits an extra barrel. According to the definition, a manufacturer is one who assembles the management of stock and action dnéa barrel into a complete Browning Arms Company. gun. The necessity for a certain amount of fitting and alterations imposed on the Browning Arms Company by special requirements of its customers does not place this company in the category of a manufacturer. The J.M. & M.S. Browning Company, the importer, which may be said to be in the category of a manufacturer, it is repeated cannot reasonably anticipate these special requirements and must, therefore, leave the customs work to the Stocks The new Overunder shotguns will probably require custom work on them, They are higher priced; buyers are more particular regarding specifications especially as to stocks and extra barrels.éiIt is pointed out above, custom work by definition entails the attention to the extremely wide variety of requirements placed by individuals. These requirements can be satisfied only after the customer places order for them with the Browning Arms Company. If this company is to follow good business procedure, it should insofar as possible expé¢dite the filling of orders.by doing much of this custom work: in its shop. To permit this to be accomplished without unnecessary waste, it is desirable that it place orders with the J.M. & M.S. Company for a certain large quantity of guns with stocks fitted to the action but left oversize and unfinished. It is probable that the J.M. Company could obtain these stocks at a lower price from the factory than in the case of finished stocks. It would, therefore, pay less duty and less excise tax per gun. As in the case of the barrels, it would be utterly impractical in the face of such varied. requests for specifications for the J.M. Company to attempt the supplying of a custom market. As in the case of extra barrel problem, Browning Arms Company would not fall into the category of a manufacturer merely for finishing stocks. In general then, with the stock problem as well as with the extra barrel problem, Gordon feels that our conduct is defensible on the grounds that it is the only conduct compatible with sound business procedure. It would, therefore, be unlikely that Page Memo 3 on June 26, Excise 1947 the described an excise tax Browning Arms J.M. Company J.M. Tax Conference with eaeicn Baxter procedure of bringing in rough stocks would be considered evasion on the part of the J.M. Company; unlikely that would be excise tax liable; unlikely that the could Company be accused of evasion of customs duty. Books When post-war relationship with FN was again resumed, it was suggested to Doug by Mr. Baxter that FN invoices to the J.M. Company be forwarded to Ogden for filing as soon as all the guns on a particular invoice had been sold to the Browning Arms Company. This has not been done. As in of this date, it has been decided that further moves be taken largely order to permit the J.M. Company to support better its books in Ogden. 1, The J.M. itemized between Company invoice the two will render to the Browning Arms which will cover the transaction companies as thoroughly as though Company on guns they were completely strange companies. Itemize the quantity of each model sold to Browning Arms according to the price of the respective models. Gun serial numbers need not be mentioned. itemize barrels purchased with the respective prices, Itemize miscellaneous spare parts with respective prices. Upon the statement to Browning Arms there would be itemized only the J.M. selling prices in custom's duty or expenses of J.M. Company. As soon as items of a particular FN invoice or by the above procedure are sold to the Browning Arms Company, the FN invoice which the J.M. has paid together with other invoices paid by the J.M. as incidental expenses of the management of the shipment should be sent on to Ogden. The fact that J.M. has rendered itemized invoices will permit the latter to have to the Browning a complete file Arms Company on all materials it has purchased and sold, In summary, all invoices paid by J.M. Company in St. Louis will be sent on to Ogden. Copies of all invoices rendered by the J.M. Company will be sent to Ogden. The J.M. Company will render an itemized invoice to the Browning Arms Company each time the latter makes a purchase. Such itemized invoices will have the same form as though the two companies were complete strangers. This implies that the Browning Arms Company need only Know the price at which the J.M. is selling the guns and, of course, the excise tax. The Browning Arms Company does not need to know any items associated with J.M. profit or expense. WELLS, ie ad hg Aan a ae aaa BAXTER CERTIFIED LYNN E.BAXTER,C.P.A. DONALD A MILLER,C.P.A. l2!8-2l SECURITY June Bigelow Ogden, Dear Mr. MILLER PUBLIC ACCOUNTANTS FIRST OGDEN, Mr. & BANK ail Siem SALT LAKE CITY AND OGDEN, UTAH BUILDING UTAH 26, 1947 Browning, Utah. Browning: We have reviewed our files for the purpose of determining whether or not a gun barrel is subject to the Federal excise tax of 11% and have the following information to report based upon our time a tentative order, no tax fit experience to sold, regarding this subject: This question was reached first as arose if a gun were sold including two barrels decision an extra barrel would accrue on were date in 1934 and later, ona separate the same time, it follows: were sold for the same gun, the sale of the barrel. If at and at that it was felt that a complete out- was felt that if the extra barrel were priced separately and invoiced as a separate item there might be a tax on the sale of the extra barrel inasmuch as both barrels were fitted to the same action. group that a ruling Revenue. lt was should the consensus of be obtained from opinion among the Bureau of the Internal On December 11, 1940 a hearing was held in the office of Mr. Hoyt, Chief of the Miscellaneous Tax Unit in the Bureau of Internal Revenue. The Bureau was represented by Mr. Hoyt and Messrs. Eekstrand and Clarke, both attorneys. Mr. Zimmerman represented the Department of Justice and the Browning Arms Company was represented by Messrs. Moyle, Baxter and Wanlass. At this conference Mr. M. ability B. of Hoyt spare gave us parts an and informal stated rulingon that the the question Bureau's of position the was tax- that if the spare parts are in addition, and not attached, to the completed gun the sales are not taxable. If the additional part is attached to the becomes part of the would extra be taxable as barrels not a part part of of the the extra barrels able. & gun gun and Special and both and the extra some doubt as barrel. Even is tax- under this interpretation, are not taxable. but This ruling seems to resolve all doubt as such. If an extra barrel were shipped along to with sights as the and barrel other completed attachments gun gun attached to the firearm, made gun at a then part time of it of the gun shipment barrel had been fitted to the action there may be to the taxability or non-taxability of the extra in this case it would appear that the extra barrel Mr. Bigelow Browning should not be taxed, complete firearm. ~2as the it is, tax review of the question, that as parts and are not subject separately case if or along a customer with sent a is imposed therefore, our completed gun. all extra to excise in his June action under the opinion, 26, law 1947 on based a upon a barrels should be considered tax whether they are shipped for This would fitting of also an be extra the barrel inasmuch as this sale would be in the nature of a repair or service Job. We recommend that in billing care should be taken to bill separately extra barrels when they are shipped along with a complete gun. helpful and hesitate to We trust the above information will be if we can be of any further assistance, please call upon us. | Very truly found do not yours, ry VL, WELLS, CERTIFIED BAXTER PUBLIC & } MILLER ACCOUNTANTS Be? sre K4YAALKR