Lash's Products Co. v. United States

Background

A manufacturer of bottled soft drinks sued to recover taxes it had paid under the Revenue Act of 1918, which imposed a 10% tax “on soft drinks, sold by the manufacturer... in bottles or other closed containers.” The manufacturer had collected extra money from customers after telling them it had paid the ten percent tax and argued that the true price of the drinks was the amount received minus that tax.

Reasoning

The Court focused on whether the tax should be measured by the total sum actually received for the goods. Justice Holmes explained that saying the tax was “passed on” is misleading: the law places the tax on the manufacturer, not the buyer, even if the seller charges more. The Court noted the Commissioner’s regulations distinguishing charges billed separately and charges that raise the sale price. Because the manufacturer did not bill the tax as a separate item, and the Court accepted the Commissioner’s practice as effectively approved by Congress, the Court held the tax applies to the full amount received.

Real world impact

The ruling means bottled soft-drink makers must compute the 10% tax on the total price they actually receive when they did not itemize the tax separately. The Court affirmed the lower-court judgment, resolving earlier conflicting views in lower courts and leaving manufacturers liable under the tax measure described by the Commissioner’s regulations.