Wm. J. Moxley Corp. v. Hertz

Background

A manufacturer sued to recover a tax paid after the tax collector assessed ten cents per pound on oleomargarine in 1903. The product at issue contained oleo-oil, lard, milk, cream, salt, cottonseed oil, and about one-half of one percent palm oil. The palm oil gave the finished product a yellow appearance like butter and slightly improved texture and digestibility, though the certificate said those benefits were slight. The tax law provided a lower rate when oleomargarine was “free from artificial coloration” and the Commissioner had published a rule treating substances used mainly to produce a butter-like color as artificial coloration.

Reasoning

The Court examined prior decisions, including Cliff v. United States, which held that a statutory ingredient used substantially only to color the product counts as artificial coloration and brings the higher tax. The Court found the facts here did not materially differ: the palm oil’s non-color benefits were slight and the color was the substantial effect. Relying on those principles, the Court answered the first certified question in the affirmative, concluding that the natural palm oil’s coloring effect constitutes artificial coloration. The Court declined to answer the second and third certified questions on the record presented.

Real world impact

The ruling means oleomargarine like this is subject to the higher tax when a food ingredient is used mainly to make it look like butter, even if that ingredient is natural. The Court’s answer was limited to the specific factual record, and questions about quantities and intent were left unresolved.