Galedrige Construction, Inc. - Page 15

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          hand are clearly distinguishable.  Petitioner is in the business            
          of laying emulsified asphalt, not in the business of                        
          manufacturing emulsified asphalt.  Petitioner acquires asphalt              
          from a producer of emulsified asphalt, has no yearend (or even              
          dayend) inventory of raw materials, and is unable to prevent or             
          even delay the asphalt from becoming rock hard and worthless                
          within 2 to 5 hours of its acquisition from the supplier.  Thus,            
          Asphalt Prods. Co. is not dispositive of the issue of whether the           
          asphalt is merchandise sold by petitioner.                                  
               In Thompson Elec., Inc. v. Commissioner, supra, the taxpayer           
          used materials such as wiring, conduits, electrical panels, and             
          lighting fixtures in its electrical contracting business.  The              
          taxpayer maintained an inventory of unassigned materials on its             
          premises that it used for small contracts, in addition to                   
          delivering materials directly from the supplier to its large-               
          contract customers' sites.  The taxpayer reported yearend                   
          inventory of $68,617 and $74,876 for taxable years 1988 and 1989,           
          respectively.  We concluded that the material at issue was                  
          merchandise which was an income-producing factor even though the            
          taxpayer did not display the material to customers or to the                
          public, the material was not itemized on bids or invoices nor               
          separately charged to the customer, the taxpayer did not sell               
          material separately from its services, and the taxpayer’s                   
          customers generally did not select the materials to be used.                
          Thus, the fact that petitioner did not sell emulsified asphalt              




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