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Commissioner, T.C. Memo. 1992-453, affd. without published
opinion 27 F.3d 571 (8th Cir. 1994).
Petitioner sells items that it prints according to the
specifications of its customers. The printed items are items
held for sale and, thus, are merchandise. All of petitioner's
gross receipts are generated by the sale of the items petitioner
produces for its customers. Therefore, the production and sale
of merchandise is an income-producing factor.
Furthermore, even if we agreed that petitioner performs a
service, courts have held that, if the cost of materials a
taxpayer uses to provide a service is substantial compared to
its receipts, the material is a substantial income-producing
factor. Wilkinson-Beane, Inc. v. Commissioner, supra at 355.
Petitioner reported the following gross receipts and purchases
for the taxable years ending May 31, 1989 through 1995:
Taxable Year Ending
5/31/89 5/31/90 5/31/915/31/92 5/31/93 5/31/94 5/31/95
Gross receipts$1,450,643 $1,462,904 $1,678,433 $1,499,946 $1,399,727 $1,357,166 $1,135,232
Purchases $546,827 $483,172$577,861$449,492 $380,327 $420,730 $282,490
Percentage 38% 33% 34% 30% 27% 31% 25%
The cost of materials petitioner uses to provide its
service is substantial compared to its receipts. Therefore,
the material petitioner uses is a substantial income-producing
factor. Petitioner's arguments have previously been considered
and rejected by this Court. See Thompson Elec., Inc. v.
Commissioner, T.C. Memo. 1995-292; J.P. Sheahan Associates,
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