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The majority describes as seminal the opinion of the Court
of Appeals for the First Circuit in Wilkinson-Beane, Inc. v.
Commissioner, supra. The taxpayer in Wilkinson-Beane, Inc. was
an undertaking establishment, which argued the primacy of the
services that it provided to its customers. The Court of Appeals
affirmed the finding of the Tax Court that the taxpayer was
selling merchandise. The Court of Appeals stated:
We fully recognize that petitioner was in the business
or providing valuable services. But we think it would
be anomalous to hold that a taxpayer in a service
business can have no merchandise even though he derives
a substantial portion of his income from the regular
purchase and sale of tangible personal property. We
certainly have no basis for so restricting the
application of the word 'merchandise’. * * * Since the
caskets play a central role in the 'sale' of taxpayer's
service, to use its term, we see no error in the
determination that the caskets were merchandise.
Id. at 355. The Court of Appeals’ inquiry into the centrality of
the property to the sale and the substantiality of the income
attributable to the property has been followed in subsequent
cases. For example, in J.P. Sheahan Associates, Inc. v.
Commissioner, T.C. Memo. 1992-239, we determined whether roofing
materials constituted merchandise, and we looked to whether the
materials were shown separately on the customer’s bill, they
represented a substantial amount of the total bill, and they were
marked up. In Thompson Elec., Inc. v. Commissioner, T.C. Memo.
1995-292, which involved an electrical contractor, we said: “If
the cost of material a taxpayer uses to provide a service is
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