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suppliers by the fact that the clients paid for the various
materials separately and specifically with a joint payee check.
From the moment the taxpayer in Galedrige Constr., Inc.
received the "emulsified asphalt from the supplier * * * [it] was
joined in a race that had an unalterable predetermined outcome;
within 2 to 5 hours the emulsified asphalt would be rock hard and
worthless." Id. The race was not to sell or to deliver the
asphalt to the taxpayer's client; rather, it was to lay the
asphalt before time expired and the asphalt changed its physical
state into a form that was worthless to the taxpayer; only the
liquid state of the emulsified asphalt provided any utility to
the taxpayer, and that state expired very quickly.
Consequently, in Galedrige Constr., Inc. v. Commissioner,
supra, the only form of the material that provided any value to
the taxpayer was "used up" or consumed in providing service to
the taxpayer's client. Consumption of a material in the
performance of a service or in a manufacturing process is
indicative that the material is a supply, not merchandise held
for sale. See Osteopathic Med. Oncology & Hematology, P.C. v.
Commissioner, 113 T.C. at 385; see also Rev. Rul. 75-407, 1975-2
C.B. 196 (public utility that used the accrual method of
accounting should continue to deduct as a supply expense under
section 1.162-3, Income Tax Regs., the cost of fuel oil consumed
and used to generate electricity distributed to customers during
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