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II. Discussion
A. Introduction
I distill the following rule of law from the majority’s
analysis: A taxpayer is not selling merchandise to customers
when the material in question is integral to the provision of a
service. See majority op. p. 15.2 The principal difficulty that
I have with the test (the integral-to-service test) implicit in
the majority’s rule is that it does not accommodate many of the
factors that have proved useful in deciding whether the provider
of a mix of goods and services is selling merchandise that is an
income-producing factor.
B. Traditional Factors
For example, under the integral-to-service test, what role,
if any, is left for the traditional inventory-determinative
factors of ownership, risk, and relative cost?
Under the integral-to-service test, is the fact that
ownership of the materials vests in the taxpayer irrelevant? If
not, how does that fact influence the determination of whether
the materials are integral to the service? See Surtronics, Inc.
v. Commissioner, T.C. Memo. 1985-277 (electroplator purchasing
gold and silver to apply to customer’s components was required to
2The principal meaning of the word “integral” is “Essential
or necessary for completeness; constituent”. American Heritage
Dictionary 937 (3d ed. 1992). The word “integral” expresses
nicely the concept of “indispensable and inseparable” that the
majority lifts from Osteopathic Med. Oncology & Hematology, P.C.
v. Commissioner, 113 T.C. 376 (1999).
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