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taxpayer did not hold concrete materials for sale but rather
consumed the materials in performing a service. See id.
We further concluded: (1) The ephemeral quality of liquid
concrete precluded such material from being considered
merchandise; and (2) the remaining materials used by the
taxpayer, including sand, drain rock, and hardware, were
incorporated into the particular project to such a degree that
they lost their separate identity, and likewise should not be
considered merchandise within the meaning of the regulation. Id.
at 225-229.
Consistent with our analysis in RACMP Enters., Inc. v.
Commissioner, supra, we hold that the flooring materials that
Smith Floors purchases and installs in fulfilling its contracts
do not constitute merchandise within the meaning of section
1.471-1, Income Tax Regs. Like the concrete contractor in RACMP
Enters., Inc. v. Commissioner, Smith Floors is inherently a
service provider. Smith Floors’ stock in trade is its expertise
in installing flooring materials in a variety of unique
applications and petitioner’s skill and craftsmanship in hand-
cutting and incorporating specialized designs into flooring
materials. The companies contracting with Smith Floors are
primarily interested in the firm’s labor and contractual skills.
Smith Floors purchases and takes delivery of the flooring
materials required for a particular job to better manage the
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