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In that case we found that the taxpayer, a company engaged in the
laying of concrete and the installation of related items, such as
sand, rock, wire mesh, and rebar, did not sell merchandise to its
customers. Rather, relying on Osteopathic Med. Oncology &
Hematology, P.C. v. Commissioner, 113 T.C. 376 (1999), we found
that the concrete and related materials were supplies consumed by
the taxpayer. In Osteopathic Med. Oncology & Hematology, P.C.,
we held that chemotherapy drugs furnished by a healthcare
provider in treating cancer patients were supplies rather than
merchandise because the taxpayer was a service provider and the
drugs were an “integral and inseparable part of its service.”
Id. at 384. Similarly, in RACMP Enters., Inc. v. Commissioner,
supra, we held that the taxpayer was a service provider, and we
found that the materials used in construction were not
merchandise because they were “indispensable and inseparable from
the service provided by” the taxpayer. Id. at 228. In
conclusion, we held that because the taxpayer did not produce or
sell merchandise, the taxpayer could not be required to use
inventory accounting. See id. at 229.
In the instant case, the concrete, stone, reinforcing steel,
and other items (collectively, the materials) used by petitioner
were not merchandise for the same reasons stated in RACMP
Enters., Inc.: First, the materials lost their separate identity
when used in a construction project. Second, petitioner did not
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