Von Euw & L.J. Nunes Trucking, Inc. - Page 12

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          their use was an indispensable and inseparable part of the                  
          rendering of services).                                                     
               This is not such a case.  Petitioner primarily sells a                 
          product, the sand and gravel, and incidentally provides a                   
          service, the transportation of the sand and gravel.  Because                
          petitioner can generate profits from solely transporting the sand           
          and gravel, we do not view the sand and gravel as indispensable             
          to and inseparable from the provision of a service.8  Further,              
          because petitioner does not consume, alter, or add to the sand              
          and gravel, petitioner does not cause the sand and gravel to lose           
          its separate identity.  As the evidence shows that petitioner is            
          a seller of sand and gravel, we conclude that the sand and gravel           
          is merchandise.                                                             
               Petitioner additionally argues that even if we conclude that           
          the sand and gravel is merchandise, petitioner does not have to             
          maintain inventories because the sand and gravel is not an                  
          income-producing factor in petitioner’s business.  In evaluating            
          whether merchandise is an income-producing factor in a taxpayer’s           
          business, we must compare the cost of the merchandise to the                
          taxpayer’s gross receipts computed under the cash method of                 

               8  With regard to revenues and expenses generated as a                 
          result of customers requesting only transportation services,                
          petitioner has not argued in the alternative that they should be            
          placed on a hybrid method of accounting.  In any respect,                   
          petitioner has not presented any evidence with regard to those              
          revenues and expenses, and therefore it cannot meet its burden of           

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