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sion regulations, $ 300.612, if the com- regardless of what date the fiscal year pany can demonstrate that not counting of Corporation X ended upon. Further, the increased wage costs in excess of 5.5 it is to be noted that the “fiscal year' percent with respect to its particular referred to in this ruling is intended to situation constitutes a gross inequity. mean a period of 12 months.

This ruling has been approved by the This ruling has been approved by the General Counsel of the Price Commission. General Counsel of the Price Commis[36 F.R. 23661, Dec. 11, 1971]

sion.

[36 F.R. 24232, Dec, 22, 1971] [Price Commission Ruling 1971-4]

[Price Commission Ruling 1972–1] PRENOTIFICATION

BUS OPERATORS Facts. Company A had sales in its last fiscal year of $150 million. It has pre- Facts. An operator of school buses notified the Price Commission of every holds contracts for the transportation of price increase it has put into effect. school children with several school dis

Issue. Must Company A also report to tricts. The contracts are negotiated each the Price Commission at the end of its year during June and July. All the connext fiscal quarter?

tracts for the school year 1971–72 we Ruling. Yes, all prenotification firms signed in June, 1971 except one with are required to submit quarterly reports School District A which was signed to the Price Commission on Form PC-1 July 20, 1971. Wages of his drivers were in addition to prenotifying the Commis- increased by 5 percent in contracts sion of proposed price increases, pursu- signed July 27, 1971. ant to $ 300.051(d).

Issue. May the operator increase his This ruling has been approved by the service charges for transportation for General Counsel of the Price Commis- the school year 1972–73 to be negotiated sion.

next summer? [36 F.R. 24077, Dec. 18, 1971)

Ruling. The bus operator may increase

his charges to all school districts with [Price Commission Ruling 1971-5)

which he will contract to furnish transCORPORATE FISCAL YEAR

portation services for 1972–73. However, ACCOUNTING

in accordance with the conditions in

§ 300.14 of the Economic Stabilization Facts. For the purposes of filing income

Regulations, increases in charges are autax returns, preparing financial state

thorized only to reflect allowable costs ments, and its general business opera- in effect on November 14, 1971, and cost tions, Corporation X maintains its books increases incurred after November 14, and records according to a fiscal year 1971, reduced to reflect productivity ended December 31st. On November 14, gains, and only if the increased prices 1971, Phase II of the economic stabiliza- do not increase the firm's total profits, as tion program, established pursuant to a percentage of sales, before income the Economic Stabilization Act of 1970, taxes, over those which prevailed during became operative.

the base period. Issue. Whether or not Corporation X The base price from which the allowmust change from a fiscal year ended able increase is to be computed is the December 31st to a fiscal year ended price of the contract with School DisNovember 13th.

trict A which was entered into during Ruling. Corporation X may continue the freeze base period—July 16 to Auto maintain its books and records on the gust 14, 1971. Accordingly, the bus operabasis of a fiscal year ended December tor may charge in excess of the price in 31st. Although November 14, 1971 is a this contract so much as is necessary to reference date or starting point which absorb increases in allowable costs, such may be determinative of whether certain as wages (subject generally to a limitarequirements may be operative with re- tion of 5.5 percent on increases made spect to the granting and implementa- after November 8, 1971), maintenance, tion of certain price adjustments, there replacements, licenses, etc. is no mandate in the Act or the regula- This ruling has been approved by the tions that the fiscal year of Corporation General Counsel of the Price CommisX be changed to end on November 13th. sion. Moreover, this same rule would apply [37 F.R. 247, Jan. 7, 1972]

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[Price Commission Ruling 1972–2] determined by reference to the profit CRITERIA FOR CORPORATE PRICE

margin determinations for any two of INCREASES

the years 1968, 1969 and 1970. It would

also be determined by reference to inFacts. A manufacturer, a corporation, creases in allowable costs and by promanufactures three separate items. The ductivity gains. However, the profit marcorporation has been actively engaged gin determinations are to be made by in the business since 1967. It computes its reference to the three products manunet income on the basis of a calendar factured and not merely to each product year. In the year 1968 the corporation individually. had net income, before income taxes and This ruling has been approved by the extraordinary items, equal to 5 percent General Counsel of the Price Comof its sales. In the years 1969 and 1970 mission. the respective figures for net income, be

[37 F.R. 247, Jan. 7, 1972] fore income taxes, and extraordinary

[Price Commission Ruling 1972–3] items, were 6 percent and 7 percent. Beginning December 31, 1971, the corpora

FOREIGN EXPORTER AND tion proposes to increase the prices of

U.S. IMPORTER each of its three products by 3 percent because the cost of certain raw materials Facts. A U.S. corporation, A, buys raw used in the products has increased by 4 leather from a foreign dealer who depercent and many of its employees have livers the leather to corporation A in received a 2 percent wage increase. An- the United States. Upon receipt of the nual sales of the corporation do not and

leather, corporation A manufactures have never exceeded $1 million.

leather jackets that it sells to clothing Issue. May the corporation increase its

wholesalers in the United States. The prices by more than 2.5 percent after

jackets are not custom made to order. November 13, 1971, and, if so, what fac

Issue. How are these two transactions tors would determine the amount of the

covered by the regulations? increase?

Ruling. The first sale of an import into Ruling. It is possible that the corpora

the customs territory of the United tion may increase its prices more than States is exempt. Economic Stabilization 2.5 percent. Prices after November 13,

Regulations $ 101.32(d) (2). The price 1971, are to be established in accordance may be whatever is agreed upon between with Price Commission guidelines. The

the foreign exporter and U.S. importer. 2.5 percent figure represents a goal for Therefore, in the example above, the average price increases across the entire sale of the leather goods by the foreign economy, but individual price changes dealer to corporation A is exempt. When may be above or below that figure, de- the importer sells the article (whether pending upon allowable cost increases changed or not, or incorporated into and net profit margins. Under Economic

another product) to a U.S. purchaser, Stabilization Regulation § 300.12, manu

that sale is subject to control and the facturers may charge prices for products

rules of the Price Commission apply. in excess of the base prices to reflect Thus, the sale by corporation A to the increases in allowable costs in effect on U.S. retailers is subject to the rules of November 14, 1971, and cost increases

the Price Commission. The price incurred after November 14, 1971 reduced charged by corporation A to the U.S. to reflect productivity gains. However,

wholesalers may exceed corporation A's the effect of all of a manufacturer's price

base price (as defined in Subpart F of changes cannot be to increase its profit the regulations) only if it reflects cost, margin as a percentage of dollar sales,

increases, subject to adjustments for probefore income taxes, over that which

ductivity gains and subject to the rule

that its profit margin as a percentage of prevailed during the base period. The

sales may not be greater than the aver“base period”, as defined in Economic

age of the best two of the last 3 Stabilization Regulations $ 300.5 means

fiscal years ended prior to August 15, the average of any two of a person's last 1971. Economic Stabilization Regulathree fiscal years ended prior to August tion, $ 300.12. 15, 1971. The selection of such two fiscal This ruling has been approved by the years is to be made by the person. There- General Counsel of the Cost of Living fore, increases in the manufacturer's Council. prices of the three products would be (37 F.R. 247, Jan. 7, 1972]

[Price Commission Ruling 1972–4] SALE OF PERSONAL PROPERTY BY

INDIVIDUALS Facts. Citizen A wishes to sell a television set he purchased from a retailer 2 weeks ago and used in his home but which he no longer needs because he just received a better model as a gift.

Issue. Is citizen A's sale of this television set exempt from the controls of the economic stabilization program?

Ruling. Yes. Sales of used products are exempt from controls. Economic Stabilization Regulations § 101.32(e). To qualify as a used product, the product must have been acquired and used by an end user, such as citizen A. Temp ry holding for purposes of resale, however, does not make a product a used product, unless it is used for demonstration purposes, such as a demonstration or floor sample.

This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 248, Jan. 7, 1972)

[Price Commission Ruling 1972–5] CRITERIA FOR INCREASES IN

PROFESSIONAL SERVICE FEES Facts. A, B, and C are certified public accountants practicing their profession as a partnership, A, B, C & Co. They bill clients for services rendered, taking into account such factors as their costs in performing accounting work and results achieved in the event they represent clients in business negotiations.

Issue. May the partnership of A, B, C & Co. increase the fees which it charges its clients after November 13, 1971?

Ruling. The partnership A, B, C & Co. may increase its fees depending on the circumstances. The fees charged by the firm of certified public accountants are prices which are governed by the regulations of the Price Commission dealing with services. See Economic Stabilization Regulations, $$ 300.5 and 300.14. Even though the fees charged for services rendered after November 13, 1971, may take into account costs in effect on that date and cost increases after that date, reduced to reflect productivity gains, such increased fees shall not result in an increase in the partnership’s profit margin as a percentage of sales, before income taxes, over that which prevailed during the base period. To the

extent that charges are based on results achieved in business negotiations (e.g., on a percentage basis), without regard to cost, such charges cannot exceed the higher of (1) charges made for the same or similar services during the period beginning August 15, 1971, and ending November 13, 1971, or (2) the highest charge made to a specific class of clients in a substantial number of transactions involving such services during the freeze base period (as defined in section 300.5 of the Regulations).

This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 248, Jan. 7, 1972]

[Price Commission Ruling 1972-6] INSPECTION FEES AND INITIAL

PERCENTAGE MARKUP Facts. Retailer R is a seller of petroleum products in State X. State X has recently imposed an “Inspection Fee” on petroleum products sold by Retailer R. Under the State law Retailer R must notify the State when such products are received so that they may be inspected prior to sale. The Act provides that it is the duty of the person first selling, storing, or using such petroleum products in the State to pay the inspection fee. The fee has been levied on a per gallon basis and has been calculated to return many million dollars to the State in excess of the costs of the inspection program.

Issue. May Retailer R apply his customary initial percentage markup to the cost of the petroleum products charged by his supplier plus the “Inspection Fee.”

Ruling. Section 300.5 of the Economic Stabilization Regulations defines "customary initial percentage markup” so as to permit the markup to be applied to the cost, i.e., purchase price actually paid by the selling person and to transportation charges to be allocated to the merchandise. The “price actually paid” includes charges, taxes, and fees including personal property taxes levied by a State government on the merchandise which by law are not required to be borne in a specific amount or ratio to price by the ultimate consumer. A retailer or wholesaler may consider these charges, taxes, and fees as part of the cost of the merchandise for the purposes of applying his customary initial markup to the cost of that merchandise. The “Inspection fee” in this case is considered

to be imposed on the merchandise. Retailer R may apply his customary initial percentage markup to the cost of the petroleum products charged by his supplier and the "Inspection fee.”

This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 762, Jan. 18, 1972) (Price Commission Ruling 1972–7]

DISTINCTION BETWEEN RESTAURANTS AND DELICATESSENS

Facts. Restaurant A is in the business of preparing and serving food. It also has a delicatessen department where it sells unprepared food to be taken home and prepared by the purchaser.

Issue. Is a restaurant a service organization under § 300.14 or a retailer of food under $ 300.13?

Ruling. A restaurant is considered to be a service organization, the price increases of which are governed by Economic Stabilization Regulations $ 300.14. Unlike a grocery store, or other sellers of unprepared food, which are considered retailers, a restaurant sells ready-to-eat food, prepared by its employees and normally served and consumed on its premises.

The delicatessen department of a restaurant, however, is considered as a retail establishment and, as such, is governed by $ 300.13 relating to retailers, including the requirement that retailers prominently display base prices. The delicatessen operates similarly to a grocery store and does not provide the services commonly associated with a restaurant.

This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 762, Jan. 18, 1972]

(Price Commission Ruling 1972–8]
EXCISE TAX AND INITIAL

PERCENTAGE MARKUP Facts. A is a wholesaler of product X in a state which has recently imposed an excise tax on product X. A wants to increase his price on product X to offset the excise tax which is levied at the time product X is scid to A by his supplier.

Issue. May A add the excise tax to the cost of product X before computing his initial percentage markup, or must the excise tax be passed on dollar-for-dollar?

Ruling. A may add the excise tax to the cost of product X before computing his initial percentage markup.

Wholesalers (and retailers) are governed by $ 300.13(a) of the Economic Stabilization Regulations, which provides a customary initial percentage markup test and a profit margin test to be applied to proposed price increases. The additional posting requirement of paragraph (b) applies to retailers.

In meeting the “customary initial percentage markup" test, the definition of “customary initial percentage markup”, as provided by $ 300.5, refers to the markup applied to the "cost of merchandise" and the “purchase price actually paid by the selling person”. To the extent that an excise tax is paid by A at the time of purchase to either his supplier or to a government for each unit of product X, it is clearly a “cost of merchandise" to A, and a part of the "purchase price actually paid by the selling person”. Therefore, it may be added before computing the initial percentage markup.

This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 763, Jan. 18, 1972]

[Price Commission Ruling 1972–9]

DISTINCTIONS BETWEEN MANUFACTURERS AND RETAILERS

Facts. Company A manufactures cattle feed that it sells and delivers directly to neighboring farmers who are the ultimate human consumers. Company B manufactures furniture that it sells directly to consumers from a showroom and warehouse on its premises. Company C manufactures automotive equipment and accessories which it sells through a retailing subsidiary. Company C has customarily transferred the products it manufactures to its retailing subsidiary at a price to which the subsidiary applies its percentage markups. All three companies desire to raise the prices of their products.

Issue. Are Companies A, B, and C, "manufacturers" or "retailers" under the definitions in Economic Stabilization Regulations § 300.5 ?

Ruling. Company A and Company B are manufacturers, even though they sell their products directly to the ultimate consumers. Economic Stabilizatiton Regulations § 300.5 defines manufacturer as a person who carries on the trade or busi

ness of making, fabricating, or assem- Company A between the contract's exebling a product or commodity by manual cution date and the time of delivery. labor or machinery for sale to another Company A entered into a labor agreeperson. Accordingly, Company A and ment on November 19, 1971 which proCompany B are governed by the provi- vided for a wage increase of over 14 persions of Economic Stabilization Regula- cent per year. The Price Commission has tions $ 300.12 pertaining to manufac- determined that wage increases, includturers in determining whether they can ing fringe benefits, agreed to after Noincrease prices.

vember 8, 1971, shall not generally be For purposes of determining whether considered allowable costs to the extent it may increase the prices at which it they exceed 5.5 percent per year. Comtransfers its products to its retailing pany A now wants to add these increased subsidiary, Company C is considered a labor costs to its price under the Janumanufacturer and, as such, its price in- ary 16, 1971 contract, without regard to creases are governed by Economic Sta- whether or not such increased costs are bilization Regulations $ 300.12. For pur- “allowable” under Price Commission poses of determining whether it may regulations. It claims that its contract increase the prices it charges to ultimate falls within $ 300.101 of those regulations consumers, Company C's retailing, sub- (formerly designated $ 300.203), and that sidiary is subject to the regulatory pro- § 300.101 allows price increases to take visions pertaining to retailers. Economic place pursuant to contracts made before Stabilization Regulation § 300.13. Eco- August 15, 1971, without reference to the nomic Stabilization Regulation $ 300.5 allowable cost test of $ 300.12. defines retailer to include any retailing Issue. May a price be increased over subsidiary, division, affiliate, or similar the base price, without regard to restricentity that is part of, or is directly or tions on "allowable costs,” pursuant to a indirectly controlled by, another person.

contract entered into prior to August 15, The retailing subsidiary of Company C 1971, which contains a flexible pricing qualifies as a retailer under this provi- arrangement based on increases in the sion and therefore its price increases are sellers costs? governed by Economic Stabilization Reg- Ruling. No. Section 300.101 does not ulation § 300.13 pertaining to retailers.

apply to contracts with flexible pricing Company C's retailing subsidiary is also arrangements based on fluctuations in a subject to the base prices posting re

seller's costs. The reference to "the price quirements of Economic Stabilization specified" in contracts entered into prior Regulations $ 300.13(b). Company C's to August 15, 1971, was intended to total income during its most recent fiscal apply to sellers who had made long-term year, from whatever source derived (in- contracts at a specified price and who cluding that derived from its retailing were therefore “locked into" that price subsidiary), would determine, whether regardless of whether their costs might Company C is a Price Category I, II, or subsequently increase. To exempt conIII, firm for prenotification and report- tracts such as that of Company A from ing purposes.

the strictures of the “allowable cost" test This ruling has been approved by the would have the effect of exempting a General Counsel of the Price Commis- large number of sellers from a critically sion.

important principle of the Economic [37 F.R. 763, Jan. 18, 1972]

Stabilization Program by providing them

with permission, denied to other sellers, [Price Commission Ruling 1972–10]

to increase costs and pass them on in the PRICE INCREASES PURSUANT TO form of higher prices, regardless of CONTRACTS ENTERED INTO BE

whether or not those costs are “allowFORE AUGUST 15, 1971

able" under Price Commission regula

tions. Such favored treatment was not Facts. On January 16, 1971, Company

intended and is not permitted. A use of A entered into a contract by which it § 300.101 to circumvent the restrictions agreed to sell its product to Company B, concerning allowable cost increases with delivery or performance to occur would also be prohibited by $ 300.60. If after November 13, 1971. The contract the application of this ruling to Company contained an escalation provision A results in a serious hardship or gross whereby the price to be paid by Company inequity, Company A may apply for an B at the time of delivery was to be de- "exception by ruling” pursuant to Price pendent on increased costs incurred by Commission regulations § 300.511. 72-5780—72_o

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