[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. Temporary 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] 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 soid 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 assembling a product or commodity by manual labor or machinery for sale to another person. Accordingly, Company A and Company B are governed by the provisions of Economic Stabilization Regulations § 300.12 pertaining to manufacturers in determining whether they can increase prices. For purposes of determining whether it may increase the prices at which it transfers its products to its retailing subsidiary, Company C is considered a manufacturer and, as such, its price increases are governed by Economic Stabilization Regulations § 300.12. For purposes of determining whether it may increase the prices it charges to ultimate consumers, Company C's retailing subsidiary is subject to the regulatory provisions pertaining to retailers. Economic Stabilization Regulation § 300.13. Economic Stabilization Regulation § 300.5 defines retailer to include any retailing subsidiary, division, affiliate, or similar entity that is part of, or is directly or indirectly controlled by, another person. The retailing subsidiary of Company C qualifies as a retailer under this provision and therefore its price increases are governed by Economic Stabilization Regulation 300.13 pertaining to retailers. Company C's retailing subsidiary is also subject to the base prices posting requirements of Economic Stabilization Regulations § 300.13(b). Company C's total income during its most recent fiscal year, from whatever source derived (including that derived from its retailing subsidiary), would determine, whether Company C is a Price Category I, II, or III, firm for prenotification and reporting purposes. This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 763, Jan. 18, 1972] [Price Commission Ruling 1972-10] PRICE INCREASES PURSUANT ΤΟ BE Company A between the contract's execution date and the time of delivery. Company A entered into a labor agreement on November 19, 1971 which provided for a wage increase of over 14 percent per year. The Price Commission has determined that wage increases, including fringe benefits, agreed to after November 8, 1971, shall not generally be considered allowable costs to the extent they exceed 5.5 percent per year. Company A now wants to add these increased labor costs to its price under the January 16, 1971 contract, without regard to whether or not such increased costs are "allowable" under Price Commission regulations. It claims that its contract falls within § 300.101 of those regulations (formerly designated § 300.203), and that § 300.101 allows price increases to take place pursuant to contracts made before August 15, 1971, without reference to the allowable cost test of § 300.12. Issue. May a price be increased over the base price, without regard to restrictions on "allowable costs," pursuant to a contract entered into prior to August 15, 1971, which contains a flexible pricing arrangement based on increases in the sellers costs? Ruling. No. Section 300.101 does not apply to contracts with flexible pricing arrangements based on fluctuations in a seller's costs. The reference to "the price specified" in contracts entered into prior to August 15, 1971, was intended to apply to sellers who had made long-term contracts at a specified price and who were therefore "locked into" that price regardless of whether their costs might subsequently increase. To exempt contracts such as that of Company A from the strictures of the "allowable cost" test would have the effect of exempting a large number of sellers from a critically important principle of the Economic Stabilization Program by providing them with permission, denied to other sellers, to increase costs and pass them on in the form of higher prices, regardless of whether or not those costs are "allowable" under Price Commission regulations. Such favored treatment was not intended and is not permitted. A use of § 300.101 to circumvent the restrictions concerning allowable cost increases would also be prohibited by § 300.60. If the application of this ruling to Company A results in a serious hardship or gross inequity, Company A may apply for an "exception by ruling" pursuant to Price Commission regulations § 300.511. 105 This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 763, Jan. 18, 1972] [Price Commission Ruling 1972–11] SHIPPING RATES Facts. A shipping company whose rates are regulated by the Federal Maritime Commission filed proposed rate increases with that Commission in the spring of 1971. The Maritime Commission, pending its investigation, suspended those rates for the full 4-month statutory period permitted by law. The rates would have gone into effect by reason of lapse of the statutory suspension period on August 30, 1971, but for the issuance of Executive Order No. 11615 on August 15, 1971, establishing a 90-day freeze on price increases. Issue. Under Economic Stabilization Regulations, § 300.16, may the shipping company place its increased rates in effect after November 13, 1971, without the Federal Maritime Commission having made the appropriate certification? Ruling. No. The purpose of § 300.16 is to ensure that rate increases by regulated public utilities are consistent with the anti-inflationary purposes of the Economic Stabilization Program. Paragraph (b) of this section applies to all rate increases authorized prior to November 14, 1971, but not permitted to go into effect by the 90-day freeze, whether such increases had been authorized by agency approval, or by lapse of a suspension period, or other operation of law. In such cases, the increased rates may not take effect until the regulatory agency or other appropriate legal authority has reviewed the increases with regard to their consistency with the purposes of the Economic Stabilization Act of 1970, as amended, and certified that the rate increases or adjusted increases are consistent with such purposes. This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 764, Jan. 18, 1972] [Price Commission Ruling 1972-12] CRITERIA FOR DEFINING WAGE INCREASES AS ALLOWABLE COSTS Facts. On November 18, 1971, Company A, a coal company, agreed to pay a wage increase to its employees of approximately 16 percent per year, includ ing replenishment of a welfare fund. Company A wants to raise its prices to reflect in full this wage increase, on the grounds that the increase is an "allowable cost" within the meaning of Price Commission regulations, § 300.5. Company A is not a prenotification firm. Issue. Is the wage increase which exceeds the general guidelines of 5.5 percent per year granted by Company A an allowable cost within the meaning of Price Commission regulations, § 300.5? Ruling. For a Company which agreed to a general wage increase after the guidelines of 5.5 percent per year for wage increases had been announced on November 8, 1971, increased "allowable costs" for the purpose of justifying a price increase shall not generally include increased wage payments, including fringe benefits, in excess of 5.5 percent per year. This interpretation does not apply to either payments to replenish major deficiencies in a welfare fund which are necessary to protect the pensions of men already retired or to wage increases for workers making less than minimum wage standards of general applicability. Nor does it preclude a company from obtaining an "exception by ruling" as provided by Price Commission regulations, § 300.511, if the company can demonstrate that not counting the increased wage costs in excess of 5.5 percent with respect to its particular situation constitutes a gross inequity. GUIDANCE FOR APPLICATION In complying with this ruling, Company A and other coal companies which are not prenotification firms should adhere to the following principles: 1. Calculation of allowable increases. (a) To reflect the portion of wage increases up to 5.5 percent, coal prices may be increased pursuant to the following calculations: (1) Determine the percentage that the prior level of total labor cost (including welfare and replenishment payments) bore to the average sales price per ton during the period beginning with the last price increase and ending the date of the labor cost increase; (2) multiply that percentage by 5.5 percent; (3) the resulting percentage figure indicates the allowable price increase, exclusive of that allowed under (b), below. (b) The company may also reflect in its price a required 11.8 cents per ton increase in its payment to the welfare fund, calculated as follows: (1) Determine the percentage that the prior level of welfare fund costs (e.g., 40 cents per ton) bore to the sales price per ton; (2) determine the percentage of the prior level of welfare fund payments (e.g., 40 cents per ton) represented by the 11.8 cents per ton increase; (3) multiply the percentage determined under (b) (1) above by that determined under (b) (2); (4) the resulting percentage figure indicates the allowable price increase justified for welfare fund replenishment costs. (c) In making the above calculations, it may be helpful to utilize Price Commission Form PC-1. 2. Effective date. The price increase may take effect the date the allowable cost increases were first incurred. It may be applied to all products as to which the company would customarily have charged an increased price if it had announced a price increase to go into effect on that date. 3. Long-term contracts. With respect to long-term contracts subject to flexible pricing formulas based on costs, the price for each may not be increased over the base price by an amount greater than that calculated under paragraph 1 above. This includes contracts which were executed prior to August 15, 1971. 4. Application to different products, different marketing areas and different classes of customers. The increase may be applied to the freeze period ceiling of the company's different coal products as sold in different marketing areas, or to different classes of customers: Provided, That the increase may not be applied unreasonably disproportionately to different products or classes of customers or different marketing areas. 5. Sales for export. These limitations on the pass-through of increased costs do not apply to sales for export, which are exempt from the Economic Stabilization regulations. 6. Exceptions by ruling. If the application of this ruling to Company A results in a serious hardship or gross inequity, Company A may apply for an "exception by ruling" pursuant to Price Commission regulations § 300.511. Ordinarily, it will be considered a serious hardship or gross inequity for this purpose if the application of this ruling to a long-term contract places the company concerned in a distinctly unfavorable profits position with respect to the contract. This ruling supplements Price Commission Ruling No. 1971-3. This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 764, Jan. 18, 1972] [Price Commission Ruling 1972–13] ALLOWABLE PRICE INCREASES REFLECTING COST INCREASES Facts. A is a manufacturer of product X. From July 16 to August 14, 1971, he incurred costs of $100 per unit in making X. The highest price he charged for X in a substantial number of transactions during that period was $125 per unit. Allowable costs in effect on November 14, 1971 and cost increases incurred after November 14, 1971, reduced to reflect productivity gains, have increased A's cost per unit to $110. Issue. How much may A now charge for product X under the Economic Stabilization Regulations? Ruling. A may now charge $137.50 per unit of X. Section 300.12 of the Economic Stabilization Regulations permits manufacturers to increase prices over the base price only to reflect allowable costs in effect November 13, 1971 and cost increases being incurred after November 13, 1971, reduced to reflect productivity gains, and only to the extent that the price increase does not result in a higher profit margin than that which prevailed during the base period. Since A's allowable costs have increased 10 percent, A is entitled to increase his price by an equivalent 10 percent, or $12.50 per unit, provided that such an increase does not cause A's profit margin to exceed his profit margin during the base period. This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 765, Jan. 18, 1972] [Price Commission Ruling 1972-14] HIGHER FEE UNDER NEW CONTRACT FOR CURRENT TRANSPORTATION SERVICES BY BUS COMPANY Facts. A bus company entered into a binding contract with a school district on August 14, 1971, to provide transportation services to students for an established fee. Services were to begin on September 15, 1971. The new contract provided for a fee higher than that under the preexisting contract and resulted in |