higher profit margin for the bus company than it had in prior years. The bus company had no other school transportation contracts. Issue. May the bus company charge the higher fee under the new contract for its current transportation services? Ruling. The bus company may charge the higher fee for current transportation services. The bus company is a service organization and therefore may increase its prices over the base price only to reflect increased allowable costs, under § 300.14 of the Economic Stabilization Regulations. The "base price" with respect to sales of services is the highest price charged by the person to a specific class of purchasers in a substantial number of transactions involving that service during the "freeze base period", under § 300.405 (a) of the Economic Stabilization Regulations. In this case, the "freeze base period" means the period beginning July 16, 1971, and ending August 14, 1971, under § 300.5 of the Economic Stabilization Regulations. Since the new contract for services was signed prior to August 15, 1971, it was a "transaction" as defined in § 300.5 of the Economic Stabilization Regulations. Since this was the only transaction during that period with school districts, a "specific class of purchasers", it was clearly a "substantial number of transactions", and therefore establishes the new contract price as the base price. This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 765, Jan. 18, 1972] [Price Commission Ruling 1972-15] PRENOTIFICATION FIRM Facts. Company A, a prenotification firm, manufactures a product from a raw agricultural product exempt from price controls under Economic Stabilization Regulations § 101.32 (a). Company A has customarily priced its product in a manner immediately responsive to the frequent and customary market price fluctuations of the raw agricultural product from which it makes its product. Under Economic Stabilization Regulations § 300.51(f), when, and to the extent authorized by the Price Commission, Company A may increase the price of its product to the extent of any significant market price increase in the price of the raw agricultural product. Issue. May Company A increase the price of its product under Economic Stabilization Regulations § 300.51(f) only dollar-for-dollar? Ruling. Yes. Under Economic Stabilization Regulations § 300.51(f), a prenotification firm that has customarily priced an item in a manner immediately responsive to frequent and customary market price fluctuations of the raw materials which it uses in that item, may, when and to the extent authorized by the Price Commission, increase the price of that item to the extent of any significant market price increase of those raw materials without regard to paragraphs (a) through (d) of Economic Stabilization Regulations § 300.51. Price increases authorized by Economic Stabilization Regulations § 300.51 (f) are limited to dollar-for-dollar increases. Prenotification firms may not add to the increased cost of the raw material, their usual margins or markups. This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 765, Jan. 18, 1972] [Price Commission Ruling 1972-16] INSURANCE ON GOODS IN TRANSIT Facts. Retailer R secures insurance on goods in transit which have been shipped to it by a supplier. Issue. Can Retailer R include the cost of this insurance in its "transportation charges to be allocated merchandise?" to the Ruling. Section 300.5 of the Economic Stabilization Regulations defines customary initial percentage markup to include "The markup applied to the cost (purchase price actually paid by the selling person and transportation charges to be allocated to the merchandise) ** *" The phrase "transportation charges to be allocated to the merchandise" includes all transportation charges, i.e. all direct or indirect costs incurred in the transportation of merchandise, provided that such transportation charges were considered as a part of the cost of the merchandise to which the previous customary initial percentage markup was applied. The previous customary initial markup is the markup applied to the merchandise when it was initially offered for sale during the period beginning on August 15, 1971, and ending on November 13, 1971, or at the retailer's option during its last fiscal year ending before August 15, 1971. Section 300.13(a)(1) of the Economic Stabilization Regulations. Insurance charges on goods in transit are considered an indirect cost incurred in the transportation of merchandise. Therefore, if Retailer R. had applied its previous customary initial percentage markup to a cost of merchandise which included allocated insurance charges on goods in transit it can now apply the same customary initial percentage markup to a cost which includes such charges. This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 765, Jan. 18, 1972] [Price Commission Ruling 1972-17] CUSTOMARY INITIAL PERCENTAGE MARKUP Facts. Retailer R purchases 50 units of product X for $1 per unit on an f.o.b. destination shipping basis and terms of 2 percent 10 days net 30. The retailer pays for product X within 10 days and takes advantage of the cash discount of 2 percent. Retailer R also purchases 50 units of product Y for $1 per unit on an f.o.b. shipping point of origin basis and terms of net 30 days. The freight charges on item Y paid by the retailer to his common carrier totaled $8. Issue. To what amount may retailer R apply his customary initial percentage markup in determining his allowable selling price? Ruling. Section 300.5 of the Economic Stabilization Regulations defines "customary initial percentage markup" to mean, "The markup applied to the cost (purchase price actually paid by the selling person and transportation charges to be allocated to the merchandise) of merchandise when first offered for sale, determined on an item, product line, department, store or other pricing unit basis, according to the person's customary pricing practice." The retailer may therefore apply his customary initial percentage markup to 98 cents for product X ($1 minus 2 percent of $1) and to $1.16 for product Y ($1 plus 16 cents transportation allocated to each unit). If a retailer or wholesaler operates his own transportation department, rather than using public transportation, the cost of that department related to incoming merchandise may be allocated to the cost of that merchandise if the allocation is done in accordance with generally accepted accounting principles consistently applied. This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 766, Jan. 18, 1972] [Price Commission Ruling 1972-18] INCREASE OF PRICE TO COMPLY WITH STATE'S FAIR TRADE LAW Facts. A is a retailer in a "fair trade law" State who customarily sells product X at the "fair trade" price. The manufacturer of product X instituted price increases in June 1971 and the "fair trade" price increases became effective in July 1971. A mistakenly neglected to increase his price on product X during July and August. On August 15, 1971, Executive Order 11615 stabilized prices, and A was unable to comply with the fair trade law because to do so would violate the provisions of that Executive order. Issue. May A now increase his price on product X to comply with his State's fair trade law under the Economic Stabilization Regulations? Ruling. A may now increase his prices to the extent that price increases are allowed under the Economic Stabilization Regulations. Article VI of the U.S. Constitution (the "Supremacy Clause") and court decisions thereunder subordinate State statutes to conflicting Federal statutes. The Economic Stabilization Regulations, promulgated by the Cost of Living Council, Price Commission and Pay Board under the authority of Executive Order 11627, which was in turn issued under the authority of the Economic Stabilization Act of 1970, therefore override any State laws with which they conflict. Thus A may increase his prices only to the extent allowed by the Economic Stabilization Regulations. On the facts given, the manufacturer instituted price increases prior to the freeze. If that price increase caused A's customary initial percentage markup on product X to be less than his customary initial percentage markup during its last fiscal year ending before August 15, 1971, A may now increase his selling price in accordance with Economic Stabilization Regulations § 300.13(a): Provided, That A will not thereby increase its profit margin over that which prevailed during the base period, and also provided that A has complied with the posting requirement of § 300.13(b). To the extent that State laws are not inconsistent with the Economic Stabilization Regulations, they should control A's pricing policies. This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 766, Jan. 18, 1972] [Price Commission Ruling 1972-19] PROPERTY TAXES Facts. Company A is a manufacturer. Among the expenses it charges against its sales in computing its yearly profit margin are the overhead expenses of its factory building. One of those expenses is the property tax imposed on the factory building. The property tax rate has recently been increased. Issue. Are property taxes on the factory building allowable costs for purposes of determining whether Company A can increase its prices? on Ruling. A manufacturer may charge a price in excess of the base price only to reflect allowable costs in effect November 14, 1971, and cost increases incurred after November 14, 1971, reduced to reflect productivity gains: Provided, however, That the effect of all of a manufacturer's price changes is not to increase its profit margin as a percentage of sales, before income taxes, over that which prevailed during the base period. As defined in § 300.5, "allowable costs" means any cost, direct or indirect unless disallowed by the Price Commission. As defined in § 300.5, "profit margin" means the ratio that net profit bears to gross sales as reported on the person's published financial statement and in accordance with generally accepted accounting principles consistently applied. For purposes of determining net profits, extraordinary items and taxes on income shall not be taken into account. Since property tax expenses are an indirect cost which has not been disallowed by the Price Commission, they are allowable costs within the definition provided by the Regulations. Moreover, property taxes must be included in the profit margin computations in order to consistently apply generally accepted accounting principles. Therefore, property taxes on the factory building are allowable costs for purposes of determining whether Company A can increase its prices. This ruling has been approved by the General Counsel of the Price Commission. [37 FR. 766, Jan. 18, 1972] [Price Commission Ruling 1972-20] INCREASED PRICES ON CERTAIN PRODUCTS Facts. Company A as a manufacturer with annual sales exceeding $100 million. It submitted a prenotification form requesting approval to increase its prices on certain products, and the Price Commission approved the increases effective as of December 3, 1971. On December 3, the company has in its inventory a supply of the items upon which the price increase has been approved; another supply of the same items is in the hands of other companies who distribute the products. Company A also has a longterm contract to supply the same items to Company B which it entered into prior to December 3. Issue. To which items may Company A apply the approved price increase? Ruling. A seller may charge the increased price on all products upon which it customarily would have applied an increased price if it had announced a price increase to go into effect on the date it received approval for a price increase from the Price Commission, provided that in no case may the increased price be applied to products in the possession of a potential purchaser, regardless of who is the legal owner of such products on the approval date. A long-term contract is as subject to the rules and regulations issued by the Price Commission, the Economic Stabilization Act of 1970, as amended, as is any other price-setting transaction. Therefore, Company A may increase its prices as to the items it is holding in its own inventory and the items to be delivered under the long-term contract provided that the terms of the contract allow such increases. This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 767, Jan. 18, 1972] [Price Commission Ruling 1972-21] SELLING PRICES OVER BASE PRICES Facts. Company A is a retailing firm which does not intend to increase any of its selling prices over the base prices. Issue. Must Company A comply with the base prices posting requirement of the Economic Stabilization Regulations even if it does not intend to increase prices over the base prices? Ruling. Yes. Economic Stabilization Regulations § 300.13(b) provides that, before January 2, 1972, all retailers, including those which do not intend to increase prices, must display prominently in their places of sale, base prices with respect to (1) All nonexempt food products; and, (2) those 40 items in each department which had the highest dollar sales volume during their last fiscal year, or those items which accounted for at least 50 percent of their total dollar sales in each department during that fiscal year, whichever is less. For a retailer with sales of less than $100,000 in its last fiscal year, those 40 items which had the largest dollar sales volume during that fiscal year, or those items which accounted for at least 50 percent of its total sales during that year, whichever is less, must be posted before January 2, 1972. This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 767, Jan. 18, 1972] [Price Commission Ruling 1972-22] CUSTOMARY INITIAL PERCENTAGE MARKUP Facts. Retailer R purchases 50 units of product X for $1 per unit, FOB destination, net 30 days, from an importer of that merchandise who is required to pay customs duties and an import surcharge to the Federal Government. The $1 invoice price per unit includes 25 cents per unit for these charges. Issue. May retailer R apply his customary initial percentage markup to the full $1 price per unit of product X? 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 customs duties, surcharges and excise taxes levied by the Federal 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 apply his customary initial markup to such items whether he pays the duty, surcharge or excise tax to another person or to the Federal Government. This ruling has been approved by the Generaly Counsel of the Price Commission. [37 F.R. 767, Jan. 18, 1972] [Price Commission Ruling 1972-23] SALES OF CERTAIN PROCESSED LIVESTOCK FEED Facts. Company A is a miller engaged in the business of processing wheat, a raw agricultural product. This milling process yields approximately 74 percent flour and 26 percent millfeed. Millfeed is used as a feed for livestock and is sold at prices which historically have been lower in warmer months when livestock is able to feed on pasture and higher in colder, months when pasture becomes unavailable. Flour prices in general reflect the cost Company A must pay for wheat. In calculating flour prices, the milling industry, including Company A, traditionally treats revenues from millfeed sales as a credit against the cost of wheat. The anticipated future sales volume of millfeed is treated as a deduction from the cost of wheat and the flour price is based on the net wheat cost. Issue. May Company A continue to price and account for millfeed as it has in the past? Ruling. Yes. Because of these unique circumstances, a manufacturer producing flour or other products by the milling of wheat or a similar resource may sell the resulting byproduct, millfeed or other livestock feed, at such prices as are from time to time obtainable in the market place, provided that in determining "allowable costs" incurred in the manufacture of flour, for the purposes of § 300.12 of the Economic Stabilization Regulations, the manufacturer of flour shall deduct from the cost of the wheat the anticipated sales price to be received from the sale of the millfeed. This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 1411, Jan. 28, 1972] [Price Commission Ruling 1972-24] CERTAIN REVOLVING CREDIT PROGRAMS AS NEW SERVICES Facts. Company A, a retail clothing merchant, currently makes credit sales under a program in which the buyer is billed in full for the merchandise within 30 days of the sale and the bill is payable in full upon receipt. There are no carrying charges. Company A wishes to institute a revolving charge plan under which the customer would be required to make monthly payments of 10 percent of the unpaid balance due on his account or $20 (whichever is smaller) plus a monthly carrying charge. The company would also retain the old credit practice for customers who still desire that procedure. Issue. Is the revolving charge plan a new service within § 300.409 of the Economic Stabilization Regulations? Ruling. The revolving credit plan effects a substantially different result from the previous credit program offered by Company A and therefore it is a new service. Company A may charge a carrying charge equal to the average price charged by persons offering comparable services in the same marketing area. Section 300.409 (c) (2) of the Economic Stabilization Regulations. The portion of the carrying charge that is interest is not subject to the regulations of the Price Commission because it is not a price or rent. The Company, however, will be expected to comply with the interest guidelines published by the President's Committee on Interest and Dividends. This ruling has been approved by the General Counsel of the Price Commission and the Cost of Living Council. [37 F.R. 1411, Jan. 28, 1972] [Price Commission Ruling 1972-25] PROMINENT DISPLAY OF BASE PRICE Facts. Company A is a retail grocer with sales of over $200,000 per year. Due to increased wholesale costs of a number of items, Company A wishes to increase its prices after January 2, 1972. Company A has posted several large signs in its store stating that the base prices of all of its food products are available in the manager's office. Issue. Has Company A satisfied the base price posting requirements of § 300.13 (b) of the Economic Stabilization regulations? Ruling. Before Company A may make its proposed price increases, it must prominently display in its place of sale the base prices with respect to all of its nonexempt food products. Section 300.13 (a) and (b) of the Economic Stabilization regulations. A sign merely directing the customer to a list maintained in the manager's office (or other office) is not a "prominent display" of base prices. To meet the requirement of "prominent display" the grocer must present the base prices on the selling floor to the public in such a way that the food prices are readily accessible and can be understood by a person of average intelligence. For example, the base prices may be shown in a price book or other publication placed at such locations on the selling floor that any member of the public can conveniently refer to the publication without having to request to see it. Product identification information must be available in or with the publication so that a person can identify the item of merchandise at the point of sale and find the price of that item in the publication without undue difficulty. Signs must be available in each department indicating the location of the base price list for food and food-related items. If a retailer wishes to present base prices to the public in a different manner which is similarly accessible, convenient, and understandable he may do so. For example, the retailer may display base prices side by side with the actual selling price at the point of sale. Or the retailer may display the base prices on a bulletin board or sign near the point of sale. This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 1411, Jan. 28, 1972] [Price Commission Ruling 1972-26] POSTING BASE PRICES- Facts. X, a new car dealer desires to comply with the price regulations and post his prices under Economic Stabilization Regulations § 300.13(b). He plans to post the "sticker price" of cars sold during the base period. Issue. Is X correct in posting the "sticker price" rather than the price at which he actually sold new cars during the base period? Ruling. No, X must post his actual sale prices. Depending on his pricing policies these may or may not be the "sticker price". Section 1232 of title 15, U.S.C. requires auto manufacturers to affix to the windshield or window of each automobile a label containing the suggested retail price for the automobile and its accessories and requires this label to remain affixed until the automobile has reached the ultimate purchaser. This price is what is commonly referred to as the "sticker price." The actual price for a new automobile may be considerably less than the "sticker price" and may vary from dealer to dealer. |