This ruling has been approved by the General Counsel of the Price Commission.

[37 F.R. 1411, Jan. 28, 1972]

[Price Commission Ruling 1972–27] INVESTIGATION OF PROFIT MARGIN

CALCULATION

Facts. While investigating an alleged price violation by X company an Internal Revenue Service Agent has discovered that X has no formal published financial statements. The statements he has been shown have not been audited.

Issue. May the agent look beyond the financial statement to the books and records of the business to verify the business' base period profit margin?

Ruling. Yes. In defining "profit margin" in § 300.5 two requirements are imposed. That is, the profit margin calculation must be in accordance with published financial statements as well as consistent with generally accepted accounting principles. Thus, when an investigating agent has reason to think that the financial statements he has been shown are not in accordance with the second requirement, he may look beyond the statements to verify or establish the true profit margin.

This ruling has been approved by the General Counsel of the Price Commission.

[37 F.R. 1412, Jan. 28, 1972]

[Price Commission Ruling 1972-28] POSTING PHARMACEUTICAL PRICES Facts. X owns and operates a prescription pharmacy in State Y. The laws of State Y prohibit the posting of prescription drug prices and even if it did not, the pharmaceutical association to which X belongs considers it a violation of ethics to post prices.

Issue. Is X a "retailer" under the Price Regulations and so must post his prices? Must he do so if such posting would violate State law?

Ruling. The dispensing of prescription drugs is regarded as a retail transaction and thus would be subject to the requirements of § 300.13 (b) of the Price Commission regulations that base prices be posted before January 2, 1972. The fact that a professional pharmacist may be employed to dispense the drugs is considered incidental to the actual sale. This position is consistent with cases that have held that, although professionals

may be involved in the dispensing of prescription medicine, the person for whom the medicine is prescribed purchases a commodity in interstate commerce. Northern California Pharmaceutical Association v. United States, 306 F. 2d 379 (C.A. 9, 1962), cert. denied, 371 U.S. 862; United States v. Utah Pharmaceutical Association, 201 F. Supp. 29 (D. Utah, 1962), appeal dismissed for lack of jurisdiction, 306 F. 2d 493 (C.A. 10, 1962), aff'd., 371 U.S. 24.

Regulations

The Price Commission were promulgated under the authority of an act of Congress (Economic Stabilization Act of 1970). Consequently, such regulations control when there is a conflict with the State constitution or laws. Under Article VI of the U.S. Constitution (Supremacy Clause) a State statute is subordinated to Federal statutes when there is a conflict between the two. Accordingly, the regulations of the Price Commission which were promulgated pursuant to an act of Congress, prevail over conflicting State law. Florida v. Mellon, 273 U.S. 12, 71 L. Ed. 511, 47 S. Ct. 265 (1926) (Federal revenue act controls when State constitution prohibits imposition of inheritance tax). Therefore, X must comply with the Price Regulations requiring posting of prices despite State laws to the contrary.

This ruling has been approved by the General Counsel of the Price Commission.

[37 F.R. 1412, Jan. 28, 1972]

[Price Commission Ruling 1972-29] REPORTING REQUIREMENTS OF INSTITUTIONAL PROVIDERS OF HEALTH SERVICES

Facts. A profitmaking hospital wishes to increase its prices. The proposed increases are based on allowable costs, reduced to reflect productivity gains, and will not result in an increase in the hospital's base period profit margin. The proposed prices will increase the hospital's aggregate annual revenues by more than 2.5 percent but less than 6 percent over the amount such revenues would have been if the prices previously authorized under the Regulations had been charged.

Issue. Must the hospital obtain the prior approval of the appropriate District Director of Internal Revenue and

medicare intermediary before it can put the proposed price increase into effect?

Ruling. No. Under § 300.18 (c) (1) of the Economic Stabilization Regulations, the hospital must send a copy of its revised price schedule to its Internal Revenue Service District Director accompanied by a statement specifying the price increases, the previous price levels for the services affected, and the increased cost factors that justify the increased prices. Economic Stabilization Regulations 6 CFR 300.18, 36 F.R. 25384 (December 30, 1971). A copy of the revised price schedule must also be sent to the medicare intermediary that services the provider's geographic area. The District Director and the medicare intermediary, however, do not have to give prior approval before a price increase resulting in a 2.5 percent to 6 percent increase in aggregate annual revenues can go into effect.

This ruling has been approved by the General Counsel of the Price Commission.

[37 F.R. 2989, Feb. 10, 1972]

[Price Commission Ruling 1972-30] PHARMACISTS-CLASSIFIED AS RETAILERS

Facts. Mr. A is a professional pharmacist, licensed by the government of his State after completing a prescribed course of study and passing a qualifying examination. Mr. A owns and operates a drug store in the State.

Issue. Are professional pharmacists, such as Mr. A, treated as retailers for the purposes of the posting-of-baseprices requirement of Economic Stabilization Regulations 6 CFR 300.13(b), 36 F.R. 23974 (December 16, 1971) ?

Ruling. Yes, professional pharmacists are regarded as retailers for the purposes of the Economic Stabilization Regulations, including the base prices posting provision. (See, Economic Stabilization Regulations 6 CFR 300.5, 36 F.R. 23974 (December 16, 1971) for the definition of "retailer.") The requirement that pharmacists post base prices is in no way inconsistent with their recognized professional standing, but is considered by the Price Commission to be necessary to achievement of stabilization objectives.

This ruling has been approved by the General Counsel of the Price Commission.

[37 F.R. 2990, Feb. 10, 1972]

[Price Commission Ruling 1972-31] BASE PRICE OF AUTOMOBILES AND ACCESSORIES

Facts. During the freeze base period, an automobile dealer sold a particular model automobile with several "additional cost" accessories for $3,000 in a substantial number of transactions. The dealer's cost was $2,500; the suggested retail or "sticker" price was $3,500 including a breakdown of the accessories. The dealer made no apportionment of the price (either published or disclosed to the customer) between the car and the accessories.

Issue. How does the dealer determine the base price for the car and each accessory?

Ruling. The dealer's percentage markup on the car as a whole (i.e., the difference between his total cost of the car and accessories and the actual sales price (not the sticker price)) used in a substantial number of transactions in the freeze base period should be applied separately to the cost of the car and each accessory. The resulting figure will then be added to each component's cost to determine the base price for each component. Accordingly, the base price for an accessory may vary from car to car. On the other hand, if during the freeze base period a dealer charged a specific price for an accessory in a substantial number of transactions, that price would be the base price.

This ruling has been approved by the General Counsel of the Price Commission.

[37 F.R. 2990, Feb. 10, 1972]

[Price Commission Ruling 1972-32] PRENOTIFICATION REQUIREMENTS

Facts. Corporation A, manufacturer of automobile supplies, having annual revenues of over $100 million, owns a subsidiary corporation that operates a hospital which is an institutional provider of health services within the meaning of 300.18 of the Economic Stabilization Regulations. Economic Stabilization Regulations, 6 CFR 300.18, 36 F.R. 25384 (December 30, 1971). The annual revenues of the hospital do not exceed $4 million. As a result of allowable cost increases the hospital wishes to raise its prices in an amount that will increase its aggregate annual revenues by more than 6 percent over the amount those revenues would have been if the prices

previously authorized by the Price Commission Regulations had been charged.

Issue. Must Corporation A prenotify the Price Commission of the hospital's proposed price increase under section 300.51 of the regulations?

Ruling. No. Generally, for reporting purposes, if a business unit or units are controlled directly or indirectly by another business unit or units, the Price Commission will treat the controlled and controlling units as a single entity. However, § 300.51(j) of the regulations provides that § 300.51 (which generally contains the prenotification requirements) does not apply to, among others, providers of health services covered by § 300.18. Therefore Company A does not have to prenotify the Price Commission of the proposed price increase by its subsidiary, the hospital. The hospital, however, must request an exception from the Price Commission by applying to the local District Director of Internal Revenue because the proposed increase meets the more-than-6 percent of revenues requirement of § 300.18(c) (2).

This ruling has been approved by the General Counsels of the Price Commission and Cost of Living Council.

[37 F.R. 2990, Feb. 10, 1972]

[Price Commission Ruling 1972-33] COVERAGE OF STATE PAYMENTS MADE DIRECTLY TO PERSONS PROVIDING SERVICES FOR WELFARE RECIPIENTS

Facts. In conducting its welfare program, State A makes payments directly to licensed private skilled nursing homes for the care of persons in the homes who are eligible for welfare assistance. The uniform monthly rate for welfare recipients is set by the State legislature following negotiations between the State welfare board and the association representing the participating nursing homes. All of the homes provide 24 hour inpatient health services.

Issue. Is the uniform rate set by the legislature and charged by the private nursing homes for care of welfare recipients a welfare payment, and thus exempt from the Economic Stabilization Regulations?

Ruling. No. The charges made by the skilled nursing homes are priced and controlled by the Economic Stabilization Regulations. A charge made by a person for furnishing housing, goods, services, or other items to a welfare recipient is a

price or rent even though payment is made directly to the person furnishing such items by the State or other agency administering the welfare program. The nursing home rates are subject to § 300.18 of the Economic Stabilization Regulations. Economic Stabilization Regulation, 6 CFR 300.18, 36 F.R. 25384 (December 30, 1971).

This ruling has been approved by the General Counsels of the Price Commission and Cost of Living Council. [37 F.R. 2990, Feb. 10, 1972]

[Price Commission Ruling 1972-34] SIMILAR PRODUCT NOT NEW

Facts. A is manufacturer of product X which crushes trash into small and compact size for easy disposal. On December 1, A began to manufacture product Y, which not only crushes trash like product X, but also deodorizes it by injecting a deodorant spray and then seals the top of the paper container. A has now begun to offer product Y to its customers, and is seeking to establish a "base price" for it under the Economic Stabilization Regulations.

Issue. What is the base price of product Y under the Economic Stabilization Regulations?

Ruling. The base price for product Y is the highest price charged to a specific class of purchasers in a substantial number of transactions involving product X during the freeze base period, under § 300.405 of the regulations, 36 F.R. 23974 (December 16, 1971) or the price of product X on May 25, 1970, whichever is higher.

Product Y does not qualify for treatment as a "new product" under Economic Stabilization Regulation, 6 CFR 300.409, 36 F.R. 23974 (December 16, 1971). Even though A has not offered product Y at any time during the 1-year period immediately preceding his offering date, § 300.409 (b) of the regulation clearly provides that property must be "substantially different from other property * * * in purpose, function, quality, or technology or the use of that property * must effect a substantially different result" in order for it to qualify as new property. On the facts provided product Y performs essentially the same function as that performed by product X, with some additional conveniences which clearly do not "effect a substantially different result." Thus the base price for product Y is determined by

* *

reference to the base price of product X.

Even though the base price of product Y is determined by reference to product X, this does not mean that A cannot offer product Y a higher price than product X. In order to do so, however, he must justify the higher price on the basis of increased costs being incurred in manufacturing product Y, pursuant to Economic Stabilization Regulation, 6 CFR 300.12, 36 F.R. 23974 (December 16, 1971). This ruling has been approved by the General Counsel of the Price Commission.

[37 F.R. 2989, Feb. 10, 1972]

[Price Commission Ruling 1972-35] INSURANCE BROKERS COMMISSIONS

Facts. An insurance company wishes to raise the percentage commission it pays to independent brokers for selling its insurance. Although the brokers have not requested higher commissions nor indicated that their costs have increased, the insurance company believes that higher commissions will encourage greater efforts from the brokers and result in an increase in sales.

Issue. May the insurance company voluntarily pay more commissions without considering whether the brokers would be justified in requesting higher commissions due to increased costs?

Ruling. This situation is to be distinguished from that where the insurance salesmen are employees of the insurance company rather than independent contractors as is the case with brokers. Payments to the brokers are regarded as fees for services and are regulated as prices.

The insurance company must first determine whether the brokers could justify charging an additional amount for their services. By accepting a larger percentage commission the brokers would be put in the position of having to justify a higher "price" for their services. See, Economic Stabilization Regulations, 6 CFR 300.14, 36 F.R. 23974 (December 16, 1971). To the insurance company the result of increasing commissions will be to increase its costs. In the exercise of sound business judgment a company may voluntarily increase its costs of operation, but in the instant case, the insurance company cannot pay higher commissions if the brokers are forbidden to receive them.

This ruling has been approved by the General Counsel of the Price Commission. [37 F.R. 2988, Feb. 10, 1972]

[Price Commission Ruling 1972–36] PROFIT MARGIN COMPUTATION INCLUDES EXEMPT AND NONEXEMPT PRODUCTS

Facts. Prenotification firm has sales of both exempt agricultural products and nonexempt products and makes sales at both the retail and wholesale levels.

Issue. Does the profit margin limitation apply to the total sales and profits per profit and loss statement, or should there be an allocation of income and expenses between exempt and nonexempt sales before application of the limitation?

Ruling. "Profit margin" refers to the ratio that net profits (determined before taxes) bears to gross sales as reported on the person's financial statement prepared in accordance with generally accepted accounting principles consistently applied. (§ 300.5 of the Economic Stabilization Regulations) The net profits and gross sales utilized in the computation of both base period and current period profit margins include profits and sales relating to both exempt and nonexempt products.

This ruling has been approved by the General Counsels of the Price Commission and Cost of Living Council. [37 F.R. 2990, Feb. 10, 1972]

[Price Commission Ruling 1972-37] SERVICE ORGANIZATION NOT A UTILITY SERVICE

Facts. A is a trash hauling company which contracts with retailers and building owners to remove and dispose of trash from stores and residences for a fee. A has several competitors who offer the same service and are competitive as to their fee schedules. A is seeking to increase his rates because of increased costs.

Issue. Is A a "service organization” or a "public utility" within the Economic Stabilization Regulations?

Ruling. A is a "service organization" within the regulations, and its price increases are controlled by § 300.14, 36 F.R. 23974 (December 16, 1971). The removing and disposing of trash for a fee is clearly a "service" as that word is defined in § 300.5 of the Economic Stabilization Regulations, 36 F.R. 23974

(December 16, 1971), and thus A is a "service organization" as that phrase is likewise defined, since it is carrying on the trade or business of performing that service.

A is not a "public utility," as that phrase is defined in § 300.16 of the regulations, 37 F.R. 652 (January 14, 1972). It is clear that, on the above facts, A does not fit any of the categories specifically included in the definition of a "public utility," nor does it fit the more general definition as one who furnishes "utility services" to the public or a recognized segment of the public. As defined in § 300.16, a "utility service" is a commodity or service "affected with a public interest." Since A's trash hauling service is not unique in character, nor provided in essentially noncompetitive circumstances, under the above facts, it is affected with no particular public interest beyond that normally surrounding any other service or commodity. Therefore, A is not a "public utility" and is not governed by § 300.16.

This ruling has been approved by the General Counsel of the Price Commission.

[37 F.R. 2988, Feb. 10, 1972]

[Price Commission Ruling 1972-38] ADMINISTRATIVE APPEAL OF O.E.P. DETERMINATION UNDER PHASE I

Facts. Manufacturer X mailed its new price lists to distributors hours before the Executive order of August 15, 1971, implemented the 90-day freeze. X sought a determination from the Office of Emergency Preparedness that the new price list was in effect prior to the freeze. OEP ruled adversely. The desired price increases are in excess of those allowed by regulation § 300.12.

Issue. May X take an administrative appeal from the OEP ruling?

Ruling. No provision was made under Phase I for administrative appeal. OEP determined that X's new price list was not effective prior to the freeze and X's prices were frozen. X is therefore bound to its old prices as base prices. Unless X can show in a request for an exception that limiting its price increases to those allowed by regulation will result in serious hardship or gross inequity, it is also bound by § 300.12 of the Economic Stabilization Regulations.

This ruling has been approved by the General Counsel of the Price Commission.

[37 F.R. 2989, Feb. 10, 1972]

[Price Commission Ruling 1972-39] DETERMINATIONS UNDER PHASE I

Facts. Landlord raised the yearly fee for use of his apartment house health club facilities shortly prior to the 90-day wage-price freeze. A tenants' association sought a ruling from the Office of Emergency Preparedness that the increase was in violation of the freeze. OEP ruled the increase proper. Tenants' association now reports to the Internal Revenue Service that the landlord's increase violates Phase II.

Issue. Will the Internal Revenue Service make de novo findings or will it be bound by OEP's ruling?

Ruling. To the extent that OEP determined under Phase I, that the material facts supported an increase, the Internal Revenue Service will be bound. Since OEP did not rule on Phase II, any determination of a violation under Phase II will be de novo, except for situations where a Phase I determination will establish a basic fact (e.g. base price) required for a Phase II computation. In addition, parties will not be allowed to take indirect appeals from Phase I or Phase II rulings by alleging violations. Where, however, one party to a transaction is issued a favorable ruling on specific facts and the other party to the transaction alleges a violation or seeks a ruling based on material facts not previously submitted, the second determination will be de novo.

This ruling has been approved by the General Counsel of the Price Commission.

[37 F.R. 2991, Feb. 10, 1972]

[Price Commission Ruling 1972-40]

TERM LIMITED PRICING

Facts. Company A, a price category I manufacturing firm under Economic Stabilization Regulations, 6 CFR 101.11 (c), 37 F.R. 1237 (January 27, 1971), is required to submit a prenotification to the Price Commission of each proposed price adjustment in accordance with its regulations. Economic Stabilization Regulations, 6 CFR 300.5, 36 F.R. 23974 (December 16, 1971), requires Price Commission approval of any price in excess of the base price. Under its Term Lim