BOOTH, Chief Justice.
This is a suit brought by the Bedford Mills, Inc., a New York corporation, to recover an alleged overpayment of income and excess profits taxes paid by plaintiff upon its return filed for the fiscal year ending June 30, 1920. The facts are as follows:
The plaintiff is engaged in the business of converting cotton goods into a finished product which it sells to jobbers a,nd manufacturers. Plaintiff orders from certain cotton mills cotton fabric known to the trade as “gray goods,” and thereafter contracts with other mills for the dyeing, printing, and finishing of the same into desired textures, colors, and patterns for sale to its customers.
The plainti ff, acting under authorized extensions of time for filing its tax return, filed it on November 11, 1920. This return disclosed a tax liability of $244,088.87. Thereafter, on August 24, 1925, the Commissioner' of Internal Revenue revised the invested capital of the plaintiff and reduced its tax liability to $237,695.44, which amount was duly paid in installments.
On September 15, 1925, and again on March 31, 3.928, the plaintiff filed appropriate refund claims seeking a refund of a large portion of the taxes paid as above, the refund claims being filed under the provisions of section 284(g) of the 1926 Revenue Act (44 Stat. 67 [26 USCA § 1065(g)]), plain[268]*268tiff having executed and filed the necessary waivers exacted by the act. Thereafter, on March 25,1929, the Commissioner denied the refund claims, and this suit was brought on November 26, 1929, disposing, we think, of all jurisdictional issues raised by the defendant.
Plaintiff’s tax return, made upon a fiscal year basis, valued its inventory of June 30, 1920, at $621,180.13. This valuation was reached by ascribing to the articles inventoried their cost price. The year 1920 developed a changing condition with respect to the market for cotton goods. Until some time in April, 1920, the market steadily advanced and prices attained their peak. The demand was excessive' and the mills busy. Beginning in the latter part of April, and continuing, the industry suffered a serious and rapid decline in market conditions and values due to the financial troubles in Japan. Plaintiff’s selling market was seriously interrupted, and the demand for its products, as well as price levels, declined very materially, and this condition existed until early in 1921. During this period the market value of the articles inventoried by the plaintiff was much less than cost.
Plaintiff’s refund claim filed March 31, 1928, in so far as pertinent to the issue involved in this case, was predicated: upon an overstatement of its inventory value, brought about by an alleged erroneous pricing of its items in stock, plaintiff contending that under the regulations of the Commissioner then in force it possessed the legal option to value its inventory at “cost or market, whichever is lower,” and that, inasmuch as the proof conclusively establishes that the market price was the lower, plaintiff is entitled to have its tax liability computed upon an inventory value of $253,032.31 instead of the erroneous one of $621,180.13. The commissioner of the court, after hearing all the testimony, fixed the value of plaintiff’s inventory of June 30, 1920, at $341,484.21.
The first sentence of the second paragraph of article 1582, Regulations 45, Valuation of Inventories, provides as follows: “The basis of valuation most commonly used by business concerns and which meets the requirements of the revenue act is (a) cost or (b) cost or market, whichever is lower.”
Article Í584, Regulations 45, Inventories at Market, is in the following language:
“Ait. 1584. Inventories at Market. — Under ordinary circumstances, and for normal goods in an inventory, ‘market’ means the current'bid, price prevailing at the date of the inventory for the particular merchandise in the volume in which usually purchased by the taxpayer, and is applicable in the cases (a) of goods purchased and on hand, and (b) of basic elements of cost (materials, labor and burden) in goods in process of manufacture and in finished goods on hand; exclusive, however, of goods on hand or in process of manufacture for delivery upon firm sales contracts (i. e., those not legally subject to cancellation by either party) at fixed prices entered into before the date of the inventory, which goods must be inventoried at cost. Where no open market exists or where quotations are nominal due to stagnant market conditions, the taxpayer must use such-evidence of a fair market price at the date or dates nearest the inventory as may be available, such as specific purchases or sales by the taxpayer or others in reasonable volume and made in good faith, or compensation paid for cancellation of contracts for purchase commitments. Where the taxpayer in the regular course of business has offered for sale such merchandise at prices lower than the current price as above defined, the inventory may be valued at such prices, less proper allowance for selling expense, and the correctness of such prices will be determined by reference to the actual sales of the taxpayer for a reasonable period before and after the date of the inventory. Prices which vary materially from the actual prices so ascertained will not be accepted as reflecting the market. It is recognized that in the latter part of 1918,'by reason among other things of governmental control not having been relinquished, conditions were ab-nqrmal' and in many commodities there was no such scale of trading as to establish a free market. In such a case) when a market was established during' the succeeding year, a claim may be filed for any loss sustained in accordance with the provisions of section 214 (a) (12) or section 234(a) (14) of the statute. See articles 261-268.”
The case turns upon whether the plaintiff is .to be classified as a trader under (a) of the above regulation, or as a manufacturer under (b). If the plaintiff’s business is of such a character as to bring it within the same category as a trader who purchases finished merchandise for sale, and in the course of his activities maintains a stock of such a character on-his shelves, then its inventory value may be priced at cost or market, whichever is lower. If, on the contrary, the plaintiff’s business-is to be likened to and classified as a manufacturer, one who converts raw materials into a finished product, then under the [269]*269regulations long in force the inventory must he priced at the cost or ma rket value, whichever is lower, of the “basic dements of cost (materials, labor and burden) in goods in. process of manufacture and in finished goods on hand.” The plaintiff not only argues that a trader status is clearly ascribable to it, but insists that under any circumstances it is entitled to value its inventory at cost or market, whichever is lower, on the date of its faking, rather than its reproductive value; that the regulations do not contemplate a “built-up or theoretical market value to a manufacturer as distinguished from a trader.”
To sustain the last contention of the plaintiff would, we think, exact of the court an opinion as to reasonableness and lawfulness of the regulations under which the plaintiff’s tax liability is to be determined. This issue we regard as no longer res integra.
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BOOTH, Chief Justice.
This is a suit brought by the Bedford Mills, Inc., a New York corporation, to recover an alleged overpayment of income and excess profits taxes paid by plaintiff upon its return filed for the fiscal year ending June 30, 1920. The facts are as follows:
The plaintiff is engaged in the business of converting cotton goods into a finished product which it sells to jobbers a,nd manufacturers. Plaintiff orders from certain cotton mills cotton fabric known to the trade as “gray goods,” and thereafter contracts with other mills for the dyeing, printing, and finishing of the same into desired textures, colors, and patterns for sale to its customers.
The plainti ff, acting under authorized extensions of time for filing its tax return, filed it on November 11, 1920. This return disclosed a tax liability of $244,088.87. Thereafter, on August 24, 1925, the Commissioner' of Internal Revenue revised the invested capital of the plaintiff and reduced its tax liability to $237,695.44, which amount was duly paid in installments.
On September 15, 1925, and again on March 31, 3.928, the plaintiff filed appropriate refund claims seeking a refund of a large portion of the taxes paid as above, the refund claims being filed under the provisions of section 284(g) of the 1926 Revenue Act (44 Stat. 67 [26 USCA § 1065(g)]), plain[268]*268tiff having executed and filed the necessary waivers exacted by the act. Thereafter, on March 25,1929, the Commissioner denied the refund claims, and this suit was brought on November 26, 1929, disposing, we think, of all jurisdictional issues raised by the defendant.
Plaintiff’s tax return, made upon a fiscal year basis, valued its inventory of June 30, 1920, at $621,180.13. This valuation was reached by ascribing to the articles inventoried their cost price. The year 1920 developed a changing condition with respect to the market for cotton goods. Until some time in April, 1920, the market steadily advanced and prices attained their peak. The demand was excessive' and the mills busy. Beginning in the latter part of April, and continuing, the industry suffered a serious and rapid decline in market conditions and values due to the financial troubles in Japan. Plaintiff’s selling market was seriously interrupted, and the demand for its products, as well as price levels, declined very materially, and this condition existed until early in 1921. During this period the market value of the articles inventoried by the plaintiff was much less than cost.
Plaintiff’s refund claim filed March 31, 1928, in so far as pertinent to the issue involved in this case, was predicated: upon an overstatement of its inventory value, brought about by an alleged erroneous pricing of its items in stock, plaintiff contending that under the regulations of the Commissioner then in force it possessed the legal option to value its inventory at “cost or market, whichever is lower,” and that, inasmuch as the proof conclusively establishes that the market price was the lower, plaintiff is entitled to have its tax liability computed upon an inventory value of $253,032.31 instead of the erroneous one of $621,180.13. The commissioner of the court, after hearing all the testimony, fixed the value of plaintiff’s inventory of June 30, 1920, at $341,484.21.
The first sentence of the second paragraph of article 1582, Regulations 45, Valuation of Inventories, provides as follows: “The basis of valuation most commonly used by business concerns and which meets the requirements of the revenue act is (a) cost or (b) cost or market, whichever is lower.”
Article Í584, Regulations 45, Inventories at Market, is in the following language:
“Ait. 1584. Inventories at Market. — Under ordinary circumstances, and for normal goods in an inventory, ‘market’ means the current'bid, price prevailing at the date of the inventory for the particular merchandise in the volume in which usually purchased by the taxpayer, and is applicable in the cases (a) of goods purchased and on hand, and (b) of basic elements of cost (materials, labor and burden) in goods in process of manufacture and in finished goods on hand; exclusive, however, of goods on hand or in process of manufacture for delivery upon firm sales contracts (i. e., those not legally subject to cancellation by either party) at fixed prices entered into before the date of the inventory, which goods must be inventoried at cost. Where no open market exists or where quotations are nominal due to stagnant market conditions, the taxpayer must use such-evidence of a fair market price at the date or dates nearest the inventory as may be available, such as specific purchases or sales by the taxpayer or others in reasonable volume and made in good faith, or compensation paid for cancellation of contracts for purchase commitments. Where the taxpayer in the regular course of business has offered for sale such merchandise at prices lower than the current price as above defined, the inventory may be valued at such prices, less proper allowance for selling expense, and the correctness of such prices will be determined by reference to the actual sales of the taxpayer for a reasonable period before and after the date of the inventory. Prices which vary materially from the actual prices so ascertained will not be accepted as reflecting the market. It is recognized that in the latter part of 1918,'by reason among other things of governmental control not having been relinquished, conditions were ab-nqrmal' and in many commodities there was no such scale of trading as to establish a free market. In such a case) when a market was established during' the succeeding year, a claim may be filed for any loss sustained in accordance with the provisions of section 214 (a) (12) or section 234(a) (14) of the statute. See articles 261-268.”
The case turns upon whether the plaintiff is .to be classified as a trader under (a) of the above regulation, or as a manufacturer under (b). If the plaintiff’s business is of such a character as to bring it within the same category as a trader who purchases finished merchandise for sale, and in the course of his activities maintains a stock of such a character on-his shelves, then its inventory value may be priced at cost or market, whichever is lower. If, on the contrary, the plaintiff’s business-is to be likened to and classified as a manufacturer, one who converts raw materials into a finished product, then under the [269]*269regulations long in force the inventory must he priced at the cost or ma rket value, whichever is lower, of the “basic dements of cost (materials, labor and burden) in goods in. process of manufacture and in finished goods on hand.” The plaintiff not only argues that a trader status is clearly ascribable to it, but insists that under any circumstances it is entitled to value its inventory at cost or market, whichever is lower, on the date of its faking, rather than its reproductive value; that the regulations do not contemplate a “built-up or theoretical market value to a manufacturer as distinguished from a trader.”
To sustain the last contention of the plaintiff would, we think, exact of the court an opinion as to reasonableness and lawfulness of the regulations under which the plaintiff’s tax liability is to be determined. This issue we regard as no longer res integra. The use of inventories in ascertaining correct income, the circumstances under which they must be used, the manner of tlieir taking, and the bads of valuation thereof, together with the numerous other details concerned in their preparation, are provided for by the Commissioner in extensive, plain, and lengthy regulations, and the courts have uniformly sustained the regulations. It is, wo think, too late to indulge another academic discussion as to whether they conform “to the best accounting practice in the trade or business and as most clearly reflecting the income.” Riverside Mfg. Co. v. United States, 67 Ct. Cl. 117; Chicago Frog & Switch Co. v. United States, 67 Ct. Cl. 662; United States v. Kemp (C. C. A.) 12 F.(2d) 7; Lucas v. Kansas City Structural Steel Co., 281 U. S. 264, 50 S. Ct. 263, 74 L. Ed. 848.
The plaintiff was what is known in the trade as a “converter of cotton goods.” The plaintiff’s business enterprise undoubtedly required it to convert raw material into a finished product. Asa matter of fact, two processes of manufacture or conversion were essential to bring it into merchantable form, the single source from which it derived income. The finished product was not transferred to plaintiff’s established place of business in Sew York, but shipped direct to its customers from the finishing mills, where it was stored in warehouses of the mills awaiting shipping orders. It is true the plaintiff incurred no factory overhead, and neither owned nor possessed any mills, but this we think a noncssential factor. The meic-handise of the plaintiff was made especially for it, designed by it, and given by it an individual trade character. The plaintiff, and the plaintiff alone, was responsible for the conversion, the manufacture of certain raw material into a finished product, and i,t is conceded that the finished produet and the work and material necessary to produce it, as well as each process employed so to do, were done exclusively for the plaintiff.
The plaintiff cites numerous eases to sustain its position that it is not a manufacturer. We have examined them, and the general principle upon which they rest is, we think, in no sense applicable here. Where one buys an autotruck and changes its form in some particular, assuredly he is not a manufacturer of an autotruck. A brewer importing cork from Spain who applies to it a process of shaping it to meet the needs of the industry is obviously not a manufacturer of corks. As said by the Supreme Court in Anheuser Busch Brewing Association v. United States, 207 U. S. 556, 562, 28 S. Ct. 204, 206, 52 L. Ed. 336:
“Manufacture implies a change, but every change is not manufacture, and yet every change in an article is the result of treatment, labor, and manipulation. But something more is necessary, as set forth and illustrated in Hartranft v. Wiegmann, 121 U. S. 609, 7 S. Ct. 1240, 30 L. Ed. 1012. There must be transformation; a new and different article must emerge, ‘having a distinctive name, character, or use.’ ”
The plaintiff maintained no mercantile establishment, in the sense used in the Commissioner’s regulations as applicable to a trader; i. e., one who buys and sells a finished product or products. The plaintiff’s activities apparently embraced the “transformation” of raw material into a different article “having a distinctive name, character, or use,” and, while its business is not fraught with all the incidents of a manufacturer, there is nothing in the way of valuing its inventory in compliance with the regulations relating to manufacturers. There are many manufacturers who do- not themselves make all the elements that go into their finished products, but have them made by others. The test, as we view it, is not confined altogether to the manner of conversion, but rather to-the fact that one manufactures an article of (listmet identity by converting or transforming raw materials into an article which the maker uses as a source of income and profit.
If A conceives the possibility of applying to gray goods a finishing process which will convert the rough, unfinished gray g-oods into an article of commerce different from ordinary gray goods, and, in virtue of such an [270]*270idea a new form of textile is placed upon the market, it seems to us that A is as much a manufacturer under the tax law as if he himself periormed the physical labor of creating the. product. It is true, generally speaking, we would say B and C, whose combined efforts produced the finished product, are the manufacturers, but we are dealing with the proper and prescribed basis for ascertaining the value of the product for federal tax purposes under regulations of the Commissioner of Internal Revenue which have been approved and upheld by the courts. The court must under the facts classify the .taxpayer, and if from them it appears that the taxpayer produces the article which he sells, we cannot escape the conclusion that he falls within (b) of article 1584, Regulations 45.
The taxpayer having failed to establish facts sufficient to compute his tax liability under the regulations, the petition will have to be dismissed. It is so ordered.