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      Toilet Paper in Tax Law: 1929
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The Great Toilet Paper Case or A Case of Toilet Paper?

Toilet Paper in Tax Law:

A 1929 Case Study

Background: This case was forwarded to me by a Law Professor who specializes in tax law. The fact that a British tax teacher that he had worked with had told him about it, leads us to suspect that it is a pretty significant precedent in British tax law.

Aside from the significance to a museum such as this, it offers some insights into business and tax practices of its day. Consider that Andrew Rutledge made his living in 1920 as a money lender, running a cinema (I'd have to assume silent films) and any other business opportunities that arose. While toilet paper was first produced on rolls in 1871, it didn't become "popular" until the 1900s. As you read this case, you might wonder how life would be different if the court hadn't decided that Andrew's purchase of a million rolls of toilet paper was an adventure. I also wonder what movie was featured at his cinema at the time of this transaction.

                           14 Tax Cas 490, (1929) Sc 379
                            HEARING-DATES: 8 MARCH 1929
                                    8 MARCH 1929
(490) Income Tax, Schedule D - Excess Profits Duty - Trade - Adventure in the nature of trade - Isolated transaction.

The Appellant was a money-lender who was also in 1920 interested in a cinema company. He had since that time been interested in various businesses. Being in Berlin in 1920 on business connected with the cinema company, he was offered an opportunity of purchasing very cheaply a large quantity of paper. He effected the purchase and, within a short time after his return to this country, sold the whole consignment to one person at a considerable profit.

Held, that the profits in question were liable to assessment to Income Tax, Schedule D, and to Excess Profits Duty as being profits of an adventure in the nature of trade.

CASE. At a meeting of the Commissioners for the general purposes of the Income Tax Acts for the Lower Ward of the county of Lanark, held at Glasgow on the 7th day of February, 1926, Andrew Henderson Rutledge (hereinafter referred to as the Appellant) appealed against an additional first assessment to Income Tax on the sum of L11,000 for the year ended 5th April, 1921, made upon him -under Schedule n of the Income Tax Acts in respect of profits made by him in speculation in toilet paper, and an assessment to Excess Profits Duty for the two months ended September, 1920, on the sum of L10,857.

    I. The following facts were admitted or proved: -
  1. The Appellant had occasion, while acting as a director of Messrs. Mitchells Pictures, Limited, to visit Belgium accompanied by another director, regarding certain advertising rights on the Belgian State Railways.
  2. They proceeded afterwards to Berlin for the purpose of purchasing raw film on behalf of the Company. All transportation expenses to the Belgian frontier were borne by the Belgian State Railways.
  3. while the Appellant was staying in Berlin his guide put him into touch with a man interested in finding money for German firms, and through him he made a deal with a bankrupt firm of paper manufacturers to purchase one million rolls of toilet paper for L1,000 sterling.
  4. He paid L100 deposit and arranged for the paper to be sent in four lots of a quarter million rolls each every two weeks, commencing September, 1920.
  5. On his return to London he made efforts to find customers for the paper and got into touch with a merchant, who offered him 3d. per roll delivered at a London dock.
  6. The first consignment was then due, and the Appellant accepted the offer for the whole consignment, and gave up the bill of lading in exchange for L 500 stg. The Appellant remitted this money to Germany on 14th September, 1920. About two weeks later he delivered the second bill of lading in exchange for L 5,000 sterling, and on 29th September remitted a further L500 sterling to Germany.
  7. when the third consignment arrived the Appellant received L 6,500 sterling in full settlement, after allowing the purchaser L 500, as the purchaser had paid all clearance charges.
  8. The nett profit made by the Appellant on the transaction was approximately L 10,895, as shown in the following statement of profits: -
     Cost of paper                    Ll, 000
                Commission paid to party giving
                introduction to German firm          100
                Petty expenses, cables, etc.           5
                Total outlays                         L 1,105
                Proceeds of sale                   L12,500
                Less Allowance for freight charges by 
                purchaser                                   500
                Net proceeds                        L12,000
    	    Net profit                           L10,895
  9. Appellant is a moneylender, and his business interests at September, 1920, were as follows: -
  10. The Appellant's business interests since 1920 have been as follows: -
  11. Parties were agreed and submitted to the Commissioners that if, in their opinion, the Appellant was liable, the amount of profits chargeable to Income Tax should be reduced to L 4,381 and that the Excess Profits Duty assessment should be confirmed.
II. Mr. John Mcconnell, CA., Glasgow, appeared for the Appellant and contended. -
  1. That the profit made was a capital accretion and outside the words "profits or gains" as used in the Income Tax Acts. Ryall v. Hoare, [1923] 2 K.B. 447; 129 L.T. 505; 8 T.C. 521
  2. That this profit was a profit of an isolated transaction by way of purchase and resale at a profit, and not within the ambit of the trade of the Appellant and was not assessable to Income Tax. Commissioners of Inland Revenue V. Livingston and Others, 1927 S.C. 251; 11 T.C. 538
  3. That his case was distinguishable from Beynon V. Ogg (1918) 7 T.C. 125; as in that case the buying and selling was clearly part of the Appellants' trade, and that could not be said in the present case.
  4. That the case of Martin V. Lowry, [1927] A.C. 312; 11 T.C. 297; was not a parallel case for the Appellant set up a business organisation to dispose of the linen, while the Appellant in the present case did not employ a staff, did no advertising and had not the elaborate machinery that was a feature in Martin's case
  5. That the Appellant, as a moneylender, did not finance trade or individuals in the sense in which banks advance money.
  6. That the assessment should be discharged as the profits were not made in trading
III. H.M. Inspector of Taxes, Mr. H. Edwards, on behalf of the Crown, contended: -
  1. That the Income Tax assessment was correctly made under Case I or, alternatively, under Case VI, Schedule D, of the Income Tax Act, 1918.
  2. That the expression "trade" included "every trade, manufacture, adventure or concern in the nature of trade" (Sec. 237 of the Income Tax Act, 1918).
  3. That the profit was made in the carrying out of an adventure. Liverpool & London & a,p; Globe Insurance Company V. Bennet, [19133 A.C. 610; 6 T.C. 327. C]
  4. That if this paper deal was found not to be a trade, he claimed that it was still a profit assessable under Case VI, Schedule D. Lyons v. Cowcher, 10 T.C. 438
  5. That it was immaterial that the deal was an isolated one. Beynon v. Ogg, 7 T.C. 125.
  6. That Section 39 of the Finance (No. 2) Act, 1915, gave a wide definition of "trade" in regard to Excess profits Duty.

IV. The Commissioners, on consideration of the facts and arguments submitted to them, were of opinion that the profits made were liable to assessment to Income Tax and Excess profits Duty as being profits of a concern in the nature of trade, and they accordingly reduced the amount of the profits chargeable to Income Tax to the sum of L 4,381, and confirmed the Excess profits Duty assessment.

V. Whereupon the Appellant declared his dissatisfaction with the determination of the Commissioners as being erroneous in point of law, and having duly required the Commissioners to state and sign a case for the opinion of the Court of Session as the Court of Exchequer in Scotland, this case is stated and signed accordingly.

VI. The question of law for the opinion of the Court is whether in the circumstances narrated the Appellant is assessable to Income Tax and Excess profits Duty.


Dated this 29th day of November, 1928.

Mr. J. C. Fenton, K.C., and Mr. J. F. Strachan appeared as Counsel for the Appellant and the Solicitor-General (Mr. A. M. MacRobert, K.C.) and Mr. A. N. Skelton for the Crown

PANEL. The Lord president and Lords Sands, Blackburn and Morison

JUDGMENTBY-l: The Lord president (Clyde)

The Lord president (Clyde) . This is an appeal against an assessment to Income Tax and also an assessment to Excess profits Duty on certain profits arising or accruing to the Appellant in the following circumstances. The Appellant is a business man with many interests; he lends money, he is connected with the film business, and he deals in real property. He happened to be in Berlin in connection with one of these interests a few years ago, and while there had the opportunity of making a purchase of a very large quantity of toilet paper from a bankrupt German firm for L 1,000. He had the paper sent over to this country and endeavoured to market it. He ultimately found a purchaser for the whole quantity at the price of L 12,000. He has now been assessed to Income Tax and Excess Profits Duty on the profit of about L 11,000 which thus arose or accrued to him.

The question in the case is whether the profits thus assessed are, or are not, profits of an "adventure ... in the nature of trade" within the meaning of Section 237 of the Income Tax Act, 1918 (8 & 9 Gec. V, C. 40}

An adventure it certainly was; for the Appellant made himself liable for the purchase of this vast quantity of toilet paper obviously for no other conceivable purpose than that of re-selling it at a profit; and that is just what he did. The element of adventure accordingly entered into the purchase from the first. It has been said, not without justice, that mere intention is not enough to invest a transaction with the character of trade. But, on the question whether the Appellant entered into an adventure or speculation, the circumstances of the purchase, and also the purchaser's abject or intention in making it, do enter, and that directly, into the solution of the question. An adventure, then, the Appellant's speculation certainly was, and a most successful adventure.

The question remains whether the adventure was one "in the nature of trade." The Appellant's contention is that it could not be such, because it is essential to the idea of trade that there should be a continuous series of trading operations; and an observation made in the course of my opinion in Inland Revenue V. Livingston, 1927 S.C. 251, at p. 255, was founded on, according to which nl a single transaction falls as far short of constituting a dealer's trade, as the appearance of a single swallow does of making a summer. The trade of a dealer necessarily consists of a course of dealing, either actually engaged in or at any rate contemplated and intended to continue." But the question here is not whether the Appellant's isolated speculation in toilet paper was a trade, but whether it was an 11adventure . . . in the nature of trade"; and in the opinion refered to I said that, in my opinion, "the profits of an (497} isolated venture . . . may be taxable under Schedule fl provided the venture is in the nature of trade'" I see no reason to alter that opinion. It is no doubt true that the question whether a particular adventure is "in the nature of trade" or not must depend on its character and circumstances, but if - as in the present case - the purchase is made for no purpose except that of re-sale at a profit, there seems little difficulty in arriving at the conclusion that the deal was "in the nature of trade," though it may be wholly insufficient to constitute by itself a trade. It is not difficult, on the other hand, to imagine circumstances in which the question might become very narrow; and in Inland Revenue v. Livingston I instanced such a case which it may be worth while to expound. Suppose the Appellant on the occasion of his visit to flerlin had seen a picture for sale which he admired and which he thought likely to appreciate in value in the course of years; he might buy it - and might be conclusively influenced to buy it - because of an anticipated rise in its value. After using it to embellish his own house for a time, he might sell it if the anticipated appreciation in value ultimately realised itself. In such a case, I pointed out that it might be impossible to affirm that the purchase and sale constituted an "adventure ... in the nature of trade," although, again, the crisis of judgment might turn on the particular circumstances. ni 11 T.C. 538, at p. 542.

Reverting to the facts of the present case, it seems to me to be quite plain (1) that the Appellant, in buying the large stock of toilet paper, entered upon a commercial adventure or speculation; (2) that this adventure or speculation was carried through in exactly the same way as any regular trader or dealer would carry through any of the adventures or speculations in which it is his regular business to engage; and therefore (3) that the purchase and re-sale of the toilet paper was an "adventure . . . in the nature of trade" within the meaning of the Income Tax Act, 1918. If that is right the appeal cannot succeed.

JUDGMENTBY-2: Lord sands

JUDGMENT-2: Lord sands. I agree. It appears that the Appellant, who carried on more than one kind of business as favourable opportunities offered, happening to be at Berlin on some other business, found it was possible to buy a large quantity of toilet paper at what was apparently a cut-throat price on account of financial or other business embarrassments at that time in Berlin. He made a large purchase and brought the toilet paper to this country and effected a sale at a profit. The nature and quantity of the subject dealt with exclude the suggestion that it could have been disposed of otherwise than as a trade transaction. Neither the purchaser nor any purchaser from him was likely to require such a quantity for his private use. Accordingly, it appears to me quite a reasonable view for the Commissioners to have taken that this transaction was in the nature of trade. From beginning to end the intention was (498} simply to buy and to re-sell. Your Lordship in the Chair has indicated that there may be cases of purchase and re-sale at a profit where the transaction cannot be said to be in the nature of trade. In particular, this may be the case where there is no definite intention of re-selling when the purchase is made. But I do not think that we can regard what was done here as other than an "adventure .. in the nature of trade" within the meaning of the Act. Accordingly, I agree that we should affirm the finding of the Commissioners.


{498} Lord Blackburn. I concur and I have nothing to add.

JUDGMENTBY-4: Lord Morison

JUDGMENT-4: Lord Morison. I also concur. I wish to add that I think it is possible to figure circumstances in which there would be no tax on the profits of an individual sale. In the circumstances of the present case I am quite satisfied that the transaction set forth in the case, both in origin and in intention, was a trading adventure of the Appellant's, and that he was liable to tax on the


The Lord President (Clyde)

JUDGMENT-5: The Lord president (Clyde) . We shall answer the question in the affirmative

Mr. Skelton. I ask your Lordship for expenses.

The Lord President (Clyde) . Expenses.
Messrs. Cowan & Stewart, w.s.; the Solicitor of Inland Revenue, Edinburgh.

Suttle unrolls toilet paper tax - March 23, 2011 - According to the Omaha World-Herald, "Mayor Jim Suttle went to Washington Tuesday flush with ideas for how federal officials could help cities like Omaha pay for multibillion-dollar sewer projects. Among the items on his brainstorming list: a proposal for a 10-cent federal tax on every roll of toilet paper you buy. ..."

The Associated Press published a brief toilet paper tax item concerning Mary Bach who filed suit in Monroeville, PA against KMart in October 2007. She claimed that they illegally charged her sales tax twice by collecting 7% on her $3.99 purchases. She won her case of $100 plus court costs! All for an overpayment of 56 cents. KMart had offered to settle out of court beforehand, but she did not want to sign a gag order which would have been part of that settlement. You can find the right law firm for your case online now. Los Angeles Personal Injury Attorney has a team that can assist you in getting the proper compensation for your case.

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