The opinion of the court was delivered by: LEAVY
The above-entitled cause came on regularly for trial on the 1st day of May, 1947, before the above-entitled Court, and the Court having signed and entered an order on the pre-trial hearing and witnesses having been sworn and having testified, exhibits introduced in evidence, oral argument by counsel, and the Court having rendered an oral opinion and the Court being fully advised, now makes the following:
I. At all times herein mentioned, plaintiff, E. Royce, was, and still is, a resident of Portland, Multnomah County, Oregon; plaintiff, B. Royce, was, and still is, a resident of Vancouver, Clark County, Washington, and plaintiff, A. H. Wenck, was, and still is, a resident of Seattle, King County, Washington, and plaintiffs were, and still are, engaged in the business of transporting passengers in motor vehicles, under the firm name and style of 'Gray Line Tours', having its principal place of business in Seattle, Washington.
II. At all times herein mentioned, defendant was, and now is, United States Collector of Internal Revenue for the District of Washington, stationed at Tacoma, Washington.
III. Jurisdiction of the within cause rests upon the Internal Revenue Code of the United States, Section 3469, as amended by the Revenue Act of 1943, Sec. 302, Subdivision (a), 26 U.S.C.A.Int.Rev.Code, §§ 3469, 1650, and the provisions of Section 322.
IV. Plaintiffs, on February 28, 1942, filed with the defendant delinquent returns on tax for transportation of persons for the months of October, November and December, 1941, and timely returns for the period January 1, 1942, through September 30, 1944, and paid the sums as taxes, penalties and interest in the amount of $ 16,423.51.
V. On the 30th day of November, 1944, plaintiffs filed and lodged with the defendant herein a claim on proper form in such cases provided for the refund of said $ 16,423.51, together with interest as provided by law.
VI. On the 19th day of June, 1945, the Commissioner of Internal Revenue rejected said claim for refund.
VII. Plaintiffs and their predecessor corporation have engaged in such business since April, 1934. Their principal activity in the field of local transportation since May 1, 1941, has consisted of transportation of persons. Plaintiffs' predecessor corporation, about that time, entered into a written contract or agreement, dated May 7, 1941, with the United Air Lines Transport Corporation to provide transportation service for passengers of said United Air Lines to and from the airport at Boeing Field, Seattle, Washington. Oral agreements or similar arrangements were later made with the Northwest Airlines and Pan-American World Airways. There were no subsequent or other written agreements between the plaintiffs and the airlines, and the transportation service has continued to be operated in substantially the same manner during all the period involved.
VIII. Plaintiffs' limousine fleet until January 6, 1945, consisted of five seven-passenger limousines. On that date an eleven-passenger limousine was added to the fleet, and it has been operated in the same manner as the seven-passenger limousines. Plaintiffs operated five other seven-passenger limousines for their funeral service and also a twenty-passenger bus was used in charter service to the air lines for out-of-town service only. No taxes for transportation on the eleven-passenger limousine, the limousines when used for funeral service nor the twenty-passenger bus are involved in this action. If needed, however, the cars used for funeral service were operated on the air line service and taxi cabs were hired to handle the overflow on the air line service.
IX. Four of the limousines customarily used in the regular air-line service were painted gray and one was painted black. On most limousines during most of the period involved, there were placed painted detachable emblems of the air line companies which were twelve inches square or round and were placed on the right front door of the limousines. These were changed on the particular limousine used showing the particular air line whose passengers were being transported to or from a scheduled air-line flight. For sometime, signs have been painted on the limousines, rectangular in shape, bearing the words 'Air Line Service' and underneath in smaller letters the words 'Gray Line Tours'.
X. The air line companies did not sell or issue tickets in connection with flight passage that were good for transportation to or from airports in the plaintiffs' limousines; however, they published schedules of fares of the limousine service.
XI. Air line passengers, when purchasing ticket for a scheduled flight, were asked by employees of the air lines whether they desired limousine service or whether they would use their own transportation. In cases where air line passengers desired such limousine service they were advised of the places of departure of passengers which were usually the offices of the air line companies, the Olympic Hotel, the New Washington Hotel and/or one or more hotels designated at the time. They were also advised of the time of the departure of the limousines from those places, which was approximately one hour prior to the air line flight. Also, approximately an hour before the plane was scheduled to leave the airport, the air line office would notify the plaintiffs' dispatcher when the flight was leaving, names of the passengers who were scheduled to use the limousine service and the places from which they were scheduled to depart. Prior to the arrival of an incoming flight, the air lines would notify the plaintiffs' dispatcher of the time of the plane's arrival. The plaintiffs would then send a limousine to the airport to transport any passengers desiring limousine service to the said metropolitan area. In case of emergency, adverse weather conditions of when Boeing Field was unavailable, plaintiffs would dispatch a bus or limousine to or from other fields, and such service was billed to the air line, the tax liability on which transportation is not herein involved.
XII. No air line passengers were picked up in the down town district, except at points designated by the air lines and pursuant to a telephone call from the air lines. The said down town district was considered by the plaintiffs and the air lines to be that area in the City of Seattle bounded on the North by Lenora Street, on the East by Ninth Avenue, on the South by Boeing Field, and on the West by the waterfront of Puget Sound. The plaintiffs' drivers were instructed to follow the most direct route between Boeing Field and the said down town district, but they were free to, and did, select the streets over which they travelled, and they usually used Southwest Fourth Avenue or Airport Way when going to and from Boeing Field, as the trip over either street is of equal distance, but in cases of traffic congestion or when streets were ...