Opinion
Docket No. 20533.
1950-09-22
H. O. BOEHME, INCORPORATED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Hugh C. Bickford, Esq., for the petitioner. Rigmor Carlsen, Esq., for the respondent.
Held, since all of the factors necessary to a determination of the amount of the credit on petitioner's franchise tax provided by applicable New York law based on its 1943 net income became known within its tax year 1944 and not prior thereto, and since it kept its books on an accrual basis, the amount of such credit was includible in its taxable income for 1944. Also held, that since all of the factors necessary to a determination of the credit or refund of New York franchise tax based on its 1944 net income became known in the year 1945 and not prior thereto, the amount of such credit or refund was properly accruable in the tax year 1945. Hugh C. Bickford, Esq., for the petitioner. Rigmor Carlsen, Esq., for the respondent.
The respondent determined a deficiency in petitioner's excess profits tax for the calendar year 1945 in the amount of $3,666.53. Petitioner claims an overpayment of $13,318.37. The only question before us is whether a credit or refunds of New York State franchise taxes, which resulted from renegotiation of part of petitioner's 1943 and 1944 income by the Federal renegotiation officials, should be included in its income for the year 1944 or 1945.
FINDINGS OF FACT.
Part of the facts are stipulated and are so found.
Petitioner is a corporation organized under the laws of the State of New York. The returns for the period here involved were filed on a calendar year basis with the collector of internal revenue for the second district of New York.
During the years involved in this proceeding, the petitioner was engaged in manufacturing mechanical and electrical equipment in the State of New York. It kept its books and prepared its income and excess profits tax returns on an accrual basis.
On March 31, 1944, the State of New York amended its franchise tax on corporations doing business in that state to provide that a franchise tax should be paid based upon a percentage of income earned within each fiscal or calendar year. Section 2 of Chapter 415, Laws of 1944, enacted and effective March 31, 1944. This statute provided that the tax should be levied
For the privilege of exercising its franchise or doing business in this State in a corporate or organized capacity for all or any part of the period beginning November first, nineteen hundred forty-four, and extending through any subsequent part of its first fiscal or calendar year ending after said date, * * *. Section 209.2.
If a corporation was doing business under this act on November 1, 1944, it became liable for an excise tax
* * * upon the basis of its entire net income, or upon such other basis as may be applicable, for each and every fiscal or calendar year or part thereof begun not earlier than August first, nineteen hundred forty-two, and ending not later than October thirty-first, nineteen hundred forty-five, during which such corporation was exercising its franchise or doing business in this State * * *. Section 209.2, supra.
The New York statute also provided, as to corporations upon a calendar year basis, that ‘such tax shall be deemed a single tax for such privilege period but shall be computed separately with respect to each such fiscal or calendar year or part thereof on a report which shall be filed on or before the fifteenth day of May next succeeding the close of each such year * * *. ‘ (Section 209.2, supra.) Separate forms were provided by the state for the calendar years 1943 and 1944.
Chapter 510, sections 1 to 3, Laws of 1944, of the State of New York enacted and effective April 1, 1944, further amended the statute. It provided as follows:
SEC. 1. In determining the net income or entire net income of a taxpayer under any article of the tax law for any period before or after the enactment of this act, no deduction shall be allowed for, or account taken of, any excessive profits which the taxpayer may have repaid or may repay, or which may have been or may be eliminated, pursuant to any renegotiation of a war contract or subcontract or the profits therefrom, under any law of the United States authorizing such renegotiation or otherwise, except to the extent that the amount of such excessive profits has been or shall be finally determined during the period on the basis of which such net income or entire net income is required to be so determined.
SEC. 2. A credit shall be allowed, without interest, against the tax (1) imposed by any article of the tax law upon any taxpayer, any war contract or subcontract of which or whom, or the profits therefrom, have been or shall be so renegotiated; and (2) computed on the basis of the income or capital for the period in which such excessive profits were or shall be finally determined. Such credit shall be in an amount equal to the excess of any tax imposed on the taxpayer by such article of the tax law and computed on the basis of the taxpayer's renegotiable net income or renegotiable entire net income, as the case may be, for the period under renegotiation over the amount of any tax for any period as an adjustment or otherwise taken into consideration on such renegotiation in determining the amount of such excessive profits, but such credit shall not in any case exceed either (1) the loss, if any, which the taxpayer establishes to the satisfaction of the tax commission that the taxpayer has sustained by reason of such excess of such tax not having been so allowed or otherwise taken into consideration, or (2) an amount equal to the tax imposed by such article of the tax law and computed on the basis of any such excessive profits for which a deduction is not allowed as provided in section one of this act, or the portion thereof allocated within the state.
SEC. 3. If the amount of any credit allowable under the preceding section exceeds the amount of tax under any article of the tax law against which such credit is allowable, a credit in an amount equal to such excess shall be allowed, without interest, against any tax imposed on the taxpayer by such article of the tax law for any subsequent year or years, or against any tax imposed by subdivision three of section two hundred nine of the tax law on the taxpayer or by section two hundred fourteen-a of the tax law on any corporation which shall have acquired or shall acquire the major portion of the actively employed assets or the franchises of the taxpayer.
In 1945 the State of New York again amended that statute by chapter 162, Laws of 1945, to provide that the reduction of franchise tax due to renegotiation of income, should be credited or refunded instead of only being credited. This act also provided:
SEC. 3. The amendments made by this Act shall apply to taxes for any year or period and to any renegotiation, whether before or after the enactment of this Act.
The amendment was made effective as of April 1, 1944.
The petitioner filed a franchise tax return with the State of New York for the year 1943, which return was due to be filed May 15, 1944. The tax thereon was due one-half on filing and one-half on November 15, 1944. Petitioner also filed a franchise tax return for the year 1944 which was due to be filed on May 15, 1945, and the tax was due one-half at the time of filing and one-half not later than January 15, 1946.
The petitioner's franchise taxes for such years were as follows:
+--------------------------------------------------------+ ¦Based on 1943 net income before renegotiation¦$20,024.86¦ +---------------------------------------------+----------¦ ¦Based on 1944 net income before renegotiation¦16,362.91 ¦ +--------------------------------------------------------+
On August 18, 1944, petitioner executed a renegotiation agreement with the Price Adjustment Board of the Signal Corps, agreeing to a determination of excessive profits on its war contracts in the amount of $226,673 for the year 1943. No dispute existed with the New York State tax authorities on or after August 18, 1944, as to petitioner's net income for the year 1943.
In its Federal income and excess profits tax returns for the taxable year 1944, petitioner claimed deductions for New York franchise taxes as follows:
+-----------------------------------------------------------------------------+ ¦For franchise tax based on 1943 net income ¦$19,943.16¦ +------------------------------------------------------------------+----------¦ ¦For franchise tax based on 1944 net income after giving effect to ¦ ¦ ¦a ¦ ¦ +------------------------------------------------------------------+----------¦ ¦credit on account of renegotiation for the year 1943 in net amount¦3,500.00 ¦ ¦of ¦ ¦ +-----------------------------------------------------------------------------+
The first amount was paid during the year 1944 and the second amount was set up as an accrual on petitioner's books in 1944.
Upon examination of petitioner's 1944 returns, the deductions for New York State franchise taxes were increased and allowed by respondent in the following amounts:
+--------------------------------------------------------+ ¦Based on 1943 net income before renegotiation¦$20,024.86¦ +---------------------------------------------+----------¦ ¦Based on 1944 net income before renegotiation¦16,362.91 ¦ +---------------------------------------------+----------¦ ¦Total ¦36,387.77 ¦ +--------------------------------------------------------+
The petitioner, on May 17, 1945, applied for refund of New York State franchise taxes which previously had been levied and paid on the basis of 1943 net income before renegotiation. As a result the petitioner, on October 1, 1945, received a refund of such franchise taxes in the amount of $13,600.38, which was subsequently reported as taxable income in its returns for the year 1945. That amount is included in the income reflected in the notice of deficiency.
On October 17, 1945, the petitioner executed an agreement with the Price Adjustment Board of the Signal Corps agreeing to a determination of excessive profits on its war contracts for the year 1944 in the amount of $118,017. No dispute existed with the New York State taxing authorities on and after October 17, 1945, as to petitioner's net income for the year 1944.
On February 28, 1946, the petitioner applied for refund of New York State franchise taxes which previously had been levied and paid on the basis of its 1944 net income before renegotiation. As a result the petitioner in 1946 received a net refund of such franchise taxes in the amount of $6,265. This refund of $6,265 was not included as taxable income by petitioner in its return for the year 1946 but in Schedule M of that return, petitioner referred to this refund as a taxable income for 1944 stating the estimated net amount of such refund after related Federal tax, namely, $4,575.02.
In the statement attached to the notice of deficiency respondent stated as follows with respect to the deficiency involved:
(a) It is held that the refundable amount of New York State franchise tax resulting from renegotiation proceedings for prior years which is accruable as income in the year 1945 is $19,878.55 instead of $13,613.55 as reflected in your return. Accordingly, the difference of $6,265.00 has been added herein.
OPINION.
HILL, Judge:
The question for decision is more easily stated with a background of certain basic facts, which are outlined in some detail in our findings.
In 1945 petitioner received a refund of New York franchise taxes in the amount of $13,600.38. Such refunds was based upon a New York statute enacted in 1945 which provided that where the war contracts of a taxpayer were renegotiated and excessive profits determined the franchise tax of such taxpayer was to be computed by allowing a deduction for the amount of excessive profits repaid by the taxpayer in determining its entire net income for the year or period affected by renegotiation. The amount of overpayment of franchise taxes was then to be allowed as a credit or refunded to the taxpayer. The amount above was refunded as a result of the renegotiation in 1944 of certain of petitioner's 1943 income which accordingly reduced its net profit for 1943. Under a New York statute enacted in 1944, petitioner was entitled to a credit only instead of a credit or refund of any overpayments of franchise taxes as a result of renegotiation of contracts as above stated. In 1946 petitioner received an additional net refund of franchise taxes in the amount of $6,265. That refund came about through the renegotiation in 1945 of certain of petitioner's profits for its year 1944.
The sole question in this proceeding is whether the refunds as above indicated should be included in petitioner's income for 1945, as respondent contends, or in its income for 1944, as petitioner contends. Petitioner argues, in the alternative, that if the completion of renegotiation was an event necessary to the determination of the amount of credit or refund of franchise taxes, then the amount of credit based on its 1943 income was determinable in 1944 and such credit was properly accruable in that year. Under that position petitioner concedes that the refund of franchise taxes based upon renegotiation of its year 1944 and which it received in 1946 is includible in its income for 1945, as the respondent contends.
The respondent maintains that:
As the New York statutes were worded, petitioner was not entitled to consider its franchise tax for 1943 as a separate unit to be credited against the 1944 franchise tax. The 1943 tax became merged with that of 1944 as a single unit. Petitioner's argument, therefore, that as to the 1943 excise tax, every fact had occurred by the end of 1944 which determined the amount and fixed petitioner's right to receive it, fails to take into consideration the very language of the statutes themselves which created the credit right which petitioner claims.
He cites as authority Burnet v. Sanford & Brooks, Co., 282 U.S. 359: and Security Flour Mills Co. v. Commissioner, 321 U.S. 281. We do not agree either with respondent's interpretation of the New York statute or that the amount of $13,600.38 is includible in petitioner's income for 1945.
It is now well established that if at the close of the taxable year an accrual basis taxpayer has all of the basic data or facts from which he may within reasonable limits determine an amount which he has a fixed right to receive, such amount is accruable. Continental Tie & Lumber C. v. United States, 286 U.S. 290; United States v. Anderson, 269 U.S. 422; Security Flour Mills Co. v. Commissioner, supra; Uncasville Mfg. Co. v. Commissioner, 55 Fed. (2d) 893; ACF-Brill Motors Co., 14 T.C. 263.
This is true whether the amount in question is a credit to be applied in abatement of taxes owed for any year or a refund. See Hurd Millwork Corporation, 44 B.T.A. 786.
Our immediate question, then, is whether or not there were present at the end of 1944 those factors requisite for a determination of the credit provided by the New York law as it read in 1944. We believe the facts show that they were.
Petitioner's year 1943 was renegotiated and a final agreement with respect thereto was executed on August 18, 1944. By the end of 1944, therefore, it knew its 1943 net income after renegotiation. By a New York law, which is described in our findings, if the income of any taxpayer for any period should be renegotiated by the United States a credit was to be allowed. In the circumstances of this case, under the applicable New York Statute, such credit here was to be allowed as an abatement of petitioner's 1944 franchise tax. (Chapter 510, Laws of 1944, sections 1 to 3.) It is thus apparent that by the end of 1944 petitioner knew all of the factors necessary to a determination of its credit based on its 1943 net income after renegotiation. It follows that the amount of $13,600.38 was properly accruable in petitioner's taxable year 1944. See Taylor Instrument Cos., 14 T.C. 388.
With respect to the amount of $6,265, however, all of the elements necessary to ascertain the amount of credit were not known at the end of 1944. One very vital factor, the final determination of excessive profits on its war contracts, was missing. Petitioner agreed to the determination of excessive profits on its war contracts on October 17, 1945. By virtue of this agreement all of the factors necessary to a determination of the petitioner's credit or refund of its New York franchise tax based upon its 1944 net income after renegotiation became known in its tax year 1945 and not prior thereto. We accordingly hold that the amount of $6,265 is properly accruable in petitioner's taxable year 1945.
Decision will be entered under Rule 50.