Court Opinion

ID: 4489599
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:01:55.776944+00
Date Added: 2024-06-11T14:54:09.123223
License: Public Domain

Phillies,
dissenting: I am of the opinion that the preponderance of the evidence establishes that the petitioner was engaged primarily in rendering personal service and should be classified as a personal service corporation under section 200. While capital was necessary and was used, its use impresses me as incidental or subordinate to the personal service rendered.
Both the courts and this Board have pointed out that a corporation may be within section 200 though capital is necessary to the transaction of its business. Capital must be a “ material income-producing factor ” if the corporation is to be held to fall outside the personal service classification. The extent to which capital may be used without becoming “ a material income-producing factor ” is not susceptible of precise measurement. Each case must be considered on its own facts. Here the income was $183,000 and $162,000 for the years 1920 and 1921, respectively. The capital actually employed was approximately $100,000 and one-third of this represented credit extended. There can be no question that the services performed were personal in character. Granting a most liberal return on the capital employed, the great bulk of the income must be attributed to some cause other than the use of capital. The majority opinion apparently assigns this to good will. But. in. such a. business as that in *868which the petitioner is engaged, good will can be built up and maintained only by satisfactory personal service. The recognition of such a substantial good will value as to create an abnormality when excluded from invested capital seems to me a recognition of the overwhelming part which personal service played in the production of income.
Upon the record as a whole I am of the opinion that petitioner was engaged in the rendition of a personal service; that the use of capital, while necessary, was incidental to the service rendered and was not a material income-producing factor and that petitioner should be classified as a personal service corporation.