Court Opinion

ID: 4479629
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:13:47.085382+00
Date Added: 2024-06-11T14:52:50.318811
License: Public Domain

Hile, J., dissenting: My disagreement has to do only with the second question in the case. The correct answer to the second question considered in the majority report depends on the proper application of the accrual system of accounting in respect to the capital stock tax for each of the capital stock tax taxable years ended June 30, 1939, 1940 and 1941. The capital stock tax for each such year is determined by applying tlie statutory rate of tax to the adjusted declared value as of the end of the income tax taxable year next preceding the end of the then current capital stock tax year. The capital stock tax is accruable when the obligation therefor arises and such obligation arises immediately upon the beginning of a capital stock tax taxable year. The obligation thus arising is for the whole of the capital stock tax for the current capital stock year ending June 30 next following. The capital stock tax is due on or before 30 days after the end of the capital stock tax year. Within such 30 day period a return thereof is required to be made in which the taxpayer sets forth the adjusted declared value as a basis for computing the capital stock tax for such capital stock tax year. The amount of the tax which was accruable within the capital stock tax year is thus definitely determined. To a taxpayer on the accrual system an obligation must he accrued when it becomes accruable. The obligation for the capital stock tax does not arise piecemeal or by installments. There is no warrant, therefore, within the purview of the taxing statutes, to divide the amount of the obligation for accruals at successive, postponed periods. Hence, it is my view that the capital stock tax of petitioner for each of the capital stock tax years involved accrued at the beginning of such tax year to the extent of the amount of the obligation dependent upon the tax rate obtaining at the beginning of each such year. On June 25,1940 the capital stock tax rate was increased by ten cents. The tax obligation because of such increase in the rate was, therefore, accruable and therefore accrued on such date and not prior thereto. Sinoe petitioner’s income tax taxable year is the calendar year, the deductions for income tax purposes of the capital stock tax must be taken in the income tax taxable year in which the capital stock tax accrued. The income tax years here involved are 1939 and 1940, hence, deductions are allowable for the entire capital stock tax for the taxable years ended June 30,1940 and 1941. The obvious result of petitioner’s allocation of accruals of the capital stock tax in respect of the income tax years involved was to afford an opportunity to so adjust such allocations as to produce a tax benefit from deductions thereof which would not obtain in the absence of such allocation. If the allocation of the tax obligation for accrual purposes had been of twelve equal parts the opportunity for the tax benefit above indicated would have been minimized but probably not entirely eliminated. The facts show that for the capital stock tax year ended June 30, 1939, the tax was $27,878, of which $16,063.89 was accrued to the first half and $11,814.11 was accrued to the second half of such year. The capital stock tax for the year ended June 30, 1940 was $33,509.30, of which $14,500 was accrued to the first half and $19,009.30 was accrued to the second half of such year. For the capital stock tax year ended June 30,1941, the tax was $125,000, of which $18,000 was accrued to the first half and $107,000 was accrued to the second half of such year. Applicable to the capital stock tax year last mentioned a new declaration of value was made which was greatly in excess of the adjusted declared value of the previous year. Such increased value was declared to minimize a declared value excess profits tax on the greatly increased profits realized by petitioner in the calendar year 1941. It appears, therefore, that in respect to the capital stock tax year ended June 30, 1941 petitioner adjusted the allocation of accruals as between the periods falling in different income tax taxable years to a large extent on a consideration of the relative amounts of its profits in such years and the correlative importance of allocating deductions. It is certainly not clear that the allowance of deductions for income tax purposes in accordance with such allocation was not a distortion of income. While it is my opinion that there is no legal justification for any allocation of the capital stock tax to separate periods within the capital stock tax years, yet if such allocation is to be permitted it must be allocated evenly throughout any such year.