Court Opinion

ID: 4600042
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:24:38.367575+00
Date Added: 2024-06-11T07:52:14.419089
License: Public Domain

BELMONT STONE CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Belmont Stone Co. v. CommissionerDocket Nos. 12410, 28531.United States Board of Tax Appeals12 B.T.A. 1159; 1928 BTA LEXIS 3396; July 5, 1928, Promulgated 1928 BTA LEXIS 3396">*3396  1.  Buildings and machinery and equipment valued for depreciation purposes.  2.  The rate used by respondent for exhaustion, wear and tear, approved in the absence of competent evidence that the amount is insufficient.  William Surosky, Esq., for the petitioner.  Maxwell E. McDowell, Esq., for the respondent.  ARUNDELL12 B.T.A. 1159">*1159  The respondent has determined deficiencies of $55.23 and $4,030.10 in income taxes for the years 1922 and 1924, respectively.  The questions at issue are whether the respondent erred in reducing depletion and depreciation claimed as a deduction, $5,530.37 in 1922, and $5,218.61 in 1924.  FINDINGS OF FACT.  The petitioner is a New Jersey corporation with principal offices at North Bergen, N. J.  During the years 1922 and 1924 the petitioner owned the following described plants, consisting of land, buildings, machinery and other equipment, for the quarrying of stone.  From 1922 to 1924 the petitioner had all of the plants under lease.  During the year 1908 the petitioner constructed its North Bergen plant, consisting of a stone-crushing building, a blacksmith shop, an electric light plant and a pumping station, located1928 BTA LEXIS 3396">*3397  on a tract of land of about 16 or 17 acres, at a total cost of about $42,000.  The machinery and equipment installed in the buildings cost $78,000.  With the exception of minor alterations made from time to time, no changes were made in the plant between 1908 and 1913.  During that time some old machinery was replaced by new machinery.  The plant was kept in good repair prior to March 1, 1913.  The petitioner did not crush much stone at the plant prior to 1913 and production did not reach a normal rate until about 1921.  At March 1, 1913, the buildings and machinery and equipment had a fair market value of $85,000.  12 B.T.A. 1159">*1160  In 1915 or 1916 the petitioner purchased its West Nyack plant at a cost of $100,000, of which $10,200 was the cost of the 102 acres of land on which the plant was located and the balance was divided between buildings, and machinery and equipment, in the respective amounts of $15,000 and $74,800.  The plant was operated five or six years prior to its purchase by the petitioner.  In about 1918 the petitioner bought its Alpine plant for $11,500 and during or about 1920 acquired a plant known as "Mt. Ivy" at a cost of $75,000.  The latter plant had about 561928 BTA LEXIS 3396">*3398  acres of land of a value of approximately $100 per acre.  The balance of the purchase price was allocated to buildings and machinery in the amounts of $14,000 and $55,400, respectively.  In 1920 the Mt. Ivy plant was from 12 to 15 years old.  Neither plant is being operated at the present time.  The Suffern plant of the petitioner was purchased January 1, 1924, at a cost of $100,000, of which $7,500 was the cost of the 15 acres of ground at the plant, and of the balance, $15,000 was the cost of the buildings and $77,500 the cost of machinery.  The plant was constucted in about the year 1915.  In its returns for the taxable years the petitioner claimed depletion and depreciation at the composite rate of 10 cents per ton of stone produced at its plants.  In an audit of the returns the respondent allowed depreciation on buildings, machinery and equipment at the rate of 5 per cent per annum on a valuation of $80,000 and depletion at the rate of .482 cents per ton.  OPINION.  ARUNDELL: No evidence was submitted by the petitioner in support of its contention that the respondent erred in computing depletion at the rate of .482 cents per ton, in view of which the determination will1928 BTA LEXIS 3396">*3399  not be disturbed.  The record does not show the basis for the respondent's determination of a value of $80,000, on all the plants for depreciation purposes, but at the hearing his counsel stated that a greater amount was not allowed because of lack of information on the subject.  From all of the evidence submitted by the petitioner, we are convinced that the fair market value of its North Bergen plant at March 1, 1913, was $85,000.  The petitioner did not keep a complete set of books and at the time of the purchase of the other plants, four in number, did not make any allocation of the cost on its books.  We are convinced from the uncontradicted testimony of the petitioner's witnesses that the cost to it of the buildings and machinery and equipment at the West Nyack, Mt. Ivy, and Suffern plants, which were acquired by purchase after March 1, 1913, was not less than the figures set forth in our 12 B.T.A. 1159">*1161  findings of fact.  The evidence before us on the cost of the Alpine plant is confined to the amount paid for the entire property at the time of its purchase in or about 1918.  The petitioner having failed to present any evidence on the cost of the depreciable assets of the plant, 1928 BTA LEXIS 3396">*3400  we are unable to assign any part of the total cost of the property to buildings, machinery and equipment for depreciation purposes.  In its returns for each year the petitioner claimed a deduction for depletion and depreciation at the composite rate of 10 cents per ton of stone produced.  The respondent altered the deduction claimed by allowing a rate of .482 cents per ton for depletion, and allowing a composite rate of 5 per cent per annum as depreciation on buildings, machinery and equipment.  The two witnesses presented by the petitioner testified that in their opinion the buildings and machinery and equipment should be depreciated at composite rates ranging from 10 to 25 per cent.  All of the plants were under lease prior to 1924 and the record does not disclose to what extent the properties were kept in repair, or whether any replacements or other changes were made in the plants after they were acquired.  While it might seem that the equipment of a plant for the production of stone would suffer depreciation at a rate in excess of 5 per cent, the testimony in this case does not warrant an allowance for exhaustion, wear and tear at a rate greater than that allowed by the respondent. 1928 BTA LEXIS 3396">*3401  Depreciation for 1922 should be computed at 5 per cent on a proven March 1, 1913, value and cost of $244,200 and for 1924 on an additional valuation of $92,500 for the Suffern plant.  Judgment will be entered under Rule 50.