Court Opinion

ID: 4478269
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:12:58.720485+00
Date Added: 2024-06-11T14:53:30.262584
License: Public Domain

OppeR, /., dissenting: /. The written contracts between the parties are not set forth in the findings. I find it impossible to make any analysis of the present problem without them. They are sufficiently similar so that the operative portion of a single agreement will suffice: Whereas, the party of the second part is the sole and rightful owner of a certain parcel of land located in * * * And Whereas, the above described property contains certain materials considered suitable for road building purposes. Now Therefore, for the consideration hereinafter stated, the said party of the second part grants permission to the party of the first part to enter upon the above described property and to remove therefrom material to be used in the construction of said Highway. For the material removed, party of the first part agrees to pay party of the second part the sum of Five cents (05$) per cubic yard. The quantity of material removed shall be determined by Engineers of the New York State Highway Dept, of Public Works and their measurements and quantities shall be accepted as correct and final by both parties to this agreement. Party of the second part agrees to provide free right-of-way to the party of the first part to and from above described property to Bear town Road. On all of the facts, including the contracts, this proceeding is indistinguishable from Crowell Land, & Mineral Corporation, 25 T. C. 223, revd. (C. A. 5) 242 F. 2d 864, and Arthur S. Barker, 24 T. C. 1160, revd. (C. A. 2) 250 F. 2d 195, except as it may be more favorable to respondent. Although disclaiming any intention to do so, the appellate courts in their reversals laid strong emphasis on the language of the agreements, referring to the parties as vendor and vendee, and to the transaction itself as a sale. Nothing like that is possible here. In no respect is this case stronger for the taxpayer. Here, as in the Crowell and Barker cases, the price was fixed at a rate per unit removed. No requirement existed that a specified quantity be taken or that a time limit be set. Here, as in both of the other cases, title would pass only on severance and material not ultimately removed would remain the property of the owner of the land. And the fact that the land wpuld supposedly not be usable upon completion of the operation does not distinguish it from the Crowell case, where the court said (p. 867): “It [the material] was all removed and the area covered with water, rendering it useless.” It seems to me inescapable that those decisions in the Tax Court should either be followed or overruled. 11. It may with deference be suggested that the conclusions on appeal in Crowell and Barker were erroneous. Cf. William Louis Albritton, 24 T. C. 903, affd. (C. A. 5) 248 F. 2d 49; Otis A. Kittle, 21 T. C. 79, affirmed per curiam (C. A. 9) 229 F. 2d 313. Ever since such early cases as Von Baumbach v. Sargent Land Co., 242 U. S. 503, comparable arrangements have been construed as mineral leases and the proceeds as taxable accordingly. The payments “are ‘the compensation which the occupier pays the landlord for that species of occupation which the contract between them allows.’ Lord Dennison, in Queen v. Westbrook, 10 Q. B. 178, 205.” Von Baumbach v. Sargent Land Co., supra at 518. The same case (p. 517) refers to— the rule established by the great weight of authority that such leases do not constitute a sale of any part of the land, and, further, that iron or other materials derived from the usual operation of open mines or quarries, constitute the rents and profits of the land, and belong to the tenant for life or years, and to the mortgagor after sale on foreclosure, * * * In that and similar cases— [i]t was argued that since the net result of the mining operation is a conversion of capital investment as upon a sale, the money received by the * * * lessor, being its capital in a changed form, could not rightly he deemed to be income. But that argument was rejected, * * * with respect to payments made by the lessee to the corporate lessor under the provisions of a mining lease. Von Baumbach v. Sargent Land Co., 242 U. S. 503, 521, 522; United States v. Biwabik Mining Co., 247 U. S. 116. Although these eases arose under the Act of 1909, before the enactment of the capital gains provision in the 1921 Act, they established, for purposes of defining “income” in a tax measured by it, that payments by lessees to lessors under mining leases were not a conversion of capital, as upon a sale of capital assets, but were income to the lessor, like payments of rent. * * * [Burnet v. Harmel, 287 U. S. 103, 107, 108.] In Crowell Land & Mineral Corporation, supra (p. 225), we said: It is idle to suggest that these transactions do not somewhat resemble sales, just as a lease of real property has aspects of the day-by-day conveyance of the property to the tenant. As each cubic yard of sand or each ton of coal or metal ore is removed and the owner is paid for that much of the mineral, the transfer is indeed in many ways comparable to the sale of a capital asset. This is so whether the arrangement calls for so much a yard or a ton, Bankers’ Pocahontas Coal Co. v. Burnet, 287 U. S. 308, Otis A. Kittle, 21 T. C. 79, or a varying amount depending upon retail price, 'William Louis Albritton, 24 T. C. 903, net profit, Burton-Sutton Oil Co. v. Commissioner, supra, or the like. The continuous deterioration of other property compensated for by depreciation has also been likened to a series of fractional sales. United States v. Ludey, 274 U. S. 295. That detail of income tax accounting has not sufficed to transform an item accountable for as ordinary income into capital gain. The recovery of capital by depletion in the case of minerals is comparable to the process of deducting for depreciation. United States v. Ludey, supra; Choate v. Commissioner, 324 U. S. 1. And by the same token when, under a mineral lease, the property is removed bit by bit and the consideration for it is paid over a number of years, the impelling reason for conferring upon a taxpayer the benefit of capital gains treatment tends to disappear. He does not receive in one year, subject to high surtax rates, the proceeds of an asset which may actually represent the accumulation of increments in value over a long period. See H. Rept. No. 350, 67th Cong., 1st Sess. (1921), p. 10; S. Rept. No. 275, 67th Cong., 1st Sess. (1921), p. 12. * * * In Otis A. Kittle, supra, which involved iron ore, we said (pp. 88, 89) : As was said by the court in Burnet v. Harmel, supra: “the payments made by the lessee are consideration for the right which he acquires to enter upon and use the land for the purpose of exploiting it, as well as for the ownership of the oil and gas; * * *” III. It may well be, however, that a better course would have been to bow to the reversals in the Orowell and Barker cases and withdraw from the position taken here in those decisions, if we would only say so. To state at this time that we are unable to distinguish the Orowell and Barker cases, but that because of the reversals the Tax Court decisions will no longer be followed, would be a respectable position. Some of the less, obvious infirmities of Arthur L. Lawrence, 27 T. C. 713, are perhaps illustrated here. Cf. 8 J. of Taxation 228 (1958); 7. J. of Taxation 172 (1957) ; 9 Stanford L. Eev. 827 (1957) ; 7 Duke L. J. 45 (1957); 70 Harv. L. Eev. 1313 (1957); 57 Col. L. Eev. 717 (1957); 43 A. B. A. J. 945 (1957). This proceeding would go on appeal to the same circuit that reversed the Barker case. There are not adequate distinctions from that case to make it likely that an opposite result here would be affirmed. But we have said that we would not overturn a prior decision merely because a reversing circuit will again be the forum for appeal. Arthur L. Lawrence, supra. And so, rather than accept the fact that our own precedents are vulnerable, we grasp the shadow of a totally untenable attempt to establish a distinction. It seems to me that, if we are going to follow the reversing circuit, we should say so; and more important, that the integrity of the judicial process requires that taxpayers and the tax bar be rescued from such bewildering uncertainty as must now continue to exist in this area.