Court Opinion

ID: 4625143
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:56:38.98965+00
Date Added: 2024-06-11T07:56:39.047315
License: Public Domain

RIO ELECTRIC CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Rio Elec. Co. v. CommissionerDocket No. 12756.United States Board of Tax Appeals9 B.T.A. 1332; 1928 BTA LEXIS 4250; January 16, 1928, Promulgated *4250  The petitioner, an electric light and power company, entered into a contract with the residents of a rural community which provided for the construction of transmission lines to serve such residents, the cost of construction to be borne by such residents.  After the construction of such lines should be completed the contract provided that electric light and power should be furnished such residents at rates to be fixed by a state commission having jurisdiction thereof.  Held, that the amount paid to the petitioner by such rural residents for the construction of such lines was not taxable as income to the petitioner.  D. V. W. Beckwith, Esq., for the petitioner.  W. F. Wattles, Esq., for the respondent.  PHILLIPS *1332  The Commissioner determined a deficiency in income tax for the calendar year 1921 of $2,945.09.  The petitioner filed its petition with the Board for a redetermination of such deficiency.  FINDINGS OF FACT.  The taxpayer was incorporated under the laws of the State of Wisconsin in April, 1920, and had its principal place of business in the village of Rio, Columbia County, Wis.  It filed its income and excess-profits-tax return*4251  for the calendar year 1921 with the collector of internal revenue for the district of Wisconsin.  The taxpayer, in the year 1921, was a public utility engaged in the manufacture, transportation, and sale of electric light and power, under the jurisdiction and control of the Railroad Commission of the State of Wisconsin, in the village of Rio and the townships of Hampden and Otsego.  The taxpayer was required to furnish all applicants within the territory it supplies to the capacity of its facilities at just and reasonable rates, which rates were supervised and set by the Railroad Commission of the State of Wisconsin.  The taxpayer was under no obligation to extend its service into a municipality it had not entered and into which it had assumed no franchise obligations.  *1333  In the fall of 1920 certain residents in a rural community adjacent to the village of Rio, the municipality then served by the taxpayer, requested the taxpayer to construct transmission lines for the purpose of transmitting electric light and power to the different residents in their townships of Hampden and Otsego.  Following those requests, and on or about the 12th day of October, 1920, the taxpayer*4252  entered into a contract with 29 parties residing in the townships of Hampden and Otsego adjacent to the village of Rio, which contract read as follows: The Rio Electric Co. of Rio, Wisconsin, party of the first part, hereby agrees with the undersigned residents of the town State of Wisconsin, party of the second part to construct a primary electrical distribution line at 6600 volts along the public highways of the above mentioned town, and passing residences, farms, or business places of the said parties of the second part.  Said party of the first part further agrees to furnish to parties of the second part electrical energy for the purpose of heat, light and power, at its prevailing rural rates, as determined and approved by the Railroad Commission of the State of Wisconsin.  * * * In consideration of the above, parties of the second part each agree to pay to party of the first part their pro rata share of the total cost of said primary line.  Said cost of primary line shall not exceed the sum of $1,250.00 per mile.  The payments of the above pro rata shares are to be made by each party of the second part to party of the first part as follows: 75% is to be paid in three equal*4253  monthly payments, first payment thirty days after the execution of this agreement, and balance within thirty days after the line is completed.  Parties of the second part further agree to pay to party of the first part the actual cost of making the connections from the primary line to the meters including the transformers and their protective equipment.  Each of the parties of the second part will make payment for the actual cost of his own connection within ten days after the completition of the connection.  Party of the first part further agrees that should any party or parties not parties to this agreement desire service from this primary line at a future date, service shall be given to such new parties only upon payment of the sum equal to that paid by the original subscribers hereto.  Such sum is to be equally distributed by party of the first part among the then subscribers along this primary line.  It is understood that ownership for all the equipment of this electrical system, up to and including the meters shall be in and remain in the party of the first part.  Said party of the first part hereby agrees to use all reasonable care and diligence to maintain said equipment*4254  safe and in first class operating condition, to carry adequate insurance for liability arising from this system, and to assume the payment of all taxes levied against this system.  * * * The line provided for by the agreement of October 12, 1920, was completed and connections to the different residences and farms of the parties of the second part were completed on or about May 1, 1921, and the taxpayer then commenced rendering service over *1334  such line at the regular rural rates established and approved by the Railroad Commission of Wisconsin.  The total cost of the construction of the primary line, connecting lines, transformers and other equipment on the rural extension line provided for by the contract was $14,841.92, all of which was apportioned and charged among the 29 parties who entered into the above contract with the taxpayer.  The payments of the 29 parties were made to the taxpayer and by it disbursed.  The taxpayer received $4,800 from the 29 contracting parties in the year 1920 and the balance, $10,041.92, during the year 1921.  The rural line and all equipment thereon became the property of the taxpayer as provided and set out in the contract.  The cost*4255  of the same, viz., $14,841.92, was entered as an asset in the taxpayer's balance sheet under the heading of "Property and Plant" and offset by an entry to liabilities entered as "Customers' Line Extension Donations," a method of accounting prescribed by the rules and regulations laid down by the Railroad Commission of Wisconsin for the keeping of accounts of electric utilities.  The statutes of the State of Wisconsin provide that public utilities shall keep and render to the Railway Commission information accounts of all business transacted which shall be in the manner and form prescribed by the Commission and further authorizes such Railway Commission to prescribe the manner and form in which books of account and records shall be kept.  The Statutes of the State of Wisconsin further provide that the said Railway Commission shall have power to fix and determine rates and make regulations for the government of public utilities.  At the close of the year 1921 there was a deficit from the operation of the taxpayer's business for that year in the amount of $1,680.87, if the payments of the customers in the amount of $14,841.92 for the building of the line under the contract of October 12, 1920, are*4256  not deemed to be income to the taxpayer.  The Commissioner determined that the petitioner received taxable income in 1921 in the amount of $14,841.92 by reason of such payments made to it by such 29 contracting parties and determined the deficiency accordingly.  OPINION.  PHILLIPS: This proceeding was submitted upon the pleadings and upon a stipulation of facts, the material portions of which have been incorporated in our findings of fact above.  The single question involved is whether the amounts received by the petitioner under contract by which it was to construct an extension of its lines, the cost of which was to be paid by the rual residents of the community served, is taxable as income.  The decision of this question *1335  is governed by the decisions of the Board in , and , which were in turn based upon the decision and opinion of the court in . See also *4257 . There is no deficiency.  Decision will be entered accordingly.