Court Opinion

ID: 3273339
Source: CourtListenerOpinion
Date Created: 2016-07-05 16:41:52.540459+00
Date Added: 2024-06-11T13:13:22.360569
License: Public Domain

The question in this case is whether the sum of $32,769.09 paid by the appellant to the United States Government as a part of its federal corporation excess profits tax for the calendar year of 1942 may be claimed as a deduction by the appellant on its state income tax return for the calendar year 1942.
The Arkansas income tax law (14036, Pope's Digest) provides:
"In computing net income there shall be allowed as deductions:
"(c) Taxes paid or accrued within the income year, imposed by the authority of the United States . . ."
It is not disputed — in fact, it is admitted — that appellant actually paid the United States Government the $32,769.09 here involved. This was certainly paid as a tax imposed by the United States, because it was paid under the Excess Profits Tax Act of the United States of 1940, as found in 26 U.S.C.A. (Internal Revenue Code), 710-761. (This is 201 of the Revenue Act of 1940, called the Excess Profits Tax Act of 1940, and is act of October 8, 1940, Chapter 757, 201, as amended. See 54 U.S. Statutes at Large 975.) *Page 962 
To overcome this argument, the majority — as I see it — advances three propositions; and I think each proposition fails to afford an adequate answer, as I will now attempt to demonstrate:
1. The majority says that this $32,769.09 was not paid to the United States as a tax, because, under the Postwar Refund of Excess Profits Tax Act, infra, the money will eventually come back to the taxpayer. The fact that the money will come back to the taxpayer two years after the end of the Japanese war does not prevent it from being a tax paid in 1942. The appellant paid the tax to the United States under the provisions of the Federal Revenue Act of 1940. The provision allowing the postwar refund may be found in 26 U.S.C.A. (Internal Revenue Code), 780-3. This is 250 of the Revenue Act of 1942, which is entirely separate from the excess profits act under which the $32,769.09 was paid. The Postwar Refund of Excess Profits Tax Act is an act of October 21, 1942, Chapter 619, 250, 57 U.S. Statutes at Large, 936. The fact that the United States under the said act is to issue a non-negotiable, non-interest bearing certificate to the appellant, redeemable two years after the end of the Japanese war, does not alter the fact that the taxpayer in 1942 paid the federal government the $32,769.09. It was paid in 1942, and is entitled to be deducted as a tax paid that year. Until the refund comes from the federal government, two years after the end of the Japanese war, the taxpayer is in the meantime without his money; and it is stipulated in this case that the taxpayer has not received any refund bond under the Postwar Refund of Excess Profits Tax Act.
2. The majority says that the $32,769.09 is not entitled to be claimed as a tax paid in 1942, because (d) of the Postwar Refund of Excess Profits Tax Act, supra, provides:
"The proceeds of any such bond paid to the taxpayer upon redemption shall not be included in gross income." *Page 963 
That language means that for federal income tax purposes, the proceeds of the postwar refund bond shall not be considered as income when the taxpayer cashes the bond; but that provision does not mean that it will not be income for purposes of state income tax; because the Arkansas state income tax law defines income, in 14031 of Pope's Digest, to include:
"The words `gross income' include gains, profits . . .; and income derived from any source whatever."
When this $32,769.09 comes back to the taxpayer on the cashing of the federal bond, it will be income under the plain wording of the Arkansas income tax statute. That the State may adopt its own reasonable definition of "income" seems too clear to necessitate elaboration. In Welch v. Henry, 305 U.S. 134, 59 S. Ct. 121,83 L. Ed. 87, 118 A.L.R. 1142, the Supreme Court of the United States, in upholding a Wisconsin income tax law which imposed a retroactive tax on corporate dividends, said:
"Any classification of taxation is permissible which has reasonable relation to a legitimate end of governmental action. . . .
"The equal protection clause does not preclude the legislature from changing its mind in making an otherwise permissible choice of subjects of taxation. . . .
"Possible differences in tax burdens, not shown to be substantial, or which are based on discrimination not shown to be arbitrary or capricious, do not fall within the constitutional prohibition. . . ."
3. The majority says even if the $32,769.09 was a tax paid in 1942, it was also income to the taxpayer in 1942, because of the entry in the books of the appellant to the effect that appellant had such a claim for postwar refund. The majority is holding that this amount — actually paid to the federal government in 1942 — is income to the corporation for 1942, because the federal government has promised to pay back this amount to the taxpayer, without interest, two years after the close of the *Page 964 
Japanese war, and because the taxpayer has made a notation to that effect on its books! Mere bookkeeping entries do not alter the fact that the appellant has paid this money because of a federal tax. Before a sum may be properly deemed to be income so that an income tax may be levied thereon, certainly the taxpayer should have and hold this sum, and have domination and control of it, and spend it and invest it in any way that seems desirable. In the case at bar the appellant did not, during the taxable year of 1942, have this $32,769.09. The taxpayer could not use it to expand its business, or to pay dividends. The taxpayer will not have this money until a future date not now capable of being definitely stated. All that the taxpayer has now is the right to receive a non-interest bearing obligation of the United States, due two years after the close of the Japanese war. We have no yardstick to determine the proper rate of interest discount, because we have no way of knowing when the taxpayer will be able to reduce this credit to current funds. The fact that the taxpayer has in its bookkeeping set up this fund to show it as an asset does not change the basic facts. A bird in the bush cannot be converted into a bird in the hand merely by accounting methods.
In short, the arguments of the majority do not overcome the fact that the $32,769.09 here involved was paid to the federal government under the provision of a tax law imposed by the United States. The appellant, as the taxpayer, is entitled to deduct this amount from its state income tax return for the year 1942 by the plain wording of 14036 of Pope's Digest.
For the reasons herein  stated, I respectfully dissent from the majority opinion; and I am authorized to state that Mr. Justice FRANK G. SMITH and Mr. Justice ROBINS join in this dissent. *Page 965