Court Opinion

ID: 4589310
Source: CourtListenerOpinion
Date Created: 2020-11-20 18:43:53.938622+00
Date Added: 2024-06-11T07:50:14.463224
License: Public Domain

JAMES BLISS COOMBS ET AL., DIRECTORS OF FAJARDO SUGAR CO., AS TRUSTEES IN DISSOLUTION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Coombs v. CommissionerDocket No. 20897.United States Board of Tax Appeals17 B.T.A. 279; 1929 BTA LEXIS 2325; September 17, 1929, Promulgated *2325  1.  A corporation organized under the laws of New York but whose operations were conducted principally in Porto Rico held to be a domestic corporation subject to the 4 per cent additional tax imposed by the Revenue Act of 1917.  2.  By an act of Porto Rico, approved June 26, 1919, petitioner became liable to pay a tax upon its income for the period from January 1 to July 31, 1918.  It kept its books upon the accrual basis.  Held that the Porto Rico tax had not accrued at the close of petitioner's year on July 31, 1918, and that petitioner was not entitled to a credit for such fiscal year by reason of the tax subsequently imposed upon it by the act of June 26, 1919.  David A. Buckley, Jr., Esq., for the petitioner.  J. E. Marshall, Esq., for the respondent.  PHILLIPS *279  The Commissioner denied in part a claim for abatement of a deficiency in income and profits tax of the Fajardo Sugar Co. for the fiscal year ended July 31, 1918.  It is urged that the Commissioner erred (1) in holding that the 4 per cent additional tax levied under the Revenue Act of 1917 applied to petitioner; (2) in failing to credit petitioner with an amount of $2,414.45, *2326  tax paid under Act No. 59 of the Acts of Porto Rico for 1917; and (3) in failing to credit petitioner with an amount of $73,697.57, tax paid under Act No, 80 of the Acts of Porto Rico for 1919.  FINDINGS OF FACT.  The petitioners are the directors and trustees in dissolution of the Fajardo Sugar Co. (hereinafter referred to as the Company).  Said Company was, during the fiscal year beginning August 1, 1917, and ending July 31, 1918, a corporation organized under the laws of the State of New York.  It was dissolved in February, 1919.  The Company was, during the period from August 1, 1917, to July 31, 1918, engaged in the production of sugar cane and the manufacture of raw sugar therefrom in the Island of Porto Rico.  It owned the stock of two subsidiaries, the Fajardo Sugar Growers Association and the Fajardo Development Co.  One of such companies held title to lands utilized for the cultivation of cane sugar and the other operated a railroad for the purpose of transporting the sugar cane from the fields to the factory.  The Company owned a sugar mill used for grinding sugar.  All of its tangible property was located in the Island of Porto Rico.  It kept its books of account*2327  in Porto Rico.  *280  Most of its sugar was shipped to New York and sold there.  The selling price of such sugar was collected by its agents, L. W. & P. Armstrong, and applied against advances made by such agents or deposited by the agents to the credit of the Company in its bank account in New York or Porto Rico.  The Company had an office in New York with its agents.  Its president had his office there and its directors met in New York.  One of the employees of L. W. & P. Armstrong was also an employee of the Company, receiving a part of his compensation from it.  This employee had charge of tax matters of the petitioner, arranged for meetings of the directors, attended to preparation of matters for consideration and guidance of the directors, and to dividend disbursements.  Stock transfer books were kept in New York.  A bank account as kept in New York.  It rendered income-tax returns to the Treasurer of Porto Rico.  Its Federal income-tax returns for the fiscal years ended July 31, 1918, and July 31, 1919, were filed with the collector of internal revenue at New York.  A general manager in Porto Rico was in charge of the operation of the business of the Company in Porto*2328  Rico.  He reported to the president in New York.  The planting and cultivating of the Company's crop took place between the months of May and January, inclusive.  The crop was ground between the months of December and June, inclusive.  Its fiscal year expired on July 31 of each year.  It kept its accounts on an accrual basis.  The Company paid income taxes of $28,973.11 to Porto Rico based on income for the fiscal year ended June 30, 1918, under Act No. 59, approved December 4, 1917, of which said amount the Company claimed as a credit against taxes assessed under the Revenue Act of 1918, the sum of $16,901.01, representing seven-twelfths of $28,973.11; and there was allowed by the Commissioner as a credit six-twelfths of $28,973.11, or $14,486.56.  The Company, after the year 1918, paid income taxes of $73,697.57 to Porto Rico, based on income for the fiscal year ended July 31, 1918, under Act No. 80, approved June 26, 1919, which taxes the Commissioner has not allowed as a credit against income and profits taxes for the fiscal year ended July 31, 1918.  OPINION.  PHILLIPS: It is contended by petitioners that the taxpayer was a resident of Porto Rico, that its income was*2329  derived from Porto Rico and subject to tax there and is not subject to the additional 4 per cent profits tax levied under the Revenue Act of 1917.  Without stating the reasoning in detail, the brief of the petitioners states that their contention will be found in . *281  There the Court held that a corporation organized under the laws of New York was subject to the tax in question although its income arose only in Porto Rico.  To the same effect is the decision of the Court of Claims in . The reasoning of these decisions seems to us to answer fully the contention urged by the petitioners.  The action of the Commissioner in subjecting the company to the 4 per cent additional tax imposed by the Revenue Act of 1917 is affirmed.  Under an act approved December 4, 1917, known as No. 59 of that year, the taxpayer became liable to pay to Porto Rico a tax upon its income for a fiscal year ended June 30, 1918.  It paid $28,973.11 under that act.  In filing its return with the Federal Government for a fiscal year ended July 31, 1918, it claimed*2330  that seven-twelfths of such payment accrued after January 1, 1918, and that it was entitled to a credit of that amount against the tax as computed under Title II of the Revenue Act of 1918.  The Commissioner allowed six-twelfths of such amount as a credit.  The Porto Rican tax was for a period ended June 30, 1918.  Apparently there was no tax under this statute for July, 1918.  Since six months of the year for which the Porto Rico tax was imposed fell in 1917 and six months in 1918, it would seem clear that if such tax is to be apportioned rateably (and no other basis is suggested) the Commissioner was correct in apportioning six-twelfths to 1917 and six-twelfths to 1918.  In this respect the action of the Commissioner is affirmed.  By an act known as No. 80, approved June 26, 1919, Porto Rico imposed an income tax.  Under such act the taxpayer became liable to pay, and did pay, a tax of $73,697.57 to Porto Rico upon its income for the period from January 1 to July 31, 1918.  The fiscal year here involved terminated on the latter date.  It claimed such amount as a credit under section 222(a) of the Revenue Act of 1918.  This section provides in effect that the tax of a citizen or*2331  resident of the United States shall be credited with the amount of any income tax paid to a possession of the United States.  The term "paid" is defined in section 200 to mean "paid or accrued" or "paid or incurred," such terms to be construed according to the method of accounting employed in computing net income.  The parties have stipulated that the books of the petitioner were kept upon the accrual basis.  The question then is whether the tax imposed by the Porto Rico statute accrued during the taxable year.  Obviously the tax was not an obligation at the close of the taxable year, for the statute imposing it was not passed until some months later.  In this respect the case is unlike , and , cited by the petitioners. *282  There the liability for the tax arose under an act in force during the taxable year.  A situation similar to that in the instant case arose in , where the State of Wisconsin on July 30, 1919, imposed a tax upon incomes for the year 1918. *2332  The question there was whether such tax accrued in 1918, so as to constitute a deduction from income of that year where taxpayer was on an accrual basis.  The court held that it did not.  To the same effect see , and . On the authority of these decisions the action of the Commissioner is affirmed.  Decision will be entered for the respondent.