Court Opinion

ID: 9452931
Source: CourtListenerOpinion
Date Created: 2023-08-04 17:57:21.563184+00
Date Added: 2024-06-11T17:33:25.715756
License: Public Domain

FAHY, Circuit Judge
(dissenting):
Having held that the interest and dividends earned by Lincoln are not subject to the franchise tax as “such other net income as is derived from sources within the District,” D.C.Code § 47-1580, this court, I believe, should remand the case for further proceedings in the Tax Court. There remains for determination the question whether the interest and dividends, or any part thereof, should be used in measuring the franchise tax to be paid on that portion “of the net income * * * fairly attributable to any trade or business carried on or engaged in within the District.” D.C. Code § 47-1580. And see District of Columbia v. Virginia Hotel Co., 92 U.S. App.D.C. 186, 204 F.2d 390.
Even Lincoln concedes that some of the interest it earned was taxable by the District of Columbia. Its attorney stated in his opening statement that Lincoln,
was engaged in the business of loaning money and rendering management services to the subsidiary corporations which were located in the States of Florida, Georgia, Kentucky, Louisiana, Maryland, Ohio, Pennsylvania, South Carolina, Texas, Virginia and West Virginia.
•X- * * * * *
In filing its District of Columbia Corporation Franchise Tax Return for the periods here involved, the taxpayer treated the interest received and administrative fees as subject to appor*905tionment in the District of Columbia and dividends as not subject to apportionment because they were from sources wholly without the District of Columbia and not attributable to any activity of taxpayer in the District.
In this court Lincoln seeks judgment “for the amount of refunds claimed,” that is, the amount of the deficiencies assessed by the Assessor after Lincoln filed its return. Since the Tax Court made no findings of fact or conclusions of law as to whether the interest and dividends, or any part thereof, were “attributable to any trade or business carried on or engaged in within the District of Columbia” I would remand the case for consideration of these matters.1.
APPENDIX A
STATE LOAN AND FINANCE CORPORATION
Successor by merger to Lincoln Service Corporation
Computation Statement
June 30, 1958 March 16, 1959
Administrative Fees $ 900,768.57 $ 650,035.53
Less: Expenses applicable thereto 1
Total Expenses $1,426,486.22 $1,068,811.61
Less: Expenses ap-
plicable to Divi-
dends & Interest
Income 1,101,155.38 325,330.84 769,770.48 299,041.13
Net Income to be Appor-
tioned $ 575,437.73 $ 350,994.40
Multiplied by Appor-
tionment Factor .4247 .3487
D. C. Portion $ 244,388.40 $ 122,391.75
Add: Income Allocable
to D. C.
Dividends ? 698,890.14 $ 700,159.00
Interest 986,806.88 595,197.03
Total $1,685,697.02 $1,295,356.03
Less: Expenses appli-
cable thereto 1,101.155.38 584,541.64 769,770.48 525,585.55
Net D. C. Taxable Income $ 828,930.04 $ 647,977.30
Tax at 5% ? 41,446.50 $ 32,398.87
Less: Tax Previously Paid 37,341.19 23,798.61
Balance of Tax Due $ 4,105.31 $ 8,600.26
Interest Expenses $ 941,473.49 $ 626,692.53
Long Term Debt Expense 20,254.38 14,917.46
Sub Total $ 961,727.87 $ 641,609.99
Total Expenses $1,426,486.22 $1,068,811.61
Dess: Sub Total Above 961,727.87 641,609.99
Remaining Expenses $ 464,758.35 $ 427,201.62
Multiplied by 30% $ 139,427.51 139,427.51 $ 128,160.49 128,160.49
Total $1,101,155.38 $ 769,770.48
*906APPENDIX B
Statutes and Regulations Involved The District of Columbia Income and Franchise Tax Act of 1947, 61 Stat. 345, ch. 258, as amended (Sec. 47-1571 et seq., D.C.Code 1961), and the regulations promulgated thereunder are set forth in pertinent part as follows:
Title VII. Tax on Corporations
§ 47-1571. Taxable income defined.
For the purposes of this title, and unless otherwise required by the context, the words “taxable income” mean the amount of net income derived from sources within the District within the meaning of sections 47-1580 to 47-1580b. (July 16, 1947, 61 Stat. 345, ch. 258, Art. I, title VII, § 1.)
§ 47-1571a. Imposition and rate of tax.
For the privilege of carrying on or engaging in any trade or business within the District and of receiving income from sources within the District, there is hereby levied for each taxable year a tax at the rate of 5 per centum upon the taxable income of every corporation, whether domestic or foreign (except those expressly exempt under section 47-1554). (July 16, 1947, 61 Stat. 345, ch. 253, Art. I, title VII, § 2.)
Title X. Purpose of Subchapter and Allocation and Apportionment
§ 47-1580. Purpose of subchapter.
It is the purpose of this subchapter to impose (1) an income tax upon the entire net income of every resident and every resident estate and trust, and (2) a franchise tax upon every corporation and unincorporated business for the privilege of carrying on or engaging in any trade or business within the District and of receiving such other income as is derived from sources within the District: Provided, however, That, in the case of any corporation, the amount received as dividends from a corporation which is subject to taxation under this subchapter, and, in the case of a corporation not engaged in carrying on any trade or business within the District, interest received by it from a corporation which is subject to taxation under this subchapter shall not be considered as income from sources within the District for the purposes of this subchapter. The measure of the franchise tax shall be that portion of the net income of the corporation and unincorporated business as is fairly attributable to any trade or business carried on or engaged in within the District and such other net income as is derived from sources within the District: Provided further, That income derived from the sale of tangible personal property by a corporation or unincorporated business not carrying on or engaging in trade or business within the District as defined in sections 47-1551 to 47-1551c shall not be considered as income from sources within the District for purposes of this subchapter, with the exception of income from sale to the United States to be excluded from gross income as provided in section 47-1557a (b) (13). (July 16, 1947, 61 Stat. 349.)
§ 47-1580a. Allocation and Apportionment. — The entire net income of any corporation or unincorporated business, derived from any trade or business carried on or engaged in wholly within the District shall, for the purposes of this article, be deemed to be from sources within the District, and shall, along with other income from sources within the District, be allocated to the District. If the trade or business of any corporation or unincorporated business is carried on or engaged in both within and without the District, the net income derived therefrom shall, for the purposes of this article, be deemed to be income from sources within and without the District. Where the net income of a corporation or unincorporated business is derived from sources both within and without the District, the portion thereof subject to tax under this article *907shall be determined under regulation or regulations prescribed by the Commissioners. The Assessor is authorized to employ any formula or formulas provided in any regulation or regulations prescribed by the Commissioners under this article which, in his opinion, should be applied in order to properly determine the net income of any corporation or unincorporated business subject to tax under this article.
Title III. Net Income, Gross Income and Exclusions Therefrom, and Deductions
§ 47-1557b (a). Deductions Allowed. — The following deductions shall be allowed from gross income in computing net income:
(14) Allocation of deductions. — In the case of corporations and unincorporated businesses, the deductions provided for in this section shall be allowed only for and to the extent that they are connected with income arising from sources within the District within the meaning of sections 47-1580 to 47-1580b; and the proper apportionment and allocation of the deductions to be allowed shall be determined by the Assessor under formula or formulas provided for in section 47-1580a.
District of Columbia Income and Franchise Tax Regulations
Sec. 10.2. Measure of Tax. — Allocation and Apportionment. The measure of the franchise tax shall be that portion of the net income of the corporation and unincorporated business as is fairly attributable to any trade or business carried on or engaged in within the District, as defined in the Act, and such other net income as is derived from sources within the District. The portion of such net income which is “fairly attributable” to any trade or business or such other net income as is derived from sources within the District shall be determined by allocation and apportionment thereof as prescribed in Sections 10.2-(b), 10.2-(c), 10.2-(d).
Sec. 10.2-(e). Income Attributed to the District of Columbia. If the trade or business is carried on or engaged in wholly within the District, the entire net income from trade or business shall be allocated to the District. If the trade or business is carried on partly within and partly without the District, that portion of the net income from trade or business to be apportioned to the District shall be determined as follows:
(2) Where income for any taxable year is derived from work done or services performed, the portion thereof to be apportioned to the District shall be such percentage of the total of such income as the aggregate' of charges for or costs of such work done and services performed in the District bears to the aggregate of such charges for or costs of work done and services performed by the taxpayer everywhere. The Assessor is authorized to use the aggregate of “charges” or the aggregate of “costs” with respect to work done and services performed if in his opinion it will produce an equitable apportionment.
(8) Income for any taxable year derived from interest, dividends, rents, royalties, income from the sale of real property, income from the sale of intangible personal property, income from the sale of assets other than capital and income from a business or sources other than those hereinbefore referred to, which is fairly attributable to the trade or business carried on or engaged in within the District; or which is derived from sources within the District, shall be allocated to the District. If the trade or business herein referred to is carried on or engaged in both within and without the District, that portion of the income from trade or business to be apportioned to the District shall be such percentage of the total of such income as the aggregate of such income or charges for work done or costs of work done in the District bears to the aggregate of such income or charges for work *908done or costs of work done by the taxpayer everywhere. The Assessor is authorized to use the aggregate of “income” or the aggregate of “charges” or the aggregate of “costs” with respect to such income if in his opinion it will produce an equitable apportionment.
See. 10.2-(d). Allowable Deductions. No deductions may be taken which are applicable to income not subject to tax or income which is exempt under the Act. Where part of any income is apportioned to the District, the deductions applicable thereto and allowable as such under Sec. 3(a) of Title III shall be apportioned on the same basis as that used in apportioning such income, unless, in the opinion of the Assessor, such deductions should be allocated in whole or in part. In the case of corporations and unincorporated businesses, the deductions provided for in Sec. 3(a) of Title III shall be allowable only to the extent that they are connected with income fairly attributable to the trade or business carried on or engaged in within the District and from District sources.

 Expenses Applicable to Dividend and Interest Income:

 D.C.Code § 47-2403 requires the Tax Court to make express findings of fact and conclusions of law. “The board [now the Tax Court] shall hear and determine all questions arising on said appeal and shall make seprate [sic] findings of fact and conclusions of law, and shall render its decision thereon in writing.”