Baltimore Transfer Co. of Baltimore City v. Comm'r of Internal Revenue
| Decision Date | 03 January 1947 |
| Docket Number | Docket No. 9947. |
| Citation | 8 T.C. 1 |
| Parties | THE BALTIMORE TRANSFER COMPANY OF BALTIMORE CITY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioner, on the accrual basis, computed and accrued its 1943 liability under the Maryland Unemployment Compensation Law pursuant to rate notification by the administering state board and paid the accrued amounts prior to filing its 1943 tax returns on March 15, 1944. On April 21, 1944, the board, following an opinion of its counsel on a general question of law, notified petitioner that its correct rate was less than that originally determined. On May 15, 1944, petitioner's account was accordingly credited with a portion of the payments for 1943. Petitioner had not questioned the correctness of the earlier notification and it did not and could not have received notice of the later determination prior to April 21, 1944. Held, petitioner is entitled to a deduction in 1943 of the total amounts accrued. Morton J. Hollander, Esq., for the petitioner.
George J. LeBlanc, Esq., for the respondent.
Respondent determined deficiencies in petitioner's income tax and excess profits tax liabilities for the calendar year 1943 in the respective amounts of $4,260.03 and $347.31. Only a portion of the deficiencies is in controversy. The sole question presented is whether petitioner is entitled to deduct an amount accrued by it in the taxable year as due to the Maryland Unemployment Compensation Fund, which amount was subsequently paid but was refunded to petitioner in 1944. The facts are stipulated and are so found.
Petitioner is a Maryland corporation organized in 1892 and having its principal place of business at Baltimore, Maryland. It keeps its books and files its Federal income tax and excess profits tax returns on an accrual basis.
On or about July 27, 1943, the Maryland Unemployment Compensation Board, hereinafter referred to as the Board, mailed a notice to petitioner reading as follows:
The 1943 session of the Maryland Legislature amended the Maryland Unemployment Compensation Law to include a provision for experience rating for contributions payable to the Maryland Unemployment Compensation Fund on wages paid with respect to employment after June 30, 1943.
Section 7(c)(3) of this Act provides that:
‘No employer's rate shall be less than 2.7% per cent for any fiscal year if his total annual payroll in the calendar year immediately preceding such fiscal year exceeded 150 per cent of his total payroll in the calendar year 1940.‘
However, your contributions rate for the period July 1, 1943 to June 30, 1944 will continue at 2.7% because:
Your total annual payroll for 1942 exceeded 150% of your total payroll for the calendar year 1940.
MARYLAND UNEMPLOYMENT COMPENSATION BOARD By (Signed) WM. I. WALSH Chief Accountant.
Pursuant to that letter petitioner, in October 1943, paid to the Maryland Unemployment Compensation Fund, hereinafter referred to as the fund, $5,345.60 for the first quarter of the fiscal period and at the end of 1943 accrued $5,401.91 for the second quarter of the fiscal period. On its income and excess profits tax returns for the calendar year 1943, which were filed on March 15, 1944, petitioner deducted these amounts.
The minutes of the Board for January 13, 1944, disclose the following:
Ex parte hearings were held at a meeting today in the office of the Chairman of the Board in the O'Sullivan Building.
The Chairman presented an opinion by the Special Assistant Attorney General Albert A. Levin, that ‘* * * I am of the opinion that if the same interests own or control the enterprises in question, then employment experience should be combined for the purposes of rate contributions.‘
MARYLAND UNEMPLOYMENT COMPENSATION BOARD January 13, 1944.
The opinion referred to in the minutes was rendered to the Board by the Special Assistant Attorney General in the form of a letter as follows:
Mr. RUSSELL S. DAVIS, Chairman,
Unemployment Compensation Board
O'Sullivan Building
Dear Mr. Davis: You have inquired whether the Board may join employers for purposes of merit rating.
I have examined Chapter 435 of the Acts of 1943 (codified as subsection 7(c) of Article 95-A of the Annotated Code of Maryland, (1943 Supp.), which introduced experience rating under certain conditions in the Unemployment Compensation Law and have reached the conclusion that the Board is fully justified in doing so.
In Chapter 435, supra, the Legislature defined the meaning of some of the terms used therein, but did not in any way change the definition of the term ‘employer‘ as found in Section 19 of the Unemployment Compensation Law.
The provisions in question read as follows:
Section 19(f) ‘'Employer’ means‘:
(1) * * * with respect to the calendar year 1938 and any calendar year thereafter, any employing unit which in each of 20 different weeks within either the current or preceding calendar year (whether or not such weeks are or were consecutive) has or had in employment four or more individuals (not necessarily simultaneously and irrespective of whether the same individuals are or were employed in each such week);
(4) Any employing unit which, together with one or more other employing units, is owned or controlled (by legally enforceable means or otherwise) directly or indirectly by the same interests, or by husband and wife, or which owns or controls (by legally enforceable means or otherwise) one or more other employing units and which, if treated as a single unit with such other employing units or interests, or both, would be an employer under paragraph (1) of this subsection. A partnership shall, for the purpose of this subsection, be considered as under common control with another employing unit if the partner or partners common to each employing unit do under the terms of written Articles of Partnership, or in fact own more than a 50% interest therein;
I must, therefore, suppose that the Legislature was aware of the fact and regarded the definition as found in the section above referred to as applicable to employers for experience rating purposes.
In view thereof, I am of the opinion that if the same interests own or control the enterprises in question, their employment experience should be combined for the purposes of rate contributions.
Pertinent sections, other than those set forth above, of the Maryland Unemployment Compensation Law, including the amendments of 1943, article 95A of the Annotated Code of Maryland (1943), are as follows:
CONTRIBUTIONS
7. (a) Payment.
(1) On and after January 1, 1936, contributions shall accrue and become payable by each employer * * * Such contributions shall become due and be paid by each employer to the Board for the fund in accordance with such regulation as the Board may prescribe, and shall not be deducted, in whole or in part, from the wages of individuals in his employ.
(1) The Board shall maintain an experience-rating record for each employer. * * *
All benefits paid to an individual shall be charged against the experience-rating record of his principal base-period employer (as defined in subsection (c)(7) of this Section).
(2) The standard rate of contribution payable by each employer shall be 2.7 per cent.
(3) No employer's rate shall be varied from 2.7 per cent for any fiscal year unless and until his experience-rating record has been chargeable with benefits throughout the 36-conse cutive-calendar-month period ending on the computation date (as defined in subsection (c)(7) of this Section), and unless and until each of his annual pay rolls, as defined herein, during the four calendar years immediately preceding the computation date for that fiscal year equals or exceeds $150.
No employer's rate shall be less than 2.7 per cent for any fiscal year if his total annual pay roll in the calendar year immediately preceding such fiscal year exceeded 150 per cent of his total pay roll in the calendar year 1940.
(4) The Board shall for the fiscal year beginning July 1, 1943, and for each fiscal year thereafter, determine the contribution rate of each employer who has met the requirements specified in subsection (c)(3) of this Section, on the basis of his experience-rate record in the following manner:
(i) The Board shall compute a benefit ratio for each such employer which shall be the quotient obtained by dividing the total benefits chargeable to his experience-rating record which were paid within the 36-consecutive-calendar-month period ending on the computation date by the total of his annual pay rolls for the three calendar years immediately preceding that computation date. Such benefit ratio shall be computed to the fourth decimal point, and shall be expressed as a percentage.
(ii) The contribution rate of each employer for whom a benefit ratio is computed shall be:
(A) 0.9 per cent if such benefit ratio is less than 0.5 per cent.
(G) 2.7 percent if such benefit ratio equals or exceeds 2. per cent.
(6) No employer's rate shall be varied from the 2.7 per cent rate, for any fiscal year unless, as of the preceding March 31 the total amount available for benefits in the Maryland unemployment fund equals or exceeds $50,000,000.00 or 1.5% of the total pay rolls for the last five years or 6% of the total pay roll for the previous year, whichever is greatest.
(e) Interest on Past-Due Contributions.
Contributions unpaid on the date on which they are due and payable, as prescribed by the Board, shall bear interest at the rate of 1 per centum per month * * *
(f) Collection by Suit.
If, after due notice, any employer defaults in any payment of contributions and interest, the amount due may be collected by civil action in the name of the State, and the employer adjudged in default shall pay the costs of such action. Civil actions brought under this Section to collect contributions and interest from an employer shall be...
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