Beech Aircraft Corp. v. State Commission of Revenue and Taxation

• Decision Date: 09 April 1955
• Docket Number: No. 39758,39758
• Citation: 282 P.2d 432,177 Kan. 754
• Parties: BEECH AIRCRAFT CORPORATION, Appellee, v. STATE COMMISSION OF REVENUE AND TAXATION, Appellant.
• Court: Kansas Supreme Court

Page 432

282 P.2d 432

177 Kan. 754

BEECH AIRCRAFT CORPORATION, Appellee, v. STATE COMMISSION OF REVENUE AND TAXATION, Appellant.

No. 39758.

Supreme Court of Kansas.

April 9, 1955.

Syllabus by the Court.

1. For purposes of Kansas income tax laws it may be said, as a general rule, that keeping records and accounts and making income tax returns on an accrual basis, as distinguished from a cash basis, import that it is the right to receive and not the actual receipt, that determines the inclusion of a particular amount in gross income. When one keeps his accounts and makes his returns on an accrual basis, income is taxable for the year in which the right to receive it accrues.

2. If at the close of the taxable year an accrual basis taxpayer's records and accounts contain all of the basic data and facts from which he may, within reasonable limits, determine an amount which he has a fixed right to receive, such amount is accruable, and this is true even though the amount in question is a refund.

3. Allocation of income, in the nature of a refund to an accrual basis taxpayer, is to be made to the year in which the right to receive it accrued, rather than to the year in which it may have been received.

4. The taxpayer's books and records were kept on an accrual basis of accounting, and its income tax returns, both federal and state, were prepared and filed on an accrual basis of a fiscal year ending September 30th of each year. Its operations for the fiscal year ending September 30, 1945, showed a profit, upon which it paid all federal and state income taxes. For the fiscal year ending September 30, 1947, its operations showed a net loss, and for that year it filed federal and state income tax returns disclosing no income tax liability to either sovereign. Under applicable provisions of federal law, referred to in paragraph 10 of the stipulation of facts set out in the opinion, and based upon its net operating loss for the fiscal year ending September 30, 1947, the taxpayer, on or about December 10, 1947, filed an application with the federal government for a 'carry-back' of this loss and for a refund of federal income and excess profits taxes theretofore paid for the fiscal year ending September 30, 1945. The application was allowed and the refund was paid to the taxpayer during the calendar year 1948 and during the fiscal year ending September 30, 1948. Upon learning of this refund respondent state commission of revenue and taxation, in 1953, assessed a deficiency in Kansas income taxes and interest for the fiscal year ending September 30, 1948, on the theory that the refund constituted taxable income to the taxpayer for that year.

Upon appeal by the taxpayer to the district court the order of respondent commission was reversed, whereupon the latter appealed to this court.

Held: For reasons set forth in detail in the opinion, the refund, for purposes of Kansas income tax laws, is to be considered as income for the fiscal year ending September 30, 1947, and not for the fiscal year 1948.

Paul R. Wunsch, Kingman, and Ervin G. Johnston, Kansas City, for appellant.

James D. Dye, Wichita, Dwight S. Wallace and Ellis D. Bever, Wichita, on the briefs, for appellee.

PRICE, Justice.

This appeal arises under the Kansas income tax act, G.S.1949, 79-3201 et seq. It involves the validity of an order of the state commission of revenue and taxation whereby it, in 1953, assessed additional Kansas income tax liability and interest thereon against Beech Aircraft Corporation (hereinafter referred to as taxpayer) for the fiscal year ending September 30, 1948.

The taxpayer appealed to the district court and that tribunal reversed the order of the commission. From that judgment the commission (hereinafter referred to as respondent) has appealed to this court.

The basic facts and contentions of the parties are found in the following stipulation:

'Stipulation of Facts

'The parties to the above entitled proceeding by their respective attorneys of record hereby stipulate and agree that the following facts may be taken as true, provided, however, that this stipulation is without prejudice to the right of either party to introduce further evidence not inconsistent with the facts herein stipulated, and the Court shall make such findings of fact and conclusions of law as are appropriate on evidence introduced.

'1. For purposes of brevity, the Appellant, Beech Aircraft Corporation, is herein referred to as 'Taxpayer' and the Appellee, State Commission of Revenue of the State of Kansas, is herein referred to as 'Respondent.'

'2. The taxpayer is now, and was at all times material hereto, a corporation organized and existing under the laws of Delaware and authorized to do business within the State of Kansas, with its principal palce of business and main office located at Wichita, in Sedgwick County, Kansas.

'3. The taxpayer's books and records are now and were at all times material hereto maintained and kept on the accrual basis of accounting.

'4. The taxpayer's federal and state income tax returns are now and were at all times material hereto prepared and filed upon the accrual basis and its federal and state income tax returns are and were at all times material hereto filed on the basis of a fiscal year ending September 30.

'5. The taxpayer filed its federal income tax return for the fiscal year ending September 30, 1945, disclosing net income for said year of $19,563,202.00 and income and excess profits due thereon of $14,371,060.01 and the amount of tax thus computed was paid by taxpayer.

'6. The taxpayer filed a Kansas income tax return for the fiscal year ended September 30, 1945, disclosing taxable income for Kansas income tax purposes of $5,073,221.94 and the amount of tax computed thereon was paid to the State of Kansas by the taxpayer.

'7. In arriving at taxable net income on its Kansas income tax return for the fiscal year ended September 30, 1945, taxpayer accrued and claimed as a deduction the sum of $14,371,060.01 being the amount of its federal income and excess profits taxes due and payable for the fiscal year ended September 30, 1945. The provisions of the Kansas income tax law under which such deduction was claimed and taken being G.S.1949, 79-3206(3).

'8. The taxpayer filed a timely federal income tax return for the fiscal year ended September 30, 1947, disclosing a net operating loss for such fiscal year, of $6,603,417.55 and no federal income tax liability for the fiscal year ended September 30, 1947.

'9. The taxpayer filed a timely Kansas income tax return for the fiscal year ended September 30, 1947, disclosing a net operating loss for such fiscal year, of $6,605,435.57 and no Kansas income tax liability for the fiscal year ended September 30, 1947.

'10. For Federal income tax purposes a taxpayer sustaining a net operating loss for any taxable year beginning after December 31, 1941, and before January 1, 1950, is entitled to carry back the net operating loss for such year to each of the two preceding taxable years, such carryback to apply first against net income of the second preceding taxable year and any excess remaining against the net income of the first preceding taxable year. Any unused portion of any such net operating loss may be carried forward for each of the two taxable years succeeding the year in which the loss is sustained. The carryback of any such net operating loss is made by claim for refund, or application for tenative carryback and refund. The applicable provisions of the federal law are found in I.R.C. 122(b) and 3780 of the Internal Revenue Code [26 U.S.C.A. §§ 122(b), 3780].

'11. Based upon its net operating loss for the fiscal year ended September 30, 1947, taxpayer filed an application for carryback of said net operating loss and for refund of federal income and excess profits taxes paid for the fiscal year ended September 30, 1945, in the sum of $4,810,806.74. The application was filed on or about December 10, 1947, and taxpayer received thereunder during the fiscal year ended September 30, 1948, a refund of $4,810,806.74.

'12. Under date of January 12, 1953, Bert E. Mitchner, Director of Revenue, State Commission of Revenue and Taxation, assessed a deficiency in Kansas income taxes and interest of the taxpayer, for the taxable year ended September 30, 1948, in the sum of $120,469.37, said deficiency consisting of tax in the sum of $97,152.72 and interest computed to January 15, 1953, in the sum of $23,316.65. In computing said deficiency the said Director of Revenue included in income of the taxpayer for the taxable year ended September 30, 1948, the sum of $4,857,636.43 (the correct amount being $4,810,806.74) by him determined to be the amount of federal income and excess profits taxes paid by taxpayer for the fiscal year ended September 30, 1945, and subsequently refunded to the taxpayer during the fiscal year ended September 30, 1948, as a result of the carryback of the net operating loss sustained in the fiscal year ended September 30, 1947.

'13. Taxpayer filed a timely appeal to the Respondent, Commission, from the Order of the Director of Revenue assessing said deficiency in tax and interest in the time and manner provided by law and a hearing on said appeal was had before Respondent on February 26, 1953; that on August 7, 1953, the Respondent, Commission, issued its order affirming and approving the Director's assessment and finding that there was due and owing from the taxpayer the sum of $120,469.37 in tax and interest, plus interest on the tax portion of the liability asserted of $97,152.72 from January 15, 1953, until paid, and that Exhibit B attached to the Notice of Appeal herein is a true, correct and complete copy of the order made and entered by the Respondent.

'14. That no question concerning the statute of limitations arises in this case for the reason that the assessment was made within the period of limitations as defined by the statute.

'15. Under ...