Boehme v. Comm'r of Internal Revenue, Docket No. 20533.

• Court: United States Tax Court
• Writing for the Court: HILL
• Citation: 15 T.C. 247
• Parties: H. O. BOEHME, INCORPORATED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Docket Number: Docket No. 20533.
• Decision Date: 22 September 1950

15 T.C. 247

H. O. BOEHME, INCORPORATED, PETITIONER,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 20533.

Tax Court of the United States.

Promulgated September 22, 1950.

Held, since all of the factors necessary to a determination of the amount of the credit on petitioner's franchise tax provided by applicable New York law based on its 1943 net income became known within its tax year 1944 and not prior thereto, and since it kept its books on an accrual basis, the amount of such credit was includible in its taxable income for 1944. Also held, that since all of the factors necessary to a determination of the credit or refund of New York franchise tax based on its 1944 net income became known in the year 1945 and not prior thereto, the amount of such credit or refund was properly accruable in the tax year 1945.

[15 T.C. 248]

Hugh C. Bickford, Esq., for the petitioner.

Rigmor Carlsen, Esq., for the respondent.

The respondent determined a deficiency in petitioner's excess profits tax for the calendar year 1945 in the amount of $3,666.53. Petitioner claims an overpayment of $13,318.37. The only question before us is whether a credit or refunds of New York State franchise taxes, which resulted from renegotiation of part of petitioner's 1943 and 1944 income by the Federal renegotiation officials, should be included in its income for the year 1944 or 1945.

FINDINGS OF FACT.

Part of the facts are stipulated and are so found.

Petitioner is a corporation organized under the laws of the State of New York. The returns for the period here involved were filed on a calendar year basis with the collector of internal revenue for the second district of New York.

During the years involved in this proceeding, the petitioner was engaged in manufacturing mechanical and electrical equipment in the State of New York. It kept its books and prepared its income and excess profits tax returns on an accrual basis.

On March 31, 1944, the State of New York amended its franchise tax on corporations doing business in that state to provide that a franchise tax should be paid based upon a percentage of income earned within each fiscal or calendar year. Section 2 of Chapter 415, Laws of 1944, enacted and effective March 31, 1944. This statute provided that the tax should be levied

For the privilege of exercising its franchise or doing business in this State in a corporate or organized capacity for all or any part of the period beginning November first, nineteen hundred forty-four, and extending through any subsequent part of its first fiscal or calendar year ending after said date, * * *. Section 209.2.

If a corporation was doing business under this act on November 1, 1944, it became liable for an excise tax

* * * upon the basis of its entire net income, or upon such other basis as may be applicable, for each and every fiscal or calendar year or part thereof begun not earlier than August first, nineteen hundred forty-two, and ending not later than October thirty-first, nineteen hundred forty-five, during which such corporation was exercising its franchise or doing business in this State * * *. Section 209.2, supra.

[15 T.C. 249]

The New York statute also provided, as to corporations upon a calendar year basis, that ‘such tax shall be deemed a single tax for such privilege period but shall be computed separately with respect to each such fiscal or calendar year or part thereof on a report which shall be filed on or before the fifteenth day of May next succeeding the close of each such year * * *. ‘ (Section 209.2, supra.) Separate forms were provided by the state for the calendar years 1943 and 1944.

Chapter 510, sections 1 to 3, Laws of 1944, of the State of New York enacted and effective April 1, 1944, further amended the statute. It provided as follows:

SEC. 1. In determining the net income or entire net income of a taxpayer under any article of the tax law for any period before or after the enactment of this act, no deduction shall be allowed for, or account taken of, any excessive profits which the taxpayer may have repaid or may repay, or which may have been or may be eliminated, pursuant to any renegotiation of a war contract or subcontract or the profits therefrom, under any law of the United States authorizing such renegotiation or otherwise, except to the extent that the amount of such excessive profits has been or shall be finally determined during the period on the basis of which such net income or entire net income is required to be so determined.

SEC. 2. A credit shall be allowed, without interest, against the tax (1) imposed by any article of the tax law upon any taxpayer, any war contract or subcontract of which or whom, or the profits therefrom, have been or shall be so renegotiated; and (2) computed on the basis of the income or capital for the period in which such excessive profits were or shall be finally determined. Such credit shall be in an amount equal to the excess of any tax imposed on the taxpayer by such article of the tax law and computed on the basis of the taxpayer's renegotiable net income or renegotiable entire net income, as the case may be, for the period under renegotiation over the amount of any tax for any period as an adjustment or otherwise taken into consideration on such renegotiation in determining the amount of such excessive profits, but such credit shall not in any case exceed either (1) the loss, if any, which the taxpayer establishes to the satisfaction of the tax commission that the taxpayer has sustained by reason of such excess of such tax not having been so allowed or...