Burr Creamery Corporation v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 30 June 1931 |
| Docket Number | Docket No. 26983. |
| Citation | 23 BTA 1007 |
| Court | U.S. Board of Tax Appeals |
| Parties | BURR CREAMERY CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
Ralph W. Smith, Esq., for the petitioner.
J. Arthur Adams, Esq., for the respondent.
This is a proceeding for the redetermination of deficiencies in income and excess-profits taxes for the years 1922 and 1923 in the amounts of $3,786.50 and $12,636.87, respectively. It is alleged that the respondent erred in holding that the petitioner did sell stock to others than producers who marketed their products through the organization and therefore, article 522 of Regulations 62 as amended controlling, the organization is not entitled to exemption under section 231 (11) of the Revenue Act of 1921.
FINDINGS OF FACT.
During 1919 Ebenezer Burr was the president and the sole stockholder of the Burr Creamery Company, a corporation engaged in the business of buying, Pasteurizing and distributing milk. Burr himself was a large producer of milk. In 1919 he was milking between 300 and 400 cows. In 1922 and 1923, he was milking between 400 and 500 cows. In November or December, 1919, Burr became a member of the California Milk Producers' Association, a mutual cooperative organization which was, during 1922 and 1923, exempt from tax under section 231 (11) of the Revenue Act of 1921. This Association had been organized in 1915 by the milk producers of the "milk shed" of Los Angeles, covering a radius of about 90 miles from that city. In 1922 and 1923 Burr was one of the largest producers of milk in the California Milk Producers' Association.
At a meeting of the members of the California Milk Producers' Association held July 26, 1919, it was resolved to acquire or build a plant or plants suitable to handle the milk of the Association, to be financed by assessing the members 2 cents per pound butterfat on their produce. At a meeting held September 26, 1919, a resolution was passed ratifying the action of the board of directors in the purchase of the Burr Creamery plant.
In October, of 1919, the petitioner, Burr Creamery Corporation, was organized under the laws of the State of California, to take over a part of the assets of the Burr Creamery Company.
The incorporators, who were also the first directors and who each owned one share of the capital stock of petitioner, were A. Russell, E. Burr, C. Burr, B. A. Rhoades, T. H. Brice, W. F. Holt, and George H. Ennis. The articles of incorporation of the petitioner provided that the amount of capital stock should be $100,000, divided into 1,000 shares of $100 par value per share. The articles of incorporation state that the purposes for which petitioner was formed were to acquire the whole or a part of the properties, real and personal, belonging to Burr Creamery Company, and to hold, own, manage, mortgage, lease, sell or otherwise dispose of the same or any part thereof; to buy or otherwise acquire, manufacture, produce, market, sell, deal in, import and export all kinds of milk, cream, butter, cheese and milk products, feed and feed products, and feed preparations of every kind to carry on a general dairy business; to raise, buy and sell, deal in and with all garden, farm and dairy products; to deal in cattle and other live stock; to deal in real estate of every description and to farm the same; to deal in agricultural and horticultural products and render salable all by-products and residual products therefrom; to acquire goods, wares, merchandise and personal property of every kind and to dispose of the same; to conduct farming, dairying, horticulture and agriculture; to acquire, operate and dispose of mines and mining lands; to carry on the business of drilling for oil products; to refine and deal in oil, natural gas and other mineral and hydrocarbon substances; and to deal in lumber, shingles, and building material.
The by-laws of the petitioner provide that the directors shall have power:
4th. To declare dividends out of the surplus profits arising from the conduct of the business whenever such profit shall, in the opinion of the directors, warrant the same.
On December 27, 1919, the following written agreement was executed:
THIS AGREEMENT, Made this 27 day of December, 1919, between BURR CREAMERY COMPANY, a corporation, herein referred to as "Vendor", the party of the first part, and CALIFORNIA MILK PRODUCERS' ASSOCIATION, a corporation, herein referred to as "Vendee", the party of the second part.
WITNESSETH: Whereas, Burr Creamery Corporation has been incorporated for the purpose of purchasing certain of the personal and real property of the Vendor, which property is particularly set forth in that certain indenture of date December 8, 1919, wherein said Burr Creamery Company is first party, and said Burr Creamery Corporation is second party; the consideration to be paid by Burr Creamery Corporation to Vendor for said property is the entire authorized capital stock of said Burr Creamery Corporation, viz; One Thousand (1,000) shares of the par value of One Hundred ($100.00) Dollars each, said stock to be issued as, and to be, fully paid stock, and WHEREAS, it is the desire of the Vendor and Vendee that if and when Vendor shall become the owner of said stock, it will sell to the Vendee Six Hundred (600) of said shares of stock, and at Vendor's option Vendee will purchase the remainder of said One Thousand (1,000) shares, namely four hundred (400) shares, all upon the terms, for the consideration, and as herein provided.
NOW, THEREFORE, In consideration of the foregoing and for valuable adequate consideration, the parties hereto hereby agree:—
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SECOND:— Vendor hereby agrees to sell to Vendee, and Vendee hereby agrees to purchase of Vendor, subject to the provisions of the foregoing paragraph, Six Hundred (600) Shares of the Capital stock of Burr Creamery Corporation, if and when Vendor becomes the owner thereof, for the consideration or sum of Sixty Thousand ($60,000.00) Dollars, payable as follows: Twenty-five Thousand ($25,000.00) Dollars thereof cash on the 1st day of January, 1920. The balance of the said purchase price, amounting to Thirty-five Thousand ($35,000.00) Dollars to be paid at the rate of One Thousand ($1,000.00) Dollars per month, the first payment to be made on the 1st day of February, 1920, and on the first day of each month thereafter until the entire amount of said purchase price shall have been paid by said Vendee to Vendor: Deferred payments shall draw interest from January 1, 1920 at the rate of seven (7%) per cent per annum, payable monthly at the time and place of making the said monthly payments. Vendee has the option to pay the whole or any part of the purchase price, in addition to said monthly payments, prior to the maturity of any of them. * * *
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FIFTH:— The parties hereto also agree as part of the consideration for the execution of this agreement that Vendee will, at the option of the Vendor expressed to Vendee in writing, at least ninety (90) days prior to January 1, 1923 purchase the remaining Four Hundred (400) shares of said capital stock of Burr Creamery Corporation on the following terms: For the sum of Forty Thousand ($40,000.00) Dollars, being at the rate of One Hundred ($100.00) Dollars per share, which Forty Thousand ($40,000.00) Dollars shall be paid and is hereby agreed to be paid at the rate of One Thousand ($1,000.00) Dollars per month: the first payment to be made by Vendee to Vendor on February 1, 1923, and a like sum on the first day of each month thereafter until the entire amount of said Forty Thousand ($40,000.00) Dollars shall have been paid to Vendor: the first payment shall draw interest from January 1, 1923, but not before, until paid at the rate of seven (7%) per cent per annum payable monthly at the time and place of making payments on the purchase price for said stock. Vendee has the option to pay the whole or any part of said purchase price in addition to said monthly payments, prior to the maturity of any of them.
If and when Vendor exercises the said option required of Vendee to purchase said Four Hundred (400) shares of the capital stock of the Burr Creamery Corporation, the Vendee shall have the option to require Vendor to assign and transfer said stock to it, said Vendee, upon the books of the Burr Creamery Corporation, in which event said stock shall be immediately transferred and delivered to Vendor as pledgee and by way of collateral security for the making of the payments herein provided for to be made by it to Vendor for said Four Hundred (400) shares of stock: in either event the Vendee shall be entitled, whenever it shall make payments to the Vendor on the purchase price of any of said Four Hundred (400) shares of stock, to secure from the Vendor a release of stock so pledged by it to the Vendor of the face value equal to one-half of such payments being made by it, the purpose being to release an amount of stock at par equal to one-half of the payments made by the Vendee to the Vendor on account of the purchase price; if, however, Vendee does not exercise its option to require said stock to be transferred to it, and such stock shall remain on the books of the Burr Creamery Corporation in the name of said Vendor, then Vendee shall be entitled, and said Vendor agrees to convey to said Vendee a similar amount of stock for payments as and when made to it by the Vendee.
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(Burr Cr'y Co. seal) (Signed) BURR CREAMERY COMPANY (A corporation) By E. BURR Its President By H. A. LOZIER Its Secretary (Calif. Milk Producers' CALIFORNIA MILK PRODUCERS' ASSOCIATION Ass'n seal) (A corporation) By B. A. RHOADES Its President By T. H. BRICE Its Secretary
The petitioner duly transferred the full amount of its authorized capital stock, $100,000 par value, to the Burr Creamery Company for certain of the assets of that company. The assets acquired by the petitioner consisted simply of the...
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