Coca-Cola Bottling Co. v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 11 March 1931 |
| Docket Number | 31406-31409,27624,27181,27307,Docket No. 27180,31550. |
| Citation | 22 BTA 686 |
| Parties | COCA-COLA BOTTLING COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. SIDNEY W. SOUERS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. JAMES P. BUTLER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. ALFRED B. FREEMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. F. E. GUNTER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
John J. Finnorn, Esq., for the petitioners.
R. W. Wilson, Esq., for the respondent.
These proceedings, which have been consolidated for hearing and decision, may be grouped in three classes for purposes of description. They are as follows:
1. Appeal of the Coca-Cola Bottling Company, Docket No. 31409. This proceeding is for the redetermination of a deficiency in income tax for the period January 1, to April 30, 1925, in the amount of $10,578.55, plus a penalty in the amount of $2,644.64.
Petitioner alleges error in the respondent's reduction of the March 1, 1913, value of a Coca-Cola bottling franchise, from $89,536.96 to $7,870, and the consequent inclusion of the difference between those sums in a profit derived on the sale of the said franchise during the taxable period involved.
2. The proceedings of Sidney W. Souers, James P. Butler, F. E. Gunter, and Alfred B. Freeman, Docket Nos. 27180, 27181, 27264, and 27307, respectively, involve in each instance a deficiency in the amount of $780.89, asserted as a liability of petitioner as a transferee of assets of the Coca-Cola Bottling Company, for unpaid income and profits tax of that company for the year 1921.
The errors alleged by petitioners are:
(a) Assessment and collection of the tax is barred by the statute of limitations.
(b) The respondent erred in reducing invested capital of the Coca-Cola Bottling Company by the amount of $42,549.42, representing, according to the deficiency letter, depreciation of a franchise.
(c) The respondent erred in reducing invested capital by the amount of $16,530.04, under the provisions of section 326 (a) (5) of the Revenue Act of 1921, which prescribes a 25 per cent limitation on the inclusion of intangibles in invested capital.
The proceedings of F. E. Gunter and Alfred B. Freeman, Docket Nos. 27264 and 27307, respectively, allege in addition, that section 280 of the Revenue Act of 1926 is unconstitutional in that (1) it delegates to the executive department, powers, duties, and functions that are purely and strictly judicial in nature, and it is thereby violative of the third article of the Constitution; (2) it deprives petitioner of a trial by jury in an action at law where the amount in controversy is in excess of $20, thereby contravening the provisions of the Seventh Amendment; (3) it deprives petitioners of property without due process of law, and is, therefore, contrary to the Fifth Amendment; (4) it imposes a direct tax without apportionment according to population, and thereby violates section 9 of Article I of the Constitution.
Upon hearing and brief, petitioners have abandoned the allegations of error designated above as (b) and (c).
3. The proceedings of Sidney W. Souers, James P. Butler, F. E. Gunter, and Alfred B. Freeman, Docket Nos. 31406, 31407, 31550, and 31408, respectively involve in each instance a deficiency in the amount of $13,289.80 asserted as a liability of the petitioner as a transferee of assets of the Coca-Cola Bottling Company, for unpaid income tax and penalties of the said company for periods as follows:
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Period | Tax | Penalty | Deficiency
----------------------------------------|-------------|-------------|------------
Year 1922 _____________________________ | $66.61 | __________ | $66.61
Jan. 1 to April 30, 1925 ______________ | 10,578.55 | $2,644.64 | 13,223.19
| ___________ | ___________ | ___________
Total ____________________________ | ___________ | ___________ | 13,289.80
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The errors alleged by petitioners are:
(a) That section 280 of the Revenue Act of 1926 is unconstitutional because (1) it is "arbitrary and capricious" and deprives petitioner of due process of law; (2) it levies a direct tax without apportionment according to the enumeration or census directed to be taken by the Constitution, thereby violating section 9, Article I of the Constitution, and that it does not impose the said tax under authority of the Sixteenth Amendment to the Constitution; (3) it delegates to the executive department, powers, functions, and duties which are purely judicial in character, and that the said section is, therefore, beyond the powers of the Congress to enact; (4) it deprives petitioner of the right of trial by jury in an action at law in which the amount in controversy exceeds $20, and it is, therefore, in contravention of the Seventh Amendment to the Constitution.
(b) That section 280 of the Revenue Act of 1926 does not authorize the "imposition and assessment" of a penalty for delinquency in filing a return against a transferee, or if it does authorize such action, then the said section is unconstitutional.
(c) The respondent erred in reducing the March 1, 1913, value of a Coca-Cola bottling franchise from $89,536.96 to $7,870, and the consequent inclusion of the difference between these sums, amounting to $81,666.96, in a profit derived by the Coca-Cola Bottling Company on the sale of the said franchise during the taxable period January 1 to April 30, 1925.
The adjustment of income of the Coca-Cola Bottling Company which resulted in the deficiency of $66.61 for the year 1922, resulted from the disallowance of a claimed deduction for salesmen's expenses. The respondent's denial of that deduction is not assigned as error in these proceedings.
FINDINGS OF FACT.
The Coca-Cola Bottling Company, a corporation duly organized, formerly existing and voluntarily dissolved pursuant to the laws of the State of Illinois, had its principal office during the tenure of its business at Chicago. The Coca-Cola Bottling Company in this proceeding appears through Alfred B. Freeman, president of the Coca-Cola Bottling Company of Chicago, and individually a member of a syndicate composed of Alfred B. Freeman, James P. Butler, Sidney W. Souers and F. E. Gunter, which syndicate constituted the principal stockholders of the said company at the date of its liquidation and final and complete dissolution during the calendar year 1925.
Sidney W. Souers, James P. Butler and Alfred B. Freeman are residents of New Orleans, La. F. E. Gunter is a resident of St. Louis, Mo.
The Coca-Cola Bottling Company, hereafter termed the Illinois Company, was incorporated in 1906. Its initial authorized capital stock was in the amount of $30,000, represented by 300 shares of $100 par value. By successive amendments its authorized capital was increased to $200,000, represented by 20,000 shares of $10 par value, and at the time of its dissolution in 1925, 12,184 such shares were issued and outstanding.
Under date of January 3, 1906, the Illinois Company obtained a franchise from the Western Coca-Cola Bottling Company. This franchise was what is known as a "first line" franchise, its material provisions reading as follows:
CONTRACT.
This contract made this 3rd day of January, 1906, by and between the Western Coca-Cola Bottling Company, a corporation organized under the laws of the State of Illinois, party of the first part, and the Chicago Coca-Cola Bottling Company, Chicago, Illinois, party of the second part, Witnesseth:
Whereas, said party of the first part has secured from The Coca-Cola Bottling Company, a corporation of Chattanooga, Tenn., and operating a charter under the laws of Tennessee, the sole and exclusive right to bottle and sell bottled Coca-Cola in certain territory of the United States including the State of Illinois, said original right having been by said Coca-Cola Bottling Company aforesaid, obtained from The Coca-Cola Company, a corporation of Atlanta, Georgia, chartered under the laws of Georgia, and,
Whereas, The Coca-Cola Bottling Company is desirous of securing of the Western Coca-Cola Bottling Company, the aforesaid sole and exclusive right in and to the following territory, to-wit: The City of Chicago and fifty miles therefrom in all directions in the State of Illinois. Now, therefore, it is agreed by and between said parties as follows:
1. The said party of the first part agrees to lease and set over to and hereby does lease and set over to the party of the second part, the sole and exclusive right to bottle and sell bottled Coca-Cola in the aforesaid territory; the sole and exclusive right to use the name Coca-Cola and all the trade-marks and designs now owned or controlled by the party of the first part in the said territory, upon any bottles or other receptacles containing the bottled mixture hereinafter described. * * *
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3. The said party of the second part agrees to begin bottling by the first day of _____, 1906.
4. It is further understood that said second party shall buy of the Western Coca-Cola Bottling Company all the syrup required or used by it in the preparation for market of the bottled goods aforesaid, * * *
5. It is further agreed that said second party shall increase the investment in said plant and in said business as the demand for bottled goods in said territory may justify, and shall not transfer this contract without the written consent of the party of the first part.
* * * * * * *
7. It is further expressly agreed, that if the second party shall fail at any time to purchase of said party, as aforesaid, all the Coca-Cola syrup required or used...
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