Commissioner of Revenues v. Transcontinental Bus System, Inc.

• Citation: 227 Ark. 811,301 S.W.2d 569
• Decision Date: 06 May 1957
• Docket Number: No. 5-1257,5-1257
• Parties: COMMISSIONER OF REVENUES, J. Orville Cheney, Appellant, v. TRANSCONTINENTAL BUS SYSTEM, Inc., et al., Appellees.
• Court: Arkansas Supreme Court

Page 569

301 S.W.2d 569

227 Ark. 811

COMMISSIONER OF REVENUES, J. Orville Cheney, Appellant, v. TRANSCONTINENTAL BUS SYSTEM, Inc., et al., Appellees.

No. 5-1257.

Supreme Court of Arkansas.

May 6, 1957.

Herrn Northcutt, Little Rock, for appellant.

Bailey, Warren & Bullion, by Bruce T. Bullion, Little Rock, for appellees.

MILLWEE, Justice.

This appeal involves separate suits by two interstate passenger bus companies to recover income tax payments made under protest in compliance with deficiency assessments by the Arkansas Revenue Department based on the statutory formula prescribed in such cases. The cases were consolidated and the Commissioner of Revenues has appealed from a decree granting the relief prayed.

Appellees, Continental Southern Lines, Inc. and Transcontinental Bus System, Inc., operate general passenger bus services partly within and partly without Arkansas. Continental operates in 9 states and Transcontinental in 14 states. In their corporate income tax returns filed with appellant, Continental reported a net loss on its Arkansas operations of $50,517.73 for the year 1951 while Transcontinental claimed similar losses as follows: For 1950, $90,789.92; 1951, $64,287.86; and 1952, $52,107.78. However, each company reported a very substantial net income on its system-wide operations during the same periods. Upon examination of said returns, the appellant found that the statutory method of determining taxable income for Arkansas had not been followed by appellees. Pursuant to recomputations in accordance with the statutory formula appellant made deficiency assessments against Continental of $1,214.80 plus interest for 1951 and against Transcontinental in the total amount of $2,832.61.

The formula under which the appellant made the deficiency assessments is set forth in Ark.Stats. § 84-2003(d) and (e). Subsection (e) reads in part: 'When the business of such utility is partly within and partly without the State, their net income within the jurisdiction of this State shall be ascertained by taking their gross 'operating revenues' within the State, including in this gross 'operating revenues' within the state the equal mileage proportion within the State of their interstate business and deducting from their gross 'operating revenues' the proportionate average of operating expenses or operating ratio for their whole business as shown by the Interstate Commerce Commission standard classification of accounts.

'To the net operating revenues thus determined shall be added revenues from miscellaneous operations within the State and other nonoperating income from sources within the State, together with a proportionate part based upon the ratio of gross operating revenues from sources within the State to their entire gross operating revenues of all nonoperating income from sources other than within this State and deducted therefrom miscellaneous operating expenses within the State and a proportionate part of all deductions from gross income as set forth in the Interstate Commerce Commission classification of accounts based upon the proportionate average of operating expenses for their whole business.'

Now it is conceded that the amounts of the deficiency assessment made by the Commissioner are correct if the statutory formula is properly applicable. Nor do appellees find any fault with the formula except as it may be applied in determining the deductible item of operating expenses allocable to Arkansas. In making the assessments, the Commissioner accepted the returns made by appellees as to gross operating...