Corona Coal Co. v. United States

• Decision Date: 22 August 1927
• Docket Number: No. 3925.,3925.
• Citation: 21 F.2d 489
• Parties: CORONA COAL CO. v. UNITED STATES.
• Court: U.S. District Court — Northern District of Alabama

21 F.2d 489 (1927)

CORONA COAL CO. v. UNITED STATES.

No. 3925.

District Court, N. D. Alabama.

August 22, 1927.

William B. White, of Birmingham, Ala. (Bradley, Baldwin, All & White, of Birmingham, Ala., on the brief), for plaintiff.

Clark T. Brown, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C., and Joseph Franklin, Asst. U. S. Atty., of Birmingham, Ala. (A. W. Gregg, Gen. Counsel, Bureau of Internal Revenue, of Washington, D. C., and C. B. Kennamer, U. S. Atty., of Birmingham, Ala., on the brief), for the United States.

GRUBB, District Judge.

This suit is presented to the District Court sitting with jurisdiction concurrent with the Court of Claims under the provisions of paragraph 20 of section 24 of the Judicial Code (28 USCA § 41 Comp. St. § 991). Plaintiff seeks to recover income and profits taxes paid by it to the United States for the calendar year 1918. Payment was made by the plaintiff of certain amounts on account of such taxes for 1918, claim for a refund of a portion thereof duly filed with the United States Commissioner of Internal Revenue and disallowed to the extent of the principal amount of the judgment entered herein. The case was presented upon an agreed statement of facts stipulated by counsel for both parties, from which it appears, among other things, as follows:

The plaintiff was, during the years 1917 and 1918, engaged in the business of mining and selling coal in the state of Alabama. The coal produced by it was sold to factories, railroads, and steamships. After April 6, 1917, and prior to December 31, 1918, the plaintiff developed two additional coal mines, and, in order to construct the mines, it was necessary that plaintiff make openings in the surface of the earth to reach the coal and construct an area through which the coal might thereafter be removed. For the operation of the mines, such openings, when made, had to be kept clear, and, in order to accomplish this, it was necessary to install supports for the roof and sides of the openings. These supports consisted of props and various sizes of timber, and were essential for the mining and production of coal by the plaintiff. Without these openings as so constructed, coal could not be mined and produced, and their construction and continuous maintenance was necessary to the plaintiff's business.

After April 6, 1917, and prior to December 31, 1918, the plaintiff expended $64,617.09 in constructing and installing such openings for its mines then designated as Nos. 11 and 13. Such openings are commonly known in the mining business as mine opening and development work, and on account of the plaintiff's expenditures in this connection it claims that a deduction should have been allowed to it by the Commissioner of Internal Revenue in computing its net taxable income for the calendar year 1918 under the provisions of section 234, subd. (a) (8) of the Revenue Act of 1918 (Comp. St. § 6336 1/8pp). The percentage of this expenditure properly deductible under these provisions of the act has been stipulated by the parties, as have other minor adjustments to be made in determining the correct amount of the tax.

The only two points at issue are as follows: First, Was coal an article contributing to the prosecution of the war? and, second, Are the costs of mine openings and development work within the purview and intent of section 234, subd. (a) (8), of the act? This provision of the act reads as follows:

"In the case of buildings, machinery, equipment, or other facilities, constructed, erected, installed, or acquired, on or after April 6, 1917, for the production of articles contributing to the prosecution of the present war, and in the case of vessels constructed or acquired on or after such date for the transportation of articles or men contributing to the prosecution of the present war, there shall be allowed a reasonable deduction for the amortization of such part of the cost of such facilities or vessels as has been borne by the taxpayer, but not again including any amount otherwise allowed under this title or previous acts of Congress as a deduction in computing net income."

That coal was an article contributing to the prosecution of war is clear. The same is true of practically everything produced in the mining industry. Indeed this has been recognized by the United States Treasury Department (see C. B. II — 2, 146, C. B. IV — 1, 159) and by the United States Board of Tax Appeals (see Appeal of Roden Coal Co. v. Commissioner of Internal Revenue, 5 B. T. A. 654). The United States, recognizing the necessity of coal in the prosecution of war, set up an elaborate system for the control of its production and distribution by the creation of the United States Fuel Administration. Coal as well as most minerals clearly comes within the definition of the word "article," and the mining of coal as clearly comes within the meaning of the word "production" as used in the statute.

Counsel for the United States urge that, because the coal produced may not have been used by the government itself, but for the operation of factories, railroads, and steamships, it should not be regarded as an article contributing to the prosecution of war. This position is at variance with the published pronouncements of the Solicitor of Internal Revenue. C. B. IV — 1, 159. The point is fully discussed by the United States Board of Tax Appeals in the appeal of Roden Coal Company, supra, and it is clear that in this statute Congress did not intend that its application should be limited only to taxpayers furnishing articles directly to the United States, but intended that it should be applied to taxpayers furnishing articles contributing to the prosecution of war, either to the United States or to others.

A shaft or slope is, from the nature of things, an essential in the mining and production of minerals. Shafts and slopes are usually constructed by removing the overburden between the surface and mineral, and supporting the opening so made with steel, timber, or concrete work. Of course the construction of a shaft or slope involves proper work on the surface in preparation therefor and for the use thereof after construction is completed. The opening is an artificial and an absolutely essential method of rendering the mineral available. The shores and supports are equally essential to make and keep the opening available for the production of the mineral. Together they constitute an essential facility in the industry. Counsel for the United States urge that the cost of such mine openings and development work is not within the meaning of the statute, because they say such items are not "buildings, machinery, equipment, or other facilities" within the meaning of the statute, and were not ...