Higgins Co. v. United States, Civ. No. 5-74-64 and 5-74-63.

• Court: United States District Courts. 8th Circuit. United States District Court of Minnesota
• Citation: 444 F. Supp. 1
• Docket Number: Civ. No. 5-74-64 and 5-74-63.
• Parties: HIGGINS COMPANY, a Minnesota Corporation, Plaintiff, v. UNITED STATES of America, Defendant. DuNORD LAND COMPANY, a Minnesota Corporation, Plaintiff, v. UNITED STATES of America, Defendant.
• Decision Date: 04 January 1977

444 F. Supp. 1

HIGGINS COMPANY, a Minnesota Corporation, Plaintiff,
v.
UNITED STATES of America, Defendant.
DuNORD LAND COMPANY, a Minnesota Corporation, Plaintiff,
v.
UNITED STATES of America, Defendant.

Civ. Nos. 5-74-64 and 5-74-63.

United States District Court, D. Minnesota, Fifth Division.

January 4, 1977.

Loren W. Sanford, Duluth, Minn., for plaintiffs.

Robert G. Renner, U. S. Atty., Minneapolis, Minn., Daniel J. Dinan, Atty., Dept. of Justice, Washington, D. C., for defendant.

ORDER

MILES W. LORD, District Judge.

These actions were brought separately and later consolidated. They involve an interpretation of Sections 631(c) and 272 of the Internal Revenue Code of 1954 as amended. The facts in each case are identical except for the amounts of the refunds claimed by each plaintiff company. In addition, plaintiff DuNord has filed refund claims for the tax years 1965-67 inclusive, whereas, the plaintiff Higgins has filed refund claims only for the years 1966 and 1967.

FACTS

The parties have submitted cross motions for summary judgment which are based upon the following stipulated facts:

1. Plaintiff is a Minnesota corporation, and its office and principal place of business is 417 First National Bank Building, Duluth, Minnesota.

2. The principal business activity of the Plaintiff is the ownership of interests in iron ore and other lands in the United States and the disposal of that iron ore to unrelated persons who mine the iron ore in

444 F. Supp. 2

the United States under a form of contract by virtue of which Plaintiff retains an economic interest in such iron ore, such that the amount of gain to be recognized from the disposal of such iron ore is to be determined by Section 631(c) of the Internal Revenue Code of 1954, as amended by Public Law 88-272, Section 227. An "unrelated person" is a corporation whose relationship to the Plaintiff would not deprive Plaintiff of the treatment of income provided by Section 631(c) of the Internal Revenue Code of 1954, as amended by Public Law 88-272, Section 227

3. Minn.Stat., Chapter 290, imposed an income tax and an additional privilege and income tax on all domestic corporations for the taxable years in question.

4. (a) Pursuant to Minn.Stat., Chapter 290, Plaintiff paid to the State of Minnesota $7,556.36 in its taxable year ending May 31, 1966.

(b) During its taxable year ending May 31, 1966, Plaintiff received royalties in the amount of $72,720.55 under contracts of the type described in paragraph 2 for minerals located in Minnesota which it had held for at least six months. For that same year, Plaintiff's total gross income from all sources, including royalties, was $73,474.30. Due to proper deductions, Plaintiff has no taxable ordinary income for such year.

(c) Plaintiff timely filed its Federal income tax return for its taxable year ending May 31, 1966. In order to determine, under Internal Revenue Code, Section 631(c), the gain to be recognized upon the disposal of domestic iron ore held for more than six months and disposed of under a contract by virtue of which Plaintiff retained an economic interest in the iron ore in place, Plaintiff subtracted from its gross receipts derived from the disposal of such iron ore $7,478.53 of the Minnesota income taxes paid in that year. If it is determined that Minnesota income taxes paid are a deduction disallowed by Section 272 of the Internal Revenue Code of 1954, as amended by Public Law 88-272, Section 227, then this amount was correctly subtracted from Plaintiff's gross receipts derived from the disposal of iron ore.

(d) The Internal Revenue Service determined income taxes paid to the State of Minnesota to be an improper subtraction from gross receipts for the purpose of determining the gain from this disposal of iron ore, and notified Plaintiff on September 29, 1969, of an income tax deficiency for the taxable year ending May 31, 1966, in the amount of $1,856.47.

5. (a) Pursuant to Minn.Stat., Chapter 290, Plaintiff paid to the State of Minnesota $5,666.25 in its taxable year ending May 31, 1967.

(b) During its taxable year ending May 31, 1967, Plaintiff received royalties in the amount of $51,304.94 under contracts of the type described in paragraph 2 for minerals located in Minnesota which it had held for at least six months. For that same year, Plaintiff's total income from all sources, including royalties, was $53,643.21. Due to proper deductions, Plaintiff had no taxable ordinary income for the same year.

(c) Plaintiff timely filed its Federal income tax return for its taxable year ending May 31, 1967. In order to determine, under Internal Revenue Code, Section 631(c), the amount of gain to be recognized upon the disposal of domestic iron ore held for more than six months and disposed of under a contract by virtue of which Plaintiff retained an economic interest in the iron ore, Plaintiff subtracted from its gross receipts derived from the disposal of such iron ore $5,419.20 of the Minnesota income taxes paid in that year. If Minnesota income taxes are a deduction disallowed by Section 272 of the Internal Revenue Code of 1954, as amended by Public Law 88-272, Section 227, then this is the correct amount to be subtracted from gross receipts to determine the amount of gain to be recognized.

(d) The Internal Revenue Service determined income taxes paid to the State of Minnesota to be an improper subtraction from gross receipts for the purpose of determining gain from this disposal of iron ore, and notified Plaintiff on September 29, 1969, of an income tax deficiency for the

444 F. Supp. 3

taxable year ending May 31, 1967, of $1,354.80

6. Plaintiff paid such deficiencies on December 15, 1969.

7. Plaintiff properly and timely filed a claim for refund of the taxes paid pursuant to the deficiency notices on December 14, 1971.

8. On July 14, 1972, the Internal Revenue Service disallowed in full Plaintiff's claims for a refund.

9. This civil suit for the recovery of Internal Revenue taxes alleged to have been erroneously or illegally assessed was timely filed.

10. This Court has jurisdiction of this matter. The venue of the matter is properly set in the District of Minnesota, Fifth Division.

11. The mineral properties subject to the contracts described in paragraph 2 under which Plaintiff received royalty income in the taxable years in question is property of the type subject to execution, sale and forfeiture under Minnesota law for failure to pay State of Minnesota income...