Kramertown Company, Inc. v. CIR
| Citation | 488 F.2d 728 |
| Decision Date | 23 January 1974 |
| Docket Number | No. 73-2809 Summary Calendar.,73-2809 Summary Calendar. |
| Parties | The KRAMERTOWN COMPANY, INC., Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
Charles Delbert Hosemann, Jr., Charles L. Brocato, Jackson, Miss., for petitioner-appellant.
Scott P. Crampton, Meyer Rothwacks, Asst. Attys. Gen., Tax Div., U. S. Dept. of Justice, Leonard J. Henzke, Jr., Lawrence B. Gibbs, Acting Chief Counsel, I. R. S., Alfred S. Lombardi, Tax Div., Dept. of Justice, Washington D. C., for respondent-appellee.
Before WISDOM, AINSWORTH and CLARK, Circuit Judges.
The Kramertown Company (taxpayer) appeals from the tax court's holding that the cost of certain rooftop air conditioning and heating units was not eligible for the investment credit.1 We affirm.
The facts relevant to this appeal were mainly stipulated and are in part as follows. Taxpayer is the owner of a seven store shopping center. It provides rooftop heating and air conditioning units to six of the center's store tenants pursuant to negotiated leases.2 The eleven units provided for these six stores cost the taxpayer 69,021.71 dollars. These dual energy units are supplied with natural gas and electric energy from the interior of the stores. The gas lines run through an exterior cutoff valve before reaching the point of connection to the units which is a pipe coupling. The electric lines run through an exterior weather-proof disconnect switch box before the ultimate point of connection to the units. The units themselves rest upon wood runners or steel beams laid upon the finished surface of the roof and are not directly attached to the building. However, the units are connected to permanent ducts which lead through the roof surface into the store they service. These same ducts distribute treated air throughout the inside of the store.
Section 38(a) of the Internal Revenue Code of 1954 provides for a credit against income tax for investment in certain depreciable property. Section 48 of the Code defines "Section 38 property" as tangible property but "not including a building and its structural components." Since these heating and air conditioning units are clearly tangible property, the issue presented by this appeal turns upon whether the units are structural components of a building for purposes of Section 48.
Treas. Reg. 1.48-1(e)(2) provides: "the term `structural components' includes such parts of buildings as walls, partitions, floors and ceilings, as well as any permanent coverings therefor, such as paneling or tiling; windows and doors, all components (whether in, on, or adjacent to the building) of a central air conditioning or heating system, including motors, compressors, pipes and ducts." The tax court held each of the rooftop units in the instant case to be a component of the storewide central air conditioning system of which it is a part within Treas.Reg. 1.48-1(e)(2). Although it is based on facts that were mainly stipulated, this ultimate factual conclusion is binding if it is a permissible inference even though this court might have reached a contrary result had it been the trier of fact. Moreover, our independent review of the facts leaves us without the slightest doubt that these combination air conditioning and heating units, are as much parts of a central system for each store as such units would be if they had been built into the roof or walls or otherwise more permanently integrated with the other internal components.
The taxpayer argues that the effect of Treas.Reg. 1.48-1(e)(2) and the interpretive revenue rulings is contrary to the intent of Congress in two respects: (1) they fail to adequately distinguish between individual air conditioning units and a central air conditioning system as required by the legislative history of Section 38; (2) they fail to accord enough significance to state fixtures law and employ a test contrary to the Eighth Circuit's decision in Minot Federal Savings and Loan v. United States, 435 F.2d 1368 (1970).
The technical explanation of the Revenue Act of 1962 contained in the Senate Report states:
The House Ways and Means Committee Report also contains an express distinction between individual units and components of a central air conditioning system.4 While the Treasury Regulation speaks only in terms of a central air conditioning system and does not also refer to individual air conditioning units as did the legislative reports, taxpayer ascribes entirely too much to the form used to set out the regulation.
Section 38(b) provides: "the Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this section and subpart B." The reason for this statutory grant of power in Section 38 is obvious. Congress deemed it more appropriate to rely upon the administrative flexibility of the Treasury Department for those nice distinctions which must be drawn as to eligibility of various types of property for the investment credit. Regulations issued pursuant to the express statutory authorization in Section 38(b) are legislative in character and as binding upon a court as a statute if they are (a) within the granted power (b) issued pursuant to proper procedure and (c) reasonable. K. Davis, Administrative Law, Section 5.03 at 299.
Since the taxpayer does not allege procedural deficiencies in the issuance of these regulations, it must show that they are without the power granted by Section 38 or that they are unreasonable. It is true that the regulation does define structural components only in terms of including components of a central air conditioning system, rather than taking the dual approach of also setting out specifically that structural components excluded individual air conditioning units. However, the mere utilization of this form of expression furnishes too slight a basis to infer that the Secretary intended thereby to expand the...
To continue reading
Request your trial
-
Illinois Cereal Mills, Inc. v. C.I.R.
...classified as fixtures and, therefore, technically real property) would still qualify for the ITC. Kramertown Co. v. Commissioner of Internal Revenue, 488 F.2d 728, 731 (5th Cir.1974); H.R.Rep. No. 1447, 87th Cong., 2d Sess. 11-12 (1962); S.Rep. No. 1881, 87th Cong., 2d Sess. 16 The test fo......
-
Hosp. Corp. of America & Subsidiaries v. Comm'r of Internal Revenue
...to the land? Movability itself is not the controlling factor in deciding whether the property lacks permanence. Kramertown Co. v. Commissioner, 488 F.2d 728, 731 (5th Cir.1974), affg. T.C. Memo.1972–239; see also Consolidated Freightways v. Commissioner, 708 F.2d 1385, 1390 (9th Cir.1983) (......
-
Texas Instruments Incorporated v. Commissioner
...citing Everhart v. Commissioner [Dec. 32,241], 61 T.C. 328, 331 (1973), and Kramertown Co. v. Commissioner [74-1 USTC ¶ 9196], 488 F.2d 728, 731 (5th Cir. 1974), affg. [Dec. 31,622(M)] T.C. Memo. 1972-239. In that case, we considered the Whiteco (Whiteco Industries, Inc. v. Commissioner [De......
-
Anderson, Clayton & Co. v. U.S.
...regulation may be characterized as a legislative rule, it is as binding on a court as a statute. See Kramertown, Inc. v. Commissioner of Internal Revenue, 488 F.2d 728 (5th Cir. 1974); K. Davis, Administrative Law § 5.03 (3d ed. 1972). Before addressing the questions whether Treas.Reg. § 1.......
-
Depreciation planning for newly acquired commercial real estate.
...land? Movability in and of itself is not the controlling factor in deciding to which class of property an item belongs (Kramertoun Co., 488 F2d 728 (5th Cir. The HCA court looked at different types of property, including: Primary and secondary electrical distribution systems: Items included......