McWilliams Dredging Co. v. McKeigney

• Decision Date: 16 April 1956
• Docket Number: No. 40135,40135
• Citation: 86 So.2d 672,227 Miss. 730
• Parties: McWILLIAMS DREDGING COMPANY v. Alex McKEIGNEY, Chairman, State Tax Commission.
• Court: Mississippi Supreme Court

Page 672

86 So.2d 672

227 Miss. 730

McWILLIAMS DREDGING COMPANY v. Alex McKEIGNEY, Chairman, State Tax Commission.

No. 40135.

Supreme Court of Mississippi.

April 16, 1956.

Tighe & Tighe, Jackson, for appellant.

John E. Stone, Jackson, for appellee.

LEE, Justice.

This is an appeal by McWilliams Dredging Company from a decree of the Chancery Court of the First Judicial District of Hinds County, which affirmed, as modified, an additional assessment by the State Tax Commission against it for income taxes for the years 1951 and 1953.

The Company is an Illinois corporation, but has its principal office in New Orleans, Louisiana. During the years in question, it was engaged in the performance of dredging contracts. In 1951, the projects designated as Gulf Coast Sand Beach Nos. 1, 2 and 3 were performed entirely within the State of Mississippi. In addition, it performed Trunk Line Crossing over the Mississippi River between Mississippi and Arkansas, and Mid-Valley Crossing and Mid-Valley Repairs over the Mississippi River between Mississippi and Louisiana. It had a number of other projects in Illinois, Louisiana and Texas.

In 1953, the Company performed contracts on Pascagoula Road Fill, Jones Cutoff and Biloxi Beach, entirely within the State of Mississippi, and Trunk Line Repairs over the Mississippi River between Mississippi and Arkansas, and Mayersville Crossing over the Mississippi River between Mississippi and Louisiana. In addition, it had a number of other contracts in Illinois, Louisiana, Texas and North Carolina.

The Company filed its 1951 income tax return within the time provided by law, using a so-called apportionment formula. Thereafter on November 17, 1952, J. A. Hatcher, an auditor in the Income Tax Division of the State Tax Commission, advised the Company that the use of such a formula was discouraged by the Commission; that a direct accounting is better, at least gross sales to gross sales, and inquiring if such basis was possible. On January 22, 1953, H. N. Eason, the Chief of the Division, by letter, called for a response to the previous letter of November 17th. On February 6, 1953, the Company through its treasurer J. A. Kincaid, amended its return so as to show the ratio of gross receipts in Mississippi to its total gross receipts, Mississippi's percentage thereof being 20.881, and made an additional payment of $2,148.26. Several conferences occurred thereafter. In the meantime the 1953 return had been filed.

On June 21, 1954, W. L. Perdue of the special audit division of the Commission, following a recent conference, wrote the Company and enclosed a copy of the field auditor's examination. This copy went into great detail both as to the 1951 and the 1953 returns. It set up under schedules 1 and 2 the receipts from the contracts in Mississippi for both years, together with a cost detail in each instance and additional overhead costs, prorated on the basis of direct contract costs, and thus arrived at the net profits from the operations which were subject to income taxes. The Company was advised therein that its income for 1951 in the State should have been reported at $735,697.91 and for 1953 at $99,603; that it owed a balance of $44,345.63 for 1951 and $5,534.70 for 1953, including damages and interest; and that the Commission proposed the assessment of an additional tax in those amounts, subject to final determination.

On July 2, 1954, J. A. Kincaid, for the Company, acknowledged receipt of the field auditor's examination, advised that exceptions would be taken, and that, after the writer's return in July, he would contact the Commission for the purpose of a hearing.

A letter by W. L. Perdue to the Company on August 10, 1954, referred to a conference of the day before, and agreed to allow the additional overhead expenses, as claimed. A detailed statement of the basis therefor was enclosed, and it asked that check should be remitted in the sum of $38,763.09. The letter also called for payment of $1,103.68 for 1951 and 1953 franchise taxes.

On August 20, 1954, Kincaid, by letter to H. N. Eason, enclosed the franchise tax as demanded but was indefinite as to his understanding of the basis for the additional amount of income tax.

A letter of H. N. Eason, of date of August 24, 1954, in response to Kincaid's letter of the 20th, advised that his understanding was that information would be submitted to support the Company's claim that it belonged in a separate category from other taxpayers; and that the matter was not disposed of as long as the Company wished to keep it open.

Again, on September 1, 1954, Eason wrote Kincaid, advising that Perdue had accepted the Company's figures in arriving at the additional income tax of $38,763.09.

On September 17, 1954, Kincaid acknowledged receipt of Eason's letters of August 24th and September 1st and indicated his belief that the facts regarding the Company's operations in Mississippi made the state regulations for separate accounting inapplicable, and that it would probably request additional hearings.

On September 22, 1954, Eason acknowledged receipt of the above letter and advised that a hearing would be extended at any time. In justification of the Commission's demand for a separate accounting as to the contracts performed in Mississippi, he said: 'It is believed we can prove that you, of necessity, must determine the probable cost of any contract performed at any time in order to bid. Having done so, it would be the height of folly not to maintain an accounting system which would tell you whether or not you had erred in arriving at your bid. Only by such an experience can you bid intelligently, and every contractor has and will be required to report on such a basis.'

On January 10, 1955, Eason by letter to the attorneys for the Company, enclosed a detailed amended statement, showing an aggregate liability for 1951 and 1953 income taxes, including interest to January 15, 1955, of $41,134.23.

On March 3, 1955, the Company's attorneys asked for a hearing at 9:30 A.M. Thursday March 10th on the Company's income tax matter; and on March 4th thereafter Eason, by letter, advised the attorneys that such hearing would be held as requested.

On the date fixed, the Commission heard the objections to the assessment. The cause was taken under advisement and on April 21, 1955, the Commission entered an order which recited that the cause was heard on March 10, 1955, and was taken under consideration for decision at a later date, and that the Commission 'being fully advised in the premises and of the opinion that the said assessment is proper and should be upheld, does hereby sustain and approve the assessment in the following figures and particulars to-wit: Year 1951--additional tax $26,366.83, with interest from March 15, 1952, to date of payment. Year 1953--additional tax $9,795.28, with interest from March 15, 1954 to date of payment.'

The appellant maintained in the trial court, and contends here, that the additional assessment for 1951 was not 'determined and assessed within three years from the date such was filed' and was therefore barred because under Section 9247(2), ^* Code of 1942 Anno., 'no suit or other proceedings for the collection of any taxes due under the income revenue laws of the state shall be begun after the expiration of three (3) years from the date such return was filed'. The section also has a further provision in these words: '* * * Provided, further, that in the case of a false or fraudulent return with intent to evade tax or a failure to file a required return, the amount of tax due may be determined, assessed and collected, and a suit or proceedings for the collection of such amount may be begun at any time after it becomes due.'

The income tax law contemplated that there would be cases where returns would be filed, and on their face, it would appear that no tax was due, or the proper amount was being paid; but that, on an examination by the Commissioner, or his agents, it would be discovered that some tax was due in the first instance, and that more was due than had been paid, in the second instance. Therefore Section 9247(3) thereof provides: 'If upon examination of a return made under this act or income laws heretofore, a tax or a deficiency in tax is discovered, the taxpayer shall be notified thereof and given a period of not more than sixty (60) days after such notice is sent by mail in which to file an appeal and show cause or reason why the tax or deficiency should not be paid. Opportunity for a hearing before the commissioner shall be granted and a final decision thereon shall be made as quickly as practicable, and any tax or deficiency in tax found due after such hearing shall be assessed and paid together with the damages and interest, if applicable thereto, within ten (10) days after notice and demand by the commissioner.'

When the auditors checked the 1951 return, they discovered a deficiency in the tax paid--that the Company had not paid enough tax. Consequently when on June 21, 1954, Perdue wrote the Company and enclosed a copy of the detailed receipts and expenses of the Mississippi contracts, he was proceeding under Section 24, Chapter 120, Laws 1934, and Section 9247(3), supra, to assess the taxpayer with an additional liability of $44,345.63. This was subsequently reduced to $38,763.09. These figures covered both 1951 and 1953, but of course the statute of limitation had no application whatever to the assessment for 1953. It appeared that negotiations had reached an impass by January 10, 1955, when Eason affirmed the proposition that $41,134.23, including interest to January 15, 1955, was the amount due.

The acts of Perdue, Eason and other representatives, were the acts of the chairman of the Commission, in whom was vested the administration of the income tax laws. The additional assessment by them was an assessment by the chairman. Rigby v. State, 194 Miss. 775, 11 So.2d 823, 13 So.2d 230...