Omaha Public Power District v. O'MALLEY

• Decision Date: 16 December 1954
• Docket Number: No. 15002,15003.,15002
• Parties: OMAHA PUBLIC POWER DISTRICT, a public corporation and political subdivision of the State of Nebraska, and Nebraska Power Company, a corporation, Appellants, v. George W. O'MALLEY, Collector of Internal Revenue for the United States Internal Revenue Commission, District of Nebraska, Appellee. OMAHA PUBLIC POWER DISTRICT, a public corporation and political subdivision of the State of Nebraska, Western Iowa Power Company, a corporation, Iowa Power and Light Company, a corporation, and Omaha Electric Committee, Inc., a corporation, Appellants, v. George W. O'MALLEY, Collector of Internal Revenue for the United States Internal Revenue Commission, District of Nebraska, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

216 F.2d 764 (1954)

OMAHA PUBLIC POWER DISTRICT, a public corporation and political subdivision of the State of Nebraska, and Nebraska Power Company, a corporation, Appellants, v. George W. O'MALLEY, Collector of Internal Revenue for the United States Internal Revenue Commission, District of Nebraska, Appellee.

OMAHA PUBLIC POWER DISTRICT, a public corporation and political subdivision of the State of Nebraska, Western Iowa Power Company, a corporation, Iowa Power and Light Company, a corporation, and Omaha Electric Committee, Inc., a corporation, Appellants, v. George W. O'MALLEY, Collector of Internal Revenue for the United States Internal Revenue Commission, District of Nebraska, Appellee.

Nos. 15002, 15003.

United States Court of Appeals Eighth Circuit.

November 24, 1954.

Rehearing Denied December 16, 1954.

Reece A. Gardner, Kansas City, Mo. (Raymond M. Crossman, Thomas C. Quinlan, Omaha, Neb., G. Lee Burns, Kansas City, Mo., Brown, Crossman, West, Barton & Quinlan, Omaha, Neb., and Stinson, Mag, Thomson, McEvers & Fizzell, Kansas City, Mo., on the brief), for appellants.

Karl Schmeidler, Sp. Asst. to Atty. Gen. (H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack, Sp. Asst. to Atty. Gen., and Donald R. Ross, U. S. Atty., Omaha, Neb., on the brief), for appellee.

Before SANBORN, WOODROUGH and JOHNSEN, Circuit Judges.

SANBORN, Circuit Judge.

These are actions for the recovery of federal excise taxes imposed on sales of electrical energy by § 3411 of the Internal Revenue Code, 26 U.S.C. (1946 ed.) § 3411.¹ The appellants claimed that the taxes were erroneously paid and collected, because the plants of the taxpayers² were publicly owned and § 3411(c) exempted "publicly owned electric and power plants" from payment of the tax.

The taxes involved in No. 15,002 were paid for the months from May 1, 1946, to December 2, 1946, by the Nebraska Power Company, a Maine corporation, and amounted to $151,552.68. (Refund of taxes paid for months prior to May 1, 1946, was barred by limitations.)

The taxes involved in No. 15,003 were paid for the period December 2, 1946, to May 14, 1949, by Western Iowa Power Company, an Iowa corporation, in the aggregate amount of $100,080.79.

Claims for refund of the taxes in suit were filed by the taxpayers and the Omaha Public Power District, a political subdivision of the State of Nebraska. The Power District on December 2, 1946, had acquired the plants and properties in Nebraska of the Nebraska Power Company, and claimed to have been, prior to that date, the beneficial owner of the plants and properties of the taxpayers. The Commissioner of Internal Revenue rejected the claims. The instant actions followed.

The issues raised were: (1) whether prior to December 2, 1946, the electric and power plants of the Nebraska Power Company were "publicly owned" within the meaning of § 3411(c), Title 26 U.S. C. (1946 ed.); and (2) whether prior to May 14, 1949, the plant of the Western Iowa Power Company was "publicly owned." These issues were submitted to the District Court upon voluminous stipulations of fact showing in detail every circumstance and transaction which was thought to have any possible relevancy. The District Court concluded that the plants and properties of the taxpayers were not "publicly owned" during the periods for which the taxes were paid, and that the taxes were not erroneously paid or collected. Judgments were entered accordingly, and these appeals followed.

The District Court, in the case which sought recovery of the taxes paid by the Nebraska Power Company for the months from May 1, 1946, to December 2, 1946 (Appeal No. 15,002), filed an opinion, D.C., 114 F.Supp. 3, in which the stipulated facts are stated in detail. Since only the conclusions of the court are under attack, there is no need for restating in detail the facts stipulated. The general factual basis for the claims that the taxpayers were exempt from the tax, and the bases for the disallowance of the claims by the Commissioner of Internal Revenue, can be gathered from the claims for refund and the letters of the Commissioner denying the claims.

We quote the following from the claim for refund of the taxes paid by the Nebraska Power Company for the months from May 1, 1946, to December 2, 1946:

"For several years prior to and on December 26, 1944, Nebraska Power Company, a corporation organized under the laws of Maine, owned and operated electric power generating plants and an electric power distribution system in the city of Omaha and adjacent territory in Nebraska, and a part of its distribution system extended into and served residents of the State of Iowa.

"Prior to December 26, 1944, citizens of the city of Omaha formed a plan to organize a public power district as a political subdivision of the State of Nebraska, and to cause it to acquire and operate the Nebraska Power Company's electrical generating plants and its distribution system lying and being within the State of Nebraska.

"To that end, on December 9, 1944, those citizens incorporated Omaha Electric Committee, Inc., under the nonprofit corporation laws of the State of Nebraska without capital stock.

"On December 26, 1944, Omaha Electric Committee, Inc., purchased all of the outstanding common stock of Nebraska Power Company for the declared purpose of holding it until a corporation could be organized as a political subdivision of the State of Nebraska for the purpose of acquiring and taking over the Nebraska Power Company's generating plants and its distribution system lying within the State of Nebraska. Upon the acquisition of all of the stock of Nebraska Power Company by Omaha Electric Committee, Inc., the old officers and board of directors of the former company resigned, and all were replaced by persons selected by Omaha Electric Committee, Inc.

"From that time until December 2, 1946, Nebraska Power Company was wholly owned, controlled and operated by Omaha Electric Committee, Inc., as a publicly owned electric and power plant.

"In furtherance of the plan mentioned above, on September 14, 1945, Omaha Electric Committee, Inc., caused Omaha Public Power District to be organized under and pursuant to sections 70-601 and 70-679 70-609 of the Revised Statutes of Nebraska, 1943, as amended by Chapter 157, Laws of Nebraska, 1945, page 515. As so organized, Omaha Public Power District became, was, and is a political subdivision of the State of Nebraska. Section 70-602, Revised Statutes of Nebraska, 1943, as amended; Amburst v. Wardner G. Scott (District Court of Lancaster County, Nebraska).

"Omaha Public Power District was without authority to own and operate that part of the Nebraska Power Company's distribution system lying in the State of Iowa, and in order for Omaha Public Power District to carry out the purposes for which it was organized, it was essential that the Iowa distribution system be divorced and severed from the Nebraska properties. To that end, on October 19, 1946, Omaha Electric Committee, Inc., and Omaha Public Power District entered into an agreement, under the terms of which Omaha Electric Committee, Inc., agreed to organize a company under the laws of the State of Iowa, to purchase all of its outstanding stock, and then to transfer to it a portion of the common stock of Nebraska Power Company in exchange for bonds to be issued by the Iowa Company. The remaining stock of Nebraska Power Company was to be transferred to Omaha Public Power District.

"Pursuant to that agreement, on November 7, 1946, Omaha Electric Committee, Inc., organized Western Iowa Power Company as a corporation under the laws of Iowa, purchased all of its outstanding stock for $50,000, which was at par, and on December 2, 1946, transferred to it part of the common stock of Nebraska Power Company in exchange for bonds of Western Iowa Power Company. The remainder of the stock of Nebraska Power Company was transferred to Omaha Public Power District.

"On December 2, 1946, Omaha Electric Committee, Inc., and Omaha Public Power District entered into an agreement, under the terms of which it was acknowledged that all of the property held and owned by Omaha Electric Committee, Inc., belonged to Omaha Public Power District. On that date, Omaha Public Power District and Western Iowa Power Company, as shareholders of Nebraska Power Company, caused it to distribute to Western Iowa Power Company substantially all of its distribution system located in Iowa in complete cancellation and redemption of all of the stock of Nebraska Power Company then owned by Western Iowa Power Company, leaving Omaha Public Power District the owner of all issued and outstanding common stock of Nebraska Power Company.

"Thereupon, Nebraska Power Company distributed to Omaha Public Power District all of the remainder of its assets, with the exception of $25,000 and a claim for refund of Federal income taxes which had theretofore been filed, in cancellation and redemption of all but ten shares of the issued and outstanding common stock of Nebraska Power Company. Omaha Public Power District assumed and agreed to pay all of the obligations of Nebraska Power Company.

"Since that time, Omaha Public Power District has continued to own and it now owns all of the issued and outstanding shares of common stock of Nebraska Power Company. Between 1932 and December 2, 1946, Nebraska Power Company never raised any of the rates at which it sold electric energy, and it never at any time added any part of the tax imposed by section 616(a) of the Revenue Act of 1932, as amended by the Act of June 16, 1933 (Section 3411, Internal Revenue Code) to the price at which it sold electricity.

"On May 14, 1949, Omaha Electric Committee, Inc., sold all of the common stock of Western Iowa Power Company to Iowa Power and Light Company, and all of the net proceeds of the sale, if any, were turned over to Omaha Public Power District.

* * * * * *

"The refunds for which claim is hereby made will inure...