Sand Springs Railway Co. v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 21 January 1931 |
| Docket Number | Docket No. 32438,35103,35104,39959.,32439,35106,35105 |
| Citation | 21 BTA 1291 |
| Parties | SAND SPRINGS RAILWAY CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT, AND CONSOLIDATED CASES. |
| Court | U.S. Board of Tax Appeals |
J. S. Y. Ivins, Esq., for the petitioner.
John D. Foley, Esq., for the respondent.
The Commissioner has determined deficiencies in income and profits taxes against the petitioner, Sand Springs Power, Light & Water Co., of $10,710.40 for the fiscal year ended June 30, 1918, of $904.58 for the fiscal period July 1 to December 31, 1919, of $866.70 for 1920 and $4,150.63 for 1921. Against the Sand Springs Railway Co. he determined deficiencies of $28,166, $24,400.85, $34,879.98, $12,961.68, $23,157.16, and $19,020.86 for the fiscal years ended June 30, 1918, 1919, 1920, 1921, 1922, and 1923, respectively, and, by notice mailed after a proceeding had been instituted before the Board with respect to those years, purported to determine a deficiency of $19,873.60 against that company for the calendar year 1923. Against the Sand Springs Gas Co. he determined deficiencies of $13,351.56 for the fiscal year ended June 30, 1918, and of $3,475.97, $990.15, $1,410.98, and $801.08 for the calendar years 1921, 1923, 1925, and 1926, respectively. Against the Sand Springs Water Co. he determined deficiencies of $1,096.36 and $76.85 for the fiscal years ended June 30, 1929 and 1921, respectively, and, after proceedings instituted before the Board with respect to those years, purported to determine a deficiency of $505.77 for the calendar year 1920. He determined a deficiency of $624.67 against the Sand Springs Park for the fiscal year ended June 30, 1917, and deficiencies of $1,090.16 and $516.29 against the Mary Oil & Gas Co. for the fiscal years ended June 30, 1918 and 1920, respectively.
The errors assigned and now urged are (1) that in computing the taxable income of Sand Springs Railway Co. for each year the Commissioner erroneously included the net receipts from operation under a franchise to supply electricity to the city of Tulsa or, in the alternative, failed to allow a deduction of such amount; (2) that in computing the taxable income of Sand Springs Railway Co. for each of the years involved the Commissioner disallowed a deduction of $18,000 paid as interest on bonds; (3) that invested capital has been improperly adjusted for taxes of prior years (involving no more than a recomputation for the respective years to reflect any adjustments in taxes for prior years occasioned by the decision in these proceedings); and (4) that the Commissioner erroneously held that the income of the Sand Springs Gas Co. and the Sand Springs Power, Light & Water Co. was not exempt from tax after December 31, 1919.
The proceedings bearing Docket Nos. 35103 to 35106, inclusive, involve other questions, but by agreement of counsel and with the consent of the Board the hearing in those cases was limited to the issues involved in the other proceedings. Some of the petitioners are involved only because, being affiliated with Sand Springs Railway Co. and having filed consolidated returns, their tax liability will be affected by any change affecting the Railway Co.
FINDINGS OF FACT.
The Sand Springs Power, Light & Water Co., Sand Springs Railway Co., Sand Springs Gas Co., Sand Springs Water Co., Sand Springs Park, Mary Oil & Gas Co., Sand Springs Oil Co., and Margaret Oil Co. are Oklahoma corporations.
The Sand Springs Home (hereinafter referred to as the Home) is a corporation organized under the laws of the State of Oklahoma.
In the year 1908 one Charles Page began, at his own expense, to take care of certain aged persons and orphans. He devoted to that purpose a tract of land which he owned at Sand Springs, Okla., and erected buildings thereon. He subsequently increased the number of buildings on the tract of land and the number of persons to whom he was extending aid, until in January, 1912, he was supporting about sixty persons.
On August 9, 1912, Page, in order to continue and perpetuate his charitable enterprises, caused the Home to be incorporated, and immediately transferred to it the property that he was at that time using for the benefit of the persons depending on his charity. The articles of incorporation were executed by Charles Page, Edwin A. Page, Claude F. Tingley, B. F. Breeding and C. E. Buchner. They are set forth in full in the findings of fact in the proceeding before this Board known as Sand Springs Home v. Commissioner of Internal Revenue, Docket No. 4871, reported at 6 B. T. A. 198, and are incorporated herein by reference with the same force and effect as if set out herein in full.
On August 3, 1918, amended articles of incorporation for the Home were executed by Charles Page, Edwin A. Page, C. F. Tingley, and B. F. Breeding, and were filed in the office of the Secretary of State of Oklahoma. They are set forth in the proceeding mentioned above and are incorporated herein by reference with the same force and effect as if set out herein in full.
The Home has no stockholders. During the years 1917 to 1926, inclusive, it was managed by five trustees, who received no salaries, except one who was paid $150 per month for acting as superintendent of the Home, to which work he devoted his entire time.
When the Home was first incorporated it had no assets that produced income. Charles Page from time to time transferred to it land and other assets. In the year 1914 or 1915 he transferred to it an oil and gas lease known as the "Atkins Lease," which has up to the present time produced a substantial income. The income not necessary for carrying out the Home's charitable activities has been reinvested in various enterprises which produce income, the excess income being invested for the purpose of accumulating an endowment fund.
In the years 1917 to 1926, inclusive, the charitable activities of the Home consisted in maintaining a large dormitory for orphan children, who were given food, clothing, shelter, medical and dental treatment, and primary education at the expense of the Home. They were later sent by the Home to public schools and some of them were subsequently educated in universities. A widows' colony was maintained where widows, especially those with children, who were unable to support themselves were furnished with cottages, light, water, gas, milk and ice, and in some cases with food and clothing. The Home also maintained a day nursery for the children of widows who had employment; an oral school where deaf children were taught, and a nonsectarian church. The Home also contributed money to the Salvation Army and other similar organizations; on occasions it opened an amusement park owned by it to charitable, benevolent and religious organizations for picnics, etc.; it furnished to the Light House Rescue Mission the use of the buildings occupied by it and it furnished camps to the Boy Scouts and the colored girls' Y. W. C. A. It distributed food and clothing to persons in need and at Christmas time made a canvass of the whole vicinity for the purpose of furnishing boxes to all needy persons. Persons out of employment were given money at times to assist them until they could secure work, and needy persons were treated at the expense of the Home in the Sand Springs Home hospital. Bottled water was furnished free to numerous religious and charitable institutions, medical and dental attention was also furnished without cost to needy persons by the Home, and it sent tubercular patients to Colorado for treatment. The Home also maintained a business college where pupils able to pay were required to pay, but those unable to pay were taught free. It furnished school books and clothing to poor children who were not inmates of the institution and it maintained a cemetery and furnished burial lots to the poor without cost, and in some cases furnished caskets and burial clothing.
Orphan children were received at the home at all ages from birth up to twelve years. Those received before the age of twelve were maintained by the Home until they became self-supporting.
For the purpose of supplying provisions for its charitable activities, the Home maintained upon its own land farms, gardens, a dairy, a cereal mill, a cannery, and a cold storage plant, and produced its own wheat, flour, vegetables, and fruits of all kinds, and milk, poultry, beef and pork. All provisions used by the Home during the years 1917 to 1926, with the exception of salt, sugar, tea, coffee and spices, were produced by it on its own land. The Home produced on its land a surplus of provisions, and this surplus, amounting to about 10 per cent of the total produced, was sold to the general public at regular market prices.
In order to produce income with which to carry on its charitable activities and to accumulate a permanent endowment, the Home operated oil and gas leases, and sold oil to refineries and gas to distributing companies. It generated and sold electricity for light and power, and maintained a reservoir from which water was sold to the general public at commercial rates. It operated a greenhouse where flowers and shrubs were raised and sold to the general public at commercial prices; and the greater portion of the spring water from springs on its premises was bottled and sold to the public at 10 cents a bottle, which was the usual price in the vicinity. The Home also owned and operated a cotton gin in which it ginned not only its own cotton, but that of the general public, and charged the rates fixed by the Corporation Commission of Oklahoma. The Home also owned an amusement park, known as Sand Springs Park, which was leased to a corporation which operated it for profit, but the children and other persons supported by the Home were allowed free access to the park and to all the amusements therein. In its business activities, the Home traded with the general public and competed with other...
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