South Carolina Produce Ass'n v. COM'R OF INT. REVENUE

• Decision Date: 17 June 1931
• Docket Number: No. 3143.,3143.
• Citation: 50 F.2d 742
• Parties: SOUTH CAROLINA PRODUCE ASS'N v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fourth Circuit

50 F.2d 742 (1931)

SOUTH CAROLINA PRODUCE ASS'N v. COMMISSIONER OF INTERNAL REVENUE.

No. 3143.

Circuit Court of Appeals, Fourth Circuit.

June 17, 1931.

Allen G. Gartner, of Washington, D. C., for petitioner.

Wm. Cutler Thompson, Sp. Asst. to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., J. Louis Monarch, Sp. Asst. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Nathan Gammon, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for respondent.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

NORTHCOTT, Circuit Judge.

This is a petition to review a decision of the United States Board of Tax Appeals, involving deficiencies in income taxes for the fiscal years ended September 30, 1923, and September 30, 1924, in the amounts of $165.50 and $456.30, respectively. 19 B. T. A. 1028.

Petitioner is a corporation organized under the general corporation statutes of South Carolina, with its principal office at Meggett, S. C., and since its organization in 1915 has been engaged in marketing perishable produce and purchasing supplies for its members. It has authorized capital stock of $20,000, divided into 1,000 shares, voting common stock of $10 par value, and 1,000 shares non-voting common stock of $10 par value. The petitioner charged all its members a commission of 5 per cent. on sales made for them, which was its only source of income, except interest on its bank deposits during the years under review, and paid annual dividends to its stockholders of 10 per cent. upon its capital stock for all years dating from its organization from 1915 to 1924, inclusive. Subsequent to 1924 it decreased its annual dividends to 7 per cent. The legal rate in South Carolina was, and is, 7 per cent., except when by written agreement it could be made 8 per cent. In addition to the dividends paid, the petitioner had in the years 1923 and 1924 a surplus of $89,583.03 and $93,381.18, respectively, and, in addition, had a reserve for bad debts of $1,500 in each year, and a reserve for depreciation of $12,576 and $16,229.10, respectively.

The only issue is whether petitioner is exempt from taxation for its fiscal years ended September 30, 1923, and 1924, under the provisions of sections 231 (11) of the Revenue Acts of 1921 (42 Stat. 253) and 1924 (26 USCA § 982 note), which are identical, and which are as follows:

"Sec. 231. The following organization shall be exempt from taxation under this title —

"(11) Farmers', fruit growers', or like associations, organized and operated as sales agents for the purpose of marketing the products of members and turning back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of produce furnished by them; or organized and operated as purchasing agents for the purpose of purchasing supplies and equipment for the use of members and turning over such supplies and equipment to such members at actual cost, plus necessary expenses."

All of the provisions of article 522 of the Commissioner's Regulations 62, pertaining to the 1921 act, are contained in article 522 of his Regulations 65 of the 1924 Act, which provides:

"Art. 522. Cooperative Associations. — (a) Cooperative associations, acting as sales agents for farmers, fruit growers, live-stock growers, dairymen, etc., or engaged in the marketing of farm products, and turning back to the producers the proceeds of the sales of their products, less the necessary operating expenses, on the basis of the produce furnished by them, are exempt from income tax and shall not be required to file returns. Thus cooperative dairy companies which are engaged in collecting milk and disposing of it or the products thereof and distributing the proceeds, less necessary operating expenses, among the producers upon the basis of the quantity of milk or of butter fat in the milk furnished by such producers, are exempt from the tax. If the proceeds of the business are distributed in any other way than on such a proportionate basis, the association does not...