South Coast Corp. v. Commissioner of Internal Revenue, 013147 FEDTAX, 446 P. T.

Docket Nº:Docket 446 P. T.
Opinion Judge:Kern, Judge
Party Name:THE SOUTH COAST CORPORATION, Individually and as Successor to the SOUTH COAST CO., Petitioner. v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Attorney:J. Sterling Halstead, Samuel J. Sherman, Esqs., and Harry Janin, C.P.A., for the petitioner. Royal E. Maiden, Jr., and Lloyd C. Hooks, Esq., for the respondent.
Case Date:January 31, 1947
Court:United States Tax Court

1947 PH TC Memo 47,023

THE SOUTH COAST CORPORATION, Individually and as Successor to the SOUTH COAST CO., Petitioner.

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

Docket No. 446 P. T.

United States Tax Court

January 31, 1947

Processing tax-admissibility of evidence determined-processing tax refund denied where taxpayer failed to show it had borne burden of tax.-

Commissioner's objection to admission of evidence sustained. The evidence was of additional facts or new facts upon which the Commissioner had not had an opportunity to pass when reviewing the claim for refund of processing taxes. Taxpayer was unsuccessful in contending that Commissioner examined taxpayer's claim at the risk of waiving all rights to object to the introduction in evidence of material claimed in the books and records. Evidence of allocation of costs admissible although not offered prior to rejection of claim. Taxpayer had followed the accounting practice of not allocating initial planting and cultivation costs in determining its costs. The allocating evidence set up no new facts as a basis for recovery but merely substantiated as substantially correct the cost figures used previously.

Processing tax refund denied where taxpayer failed to show it had borne the burden of tax. In determining average margins, taxpayer used only a twelve-month comparative period ‘before and after the tax‘, instead of a thirty-month period. Taxpayer did not cover the missing 18 months, which he could have done by offering price data of representative concerns. In addition, the Commissioner offered evidence that taxpayer increased the sale price of its product by substantially the amount of the tax and that taxpayer included the tax in the sale price. This had the effect of rebutting any presumption, favorable to the taxpayer, which might have been established by average margin computations.- Ed.

J. Sterling Halstead, Samuel J. Sherman, Esqs., and Harry Janin, C.P.A., for the petitioner.

Royal E. Maiden, Jr., and Lloyd C. Hooks, Esq., for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

Kern, Judge:

This proceeding arises from the disallowance by the respondent of a claim for refund, as amended, filed by the petitioner for the refund of amounts paid as processing taxes under the provisions of the Agricultural Adjustment Act, as amended, with respect to the processing of raw sugar into refined sugar. A timely claim for refund was originally filed by the petitioner, The South Coast Corporation, in the amount of $144,584.28. Subsequent thereto, an amended claim for refund in the amount of $244,424.40 was filed in which the name of the claimant was stated as ‘The South Coast Company and the South Coast Corporation, successor to the South Coast Company pursuant to 77B reorganization‘. The claim for refund, as amended, was disallowed in full by the respondent by an appropriate letter dated March 27, 1943, on the ground that petitioner had not established that it had borne the burden of the tax. Both the original and amended claims were filed pursuant to Title VII of the Revenue Act of 1936, and were on the official form prescribed by the respondent, namely, P. T. Form 79. The question for decision is whether the petitioner is entitled to any refund of the tax, and if so, in what amount?

The facts have been presented to the Court by stipulation, oral testimony and documentary evidence.

FINDINGS OF FACT

The petitioner, The South Coast Corporation (hereinafter referred to as the ‘Corporation‘), is a corporation with its principal office in New Orleans, La. Its predecessor, The South Coast Co. (hereinafter referred to as the ‘Company ‘), had been placed under an equity receivership in June 1930, by the United States District Court for the Eastern District of Louisiana, and receivers had been appointed for and took possession of the business and assets of the Company. In June 1934, a proceeding was filed for the reorganization of the Company pursuant to Section 77B of the Bankruptcy Act and on May 6, 1935, trustees were appointed to manage, operate and conduct the business and property of the Company. Pursuant to the Plan of Reorganization of the Company, the Corporation was organized on July 15, 1935, and on or about September 30, 1935, an order was entered by the District Court vesting in the Corporation all the assets and properties of the Company and its estate in reorganization including the Company's claim against the United States for refund of processing taxes. For the purposes of this case, the operations of the Corporation and its predecessor Company, will be considered together as if one taxpayer-corporation, and references hereinafter made to ‘petitioner‘ will apply both to the Corporation and to its predecessor in reorganization, except where otherwise expressly indicated.

The business of the petitioner during all the times material to this proceeding was the operation of sugar cane plantations in the State of Louisiana, the production and purchasing of sugar cane, the processing of sugar cane into raw sugar, the selling of raw sugar, the processing of raw sugar into refined sugar and the selling of refined sugar. In addition raw sugar was purchased in the fall of 1935 and in the spring of 1936. All of the raw sugar produced during the pertinent periods was produced from sugar cane either grown or purchased from others. Refined sugar was produced by the petitioner from raw sugar derived from purchased cane and grown cane and also from purchased raw sugar. The petitioner did not sell any sugar cane. Petitioner also produced molasses during 1932.

Petitioner owned and operated four sugar plantations known as divisions and respectively designated as the Oaklawn Division, the Ashland Division, the Terrebonne Division and the Georgia Division. Petitioner's grinding and refining operations were seasonal in character during the period material in this proceeding. The raw sugar factories at Terrebonne and Oaklawn were operated for only a short time each year, beginning with the grinding season which starts with October of each year and ends in January of the following year. The factory at Georgia, which did refining as well as grinding was operated during the same periods; in addition raw sugar was refined at the Georgia factory during the periods from June 1, 1934, to July 24, 1934, and from February 1, 1936, to May 31, 1936. When not in operation, the factories remained idle undergoing repairs.

The petitioner was a processor within the meaning and intent of the Agricultural Adjustment Act of 1933, as amended, with respect to the first domestic processing of raw sugar into refined sugar.

The processing tax on the refining of sugar took effect on June 8, 1934. The statutory ‘tax period‘ with respect to which the petitioner actually paid processing taxes began on June 8, 1934, and ended on November 30, 1935. The statutory ‘period before and after the tax‘, hereinafter sometimes referred to as the ‘base period‘, extended from June 8, 1932, to and including June 7, 1934, and from February 1, 1936, to and including July 31, 1936.

In its claims for refund, which are incorporated herein by reference, petitioner submitted marginal computations for a ‘period before and after the tax‘ covering the period from October 1, 1933, to and including June 7, 1934, and the period from February 1, 1936, through May 1936. No marginal data was furnished in the claims covering the other parts of its statutory base period, showing ‘average prices paid or received by representative concerns engaged in a similar business and similarly circumstanced‘ which ‘were necessary for a fair comparison‘.

During the period from June 8, 1934, to September 30, 1935, processing taxes were paid on behalf of the company and its estate in reorganization to the collector of internal revenue for the district of New Orleans, La., in the total amount of $220,351.53, on the dates and in installments as follows:

Refined sugar

Produced Processing

Dates Processed (pounds) Taxes Paid Dates Paid

June 8 to 30, 1934 ....... 6,896,300 $ 24,423.82 October 29, 1934

12,471.39 December 22, 1934

July 1 to 24, 1934 ....... 6,869,800 36,753.43 November 9, 1934

October 20 to 31, 1934 ... 3,058,600 16,363.51 December 1, 1934

November 1 to 30, 1934 ... 9,143,100 48,915.59 January 2, 1935

December 1 to 31, 1934 ... 8,524,800 45,607.68 February 20, 1935

January 1 to 21, 1935 ... 6,694,600 35,816.11 February 28, 1935

---------- -----------

Totals ............. 41,187,200 $220,351.53

Processing taxes were paid to the same collector by the Corporation on sugar processed during the period from October 1, 1935, to November 30, 1935, in the total amount of $24,072.87, on the dates and in installments as follows:

Refined Sugar

Produced Processing

Dates Processed (Pounds) Taxes paid Dates Paid

October 25 to 31, 1935 ... 2,195,100 $ 11,743.79 December 2, 1935

November 1 to 30, 1935

(tax paid on 1/4 of

production) ........... 2,304,500 12,329.08 January 2, 1936

--------- -----------

Totals ............. 4,499,600 $ 24,072.87

The total processing taxes so paid by the petitioner amounted to $244,424.40, which represented the processing of 45,686,800 pounds of refined sugar during the tax period. The quantity of raw sugar processed to produce this amount of refined sugar was 48,884,876 pounds.

In the twenty-four months immediately preceding the effective date of the processing tax, namely, June 8, 1932, to and including June 7, 1934, (hereinafter referred to as the pre-tax period), and in the period from February...

To continue reading

FREE SIGN UP