Southland Corp. v. United States

• Decision Date: 12 December 1979
• Docket Number: No. 487-76.,487-76.
• Citation: 611 F.2d 348
• Parties: The SOUTHLAND CORPORATION v. The UNITED STATES.
• Court: U.S. Claims Court

611 F.2d 348

The SOUTHLAND CORPORATION v. The UNITED STATES.

No. 487-76.

United States Court of Claims.

December 12, 1979.

Stanley C. Simon, Dallas, Tex., attorney of record, for plaintiff. Carol Buehrens, Washington, D. C., and Simon & Twombly, Dallas, Tex., of counsel.

James S. Maxwell, Washington, D. C., with whom was Asst. Atty. Gen. M. Carr Ferguson, Washington, D. C., for defendant. Theodore D. Peyser, Jr., and Robert S. Watkins, Washington, D. C., of counsel.

Before NICHOLS, KASHIWA, and SMITH, Judges.

OPINION

KASHIWA, Judge.

This is an action for recovery of an alleged overpayment by plaintiff of federal corporate income taxes in the amounts of $30.49 and $7,475.61 for the years 1970 and 1971 respectively, plus assessed and statutory interest thereon. The case was heard before a trial judge. The trial judge held certain of plaintiff's property was not tangible personal property under Internal Revenue Code section 48¹ and therefore ineligible for the section 38 investment tax credit.² Plaintiff has excepted to the trial judge's findings and conclusions. For the reasons stated below, we reverse the trial judge and hold for plaintiff.

Plaintiff operates convenience stores under the familiar "7—Eleven" name. During the years in issue, 1970 and 1971, plaintiff erected 132 "pole signs" in front of its stores. A pole sign consists in part of a steel tube that is 20 feet long, is either round or square in shape, and is 8 inches in diameter. The walls of the tube are ¼ inch thick. The tube is set 6 feet below ground level in a concrete foundation. On each of the poles installed in 1970 and 1971, the concrete extended 2½ feet above ground level and served as a bumper to protect the pole. Atop the pole, a sign head is mounted with four bolts. The sign faces are then attached to the sign head. The faces were of two different sizes—Model 40 is 5 feet 7 inches by 7 feet 1 inch, Model 80 is 8 feet 2½ inches by 10 feet 3¼ inches. The head, faces, pole, foundation, concrete and cost of installation are collectively called a pole sign.

With respect to the pole signs erected in 1970 and 1971, a typical head cost about $600, a typical pole cost about $200, and a typical installation, including the concrete and reinforcing material, cost about $320. Thus a typical pole sign erected in the years in issue cost plaintiff about $1,120.

A pole sign has a useful life of 5 years, on the average.

Of the 132 pole signs, 38 were located on land owned by plaintiff, and 94 on land owned by others and leased to plaintiff. At the time of installation on leased property, all but one of the leases had a remaining unexpired lease term longer than the useful life of the pole signs located on leased property. None of the leases contained an express written obligation on the part of plaintiff to remove the pole sign upon the expiration of the term of the lease nor empowered the lessor to require summary removal of the pole sign. All the leases provided that pole signs erected on leased lands remained the property of, and could be removed by, plaintiff.

Although plaintiff expected all its stores to be successful, management could not be omniscient and a certain percentage of stores were closed. Of the total number of new stores opened plus stores acquired prior to 1970, 9 percent had been closed by the end of 1969. Of the number opened and acquired prior to 1971, 12 percent had closed by the end of 1970.³

When plaintiff closes a store, it has the pole sign removed. This is usually done by two men, with a crane. The sign head, with the face still attached, is unbolted and lifted off. There are two methods of removing the pole. The first is to cut the pole off at the top of the concrete bumper. If this is done, total removal time is from 2½ hours to 3 hours and total cost is from $100 to $150. The other is to, with a jackhammer, remove the concrete bumper and possibly a small part of the foundation. The pole is then severed at or below ground level. The small, resulting hole is then filled with Sakrete or concrete, leaving a smooth surface at ground level. Breaking the bumper and pouring Sakrete or concrete adds about 2 hours to the time involved and total cost is from $225 to $250. In all cases, an acetylene torch is used to cut the pole. Regardless of method of removal, the concrete foundation and portion of pole embedded in it are never removed. They are left in the ground.

To the extent the sign head, faces and pole are in good condition, they are reused at new stores. In the case of the pole, another length of tube is welded on the bottom to replace the portion cut off and left at the former location.

Plaintiff claimed a section 38 investment credit for these pole signs. The Internal Revenue Service determined plaintiff was not entitled to this credit, and deficiency assessments were thereupon made and collected. Timely claims for refund were filed and formally rejected. More than 6 months have elapsed since the filing of these claims.

The precise issue is whether any or all of these 132 pole signs, or subcomponents thereof, are "tangible personal property" within the meaning of section 48(a)(1)(A).⁴ To the extent they are, the claiming of the section 38 credit was proper and plaintiff is entitled to recover.

Tangible personal property is not defined in the Code itself. However, Treas. Reg. § 1.48-1(c) states that it is "any tangible property except land and improvements thereto, such as buildings or other inherently permanent structures." Since these pole signs are tangible property and are obviously not "land," if they are not "improvements," they must be tangible personal property. "The common characteristic which is attributed to improvements is that they are `inherently permanent structures.'" Whiteco Industries, Inc. v. Commissioner, 65 T.C. 664, 671 (1975). We are therefore concerned with the extent, if any, that these pole signs are inherently permanent structures. Two prior decisions of this court, Alabama Displays, Inc. v. United States, 507 F.2d 844, 205 Ct.Cl. 716 (1974), and National Advertising Co. v. United States, 507 F.2d 850, 205 Ct.Cl. 728 (1974), examined the meaning of "inherently permanent structures" in the context of advertising displays. Whiteco, a recent Tax Court opinion, also dealt with this very question.

The displays in Alabama and most of those in National were outdoor billboards on which advertising information was affixed, mounted on top of a steel or wood structure. Some of these billboard supports were embedded in concrete. Plaintiff's signs also served to advertise, and were mounted on top of a steel pole embedded in concrete. The only difference is the displays in Alabama and National did not advertise those plaintiffs' products—they advertised their customers' products. These pole signs advertise Southland's own products. This, however is a difference without legal significance. There being no legal distinction between these pole signs and the advertising displays in Alabama and National, what we said there is equally applicable to the present case.⁵

In Alabama and National, each advertising display was analyzed as a unit. The sign face, supporting structure and cost of installation were treated as a single asset. We did not look to see whether the subcomponents considered separately were inherently permanent.⁶ In deciding whether this single asset was an inherently permanent structure, we set out a number of factors to look to.

We first inquired whether the property was readily removable. How substantial a job was removal of the property; how many man hours were required? The Tax Court agrees this is a proper factor.⁷

We were also concerned with whether the property could be readily reused after being removed. In Alabama, we spoke of the floating docks present in Morgan v. Commissioner, 52 T.C. 478 (1969), aff'd per curiam, 448 F.2d 1397 (9th Cir. 1971). We felt it significant that the docks, once moved, could be immediately reused. Once the billboards in Alabama were removed, the salvageable parts were reused whenever practical.

Amount of wastage was also an area of inquiry. If the property was removed, how much of it was wasted? How much of it was left in the ground? Some of the wood and steel posts in Alabama and National were embedded in concrete. When the billboards were removed, the portion of the post below ground level, as well as the concrete surrounding it, was always left in the ground.⁸ Whiteco factor number five, though not identical, is similar. 65 T.C. at 673.

We also considered whether, measured at the time the property was affixed to the land, there was an objectively ascertainable likelihood that the property might or would be removed before the expiration of its useful life.⁹ Alabama discussed the fact that the billboards were on leased property, that the lessor had the right to force their removal, that the lessee had the legal right to remove the signs and that signs had been regularly moved in the past. The significance of these facts was they were objective evidence of a likelihood that the signs might or would be removed prior to expiration of their useful lives.¹⁰ Ownership of the land on which the signs were located and right of summary removal were not meant themselves to be decisive factors. Such an interpretation is to give a narrow reading to Alabama and would ignore our mandate of liberal construction.¹¹ The third Whiteco factor is virtually identical to this factor.¹²

Two men with a crane can remove the pole sign in a total of 5 to 6 man-hours if the bumper is left in place, or about 9 or 10 man-hours if the bumper is removed. In addition, only one pole supports the Assembly, and it can be easily severed with an acetylene torch. Although not clear from our opinions, more man-hours were required for removal of the signs in Alabama and National. Those signs were supported by longer poles and steel beams, there were generally more than one...