Standard Lime and Cement Company v. United States

• Decision Date: 13 March 1964
• Docket Number: No. 278-59.,278-59.
• Citation: 165 Ct. Cl. 180,329 F.2d 939
• Parties: STANDARD LIME AND CEMENT COMPANY (formerly known as the Standard Lime and Stone Company) v. The UNITED STATES.
• Court: U.S. Claims Court

165 Ct. Cl. 180, 329 F.2d 939 (1964)

STANDARD LIME AND CEMENT COMPANY (formerly known as the Standard Lime and Stone Company) v.The UNITED STATES.

No. 278-59.

United States Court of Claims.

March 13, 1964.

Robert J. Casey, New York City, for plaintiff.Clark, Carr & Ellis, New York City, on the briefs.

S. Laurence Shaiman, Washington, D. C., with whom was Louis F. Oberdorfer, Asst. Atty. Gen., for defendant.Edward S. Smith, Lyle M. Turner, C. Moxley Featherston and Philip R. Miller, Washington, D. C., on the briefs.

Before JONES, Chief Judge, and WHITAKER, LARAMORE, DURFEE and DAVIS, Judges.

LARAMORE, Judge.

This is a suit for refund of Federal income taxes for the taxable period January 1, 1954 to November 30, 1954.During this period taxpayer owned and operated at Martinsburg, West Virginia, an underground limestone mine and a shale quarry, together with a plant for the processing of these materials into finished cement.The ultimate question for determination in this case is the amount of gross income attributable to the mining of these minerals for the purpose of computing taxpayer's percentage depletion allowance under section 613 of the Internal Revenue Code of 1954.¹Specifically in issue before this court is whether certain indirect costs incurred apart from the mining (pre-kiln feed) and manufacturing (post-kiln feed) processes should be properly allocated to these two processes for computation of plaintiff's "gross income from mining" under the proportionate profits method.

On its original Federal income tax return for the taxable period in issue, plaintiff computed its percentage depletion allowance with respect to the limestone and shale mined by it at its Martinsburg facilities, which it used in the manufacture of cement, based on a "gross income from the property" figure equivalent to the representative field or market price of the crushed limestone and shale in the Martinsburg area.

On February 13, 1958, taxpayer filed a timely claim for refund of alleged overpayment of Federal income tax for the taxable year in issue.In this claim for refund, taxpayer computed its percentage depletion allowance on the basis of gross income derived from the sale of finished cement.Having received no notice of any action on this claim for refund from the Commissioner of Internal Revenue, taxpayer instituted suit in this court reiterating its claim that it was entitled to compute its percentage depletion allowance on gross income derived from the sale of finished cement.

While the instant suit was pending before this court, the Supreme Court rendered its decision in the now landmark case of United States v. Cannelton Sewer Pipe Co., 364 U.S. 76, 80 S.Ct. 1581, 4 L. Ed.2d 1581(1960) where the Court held that an integrated miner-manufacturer had to compute its percentage depletion allowance based on "gross income from the property" of its first commercially marketable product and not as claimed by the taxpayer, based on "gross income from the property" at the finished product.As a result of the Cannelton decision, legislation was enacted by Congress(Public Law 86-564,74 Stat. 290;Public Law 86-781,74 Stat. 1017) giving taxpayers engaged in the mining of minerals used in the production of cement the right, pursuant to election, to compute their "gross income from the property," for purposes of the percentage depletion allowance with respect to such minerals for taxable years beginning prior to January 1, 1961, at the point of introduction of the minerals into the kiln.²A taxpayer so electing was required to forego its claim for percentage depletion based on "gross income from the property" at the finished product.

Taxpayer, by letter addressed to the District Director of Internal Revenue, Baltimore, Maryland, elected to compute its percentage depletion allowance at the kiln cutoff point as provided by Public Law 86-781, supra, for the taxable year in issue.Accordingly, it filed an amended Federal income tax return, utilizing therein the proportionate profits method of computing its "gross income from the property" at kiln feed, there being no representative field or market price for plaintiff's minerals at that point.³

Plaintiff's amended return for the period in issue was thoroughly audited by a representative of the Office of the District Director of Internal Revenue, Baltimore, Maryland.As a result of such audit, the Government took issue with the treatment afforded by taxpayer in its amended return to the following items: (1) interplant overhead, (2) cash discounts, (3) packing and loading costs, (4) cost of containers, (5) purchased additives, (6) cost of warehousing, (7) freight costs, (8) inventory adjustments.The controversy between the parties concerns the way in which the proportionate profits method is to be applied with regard to the items in dispute.Taxpayer concedes the correctness of the Government's position with respect to item (7), freight costs.

Before we can reach a final decision on the merits of this controversy, we have to dispose of several procedural issues raised by the Government.On June 15, 1962, just three days before this case was set for trial, the Government filed a motion for summary judgment predicated upon this court's alleged lack of jurisdiction to hear this controversy.⁴In support of said motion, the Government contends that the issues raised in the petition had been rendered moot by reason of taxpayer's election under Public Law 86-781, supra.The Government further urges that this court's lack of jurisdiction is also due to taxpayer's failure to comply with the prerequisites for the bringing of a suit for refund of Federal income tax.Specifically the Government asserts that taxpayer has failed to comply with the requirements of section 6532(a)(1) of the Internal Revenue Code of 1954, which provides:

"(1)General rule.— No suit or proceeding under section 7422(a) for the recovery of any internal revenue tax, penalty, or other sum, shall be begun before the expiration of 6 months from the date of filing the claim required under such section unless the Secretary or his delegate renders a decision thereon within that time, * * *."

In other words, the Government's contentions are based on the proposition that since taxpayer's original claim for refund was predicated on its entitlement to a refund based on its percentage depletion allowance computed from gross income of the end product, a new and distinct claim for refund has arisen because of taxpayer's election under Public Law 86-781, supra, wherein gross income is computed at the kiln cutoff point.Thus, the Government argues, the original claim has become moot and taxpayer must meet all the procedural requirements for instituting a new claim for refund, i. e., a claim for refund with the Commissioner of Internal Revenue,⁵ a 6-month waiting period if no decision on the claim is rendered,⁶ and finally the instituting of a suit for refund.⁷

We believe that under the circumstances of this case taxpayer's election to compute its percentage depletion allowance based on "gross income from the property" at the kiln cutoff does not give rise to a new and distinct claim for refund.Consequently, the issue never became moot and taxpayer need not meet the procedural requirements for instituting a new claim for refund.We say this because "income-tax liability for any one year is a single cause of action.Each taxable year constitutes a separate cause of action, and in every suit for refund one of the questions presented is the determination of the amount by which the taxpayer has overpaid his taxes for the year involved."United States v. C. C. Clark, Inc., 159 F.2d 489, 490(5th Cir.1947).Taxpayer's entitlement to a refund is still centered on what is its proper percentage depletion allowance.International Curtis Marine Turbine Co. v. United States, 74 Ct.Cl. 132, 139, 56 F.2d 708, 711(1932).What has changed by taxpayer's election, pursuant to legislation enacted by Congress, is the manner in which the amount is to be computed.Electric Storage Battery Co. v. McCaughn, 3 Cir., 54 F.2d 814(1931).Rule 8(b) of this court requires that "all pleadings shall be so construed as to do substantial justice."We believe that if we adopt the Government's narrow construction of the original petition, taxpayer would be deprived of a prompt decision on a matter so vital to the orderly conduct of its business.Cf.Register Publishing Co. v. United States, D.C., 189 F.Supp. 626, 631(Conn.1960).

There is an alternative ground for disposing of the Government's contention that this court lacks jurisdiction to hear this case, even if we view taxpayer's election as giving rise to a new and distinct claim for refund.In Rosengarten v. United States, 149 Ct.Cl. 287, 181 F.Supp. 275, cert. denied364 U.S. 822, 81 S.Ct. 60, 5 L.Ed.2d 53(1960), we said that an informal claim which fairly gives notice of a taxpayer's intention to press for a refund of taxes is sufficient to satisfy the statutory requirement.See alsoUnited States v. Kales, 314 U.S. 186, 62 S.Ct. 214, 86 L.Ed. 132(1941).We find that taxpayer's amended return filed in 1960, electing to compute its depletion allowance at kiln feed, sufficiently apprised the Commissioner of its claim.Thus, the requirement, under section 7422(a), of filing a claim with the Commissioner has been met and the Government so concedes.Furthermore, we believe that taxpayer has substantially complied with the 6-month waiting period before instituting suit on a claim for refund as required by section 6532(a)(1) of the 1954 Code, supra.We say this because this procedural requirement was enacted by Congress to give the Commissioner of Internal Revenue a reasonable period of time within which to process the claim and to afford an opportunity for administrative adjustment without suit.Caldwell Sugars, Inc., v. United States, 101 Ct.Cl. 395, 412, 54 F.Supp. 544, 552(1944);...