Steinhort v. CIR

• Citation: 335 F.2d 496
• Decision Date: 11 August 1964
• Docket Number: No. 20331.,20331.
• Parties: William W. STEINHORT and Mildred Steinhort et al., Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

335 F.2d 496 (1964)

William W. STEINHORT and Mildred Steinhort et al., Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 20331.

United States Court of Appeals Fifth Circuit.

August 11, 1964.

Douglas W. McGregor, Houston, Tex., McGregor, Sewell, Junell & Riggs, Houston, Tex., of counsel, for petitioners.

John B. Jones, Jr., Acting Asst. Atty. Gen., Lee A. Jackson, Robert N. Anderson, Earl J. Silbert, Carolyn R. Just, Attys., Dept. of Justice, Louis F. Oberdorfer, Asst. Atty. Gen., Crane C. Hauser, Chief Counsel, Robert B. Alexander, Jr., Atty., I.R.S., Washington, D. C., for respondent.

Before HUTCHESON and BROWN, Circuit Judges, and SIMPSON, District Judge.

JOHN R. BROWN, Circuit Judge:

This case presents the old, old question of the tax deductibility of transportation costs going to and from work.¹ More precisely, the question probably is what is the place of work? And does it matter that the "place of work" actually is a great number of physical places to and from which the wage-earner-taxpayer must intermittently go? All of these problems are presented by the decision of the Tax Court confirming the action of the Commissioner. By it the cost of transportation, including depreciation and operating expenses of a privately owned automobile, were disallowed to a Houston ship pilot insofar as they represented transportation from home to the first place of work and from the last place of work to home at the close of the day. The Commissioner and Court recognized, and allowed deduction for, all of the transportation costs between job sites during the day and also those to and from Galveston. For all practical purposes, the case is like Heuer v. Commissioner, 1959, 32 T.C. 947, aff'd mem., 5 Cir., 1960, 283 F.2d 865, upon which, without more, we might well affirm. But in view of the care with which the trial Court record was fully developed and the earnest argument pressed, we think the case warrants a discussion of the reasons which lead us to affirmance in principle.

Captain Steinhort, the Taxpayer,² is a Branch Pilot³ appointed and commissioned under the laws of Texas, Arts. 8248-8256,⁴ for the exclusive pilotage of all ships "* * * between the Gulf of Mexico and the Port of Houston as well as of intermediate stops or landing places for such boats upon navigable streams wholly or partly within * * *" the Harris County Houston Ship Channel Navigation District. Art. 8249.⁵ Under this structure, vessels⁶ bound from sea or from anchorage in Bolivar Roads into a terminal or pier within the geographical confines of the Navigation District⁷ as well as all vessels within the District bound for sea or another port must have a Houston pilot aboard.⁸ Likewise a pilot is required for shifting of a vessel from one terminal to another within the port.

There are 41 commissioned Houston pilots, organized as an unincorporated association. Citizens State Bank of Houston v. O'Leary, 1943, 140 Tex. 345, 348, 167 S.W.2d 719, 720. Pilotage — one of the oldest recognized monopolies, Olsen v. Smith, Tex.Civ.App. 1902, 68 S.W. 320, 321 — is, however, a service supplied by the individual whose relationship toward the vessel is comparable to an independent contractor, Mobile Bar Pilots Ass'n v. Commissioner, 5 Cir., 1938, 97 F.2d 695. As such, the Pilots Association would have little, if any, liability for its performance. Houston Pilots v. Goodwin, Tex.Civ.App. 1944, 178 S.W.2d 308, 312; cf. Moody ex rel. United States v. Megee, 5 Cir., 1930, 41 F.2d 515, 1930 AMC 1677.

The deep water channel of the Houston Ship Channel terminates at the Turning Basin, approximately five miles from the heart of the downtown business center. The Channel, following Buffalo Bayou and the San Jacinto River, meanders for approximately 26 miles from the Turning Basin to Morgan's Point.⁹ With the great expanse of business and industry within the Houston area, there has been a like increase in the number and types of waterfront installations along the Channel. By geodetic charts, city and county maps, and supplemental oral testimony, this record accounts for 58¹⁰ specifically identified facilities, 55 of which are on, or adjacent to, the Channel between Morgan's Point and the Turning Basin.¹¹ The more important of these installations include, on the south side of the Channel, the Port Commission Public Docks 1-4 (F. 58, 60, 61, 63)¹² at and near the Turning Basin, the eight or more berths of Long Reach Terminal immediately down channel (F. 48, 49, 50, 52, 55, 60, 61), Sinclair Refining Docks (F. 29), Crown Central Petroleum (F. 26), General American Docks (F. 25), Diamond Chemical (F. 9), Adams Terminal (F. 17, 18, 19), and Shell Refining (F. 10). And on the north side of the Ship Channel, these include, at and just below the Turning Basin, the Port Commission Public Wharves 8 through 25 (F. 51, 53, 54, 56, 59), the public grain elevator and dock (F. 57), Southern Pacific Docks (F. 37), U. S. Gypsum (F. 33), Gulf Oil (F. 30), Texaco Galena (F. 27), Warren Petroleum (F. 24), Hess Terminal (F. 22, 23), Sheffield Steel (F. 20), Todd Shipyards (F. 13), Port Commission Bulk Handling Plant Greens Bayou (F. 14, 15, 16), San Jacinto Ordinance Depot (F. 8), and the Humble Oil & Refining Company refinery and dock Baytown (F. 5, 6, 7).

Taxpayer has maintained a home for some time in the City of Houston at a point approximately 1½ miles southwest of the Turning Basin. During the weeks Taxpayer is on duty, he is subject to call 24 hours a day. The Pilot Association maintains an office staff including dispatchers. A Houston pilot receives instructions from the dispatcher as to the name and location of the ship, the scheduled time and the nature of the proposed ship movement, shifting to or from the sea buoy, to or from Bolivar Roads, or the like. It is not customary for the pilots to go to or by the Pilot Association's central office.¹³ All of the piers, docks, terminals,¹⁴ whether privately or publicly owned and operated, are fenced with controlled, guarded entrances. At many, the dockside itself will be as much as a half mile from the entrance. There is no public transportation from Taxpayer's residence to the Turning Basin nor to the docks and other facilities along the Ship Channel. From the nature of the operation, many changes occur in proposed vessel movements. Cancellations of orders to a pilot and substitution of others by the dispatcher are frequent. As a pilot's workday begins, he does not know where or when he will be dispatched. Obviously, he has no idea how many miles he must travel or the sequence or order in which intermediate trips will be taken. For those in and around the Turning Basin, the trip is about a mile and a half (F. 60-61). For those on the north side of the Channel near the Turning Basin, the trip is in the neighborhood of three miles (F. 56, 57, 59). But docks at chemical companies and large major oil refineries run from five to eight miles (F. 17, 18, 19), to as much as 12 or 13 miles (F. 10, 9). For runs to facilities on the north side of the Channel, the distances are considerably greater because of the intervening cross channel highway route and the widely scattered location of these plants. Thus, from Taxpayer's home to the steel plant, petroleum terminals, the distance can easily be 6 to 9 miles (F. 20, 22, 23, 24, 27, 28), to the Ordinance Depot, 16 to 18 miles (F. 8). And considering the high tanker tonnage handled in the Port, a large number of 26-mile trips to the Humble docks at Baytown (F. 5, 6, 7) must be expected.¹⁵

The trip to and from the sea buoy or Bolivar Roads presents even more transportation problems. The Pilots Association owns and operates three vessels, two of which are in regular operation. One is a 64-foot personnel carrier to transport pilots from Pier 22 in Galveston Harbor to the boarding sea-going pilot boat. The others are seagoing boarding boats.¹⁶ A Houston pilot receiving instructions to bring a vessel in from the bar has to proceed by automobile to Galveston where he boards the small motor launch at Pier 22 which takes him to the sea-going boarding pilot boat. The boarding pilot boat then proceeds to sea to come alongside the inbound vessel. The pilot then brings the vessel to a terminal within the Port of Houston. On other occasions, the vessel, though bound next for Houston, will anchor in Bolivar Roads awaiting orders, etc. If so, the Houston Pilot leaves her there. On a downbound trip, the process is the reverse, the Houston pilot leaves at Bolivar Roads or the sea buoy, as the case may be, and goes by motor launch to Pier 22 for a return trip to Houston by automobile.¹⁷

Taxpayer on his annual returns deducted the full operating expenses and full depreciation¹⁸ for the automobile used in this transportation to and from these facilities and his home and intermediate trips between such facilities. There is no dispute as to the fact that such amounts deducted were expended and the depreciation actually sustained. The Tax Court recognized that Taxpayer could "deduct the cost of going from one assignment to another and travel outside the Port of Houston area." Thus recognized was the right to deduct all transportation costs for inter-job-site shifts and the trips to and from Galveston. Allowance for these deductions was made in the form of a percentage by the Commissioner¹⁹ which the Tax Court did not disturb for failure of specific proof.²⁰

The Taxpayer here attacks the failure to allow the full deductions and specifically the disallowance of transportation to and from his home at the start and end of his day. Taking his text from the famous apothegm of Flowers²¹ that "business trips are to be identified in relation to business demands * * *," and the "exigencies of business rather than the personal conveniences and necessities of the traveler must be the motivating factors," 326 U.S. 465, at 474, 66 S.Ct. 250, at 254, the Taxpayer by a process akin to...