Sunset Scavenger Co. v. Commissioner of Internal Rev.
Decision Date | 08 June 1936 |
Docket Number | No. 7999.,7999. |
Citation | 84 F.2d 453 |
Parties | SUNSET SCAVENGER CO., Inc., v. COMMISSIONER OF INTERNAL REVENUE. COMMISSIONER OF INTERNAL REVENUE v. SUNSET SCAVENGER CO., Inc. |
Court | U.S. Court of Appeals — Ninth Circuit |
James C. Espey, of San Francisco, Cal., for taxpayer.
Robert H. Jackson, Asst. Atty. Gen., and Sewall Key, Joseph M. Jones, and Louise Foster, Sp. Assts. to Atty. Gen., for the Commissioner.
Before WILBUR, MATHEWS, and HANEY, Circuit Judges.
Petitions for review of the decisions of the Board of Tax Appeals in three proceedings, which were consolidated before the Board, have been filed by the Commissioner and Sunset Scavenger Company, Inc., hereinafter referred to as petitioner.
Petitioner is a corporation and claimed exemption from taxation for the years 1927, 1928, and 1929, under Revenue Act of 1926, ch. 27, § 231 (12), 44 Stat. 40, 26 U.S.C.A. § 103 note. The Commissioner determined that petitioner was not exempt from taxation and his determination was upheld by the Board. Petitioner asks review of this determination. In the returns filed by petitioner, it claimed as deductions payments for salaries made, and also claimed as deductions amounts expended to avert legislation unfavorable to petitioner. With respect to the deduction for salaries, the Board reduced the amount claimed by the petitioner, and petitioner asks review of such action. With respect to the reduction claimed for the expenditures made to avert passage of the legislation, such deduction was allowed by the Board, and the Commissioner asks review of that action. The returns for the years 1927, 1928, and 1929 are in issue.
From the facts found by the Board, it appears that prior to 1919, garbage collection in the San Francisco Bay region was being made by individuals, with helpers, who had a particular route on which the calls were made. Under this system there was competition, and individual routes and districts overlapped. To avoid this there was organized by the individuals in 1919 an association or partnership, which fixed the routes. As a result, costs were reduced and the profits increased. The profits were divided between the members upon some equitable basis.
The next development is explained by the Board as follows:
As a result, petitioner corporation was formed under the laws of California. The individual members of the association transferred their equipment to petitioner, and received therefor shares of stock in the corporation.
The other material facts were stated by the Board as follows:
The statute (Revenue Act of 1926, c. 27, § 231, 26 U.S.C.A. § 103 note) under which petitioner claims exemption provides as follows:
"Sec. 231. The following organizations shall be exempt from taxation under this title chapter — * * *
Under this statute, exemption is granted to "farmers', fruit growers', or like associations." Petitioner contends that the character of an organization is to be determined by its acts rather than by its form,1 and that "the petitioner corporation was formed for the purpose of mutual cooperation — to enable the association to operate as a unit, rather than as independent scavengers, as was the case prior to organization."
Petitioner also says: "Assuming, for the purpose of argument, that `like associations' refers only to farmers' co-operative, (which of course petitioner does not concede), and that `product' means a farm product of some kind, then the word `produce' might be narrowly construed to refer back to `farmers' and `farm products', and have reference only to provisions or farm-products collectively."
We believe, as the commissioner contends, that under the principle of ejusdem generis, the words "like associations" are limited by the words "farmers'" and "fruit growers'" and as thus limited2 mean only such associations as market agricultural products, or purchase supplies and equipment for those who are engaged in producing agricultural products. See Garden Homes Co. v. Commissioner (C.C.A.7) 64 F.(2d) 593. Under such construction, petitioner is not one of the associations exempt from taxation.
Petitioner also says: "To hold that petitioner is not a co-operative association is to declare the Revenue Acts of 1926 and 1928 (44 Stat. 9, 45 Stat. 791) unconstitutional." We do not express an opinion as to whether or not petitioner is a cooperative association. We are holding that petitioner is not exempt from taxation as one of those associations which under the terms of the act are exempt.
Petitioner also contends that there was a mutual agreement contract (implied perhaps) between the members and petitioner whereby the members were to receive all the net profits; that because of such agreement there could be no moneys belonging to petitioner, and therefore petitioner would have no profits. However novel this argument may be, the opinion of the Board does not disclose that the argument was ever presented to it. Further, there is no finding that any such agreement was made. Under such circumstances we cannot consider the point. See General Utilities & Operating Co. v. Helvering, 296 U.S. 200, 56 S.Ct. 185, 80 L.Ed. 154; Helvering v. Salvage, 297 U.S. 106, 56 S.Ct. 375, 80 L. Ed. 511.
The facts found by the Board relating to salaries paid are as follows:
Section 234 of the Revenue Act of 1926 (44 Stat. 41) provides:
Whether or not the salaries are reasonable is a question of fact, and the finding of the board is conclusive if supported by any substantial evidence. General Water Heater Corp. v. Commissioner (C.C.A. 9) 42 F.(2d) 419. The Board found that the flat amount of $3,600 for each member was "not inadequate, even upon the...
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