United States v. Peabody Co., 7833.
| Decision Date | 09 June 1939 |
| Docket Number | No. 7833.,7833. |
| Citation | 104 F.2d 267 |
| Parties | UNITED STATES v. PEABODY CO. |
| Court | U.S. Court of Appeals — Sixth Circuit |
L. W. Post, Sp. Asst. to Atty. Gen. (James W. Morris, Asst. Atty. Gen., Sewall Key and L. W. Post, Sp. Assts. to Atty. Gen., and William McClanahan and C. P. J. Mooney, both of Memphis, Tenn., on the brief), for the United States.
John B. Snowden, II, of Memphis, Tenn. (John B. Snowden, II, Allan Davis, and Armstrong, McCadden, Allen, Braden & Goodman, all of Memphis, Tenn., on the brief), for appellee.
Before ALLEN, HAMILTON, and ARANT, Circuit Judges.
This is an appeal from a judgment for $926 with interest in favor of the taxpayer in a suit for refund of payment of a capital stock tax for the fiscal year ending June 30, 1935. The case was tried to the court upon a written stipulation of fact together with certain oral evidence submitted in open court. The sole question is whether the taxpayer was doing business during the taxable year within the provisions of § 701 of the Revenue Act of 1934, 48 Stat. 680, 769, c. 277, 26 U.S.C.A. § 1358 (a), (c) (3) which reads as follows:
"(a) For each year ending June 30, beginning with the year ending June 30, 1934, there is hereby imposed upon every domestic corporation with respect to carrying on or doing business for any part of such year an excise tax of $1 for each $1,000 of the adjusted declared value of its capital stock.
* * * * * *
"(c) The taxes imposed by this section shall not apply —
* * * * * *
"(3) to any domestic corporation in respect of the year ending June 30, 1934, if it did not carry on or do business during a part of the period from the date of the enactment of this Act May 10, 1934 to June 30, 1934, both dates inclusive. * * *"
Appellee is a Tennessee corporation, the stock of which is owned by members of one family, organized for the purpose of "purchasing, owning, improving, using, occupying, renting, leasing, enjoying and conveying real estate not exceeding in amount and size a lot or parcel of ground four hundred feet square." Its principal assets are two parcels of real property in the business district of Memphis, Tennessee, upon which appellee erected a large department store and a warehouse. Both of these buildings appellee leased to a corporation which operates a department store. In the lease the lessee assumed payment of taxes, agreed to repair, and to maintain the usual insurance.
The company had no separate office, its books being kept in the office of the president's private business, and one book-keeper was regularly employed. During the taxable period the company was a going concern.
When appellee was incorporated it had a paid-in surplus of about $1,600,000. This surplus was increased by earnings which were not distributed, so that on June 30, 1934, the surplus was about $2,100,000. It was over this amount on June 30, 1935.
A sinking fund of $100,000 was created out of the rents received to protect the company from maintenance charges in case of possible vacancy. During the time from 1930 to March 26, 1935, appellee used the sinking fund in the purchase and sale of securities as follows:
PURCHASES
1930
July 8 30 M Miss. Joint Stock Land
Bank at 91 ................ $27,300.00
1932
May 2 30 M State of Tennessee at
102.4828 .................. $30,744.83
Nov. 15 20 M Miss. Joint Stock Land
Bank at 47 ................ $ 9,400.00
__________
Total .................. $67,444.83
SALES
1935
March 20 30 M State of Tennessee at 119.375 $35,812.50
22 15 M Miss. Joint Stock Land
Bank at 98 .................... $14,700.00
26 35 M Miss. Joint Stock Land
Bank at 98 .................... $34,300.00
__________
Total ...................... $84,812.50
Under the applicable law the taxes against appellee's land and buildings for the calendar year 1935 were subject to a discount of one and one-half per cent. if paid on or before June 10, 1935. Appellee paid these taxes out of its own funds, as the tenant was unable to pay them in time to avail itself of the discount, and was later reimbursed by the tenant for the full amount of the assessment.
The Government contends that the taxpayer accumulated a substantial reserve and invested it in securities which were sold at a profit during the taxable year; that by paying city taxes at a discount, the taxpayer realized a profit when the lessee, who was obligated to pay the taxes, paid the full amount assessed to the taxpayer, and that hence it was doing business within the meaning of the statute.
We think that the contention with reference to the payment of city taxes has no merit. The payment of these taxes discharged an obligation for which appellee was primarily liable through its ownership of the land and is not "doing business" within the meaning of the statute.
The fact that appellee bought and sold securities, securing a profit therefrom, raises a different question. The finding of the court is conclusive upon questions of fact if supported by substantial evidence, but as we conceive it, this record presents a question of law, namely, what constitutes doing business within the purview of the statute as interpreted by the courts? The Commissioner's determination is presumptively correct. Welch v. Helvering, 290 U. S. 111, 115, 54 S.Ct. 8, 78 L.Ed. 212. The burden rests upon the taxpayer to prove that it is entitled to exemption from this tax. Cf. Routzahn v. Brown, 6 Cir., 95 F.2d 766; North American Coal Corp. v. Commissioner, 6 Cir., 97 F.2d 325. It must be able to show that its operations fell within the terms of the statute. New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440, 54 S. Ct. 788, 78 L.Ed. 1348. The applicable test is declared in Von Baumbach v. Sargent Land Co., 242 U.S. 503, 516, 37 S. Ct. 201, 204, 61 L.Ed. 460. The court there...
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