Whiteco Indus., Inc. v. Comm'r of Internal Revenue
| Decision Date | 31 December 1975 |
| Docket Number | 3919-73,Docket Nos. 3918-73,7188-74. |
| Citation | 65 T.C. 664 |
| Parties | WHITECO INDUSTRIES, INC., ET AL.,1 PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
John S. Pennell, Don S. Harnack, and George W. Benson, for the petitioners.
Held, outdoor advertising signs constitute ‘tangible personal property’ within the meaning of sec. 48(a)(1)(A), I.R.C. 1954, and therefore, may qualify for the investment credit provided in sec. 38, I.R.C. 1954.
The Commissioner determined the following deficiencies in the petitioners' Federal corporate income taxes:
Two issues have been settled; the only issue remaining for decision is whether certain outdoor advertising signs may qualify for the investment credit of section 38 of the Internal Revenue Code of 1954.2
Some of the facts have been stipulated, and those facts are so found.
The petitioner, Whiteco Industries, Inc. (Whiteco), was a Nebraska corporation, with its principal office in Merrillville, Ind., at the time of filing its petition herein. It filed its Federal corporate income tax return for the year 1967 with the District Director of Internal Revenue, Indianapolis, Ind., and its return for 1968 with the Internal Revenue Service Center, Cincinnati, Ohio. During 1967, 1968, and part of 1969, Whiteco was named White Advertising Co.
The petitioners, Whiteco Industries, Inc., and Subsidiaries, were an affiliated group of corporations, whose common parent was Whiteco. They filed consolidated income tax returns for 1969, 1970, and 1971 with the Internal Revenue Service Center, Cincinnati, Ohio. Whiteco and Whiteco Industries, Inc., and Subsidiaries will be referred to as the petitioner.
The petitioner presently and during all of the taxable years here involved was engaged in the business of providing outdoor advertising for its customers by the use of outdoor advertising signs, which were placed along major highways and roads. Generally, the signs were erected on property which was not owned by the petitioner but which was leased from unrelated persons who owned land along the interstate highway system, the Federal-aid primary highway system, and other major roadways.
A sign assembly consists of a sign face attached to a structure of wooden poles and ‘stringers.’ The following is a description of each component of the sign assembly, its function, and installation:
The Sign Face
The petitioner's sign faces vary in size, ranging from 4 x 10 feet to 24 x 100 feet. The average size is between 32 to 40 feet in width and between 12 to 14 feet in height. The sign face is made from exterior grade plywood, of medium density, cut in standard size sheets of either 4 x 10 feet or 4 x 8 feet, and is 5/16 of an inch in depth. At the petitioner's plant, each panel of plywood is given a coating of background paint, which is then baked in. Next, the copy is glued to the face. The letters and figures are cut from a vinyl material and then glued and baked on the enamel face. This vinyl material may be reflective or nonreflective. The reflective material is Scotch-lite, which reflects back to the motorist when his lights shine upon it. After the advertising material has been applied to the sign panels, the petitioner ships these individual panels to a regional office, which will truck such panels to the sign location, where the rest of the sign face structure has already been constructed. The individual sign panels are then nailed to the sign structure by 7 or 8 penny boxed galvanized nails.
The sign face panels are nailed into boards, called ‘stringers,‘ which have been nailed horizontally to wooden poles. The stringers form the frame and support for the sign face. They are pieces of pine wood, which have been treated with preservatives, and they are used in sizes of either 2 x 4 inches or 2 x 6 inches. The stringers are nailed to the poles with 40-D casehardened, ringshank nails. The number of stringers will vary with the distance between the top and bottom of the sign frame to be constructed. There may be as few as 3 rows or as many as 11 rows of stringers, and they are spaced from 24 to 42 inches apart.
The poles used to support the petitioner's signs are made from southern pine which has been treated with pentachlorophenol for preservative purposes. The number and size of poles used will vary depending on the size of the face and how high the sign will have to be so that it can be seen by motorists without obstruction. The number of poles used will vary from 1 to 20 poles. The poles vary in length from 20 to 55 feet. The diameter of all poles at their top, regardless of their other measurements, is the same, 6 or 7 inches. However, the circumference of the poles, measured 6 feet from the bottom, varies from 23 to 40 inches, depending on the length of the pole. The poles are placed vertically into the ground, at a depth which will vary with the length of the pole. A 20-foot pole, the smallest size used by the petitioner, will be placed 5 feet into the ground, while the largest pole, a 55-foot pole, will go 10 feet underground. The holes for the poles are dug by a truck, which contains a combination digger and boom. The digger drills a hole from 2 to 4 inches larger than the circumference of the pole. Once the pole is lifted up and placed in the hole by the boom, it is cemented into place by either wet cement or ‘sacrete,‘ a dry cement mix. The cement forms a ring around the pole, which is approximately 2 to 4 inches thick. The sacrete, or dry cement mix in a bag, is used for smaller poles, when it is not economical to bring in a ready-mix truck and use wet cement. The smaller poles will each use about three to four 90-pound bags of sacrete. When wet cement is used, each hole requires approximately half a yard of concrete.
Some of the petitioner's signs are illuminated by electric lights. The lights are of the metal arc type and are attached to the signs by means of a conduit structure. The petitioner's illuminated signs do not have independent power sources; rather, electricity is obtained from the overhead lines of the utility company in the area.
Generally, the petitioner's signs are constructed in the manner described in the preceding paragraphs. However, in rare situations, the sign is braced by an A frame, which consists of two-by-fours, or two-by-sixes, placed behind the sign structure at a 45-degree angle and anchored to the ground.
The signs are constructed, erected, and maintained by the petitioner, or on its behalf, under contracts between the petitioner and its customers. The petitioner does not make a business practice of selling signs to advertisers. The petitioner retains ownership of its signs, even in the rare instances where signs are put upon sites owned or leased by the advertisers. During 1967 through 1971, it was the petitioner's practice to construct signs only after a contract had been entered into with an advertiser.
During the taxable years at issue, the petitioner's contracts with advertisers generally ran for periods of between 3 to 5 years. In many cases, the petitioner renews its contracts with its advertisers. While the petitioner generally reuses the same location, it does not reuse the same sign face. A new sign face is always constructed, which may contain some changes in the copy of the sign. The petitioner may be able to reuse some parts of the sign assembly, although some alterations may be necessary. Rotten, damaged, or decayed stringers are replaced; and poles are replaced, or straightened and recemented, as necessary.
The petitioner can, and does in fact, move and remove its signs in a number of situations. Some of the petitioner's agreements with advertisers specifically require the petitioner to move the signs to new locations, in the event the view of the sign from the road becomes obstructed. The petitioner also moves signs from one location to another when a location is no longer available because, for example, a change takes place in the ownership of the leased property. In addition, it is relatively common for a landowner to insist on, and for the petitioner to agree to, a termination provision which requires the petitioner to move its sign in the event the owner of the land develops it.
Taking apart and moving the sign and its supports is a relatively quick and easy process. The petitioner can remove the sign face simply by using a hammer and withdrawing the nails holding the face onto the stringers. The stringers are removed by using a sledge hammer or an ax to strike the stringer, thereby knocking out, partly or completely, the nails holding the stringers to the poles. If the stringer is not completely knocked clear of the pole, an ax is used to break the nail attaching it to the pole. After the sign face and stringers are removed, the petitioner uses a truck to bump the poles slightly, thereby breaking the concrete surrounding the pole and the suction with the ground. The petitioner then hooks on to the pole with a winch, contained on the truck, and pulls it from the ground. For larger poles, sometimes the petitioner will drill a hole alongside the pole, using a drill attached to the same truck, to break the suction and aid in the removal. On rare occasions, the petitioner will cut the pole at...
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