Bank of Mt. Hope v. Commissioner

BANK OF MOUNT HOPE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Bank of Mt. Hope v. Commissioner Docket No. 43439. United States Board of Tax Appeals 25 B.T.A. 542; 1932 BTA LEXIS 1505; February 19, 1932, Promulgated *1505 Where the county tax on the value of bank stock, assessed to the owners thereof but payable by the bank, is reduced by indebtedness of some of the stockholders, and the difference between what the tax would have been without the deductions and what it was with the deductions, is distributed by the bank to the shareholders whose debts were allowed by the county in computing the tax, the amount so distributed is not deductible from gross income as a tax. L. Harold Sothoron, Esq., for the petitioner. James K. Polk, Jr., Esq., and Harold F. Noneman, Esq., for the respondent. ARUNDELL *542 In this proceeding involving the redetermination of a deficiency of $1,124.45 in income tax for 1927, the single error alleged is the disallowance as a deduction from gross income of the sum of $8,329.21 which petitioner claims represents a payment of taxes. FINDINGS OF FACT. In 1927 the petitioner, a banking corporation with its principal office at Mount Hope, West Virginia, paid to the sheriff of Fayette County, West Virginia, a tax of $3,967.29 on its capital stock, based upon an assessed valuation of $406,500, less certain indebtedness of the holders*1506 of the stock, for which affidavits had been filed with petitioner by the stockholders. Had the owners of the stock not filed a list of their indebtedness to claim as a deduction from the value of the stock, the tax on the stock would have been $8,329.21 more, or $12,296.50. The petitioner distributed the sum of $8,329.21 among the stockholders whose indebtedness had been used as a deduction. Petitioner has not been reimbursed for the disbursement. In his computation of the deficiency for 1927 the respondent allowed the sum of $3,967.29 as a deduction from gross income and disallowed the payment of $8,329.21 made to the stockholders. OPINION. ARUNDELL: The sum of $8,329.21 paid to some of petitioner's stockholders is being claimed as a deduction, on the ground that it falls *543 within the same class as the item of $3,967.29 which was actually paid to the county as taxes. The respondent, following his ruling in I. T. 1300, I-1 C.B. 11, disallowed the amount, on the theory that it represented a payment of dividends. Chapter 29 of section 79 of the West Virginia Code, pursuant to which the tax of $3,967.29 was paid, provides that shares in a bank shall be assessed*1507 to the several "holders" thereof in the county, district and town where the bank is located and that the shareholders "may have deducted from the value of such stock the amount due another as principal debtor as provided in section sixty-seven of this chapter, by filing with the bank a list of the indebtedness which he desires deducted * * * which list of indebtedness shall be filed by the bank with the assessor along with its return." The statute then goes on to provide that the taxes so assessed shall be paid by the cashier, secretary or proper accounting officer of the bank, and that any taxes so paid on the stock may be recovered from the owners thereof by the bank or deducted from the dividends accruing on such stock. Section 234(a)(3) of the Revenue Act of 1926 permits a corporate taxpayer to deduct taxes paid on its stock for the owners thereof without reimbursement. Thus if the amount disallowed represents a tax, it, like the $3,967.29 item, is deductible under this provision of the statute. Taxes have been held to be "the enforced proportional contribution of persons and property, levied by the authority of the State for the support of the Government, and for all public*1508 needs." Florida Central & Peninsular R.R. v. Reynolds,183 U.S. 471. See also Amtorg Trading Corporation,25 B.T.A. 327. Measuring the afcts by this definition of the term, clearly the payment to the stockholders is not a tax. Had advantage not been taken of the indebtedness deduction allowed by the statute, the tax on all of petitioner's stock would have been $12,296.50. Some of the stockholders, however, filed affidavits of indebtedness with petitioner, and it claimed the deductions, thereby reducing the amount of the tax to $3,967.29. The legality of the deductions so taken is not being questioned. We are not concerned with what the tax would have been had no deductions been claimed. The tax assessed and paid was $3,967.29. Petitioner's action, in disbursing to the stockholders whose indebtedness had been used to reduce the tax the amount by which their debts decreased the tax, was undoubtedly done to equalize matters between the stockholders. But such disbursement was not a tax paid to the State of West Virginia. Decision will be entered for the respondent.