Wayne County & Home Sav. Bank v. Commissioner

WAYNE COUNTY AND HOME SAVINGS BANK, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Wayne County & Home Sav. Bank v. Commissioner Docket No. 49144. United States Board of Tax Appeals 26 B.T.A. 761; 1932 BTA LEXIS 1256; July 29, 1932, Promulgated *1256 In the taxable years petitioner credited the checking accounts of its stockholders with sums for the payment of taxes assessed against their stock of petitioner. The taxes were paid by the shareholders, none of whom have ever reimbursed petitioner for any part of the sums credited to their accounts. Held that so much of the taxes paid each year by each stockholder as was not in excess of the sum credited to his account for that purpose by petitioner is deductible from petitioner's gross income in the year of payment by the stockholder under the provisions of section 234(a)(3) of the Revenue Act of 1926. Paul E. Shorb, Esq., for the petitioner. George D. Brabson, Esq., for the respondent. ARUNDELL *761 Deficiencies have been determined for the years 1925, 1926 and 1927 in the amounts of $6,478.85, $7,576.77 and $29,418.40, respectively. FINDINGS OF FACT. The petitioner, a Michigan corporation, is engaged in the banking business, with its principal office in Detroit, Wayne County, Michigan. During the latter part of July in 1924, 1925, 1926 and 1927, when the village and city taxes on petitioner's shares of stock became due and*1257 payable, letters similar to the following one were sent by the petitioner to each of its stockholders residing in Wayne County, Michigan, outside of Detroit: The shares of Wayne County and Home Savings Bank stock standing in your name are not assessed in the City of Detroit and we are today crediting Commercial account of Jas. S. Holden & Co. with $3,647.08, this being the amount that would be assessed for the 1927 city taxes on the above mentioned shares were they assessed in Detroit. Please see that these taxes are paid in Grosse Pointe Village and kindly notify us when same is done. During the latter part of December of the same years, when the state and county taxes became due and payable, the petitioner addressed the same stockholders a letter of the same character respecting the payment of state and county taxes. Upon receipt of these letters the recipients paid to the appropriate taxing authorities the amount of taxes assessed upon the shares of petitioner's stock standing in their names. The sums credited to petitioner's stockholders for the payment of village or city and state and county taxes for the respective years *762 were based upon the taxes which*1258 the stockholder would have paid on his shares had he resided in Detroit. The municipal taxes in Detroit were greater during 1924, 1925, 1926 and 1927 than city, village or township taxes in Wayne County outside of Detroit. The amounts credited to the stockholders for payment of village or city taxes on petitioner's shares exceeded the taxes paid to the various city, village and township treasurers. The taxes paid on their stock for state and county purposes exceeded the sums credited to their accounts by petitioner for that purpose. The petitioner has never been reimbursed by its stockholders for any of the aforesaid payments made to them for taxes on their stock. During the years 1924 to 1927, inclusive, the petitioner kept its books and filed its returns on the cash basis. During 1925, 1926 and 1927 the petitioner paid directly to the treasurer of Detroit, and Wayne County, sums for taxes levied upon its stock owned by individuals residing inDetroit, and outside of Wayne County. Such amounts were claimed by the petitioner, and allowed by the respondent, as deductions in computing petitioner's tax liability for those years. The petitioner did not pay any sums of money*1259 directly to the treasurer of the city, village or township of Wayne County in which its stockholders lived for taxes levied on the shares of its stock owned by stockholders living in Wayne County outside of Detroit because of the numerous city, village and township treasurers and the different assessment rates existing therein. In determining deficiencies of $6,478.85, $7,576.77 and $29,418.40 in income taxes against petitioner for the respective years 1925, 1926 and 1927, the respondent refused to allow as deductions the several amounts paid to its stockholders residing in Wayne County outside of Detroit for the payment of taxes assessed against their stock. In its petition the petitioner claimed this to be error, but now concedes that only so much of the amounts it credited to the accounts of its stockholders as was actually paid to taxing authorities in the taxable years is deductible. The stipulation of facts from which we have made the above findings is incorporated herein by reference. OPINION. ARUNDELL: Under the provisions of the revenue act the petitioner is entitled to deduct from its gross income taxes imposed upon the stock of its shareholders which are paid*1260 by it without reimbursement from its stockholders. Sec. 234(a)(3), Revenue Act of 1926. The laws of Michigan provide for the assessment of personal taxes on shares of bank stock "to their owners" in the township, village *763 or city where the bank is located, "Provided, that the shares owned by a person residing in the county where the bank or trust, deposit or security company is located shall be assessed in the township or city where he resides * * *." Secs. 4002 and 4008, Compiled Laws of 1915, State of Michigan, as amended by Public Act No. 8 of 1917, and Public Act No. 163 of 1923. Section 4042 of the same laws reads: In the case of taxes assessed upon the shares of the capital stock of any bank, he (the Treasurer) shall call upon the cashier of such banks and demand payment thereof, and thereupon it shall be the duty of such cashier to pay the same and charge the amount so paid against the shares of stock so taxed. The parties differ only in whether the taxes were paid by the petitioner within the meaning of the taxing act. This question turns upon whether the payment of the amounts by the stockholders under the credit arrangement set forth in the stipulation*1261 of facts constitutes payment by the petitioner. We think it does. The Michigan statute has been construed to mean that, where a demand for payment of tax assessed against a stockholder on his stock is made upon the cashier of the bank, it is his duty to pay the same from funds of the bank, and that an action will not lie against him personally because of this duty of the bank to pay. ; ; ; . Here, the petitioner, instead of paying the taxes directly to the taxing authorities, as it had done in the case of taxes levied on stock held by residents of Detroit and counties other than Wayne, credited the account of each stockholder with an amount for the payment of the taxes purely as a matter of convenience. Had the petitioner placed the funds in the hands of its cashier or another officer or employee, with similar directions, there would be little, if any, doubt as to the deductibility of the taxes paid under such a plan of procedure. The petitioner accomplished the same purpose by designating the stockholders to pay the tax*1262 levies with its money. A payment of tax by a stockholder was, under the plan adopted, a payment by the petitioner, and, under the provisions of section 234(a)(3), is deductible in the year paid. The parties have stipulated the amount of tax paid by the various stockholders during each taxable year. The total amount so paid each year will be determined therefrom and proper allowances made therefor in the recomputation to be filed under Rule 50. Effect will also be given in the Rule 50 proceedings to the admission of petitioner that it is not entitled to a loss deduction of $25,900 in 1927 on certain securities. Decision will be entered under Rule 50.