California Sanitary Co. v. Commissioner

CALIFORNIA SANITARY COMPANY, LTD., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. California Sanitary Co. v. Commissioner Docket No. 68655. United States Board of Tax Appeals 32 B.T.A. 122; 1935 BTA LEXIS 995; February 20, 1935, Promulgated *995 TAXES - DATE OF ACCRUAL OF PROPERTY TAXES IN STATE OF CALIFORNIA. - Where under the laws of the State of California the liability for county and city taxes is determined by the ownership of property on the first Monday in March of each year, taxes accrue on such date and where petitioner acquired certain property in June 13, 1930, and thereafter paid the taxes for that year, held, the expenditure for the payment of the taxes became a part of the cost of the property and is not deductible as taxes under section 23, Revenue Act of 1928. Claude I. Parker, Esq., John B. Milliken, Esq., and George H. Koster, Esq., for the petitioner. Thomas F. Callahan, Esq., for the respondent. BLACK *123 In this proceeding the Commissioner has determined a deficiency against petitioner for the period June 13 to December 31, 1930, amounting to the sum of $948.86. There is but one assignment of error, which is that the respondent erred in disallowing as a deduction from petitioner's 1930 gross income city and county taxes that accrued within the taxable period. FINDINGS OF FACT. The petitioner corporation was organized under the laws of the State*996 of California on June 13, 1930, with a paid-in capital stock of $400,300. Its principal place of business is at Los Angeles, California, and it filed its income tax return for the period involved herein with the collector of internal revenue for the sixth district of California, at Los Angeles. The petitioner corporation took over the business theretofore conducted and operated by a partnership under the name of California Sanitary Canning Co., which had been in existence and engaged in its business for several years prior to June 13, 1930. The members of the partnership were George Shapiro and Joseph Shapiro and their proprietary interests in the partnership were equal. On the date of its organization the petitioner corporation took over the assets, liabilities, and business of the partnership. In exchange for the net assets and business of the partnership, the petitioner corporation issued its capital stock as follows: George Shapiro, 1,999 shares; Joseph Shapiro, 1,999 shares. Petitioner corporation also issued 5 shares of its capital stock to qualify officers and directors. Its total outstanding capital stock immediately after its organization, and also on December 31, 1930, was*997 4,003 shares and was held by the parties indicated above. The partnership kept its books and records and filed its income tax returns on an accrual basis. The petitioner corporation kept its books and records and filed its income tax return for the period June 13 to December 31, 1930, on an accrual basis. During 1930 the petitioner corporation accrued and charged as an expense on its books Los Angeles City and Los Angeles County taxes amounting to $7,907.14 on its real estate and personal property acquired from the partnership on June 13, 1930. The partnership owned the property from January 1 to June 12, 1930. The partnership did not deduct these taxes of $7,907.14 on its income tax return for the period January 1 to June 13, 1930. The *124 petitioner corporation deducted them on its income tax return for the period ended December 31, 1930. This deduction was disallowed by the respondent on the theory that the sum of the taxes represented additional cost of the properties taken over by the corporation from the partnership. It is agreed between the parties that the Board may take judicial notice of the statutes of the State of California regarding liability*998 for the payment of state, county, and city taxes, and the assessment and payment thereof. The Los Angeles City and Los Angeles County taxes involved in this proceeding were duly levied, assessed, and collected in accordance with the laws of the State of California relating thereto. OPINION. BLACK: Under the tax laws of California both real and personal property are assessed to the persons by whom they arw owned or claimed, or in whose possession or control they are, at twelve o'clock meridian of the first Monday in March. The Political Code of California, section 3628, reads as follows: SEC. 3628. * * * The assessor must, between the first Mondays in March and July of each year, ascertain the names of all taxable inhabitants, and all the property in his county subject to taxation, except such as it required to be assessed by the state board of equalization, and must assess such property to the persons by whom it was owned or claimed, or in whose possession or control it was, at twelve o'clock meridian of the first Monday in March next preceding * * *. By section 3717 of the code it is provided that taxes due on personal property shall be a lien upon the real property*999 of the owner thereof, from and after twelve o'clock noon of the first Monday in March in each year. Section 3718 provides that taxes due upon real estate shall be a lien and such lien shall attach as of the first Monday in March in each year. Other provisions of the code relate to the procedure as to the assessment, proceedings before boards of equalization, levying of the tax, and methods of collection. In the instant case the property was assessed as of the first Monday in March 1930 for the taxes for the fiscal year beginning July 1, 1930. Under the sections referred to above the lien for such taxes accrued and attached to the property as of the first Monday in March 1930. At such time the property was owned by and in possession of the partnership, California Sanitary Canning Co., and was assessed to it. When transferred to the petitioner on June 13, 1930, the property was encumbered with the lien for taxes, which were the taxes assessed against the partnership. The tax receipt which shows the payment in question was attached as an exhibit to the stipulation and it shows that the property *125 was assessed to or owned by California Sanitary Canning Co., which*1000 is the partnership and not the petitioner corporation. This same tax receipt contains certain printed matter on the back thereof entitled "Important information." Paragraphs 4 and 5 thereof read as follows: 4. Taxes are levied on both real and personal property as it exists at 12 o'clock noon on the first Monday in March. Subsequent removal or change of ownership does not relieve the real estate of the personal property tax lien and the Tax Collector cannot credit payments for real property taxes unless the personal property tax has been paid or tendered. 5. Tax Bills will be pre-mailed only to taxpayers who have filed a statement with the County Assessor between the first Monday in March and the first day in June, each year, of all taxable property, real and personal owned by them, in their possession or under their control at 12 o'clock noon on the first Monday in March of that year. * * * It seems clear that under these circumstances the taxes in question were accrued liabilities against the partnership, California Sanitary Canning Co., prior to the transfer of the property to petitioner, California Sanitary Co., Ltd. The subsequent payment of the taxes*1001 by the petitioner corporation was a capital expenditure and an additional cost of the property. We have had this question before us in several cases from different states and have uniformly decided that the owner of the property on the day of assessment and accrual of the lien is the taxpayer primarily liable therefor and that subsequent purchasers paying the taxes are not entitled to a deduction therefor. ; ; ; ; . We find no substantial difference in the laws of California in this respect from those in the cases previously considered. The action of the respondent is sustained. Cf. , a California case. Decision will be entered for the respondent.