Union Paving Co. v. Commissioner

OPINION.

Lansdon:

During the taxable year the petitioner was engaged solely in the business of paving and patching streets and roads under contracts with the Commonwealth of Pennsylvania and certain municipal subdivisions thereof. It contends that, as this work was done for a State and the political subdivisions thereof, it is exempt from Federal taxation since it was income resulting from the discharge of governmental functions. It is now well established that the salaries of persons acting as officers of a State or a political subdivision thereof in the discharge of its governmental functions are not subject to Federal taxation. The petitioner, however, was not an official or even a salaried employee of the Commonwealth of Pennsylvania or any of its political subdivisions during the taxable year. The petitioner’s contention on this point can not be allowed. Metcalf & Eddy v. Mitchell, 269 U. S. 514; Appeal of Robert G. Gordon, 5 B. T. A., 1047; Appeal of Emma B. Brunner, 5 B. T. A. 1135.

The petitioner set apart the amount of $19,476.56, received on contracts completed in 1918, as prepaid cost of maintenance, and did not include such amount in its taxable income in its income and profits-tax return for such year. The Commissioner properly added this amount to income and properly deducted actual cost of maintenance for such year from taxable income as ordinary and necessary expense. Appeal of Consolidated Asphalt Co., 1 B. T. A. 79; Appeal of Uvalde Co., 1 B. T. A. 932; Appeal of Chapin Construction Co., 3 B. T. A. 25.

The Commissioner reduced the petitioner’s invested capital in the amount of $73,829.02 by increasing the accrued depreciation of the petitioner’s assets at December 31, 1917. The petitioner alleges that it accounted on its books for all actual depreciation of its plant and equipment and that in many instances it charged the cost of replacements and other capital expenditures to expense. It takes the position that depreciation is a matter of fact that can be more equitably ascertained by proof and experience than by the application of arbitrary percentage formulas on a straight-line basis, and cites several decisions of this Board in support of its position.

In every appeal in which the Board has reversed the action of the Commissioner on issues similar to this, the petitioner has proved that the amount of depreciation written off was, in view of all the facts, a reasonable allowance for the exhaustion, wear and tear of assets. In the instant proceeding the petitioner relies entirely on proof of the action of the Commissioner. There is no evidence upon which we can base findings of fact adverse to the determination of the Commissioner. Appeal of City National Bank, 2 B. T. A. 623.

Judgment toill be entered on 15 days’ notice, under Rule 50.