APPEAL from a judgment of the Superior Court of the County of Cochise. John Wilson Ross, Judge. Judgment affirmed.
Mr. Joe Conway, Attorney General and Mr. Allan K. Perry, Special Assistant Attorney General, for Appellant.
Messrs. Ellinwood & Ross, Mr. William A. Evans and Mr. Denison Kitchel, for Appellee.
[53 Ariz. 253] McALISTER, J.
The State Tax Commission levied an additional state income tax against the Phelps Dodge Corporation for the year 1936 and from that order the corporation appealed to the superior court [53 Ariz. 254] of Cochise county. That court held the additional assessment illegal and from this judgment the tax commission has appealed.
The facts out of which the controversy arose may, in so far as material, be briefly stated. Between 1933 and 1936 appellee was the owner of extensive mining properties situated in Cochise, Pima and Greenlee counties, and in January, 1935, it acquired additional properties of this same character located in Yavapai county, namely, those theretofore owned and operated by the United Verde Copper Company. Each of these properties consisted of patented and unpatented mines, real estate, improvements, plants, equipment and personal property, all of which was subject to taxation for state, county, city and district purposes, and the taxing officials of the state and
its political subdivisions in which these respective properties were situated levied taxes thereon for the years 1933 to 1936, inclusive.
Appellee made an investigation of the valuations placed on its properties and on those of other taxpayers in the state, and after doing so came to the conclusion that its properties were assessed for each of the years mentioned in excess of their true cash value and that substantially all other property in the state was assessed at sixty per cent. of its true cash value and that by reason of this fact it was unjustly discriminated against and denied the equal protection of the law as guaranteed it by both the federal and state Constitutions. So, beginning with the year 1933 and annually thereafter up to and including 1936, appellee tendered to and paid the proper tax collecting authorities the amount of taxes payable on its properties for each of the said years, 1933 to 1936, inclusive, based on sixty per cent. of its true cash value as determined by it, and, prior to the time the balance would have become delinquent in each of these years, instituted [53 Ariz. 255] action in the District Court of the United States for Arizona to enjoin the collection of taxes in excess of those due upon sixty per cent. of the true cash value of the said properties as determined by it. The state tax commission and the boards of supervisors, the assessor and the treasurer of the particular county in which the property involved is situated were made defendants in these actions, and in each instance they sought a dismissal upon the ground that appellee had an adequate remedy at law under section 3136, Revised Code of 1928, by paying the taxes and instituting suit to recover the portion claimed to be excessive, but the motion was denied. The actions covering the taxes for the years 1933 to 1935 were consolidated and heard on their merits in the summer of 1936, and on December 12th of that year the court entered its decree denying appellee the relief sought in all of them. In February, 1937, shortly after the denial of its motion for a new trial, appellee paid the full amount of the unpaid taxes for each of the years 1933 to 1936, inclusive, as assessed and levied upon all its properties, and, in addition, the interest thereon at the rate of ten per cent. per annum from the dates the taxes on the respective properties involved became delinquent. The total interest paid was $824,200.04 and of this sum $379,997.58 accrued during the year 1936. This payment was made pursuant to section 17, chapter 103, Session Laws of 1931, reading as follows:
"... All taxes shall bear interest from the time of delinquency at the rate of ten per cent per annum until paid, and a fraction of a month shall be counted as a whole month."
Appellee's income tax report for 1936 disclosed that its net income for that year was $6,842,249.20 and, according to the record, the tax on this sum, amounting to $341,977.46, was paid in full. One of the deductions [53 Ariz. 256] made by appellee from the gross income derived by it in Arizona in 1936 was the sum of $379,997.58, which was the interest that accrued on the delinquent portion of its taxes for that year and had been paid by it in February, 1937, following the decision of the United States District Court in the consolidated case. The tax commission made an audit of appellee's income tax report for 1936 and after doing so concluded that appellee was not entitled to deduct from its gross income during that year the interest paid on delinquent taxes for that period, namely, $379,997.58, and levied a tax thereon against appellee in the sum of $18,998.88, plus interest. It notified appellee of this assessment of additional income on December 9, 1937, and within the proper period thereafter appellee appealed that ruling to the superior court of Cochise county which set it aside. It is this order the tax commission has brought here for review.
The only question in the case is whether in making its income tax return for the year ending December 31, 1936, appellee was within its rights in deducting from its gross income for that year the $379,997.58 it paid as interest on the portion of its taxes that became delinquent during that twelve months. Under the income tax law of this state, chapter 8, First Special Session of the Eleventh Legislature, 1933, all income, except certain specifically authorized deductions, is taxable, and one claiming the right to deduct any item from his gross income must necessarily bring himself within the provisions authorizing such deductions. The expenses that may be deducted are enumerated in sections 10 and 11 of the act, and one of the seven items mentioned in the former is:
"(b) Other ordinary and necessary expenses actually paid within the year in the maintenance and [53 Ariz. 257] operation of the business, profession or occupation ...