Appeal from Superior Court, Yavapai County; W. E. Patterson, Judge.
The Director of Income Tax Division levied a state income tax against John W. Kieckhefer, and he applied for and was granted a hearing before the Arizona State Tax Commission which affirmed the assessment. The taxpayer appealed from that order to the Superior Court. From a judgment of the Superior Court reversing the Commission's decision, the Commission appeals.
John L. Sullivan, Atty. Gen., and Burr Sutter, William P. Mahoney, and Charles D. McCarty, Asst. Attys. Gen., for appellant.
Morgan & Locklear, of Prescott, for appellee.
Udall, Justice. Stanford, C. J., and La Prade, J., concur.
[67 Ariz. 103] After field investigation had been made, the Director of Income Tax Division levied [67 Ariz. 104] a state income tax of $ 750.28 against John W. Kieckhefer, appellee, for the year 1944. The latter, being aggrieved by the assessment, applied for and was granted a hearing before the Arizona State Tax Commission, appellant, and the assessment levied was thereupon affirmed. From this order appellee appealed to the Superior Court of Yavapai County, which court reversed the decision of the Commission. The latter now appeals from that judgment.
While the individual income tax return filed by appellee for the year 1944 showed receipts of salaries $ 82,820.08 (one half of which was accounted for on his wife's separate return) and dividends of $ 113,827.80, there was a deficit reported in the net taxable income of $ 14,625.09, due principally to a claimed net loss on his K-Four Ranch and farm operations of $ 108,406, thus leaving no tax payable to the State of Arizona. The Commission disallowed but one item, which appeared under the general schedule of ranch and farm operations: "Preparation of Fields -- Leveling, grading, etc. $ 38,157.59" on the ground that it was a capital expenditure.
The property involved herein, which lies north and west of Paulden, Yavapai County, Arizona, was acquired by appellee in the year 1941, at which time some 200 acres were under cultivation, and appellee continued to cultivate this acreage during the years 1942 and 1943. To provide a more efficient operating condition for the growing of crops this extensive program was undertaken in 1944. The Commission allowed appellee, as deductible expense items (other than the $ 38,157.59 in question), "fertilizer $ 5,962.60", and "repairs, fences, buildings, wells, etc. $ 3,660.28".
The statute providing for a court review of assessments levied by the Commission states that the hearing shall be had in the superior court of the county where the taxpayer resides "upon the record made before the commission and not otherwise." Section 73-1540(f), A.C.A.1939. As the point is not being raised it is unnecessary and would be improper for this court now to determine the nature of this court review; i.e., whether or not there is to be an actual trial de novo.
The reporter who took the testimony adduced at the hearing before the Commission was unable to transcribe the notes so no transcript of the proceedings was available to the trial court, nor was any agreed statement of facts filed in lieu thereof, and no evidence was there taken. The trial court determined the case upon the "documents, papers, * * * statements and exhibits" (section 73-1540(c)) submitted to the Commission and by them certified up to the court. The recitation in the judgment that "the cause was submitted upon the uncontroverted statements of fact contained in the briefs of the parties" is partially incorrect in that an examination of the briefs and the answer shows that the Commission at all times denied that the item of $ 38,157.59 for leveling, grading, [67 Ariz. 105] etc. (for which deduction is claimed) was an ordinary and necessary expenditure of business; on the contrary it vigorously
maintained throughout that on the face of the return it was shown as a matter of fact to be a capital expenditure. Furthermore an issue was flatly raised as to when the erosion which required this expenditure occurred. Also remaining in dispute was the question as to whether there was a reconstruction of old land "borders" or a completely new construction thereof. The appellee cannot therefore invoke the rule that a determination of the ...