Appeal from Superior Court, Maricopa County; Dudley W. Windes, Judge.
Proceeding for income tax refund by Airesearch Manufacturing Company, Inc., a corporation, against the State of Arizona, a body politic, and Joe Hunt and others, as members of and constituting the Arizona State Tax Commission. From the judgment, the State and the Arizona State Tax Commission appeal.
Reversed and remanded with directions.
Evo DeConcini, Atty. Gen., Charles D. McCarty, Asst. Atty. Gen., Edward Jacobson, Asst. Atty. Gen., for appellants.
Snell, Wilmer, Walsh & Melczer, of Phoenix, for appellee.
Phelps, Justice. Udall and Stanford, JJ., and Croaff and Farley, Superior Judges, concur. LaPrade, C. J., being ill, and DeConcini, J., having disqualified himself, the Honorable Thomas J. Croaff, Judge of the Superior Court of Maricopa County, and the Honorable Gordon Farley, Judge of the Superior Court of Santa Cruz County, were called to sit in their stead.
[68 Ariz. 344] The appellee, Airesearch Manufacturing Company, Inc., hereinafter referred to as the company, was incorporated to do business in the state of Arizona in July, 1942, its purpose being to carry on a defense plant activity as a part of the war program. It continued its operations until sometime during the year 1946 when it closed up its affairs and withdrew from the state.
During the period of its operation it kept its books on an "accrual" basis as distinguished from a "cash" basis. The company in submitting its income tax report to the Arizona State Tax Commission, hereinafter referred to as the commission, in computing the amount due, deducted as a credit on its income the federal income taxes actually paid during the year. However, it showed in each of the years it filed its state income tax report the accrued federal income tax which it declared to be nondeductible. For example, in the year 1943-1944 it deducted as federal income tax, taxes paid -- $ 48,192.09, and showed an accrual of federal income taxes for that fiscal year of $ 871,400. In the year 1944-1945 it deducted $ 871,095.83 federal income tax actually paid, so that the deductions over a period of years, whether on an accrual basis or a cash basis would be the same.
After the company had discontinued its operations in Arizona, to wit, on May 6, 1946, pursuant to the renegotiations of the company's 1943-1944 profit, it filed with the commission an amended income tax return for that year together with a claim for a refund of income taxes pursuant to the provisions of section 73-1544, A.C.A.1939. The commission approved the claim in the sum of $ 10,111.18 which was later reduced to judgment in the Superior Court of Maricopa County in accordance with the provisions of law relating to refunds in excess of $ 1000.
On September 4, 1946 the company filed with the commission a second amended income [68 Ariz. 345] tax return together with a second claim for refund of the 1943-1944 income taxes in the amount of $ 33,568.81 based upon the ground that it had just discovered an error in its returns to the Tax Commission in which it had deducted federal income taxes actually paid instead of deducting federal income taxes accruing during the fiscal year involved.
On the same date it filed a claim for a refund of $ 26,151.63 for the fiscal year 1944-1945 based upon the same ground. For the fiscal year 1945-1946 the company filed its return with the State Tax Commission deducting its federal income tax on an "accrual" basis instead of on a "cash" basis as it had been accustomed to do and paid to the commission $ 20,000 income tax. Had the company made its return to the commission for said year deducting
the federal income tax on a "cash" basis instead of an "accrual" basis there would not have been due any income tax whatever to the state.
On December 12, 1946 the company filed a motion in the Superior Court of Maricopa County to reopen the judgment it obtained in that court on June 14, 1946 to permit the company to file a supplemental complaint or in the alternative to reopen the judgment to permit the company to file an amended complaint based on the fact that the company claimed an additional refund from the state by virtue of its alleged error in deducting federal income taxes.
On December 13, 1946 the commission entered its order denying both of the claims for refund for the fiscal years 1943-1944 and 1944-1945. The company requested a hearing before the commission which was granted. A formal hearing was had before the commission on May 21, 1947 on the petition for the refund for the fiscal year 1943-1944. No hearing was had on the claim for refund for the year 1944-1945 because of pending renegotiating proceedings between the company and the federal government.
On June 4, 1947 the commission entered its order denying the refund from which an appeal was taken to the Superior Court of Maricopa County. The matter proceeded to hearing before that court which thereafter entered its judgment requiring the commission to recompute the company's income for the year 1943-1944 and to allow the company a deduction of federal income taxes ...