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Moore v. O. S. Stapley Co.

Supreme Court of Arizona

June 23, 1952

MOORE et al.
v.
O. S. STAPLEY CO. et al

Judgment reversed with directions to permit deduction of accrued federal income taxes.

Fred O. Wilson, Atty. Gen. and Richard C. Briney, Asst. Atty. Gen., for appellants.

Jennings, Strouss, Salmon & Trask, of Phoenix, for appellees and cross-appellants.

Norman S. Hull, Phoenix, Robert L. Pierce, Herbert A. Waterman, San Francisco, California, for Southern Pacific Co.

Ryley, Carlock & Ralston, Phoenix, amicus curiae.

Stanford, Justice. Udall, C. J., and Phelps, De Concini and La Prade, JJ., concur.

OPINION

Stanford, Justice.

[74 Ariz. 175] This appeal arises from separate income tax assessments by the State Tax Commission, hereinafter referred to as the commission, upon two different taxpayers. The O. S. Stapley Company, a corporation, and Arizona Fertilizers, Inc., a corporation, hereinafter referred to as taxpayers or Stapley and Fertilizers respectively. Each assessment raised the same basic question and each taxpayer was represented by the same counsel. Upon stipulation of counsel for both taxpayers and the commission, the two appeals to the superior court from the adverse rulings of the commission were ordered consolidated and filed as one case. The commission now appeals, and Stapley and Fertilizers cross-appeal, from the order and judgment of the superior court.

Both taxpayers, Stapley and Fertilizers, were organized as corporations prior to the year in which the "Income Tax Act of 1933" was adopted by the Legislature of the State of Arizona. Laws 1933, ch. 39. Taxpayers' books of account have at all

Page 948

times been accurately kept on an accrual basis and their income tax returns to the State of Arizona have in every year since 1933 been based upon the accrual method of accounting. Each taxpayer is engaged [74 Ariz. 176] in the production and/or purchase and sale of merchandise which constitutes its sole income-producing factor. At the end of the taxable year taxpayers' books of account reflect large inventories and accounts receivable.

Stapley's fiscal year runs from October 1 to September 30. On January 30, 1951, the commission gave notice to Stapley of the correction of assessment of income taxes for the fiscal year ending September 30, 1948. The assessment was corrected by disallowing federal income taxes accruing during that fiscal year in the amount of $ 269,594.37. On this basis the commission levied an additional assessment against Stapley in the amount of $ 15,202.83 including interest. Stapley actually paid $ 206,836.50 federal income tax during the 1947-48 fiscal year. No deduction was allowed Stapley on its state return for this cash payment of federal income tax as that amount had been allowed as a deduction in the preceding fiscal year on the accrual basis. Stapley protested the additional assessment and a hearing was held before the commission which resulted in a sustaining of the additional assessment.

Fertilizers' fiscal year runs from July 1 through the following June 30. On November 3, 1949, notices of correction and additional assessments for the fiscal years ending June 30, 1947, June 30, 1948, and June 30, 1949, respectively, were given to Fertilizers. The assessments were corrected by disallowing federal income taxes accruing during the 1946-47 fiscal year in the amount of $ 41,558.06. Also disallowed for that fiscal year was an item concerning bad debts with which we are not here concerned. The commission levied an additional assessment of $ 2,470.95 including interest. Fertilizers actually paid federal income taxes in the amount of $ 57,675.61 during the 1946-47 fiscal year. No deduction was allowed Fertilizers on its state return for this cash payment of federal income taxes as that same amount had been allowed as a deduction the preceding year on the accrual basis. Similar corrections and assessments were made for the 1947-48 and 1948-49 fiscal years except that the ...


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