2 Or. Tax 108 | Or. T.C. | 1965
Decision for plaintiff rendered March 1, 1965. *109 Plaintiff's corporate predecessor obtained loans at ten percent interest from Heller Company. The money borrowed was later loaned to a third corporation without interest. The defendant State Tax Commission disallowed a deduction of the interest and plaintiff appealed to this court.
ORS
The statute is broad and has no qualifications. However, the defendant State Tax Commission's Regulation 7.260 provides "* * * interest paid on money borrowed by a corporation and used for the purpose of making loans without interest to stockholders or officers is not an allowable deduction."
This is a case where the statute clearly allows the deduction and the regulation just as clearly does not.
The defendant does not question the bona fides of the loan. The use to which the company put the funds after obtaining the loan is not important.
The defendant cites Kaye v. C.I.R.,
The defendant also argues that the interest deduction amounts to a dividend. There was no distribution of assets or earnings and the loan could hardly be called a dividend.
A dividend was defined by Justice BRAND in Cobb v. Gallowayet al,
1. ORS
The second issue is whether the right of election to offset personal property taxes against the excise tax (ORS
Plaintiff paid one fourth of the 1959 personal property taxes in November, 1959, and paid the balance in 1960. On the 1959 return he elected to have the amount paid on the 1959 personal property tax apply as an offset against the excise tax as permitted by ORS
2, 3. The defendant, State Tax Commission, agrees that each year a qualified corporate taxpayer can elect an offset against its excise tax or a deduction of the personal property tax paid. It contends, however, that the election to offset pertains to all personal property taxes available during the corporate year of election.
This is a case of first impression and obviously there is no precedent on the issue.
The statute, ORS
It is concluded that the plaintiff is correct on both issues and is entitled to the interest deductions for 1959 and 1960, and is also entitled to deduct the 1960 personal property taxes paid in 1960. No costs to either party.
"* * * * *
"(2)(a) Each corporation subject to subsection (1) of this section which is primarily engaged in manufacturing, processing or assembling materials into finished products for purposes of sale is entitled to an offset against the tax imposed by subsection (1) of this section.
"(b) The offset shall equal either (A) the amount assessed to and actually paid by it upon its properly classified tangible personal property located in this state and allocable to its personal property comprising the materials, goods in process and finished goods produced and held for sale described in the preceding paragraph or (B) one-third of its excise tax payable under this chapter, whichever is the lesser.
"(c) No excess part of such personal property taxes as are allocated under paragraph (b) of this subsection for use as an offset shall be allowed as a deduction under ORS