2 P.2d 461 | Cal. Ct. App. | 1931
This action is predicated upon a stipulated statement of facts, from which the following pertinent to the issues involved in this action are taken:
Plaintiff, an investment company, was assessed in 1924, for city and county taxes in the city of Los Angeles and the county of Los Angeles in the sum of $463,573.91 as solvent credits. Against this amount a deduction in the sum of $142,175.15 on account of debts was allowed. Appellant claimed that it was entitled to a further deduction of $350,000 arising out of the following transactions: On February 25, 1924, the appellant purchased $300,000 worth of Liberty bonds from the Security Trust and Savings Bank, giving in payment therefor its thirty-day promissory note bearing interest at the rate of seven per cent per annum. On the same day the appellant purchased from the American Bank $50,000 in United States treasury certificates *758
bearing interest at four and one-fourth per cent per annum, giving in payment therefor its thirty-day promissory note bearing interest at the rate of six per cent per annum. These transactions were both subsequently closed on the tenth day of March, 1924, the certificates sold and the indebtedness to the banks liquidated. This transaction, appellant contends, was declared to the assessor, respondent herein. It does not appear from the record or from the stipulation of facts by whom or in what manner such declaration was made. The assessor refused to allow credit for such indebtedness. The court adopted as its findings the stipulation of facts agreed upon by the parties, and in addition thereto found that all of said indebtedness which the assessor refused to allow as offset against plaintiff's solvent credits was incurred solely for the purpose of evading payment of taxes justly due on the property of plaintiff, and for no other purpose. The appellant was obligated in these transactions to pay seven per cent and six per cent interest per annum respectively on these obligations and in return received tax-exempt government securities bearing interest at the rate of four and one-fourth per cent per annum. [1] It is the contention of appellant that there is no evidence to sustain the additional findings of fact of the trial court hereinbefore set out; that the findings are a mere surmise of the court, and furthermore, that even if it had been proved and found that these indebtednesses were actually created by appellant for the purpose of reducing its taxes, that nevertheless such fact would not be material, relying in support of this statement upon its construction of the conclusions of the New York case of People v. Ryan,
In stating that this question has never been passed upon by the courts of this state, counsel for appellant entirely overlooked the case of Whiting Finance Co. v. Hopkins,
The facts of this case tend more strongly to support the position taken by respondents than do the facts in the case just quoted between the same parties. The record shows that appellant is a finance company dealing in automobile *760 conditional sales contracts. Practically its entire assets consist of solvent credits. Just before the tax date, under the procedure already detailed, appellant incurred debts in an amount sufficient, if effective for the purpose, to wipe out entirely the tax upon such credits. It was no part of appellant's business to deal in stocks and bonds. Its sole business was automobile sales contracts. Nevertheless it incurred debts in the sum of $350,000 in order to purchase government securities. On February 25, 1924, just a week prior to 12 o'clock A.M. of March 3, 1924, appellant by two transactions incurred debts in order to purchase $300,000 of tax-exempt bonds and $50,000 of tax-exempt United States certificates. The notes were given to run only thirty days. They paid respectively seven per cent and six per cent interest on these obligations. In adjusting the matter the period of interest payment and the consequent loss sustained thereby was cut to the lowest possible minimum, to wit, fifteen days. The purchased certificates were sold and the notes paid off within fifteen days when but half their time had run. In other words the securities were bought a week before tax day, and sold the Monday following. The transaction involved an immediate financial loss and net cost to appellant of two and three-fourths per cent on $300,000 and one and three-fourths per cent on $50,000. It is perfectly apparent from this recitation of the facts, as they appeared not only to the city and county assessor and the board of equalization of Los Angeles County, but also to the judge of the superior court who tried the case, that the purpose of this transaction was not a business transaction with a view to financial profits, such as usually actuate business men in such transactions, nor was the purpose a patriotic one such as was evidenced by loyal citizens during war time, nor was the purpose to bear its proportion of the burden of taxation in support of municipal and county government. We do not see any escape from the conclusion reached by these officers that this transaction was intended to be merely a temporary deal conceived and executed with the purpose and intent of evading its just tax responsibility. Appellant concedes that the assessor, board of equalization and the trial court believed that this indebtedness was created with the motive of evading taxation. We are of the opinion that their belief is predicated upon *761 and amply supported by a recital of the facts hereinabove set out.
[2] While in the New York case, supra, the view seems to be that neither the assessor, the board of equalization, nor the court can investigate an attempted patent fraud of this character, it nevertheless is not the rule in this state, nor have the courts in this or other jurisdictions felt that their eyes must remain closed and their powers to function stand helpless and paralyzed to render nugatory and ineffectual such fraudulent purposes as are evidenced by the manipulations in the instant case. In Holly Springs Sav. Ins. Co. v.Supervisors,
In the case of Jones v. Seward County,
To the same effect are the cases of In re People's Bank ofVermont,
The trial court, so far as disclosed by the record, based its decision solely, and this is evidenced by the foregoing discussion and we believe correctly, upon the ground of fraudulent evasion of tax obligation to the municipality and county government in the city of Los Angeles and in the county of Los Angeles. [3] Respondent discusses several other points in support of the conclusions reached by the trial court, all of which appellant contends were not presented to that tribunal. It is not clear from the record just what matters were called to the attention of the trial court. These points, briefly stated, are, first, that appellant did not entitle itself to the deductions which it herein claims by declaring in its property statements to the assessor its alleged deductible debts. Such a declaration by the property owner under oath in its property statement is a condition precedent to any right to a deduction of debts in the assessment of taxable credits. (Pol. Code, sec. 3629, subd. 7; 3 Cooley on Taxation, 4th ed., sec. 1159.)
[4] Second, it does not appear that appellant's notes to the two banks were issued to residents of the state, such that if still held by the banks on the tax date, they would be legally deductible from appellant's taxable credits. [5] Third, appellant did own taxable credits. The valuation of such credits, whether by the process originally fixing that value, or of fixing it after first crediting against the same the amount of deductible debts, was a question of valuation purely, and as such, was for the assessor and the board of equalization. It was not a question open to judicial review. (Los Angeles Gas Elec.Co. v. County of Los Angeles,
We do not deem it necessary to discuss extensively the questions raised in points 1, 2 and 3, just outlined, as we deem the conclusion of the trial court on the sole point mentioned in its findings and judgment to be so manifestly a correct legal solution of the problems involved in this litigation, that any further discussion would be superfluous.
The judgment is affirmed.
Tyler, P.J., and Knight, J., concurred. *765