Summary
In Wright Aeronautical, the tax-payer did not raise the particular claim for refund until it appealed to the BTA. Wright Aeronautical at 31-32, 38 O.O. 510, 84 N.E.2d 483. Indeed, the court acknowledged as much in Lincoln Elec. Co. v. Limbach (1993), 66 Ohio St.3d 176, 179, 610 N.E.2d 990. By contrast, UBS in the present case advanced its interpretation of the statutory term "receipts" throughout the proceedings on the petition for reassessment.
Summary of this case from UBS FINANCIAL SERVICES v. LEVINOpinion
No. 31429
Decided February 16, 1949.
Taxation — Assessment of personal property — Review and redetermination by Tax Commissioner available, when — Section 5394, General Code — Deduction from depreciated book value — Claim therefor to be made at time taxpayer makes return — Section 5389, General Code — Aeronautical engines are not fungible goods, when — Tax Commissioner's denial of refunder, not unlawful or unreasonable, when — Taxpayer claimed another had title to part of inventory returned — Tax paid without protest that return inaccurate — No claim made for deduction until taxpayer assessed for omitted credits — Advance payments to manufacturer are not current accounts payable, when — Section 5327, General Code — Advance payments by manufacturer to subcontractors not current accounts receivable, when.
1. Section 5394, General Code, does not grant a right to a review and redetermination by the Tax Commissioner to a taxpayer, except where property has been assessed which is not listed in or is omitted from a return, or where the value of the property listed has been increased, or where a claim duly made for deduction from book value, or depreciated book value, has been refused.
2. The Tax Commissioner has no jurisdiction to entertain a claim for deduction from depreciated book value of personal property used in business, unless a claim for such deduction is made in writing by the taxpayer at the time of making the return. (Paragraph three of the syllabus in Willys-Overland Motors, Inc., v. Evatt, Tax Commr., 141 Ohio St. 402, approved and followed.)
3. Aeronautical engines are not fungible goods, especially where mechanical changes and improvements are made in them from time to time.
4. Where a taxpayer has voluntarily made a tax return upon inventory and has paid the tax thereon without having made any protest that the return was inaccurate, or without having filed any claim under Section 5389, General Code, and where the goods involved in such return are not fungible goods, and where no claim is made for more than two years that any part of the goods belonged to any one other than the taxpayer, and no such claim is made until the taxpayer has been assessed for credits omitted from his return, it is not unreasonable or unlawful for the Tax Commissioner to deny the taxpayer a refunder of a part of the taxes paid, upon the ground that another had title to a part of the inventory returned, which part it was impossible to physically separate from the part admittedly belonging to the taxpayer.
5. Where advance payments are made by a buyer upon the purchase price of engines under construction but not completed, and where the purpose of the advance payments is to furnish working capital to the seller-manufacturer in order to facilitate the progress and efficiency of the manufacture, which advance payments are to be liquidated by the production of the engines, such advance payments may not be listed by the manufacturer as current accounts payable, under Section 5327, General Code, even though the buyer has the right to cancel the contract for the manufacture of engines, without default on the part of the manufacturer, and receive back the unliquidated portions of the advance payments. ( Black-Clawson Co. v. Evatt, Tax Commr., 139 Ohio St. 100, approved and followed.)
6. Where, in the above situation, the manufacturer has made advance payments to his subcontractors under similar terms and arrangements as those by which he received advance payments from his buyer, a decision by the Board of Tax Appeals that the unliquidated portions of such advance payments by the manufacturer to his subcontractors constitute current accounts receivable, under Section 5327, General Code, is unreasonable and unlawful.
APPEAL from the Board of Tax Appeals.
This being an appeal from the Board of Tax Appeals, the case is in this court as a matter of right. The appellant, Wright Aeronautical Corporation, is a corporation organized under the laws of New York and during all the times involved herein was authorized to do business in Ohio. We shall hereinafter refer to it as Wright. The appellee is the Tax Commissioner of Ohio, who shall hereinafter be referred to as the commissioner. The Board of Tax Appeals and the United States government shall hereinafter be referred to, respectively, as the board and the government.
Beginning in 1941 and continuing until about October 1, 1945, Wright operated a manufacturing plant located in Lockland. The plant and all machinery and equipment therein, except jigs, tools and dies, were owned by Defense Plant Corporation, an agency of the government, and were leased to Wright by that agency.
Wright's sole operation in Ohio consisted in the manufacture of aircraft engines and parts, for and under contracts with the government.
In 1942 Wright filed a personal property tax return based upon the balances as shown by its records as of December 31, 1941, and during 1943 filed a personal property tax return based upon the balances shown by its records as of December 31, 1942, and paid the tax shown to be due in each of the returns.
An amended preliminary tax assessment certificate No. 15047 was issued by the commissioner under date of September 6, 1942, increasing the tax based on the 1942 return by Wright, by reallocating the tax between two taxing districts. The additional assessment was paid by Wright.
Sometime during the year 1944, an audit was made by the commissioner of the 1942 and 1943 returns of Wright and at that time another amended preliminary assessment certificate No. 15047 was issued, based upon the results of the audit. This certificate increased the 1942 tax due by the sum of $9,856.14. An amended preliminary certificate No. 15206 was issued which increased the 1943 tax of Wright in an amount of $24,108.87. Of the increase of $9,856.14 in the 1942 taxes, $582.70 resulted because Wright's manufacturing inventory had not been properly returned. It is conceded that this appeal does not involve that portion of the increase. In that respect, this appeal is concerned only with the remainder of the increase, $9,273.44, which is that portion which resulted from the failure of Wright to return for taxation credits as of December 31, 1941.
The increased assessment on the 1943 tax return of $24,108.87 consisted of two items, $381.31, an increased tax on average monthly inventory, and a $23,727.56 increase which resulted from the failure of Wright to return for taxation credits as of December 31, 1942.
Within the time prescribed by law, Wright filed applications for review and redetermination from the increased personal property assessments of $9,856.14 for 1942 and $24,108.87 for 1943.
The commissioner, by an order dated June 18, 1946, found that there was no error in the assessment certificates theretofore issued and denied the applications. In its notice of appeal to the board, Wright contested only that portion, $9,273.44, of the increased tax assessment for 1942, which related solely to credits.
The increased assessment for 1943, involving two items, $381.31 for manufacturing inventory and $23,727.56 concerning credits, was also contested.
In addition, it was asserted in the notice of appeal that Wright had overpaid taxes to the state in the amount of $78,787.09, for which a refund was sought.
The board affirmed the amended preliminary assessments except that it determined that the item of $381.31, which was the increased tax on average monthly inventory for the 1943 return, was incorrect, and remanded the cause to the commissioner for an adjustment thereof. This item of $381.31 is the amount by which the commissioner increased Wright's tax on average monthly inventory returned in 1943, and the action of the board in reference thereto was a restoration of the tax on average monthly inventory to the exact amount as returned and voluntarily paid by Wright. The board further denied Wright's claim for a refund.
In this appeal the claims of Wright are based upon the provisions of the contract between it and the government, particularly upon contract No. 16288 and supplemental amendments thereto.
On or about October 24, 1940, the government contracted with Wright for the manufacture of R-2600 series aeronautical engines, spare parts and data, at an estimated cost of $112,135,255.26. Certain provisions of this contract, which are pertinent to the questions we must decide, were as follows:
"Article 6 — Payments.
"(a) Reimbursement for Cost. The government will currently reimburse the contractor for such expenditures made in accordance with Article 3 as may be approved or ratified * * *. Generally, reimbursement will be made weekly but may be made at more frequent intervals if the conditions so warrant. * * *"
"Article 22 — Title to Property where Partial Payments are Made.
"The title to all property upon which any partial payment is made prior to the completion of this contract, shall vest in the government in its then condition forthwith upon the making of any such partial payment or payments * * *."
On March 6, 1941, a supplemental contract was made which provided in part:
"Article 1. The government shall, from time to time after the approval of this supplemental contract, at the request of Wright and subject to the approval of the chief of the air corps, or his authorized representative, as to the necessity therefor, pay to the contractor for deposit in a special account as hereinafter provided, without payment of interest therefor by the contractor, advance payments aggregating not in excess of thirty per centum (30%) of the total estimated contract price to the government, as it may be amended from time to time, such upper limit for advance payments now being thirty five million, nine hundred sixty one thousand, two hundred seventy six dollars ($35,961,276.06), (such sums so advanced are hereinafter called the advances.)
"Article 2. * * *
"B. All payments from the special account, except payment of any amount to be refunded to the government hereunder in accordance with paragraph G of Article 3, shall be made by check of Wright on the special account. Each such check shall be transmitted to the bank accompanied by certification and proof as herein required that the amount of such check is necessary and is to be used for payment for material or services used, or to be used in the performance of the supplies contract.
* * * * *
"Article 5. If, upon completion of the supplies contract, the advances made to Wright have not been fully liquidated in the manner herein provided, the balance thereof shall be deducted from any payments otherwise due to Wright and if the sum or sums due to Wright be insufficient to cover any such balance, the deficiency shall be paid by Wright in cash * * *.
"Article 6. In the event of cancellation or termination of the supplies contract for any cause whatsoever, Wright agrees to return to the government, upon demand, the balance in the special account. * * *"
On September 29, 1941, two supplemental contracts to original contract No. 16288 were made, which provided, inter alia:
"Article 34. — Partial Payments — The contracting officer may, from time to time, authorize partial payments to the contractor upon property acquired and/or produced by it for the performance of this contract. * * *
"Article 35. — Title to Property where Partial Payments are Made — The title to all property upon which any partial payment is made prior to the completion of this contract, shall vest in the government in its then condition forthwith upon the making of any such partial payment or payments * * *."
Certain other provisions appearing in supplements to contract No. 16288 were:
"Article 5. If, upon completion of the supplies contract, or upon its termination for reasons other than the fault of the contractor, the advance payments made to the contractor have not been fully liquidated in the manner herein provided, the unliquidated balance of such advance payments shall be deducted from any payments otherwise due the contractor and if the sum or sums due the contractor be insufficient to cover such balance, the deficiency shall be paid by the contractor in cash forthwith after final audit by the government of all accounts hereunder * * *."
"Article 6. In the event of cancellation or termination of the supplies contract because of the fault of the contractor, the contractor agrees to return to the government, upon demand, without setoff of any sums alleged to be due the contractor, the unliquidated balance of any advance payment. Furthermore, if, in the opinion of the chief of the air corps, the unobligated balance of the advance payments made by the government under Article 2 hereof, exceeds the amount necessary for the current needs of the contractor, as determined by the chief of the air corps, the amount of such excess shall, upon demand made by the chief of the air corps, be promptly returned to the government and will be credited against the balance due the government on advances previously made. If the demand made in either event set forth in this article is not met within fifteen (15) days after receipt of such demand by the contractor, the amount demanded will bear interest at the rate of six per cent (6%) per annum from the date of the demand until payment is made."
Article 20 of the contract dated September 29, 1941, provides in part:
"Termination when Contractor not in Default. — If, in the opinion of the contracting officer upon the approval of the Secretary of War, the best interests of the government so require, this contract may be terminated by the government, even though the contractor be not in default, by a notice in writing relative thereto from the contracting officer to the contractor. In case such notice shall be given the contractor this contract shall terminate, ipso facto, upon the giving of said notice. * * *"
Messrs. Frost Jacobs, Mr. H.J. Siebenthaler and Mr. John B. Tytus, for appellant.
Mr. Hugh S. Jenkins, attorney general, and Mr. Daronne R. Tate, for appellee.
Five errors are listed in the assignment of errors filed in this court by Wright and they may be combined to present three propositions.
As to the first and second assigned errors, it is asserted that the decision of the board was unreasonable and unlawful in holding as a matter of law that it was without jurisdiction to consider the question of ownership of the manufacturing inventory returned by Wright in 1943 for the reason that a claim for deduction from net book value of the inventory had not been filed by Wright with the return; and that the decision of the board was unreasonable and unlawful because it failed to find and determine that amounts of manufacturing inventory returned by Wright in 1943 were the property of the government and Wright was entitled to a refund of taxes paid by it with respect to such property.
The third and fourth assigned errors relate to advance payments by the government to Wright. Wright contends that the decision of the board was unreasonable and unlawful in finding that the unliquidated balances as of December 31, 1941, and December 31, 1942, of advance payments made to Wright by the government were not accounts payable on demand or within one year from date of inception.
The fifth error assigned relates to advance payments made by Wright to its subcontractors, and it is asserted that the decision of the board was unreasonable and unlawful in that, after determining that the unliquidated balances of advance payments made to Wright by the government were not accounts payable, the board failed to find and determine that the unliquidated balances as of December 31, 1941, and December 31, 1942, of advance payments made by Wright to subcontractors were not accounts receivable upon demand or within one year from date of inception.
We first give our attention to the claim embodied in the first and second assigned errors. The 1943 personal property return of Wright is the only one involved in connection with this claim. Is Wright entitled to a refund of the amount of taxes which it claims to have paid upon monthly inventories during 1942 upon property the title to which was alleged to be in the government?
It will be recalled that Wright's contract with the government provided that title to all property upon which any partial payment or payments were made prior to the completion of the contract should in its then condition vest in the government forthwith upon the making of any such partial payment or payments.
Although it is conceded that it would be impossible to physically segregate the property as between that to which Wright had title and that to which the government had title, nevertheless it is claimed that a value in dollars separation could have been made at any time, and Wright claims further that the engines and parts which it was manufacturing constituted fungible goods and, therefore, a dollar separation was legal and proper.
We must bear in mind that in its 1943 tax return Wright voluntarily returned and paid the tax on all its inventory property, including that which it now claims belonged to the government. No claim was made by Wright, at the time of making the return, that the return it made or the tax it paid was not accurate, true and correct. The commissioner did not change the inventory return in any way except to add an additional tax of $381.31, which exact amount was taken off by the board, so that in the appeal before this court the 1943 return of inventory of 1942 is exactly as Wright voluntarily made it without any denial of its accuracy.
The board held that the commissioner and, therefore, the board had no jurisdiction to consider this claim of Wright. The board acted upon the theory that such claim was an attempt to obtain deductions from depreciated book value of personal property, and that, therefore, the claim was governed by Section 5389, General Code, which reads in part: "Claim for any deduction from * * * depreciated book value of personal property must be made in writing by the taxpayer at the time of making return * * *." It is conceded there is no evidence of any such statutory claim (popularly designated as a "902 claim") having been made by Wright with its 1943 return.
In the case of Willys-Overland Motors, Inc., v. Evatt, Tax Commr., 141 Ohio St. 402, 48 N.E.2d 468, the third paragraph of the syllabus reads:
"The Tax Commissioner is without jurisdiction to entertain a claim for any deduction from depreciated book value of personal property used in business unless the claim for such deduction was made in writing by the taxpayer at the time of making the return. (Section 5389, General Code; 116 Ohio Laws, pt. 2, 253; 118 Ohio Laws, 657; 119 Ohio Laws, 38.)"
Wright urges that in seeking the refund herein involved it is not making a claim for any deduction from the net book value of its personal property but is seeking a refund for taxes it paid upon the property of another.
In the case of Howe v. City of Boston, 61 Mass. (7 Cush.), 273, the Supreme Judicial Court of Massachusetts held:
"Where a person, who is liable to be taxed in a city or town for any real estate, is overtaxed by the assessors, whether the excess is caused by too high a valuation of real estate for which he is liable to be assessed, or by including in the valuation estates for which he is not liable, his only remedy is by application to the assessors for an abatement."
In the Howe case, an action was brought to recover so much of the tax paid by the plaintiff on real estate as was assessed on 16 lots of land which were claimed to be the property of the United States and so, by law, exempt from taxation. The court held that if one were taxed on property which was wholly the property of another, so that the whole tax was invalid, the entire tax might be recovered in an action, but the rule is different where one is rightfully taxed for any property and there is an excess of taxation whether the excess arises from including in the valuation property of which the person taxed is not the owner and for which he is not liable to be assessed, or from placing an undue and disproportionate value on that property of which he is the owner.
It is true that there was a growl at the holding in the Howe case by Judge Knowles of the United States Circuit Court in Montana, in the following language:
"And the court seems disposed to adopt the rule in Massachusetts that, where a man is assessed upon property he does own and on the property he does not own, it is simply an overvaluation of property he does own. If this rule was not sustained by a long line of decisions, rendered by most able and justly distinguished jurists in that state, it would not commend itself very strongly to the legal profession." Powder River Cattle Co. v. Bd. of Commrs. of Custer County, 45 F., 323.
The commissioner contends that, for additional reasons, Wright is not entitled to the refund for taxes claimed to have been paid upon government property. It is pointed out that by virtue of Section 5394, General Code, the taxpayer has a right to a review and redetermination by the commissioner "whenever the assessor shall assess any property not listed in or omitted from a return, or whenever the assessor shall assess any item or class of taxable property listed in a return by the taxpayer in excess of the value or amount thereof as so listed, or without allowing a claim duly made for deduction from the net book value of accounts receivable, or depreciated book value of personal property used in business, so listed * * *."
The section proceeds with provisions for a hearing and reads further: "Upon such hearing the commissioner may make such correction in the assessment, including any penalty, as he may deem lawful and proper or he may affirm the assessment."
It is contended, and the statute bears out the contention, that an application for review and redetermination involves a hearing only with reference to the assessment of a tax on any property not listed in or omitted from a return, an increase in the value of the property listed in the return, or where a claim duly made for deduction from book value, or depreciated book value, has been refused.
In the appeal before us there is no question of the assessment of a tax on any inventory which was not listed in or was omitted from Wright's return, or no question as to an increase in the value of the property listed, or, since none was made, no claim for deduction from book value which was refused.
Wright has attempted to have a review and redetermination of the assessment on its 1943 return of inventory, because of its own error or mistake. Section 5394, General Code, gives the commissioner no authority to do so in the absence of the filing of a "902 claim."
Under Section 5395, General Code, the commissioner does have authority to finally assess taxable property, and for such purposes he may utilize all facts and information coming to his knowledge or which he may acquire by the exercise of the powers vested in him by law. Although such power apparently is permissive, it would seem proper for a taxpayer who claims to be aggrieved to apply for its exercise in his behalf. No such application was made by Wright.
We come now to a decisive factor in the solution of this problem.
It is contended by Wright that title to all property upon which any partial payment had been made prior to the completion of the contract vested in the government, and that Wright should have a refund for the taxes it paid upon that part of its inventory; and that while it could not physically segregate unfinished engines as to ownership in itself and in the government, nevertheless, the engines and parts were fungibles and there could be a value or dollar separation made at all times.
Against this contention the commissioner argues that, although courts will place upon a contract the construction which the parties to the contract have placed thereon, that construction is binding only upon such parties and not upon a third person. Therefore, it is argued that the construction which either the government or Wright may have placed upon the contract between them is not binding upon the state. With this contention we agree. It follows that Wright, having in 1943 returned all the 1942 inventory as its own, not being able to physically separate the property which was claimed to have a divided ownership, cannot make a dollar separation of the property unless it is in fact fungible property. The question for decision is: Did the aeronautical engines and parts manufactured by Wright under its contract with the government constitute fungible property?
Section 8456, General Code, provides, inter alia, " 'fungible goods' means goods of which any unit is from its nature or by mercantile usage treated as the equivalent of any other unit." The ordinary examples of fungible goods are such substances as grain, flour, oil and other liquids.
It was held by the United States District Court of the Western District of Washington that, under the Washington statute, cases of canned salmon are fungible goods, each unit of which is equal to others, and that under the statute warehouse receipts for a specific number of cases out of a larger mass are valid. Standard Bank of Canada v. Lowman, 1 F.2d 935.
In the case of Horn v. Klatt, 65 Cal.App.2d 510, 151 P.2d 149, the First District Court of Appeal of California held that certificates of shares of corporate stock are fungibles and that a pledgee converting such pledged certificates can make restitution to a pledgor by substituting other similar certificates.
We hold, however, that to consider aeronautical airplane engines as fungibles would be stretching the rule too far. It is true that their parts are interchangeable, and that one engine is very like the other, but it is a matter of common knowledge that engines, whether aeronautical, automobile or other kind, even though supposedly interchangeable, do behave differently and are different in their action. The difference may not be pronounced but it is there. This is not only true generally, but in the present case the record shows that from time to time there were mechanical changes made in the engines, although the same basic engine was being manufactured at all times. It would follow from these observations that all the engines which were manufactured were not exactly the same.
Since Wright made no claim for deduction under Section 5389, General Code; since it made no application for a final assessment under Section 5395, General Code; since Section 5394, General Code, provides for a review and redetermination only where property has been assessed which was not listed in or omitted from a return, or the value of the property listed has been increased, or a claim duly made for deduction from book value, or depreciated book value, has been refused, and Wright's claim does not come under any of these categories; and since we hold that the aeronautical engines and parts involved herein are not fungibles, the board's action in refusing a refund to Wright for the payment of taxes on property, the title of which was claimed to be in the government, was not unreasonable or unlawful.
We are not unmindful of the broad powers given to the commissioner by Section 1464-3, General Code, but the voluntary inventory return by Wright in 1943, when it must have known its contractual rights for nearly two years, without any claim that any part of its inventory belonged to the government, until after it had been assessed for omitted credits, does not make the action of the commissioner unreasonable.
In two cases which are not in the briefs of either party in the present case, no taxes were finally assessed on goods claimed to belong to the government under contracts similar to the ones involved herein. Those cases are Craig, Tax Collector, v. Ingalls Shipbuilding Corp., 192 Miss. 254, 5 So.2d 676, and Douglas Aircraft Co., Inc., v. Byram, Tax Collector, 57 Cal.App.2d 311, 134 P.2d 15.
In both those cases, however, the assessments of taxes against those who had construction contracts with the government were disputed from the start, and no returns of claimed government owned property were ever made by the contractors. In the present case, if Wright had omitted from its return the property which it now claims belonged to the government, or had filed a "902 claim" with its return, a different question would be presented to us.
We come now to the problem presented by the third and fourth assigned errors.
On the audit of Wright's 1942 return, an increased tax assessment was made, of which $9,273.44 was based on the failure of Wright to return credits for taxation. On the audit of the 1943 return, an increased tax assessment was made, of which $23,727.56 was based on the failure of Wright to return credits for taxation. Whether these amounts were properly assessed depends upon the answer to the question whether unliquidated balances of advance payments may be considered as current accounts payable. If they are current accounts payable, then the increased assessments for both years were illegal, but if they were not current accounts payable such assessments were proper.
As hereinbefore stated, the contract between Wright and the government provided that the government should from time to time make advance payments to Wright upon the terms set out in the contract. The effect of these advance payments was to furnish working capital to Wright for the enormously expensive contracts which Wright was undertaking, and the advance payments were to be liquidated by Wright by the manufacture and production of aeronautical engines.
There can be no question that it was the primary intention of both Wright and the government that the advance payments were to facilitate the production of engines and were not merely loans to be repaid in money. However, since there were various conditions in the contracts, as we have shown in the statement of facts, under which the government had the right to require Wright to repay in cash any unliquidated portions of the advance payments, and since the government had also the right to cancel its contract with Wright, even though Wright should not be in default, it is the claim of Wright that at all times the unliquidated portions of advance payments to it by the government constituted current accounts payable. As a result, the unliquidated portions of the advance payments, which appeared as current accounts payable on Wright's books on December 31, 1941, and December 31, 1942, were entered by Wright on its tax returns as current accounts payable, under Section 5327, General Code, which reads in part as follows:
"The term 'credits' as so used, means the excess of the sum of all current accounts receivable and prepaid items used in business when added together estimating every such account and item at its true value in money, over and above the sum of current accounts payable of the business, other than taxes and assessments. 'Current accounts' includes items receivable or payable on demand or within one year from the date of inception, however evidenced."
If the unliquidated portions of the advance payments were current accounts payable, they would have exceeded Wright's current accounts receivable on December 31, 1941, and December 31, 1942, and the increased assessments which we are now discussing would have been illegal.
We are of the opinion that this question has been settled in Ohio. In the case of Black-Clawson Co. v. Evatt, Tax Commr., 139 Ohio St. 100, 38 N.E.2d 403, the syllabus reads:
"Advance payments made by the buyer upon the purchase price of a machine to be constructed or under construction but not completed, may not be listed by the seller-manufacturer as 'accounts payable' and deducted from the sum of 'accounts receivable and prepaid items' in determining credits as defined in Section 5327, General Code."
Wright recognizes the force of the Black-Clawson precedent, but argues that the decision in that case was based upon the principle that the right of the customer, who made the advance payment, to recover back the unliquidated portion of it depended upon a breach of contract by the manufacturer-seller and that there could be no subsisting liability until the breach occurred.
Wright argues further that in the present case the government had the right to cancel its contract with Wright and receive back at any time the unliquidated portions of the advance payments, and that, therefore, the right of the government in the unliquidated amounts constituted practically a demand obligation.
We do not agree with this contention. The advance payments were not a loan within the contemplation of the parties. As was said, the payments were unquestionably made with the idea of furnishing required capital to Wright so that the war needs of the government might be fulfilled as expeditiously and efficiently as possible. We were engaged in the greatest war in all history and what the government wanted and required was not a return of the advance payments but aeronautical engines to liquidate those payments as fast and efficiently as Wright could perform its contract. Wright contends that, if the government had a right to demand the payments, it made no difference that it did not do so, but we are of the opinion that the fact that no demand for the return of the money was ever made by the government does have some bearing upon the proposition that it was engines and not money which was in the contemplation of the government.
There can be no question that the unliquidated advance payments were current liabilities of Wright, but that does not mean they were current accounts payable.
In the excellent concurring opinion of Judge Turner in the Black-Clawson case, supra, he cited several authorities on accounting and on page 109 he quoted from Bliss in Management Through Accounts, as follows:
" 'Generally these deposits or advances from customers should be treated as current liabilities and shown as a separate item in that section of the balance sheet.' "
Then follows a persuasive sentence by Judge Turner: "This is far from saying that these items should be treated as current accounts payable."
Prior to its amendments in 1931 (114 Ohio Laws, 717) and 1933 (115 Ohio Laws, 553), Section 5327, General Code, read:
"The term 'credits' as so used, means the excess of the sum of all legal claims and demands, whether for money or other valuable thing, or for labor or service due or to become due to the person to pay taxes thereon, including deposits in banks or with persons in or out of the state, other than such as are held to be money, as hereinbefore defined, when added together estimating every such claim or demand at its true value in money, over and above the sum of legal bona fide debts owing by such person." (110 Ohio Laws, 23.)
In the present statute in place of the term, "over and above the sum of legal bona fide debts," we have, "over and above the sum of current accounts payable."
Judge Turner in his concurring opinion in the Black-Clawson case, supra, said that he agreed, as we do now, with the comment of the editor of Page's Ohio General Code, in the annotation to this section as follows:
"The definition of credits by the amendment to this section has been revised so as to narrow its scope as to business accounts, also, to eliminate a certain overlapping with investments under certain circumstances and, further, to prevent fictitious deductions."
In view of all the circumstances of the present case and in view of the decision of this court in the Black-Clawson case, supra, we cannot say that the action of the board was unreasonable or unlawful in holding that the unliquidated portions of the advance payments made by the government to Wright were not current accounts payable, under Section 5327, General Code.
This brings us to a consideration of the fifth and last assigned error. It appears that Wright made advance payments to its subcontractors under arrangements similar to those by which it received advance payments from the government, and that Wright carried the unliquidated portions of such advance payments upon its books as current accounts receivable, just as it carried the advance payments to it from the government upon its books as current accounts payable.
Wright now contends that if the unliquiated portions of the advance payments to it from the government were not current accounts payable within the purview of Section 5327, General Code, by the same token the unliquidated portions of the advance payments made by Wright to its subcontractors should not be held to be current accounts receivable.
We think this argument is unanswerable. As Judge Turner said in the Black-Clawson case, supra, "accounts payable are the reverse of accounts receivable."
It would seem not only a dictate of logic but of common sense that if the unliquidated advance payments received by Wright were not current accounts payable, assuredly unliquidated advances made by Wright, under a like arrangement as it received advance payments, could not possibly be classed as current accounts receivable. Therefore, we hold that the decision of the board, so far as it included as current accounts receivable the items of $3,075,370.43 for 1942 and $671,133.76 for 1943, representing, respectively, unliquidated portions of the advance payments made by Wright to its subcontractors as of December 31, 1941, and December 31, 1942, to be both unreasonable and unlawful.
The decision of the board is affirmed so far as it denied a refund to Wright for taxes paid upon property allegedly belonging to the government and so far as it denied Wright's claim that the unliquidated portions of advance payments by the government to Wright were current accounts payable, under Section 5327, General Code, but is reversed as to its denial of Wright's claim that the unliquidated portions of the advance payments made by Wright to its subcontractors were not current accounts receivable, under such section, and the case is remanded to the Board of Tax Appeals for a modification of its decision, in accordance with this opinion.
Decision affirmed in part and reversed in part.
WEYGANDT, C.J., HART and ZIMMERMAN, JJ., concur.
TURNER and TAFT, JJ., not participating.