*1065 1. Amounts included by a producer of whiskey in the sale price as reimbursement of production tax paid by it, which amounts were not collectible until withdrawal of the whiskey from the warehouse, held accruable in the year of sale, despite the fact that the whiskey has not yet been withdrawn and the holders of the warehouse receipts are unknown to the producer.
2. Storage charges at a fixed and definite rate applicable during the period while whiskey sold is held by the producer under warehouse receipts, held properly included within the producer's gross income on an accrual basis, notwithstanding that the holders of the warehouse receipts are unknown to the producer.
*8 The Commissioner determined a deficiency of $60.50 in petitioner's income tax for 1934 and deficiencies of $9,154.70 in income tax and $3,329.60 in excess profits tax for 1935.
The question is whether petitioner should include in its accrued income in the year of sale the amount which the purchaser of whiskey*1066 agrees to pay petitioner in reimbursement of petitioner's prior payment of the Kentucky production tax and the amount of petitioner's storage charges on whiskey sold.
FINDINGS OF FACT.
The petitioner is a Delaware corporation engaged in the business of distilling and selling whiskey. Its accounts are kept on an accrual basis.
In 1935 petitioner paid to the State of Kentucky $82,404.91 distilled spirits excise tax, commonly known as production tax, of 5 cents per proof gallon. It charged this to production costs. Customarily petitioner maintained with the State of Kentucky a prepaid balance of anticipated production tax, by payments of from $2,000 to $5,000 made in advance of distillation.
In 1935 the petitioner sold 22,886 barrels of whiskey for an aggregate gross sales price of $1,056,743.16. An invoice was prepared after each sale showing the number of original proof gallons in the barrel and the price. In some instances the purchaser paid the accrued storage charges of 10 cents per barrel at the time of purchase, but that was not customary. In no case did the purchaser pay the Federal Government tax prior to withdrawal, at which time it became due. When there*1067 was an immediate withdrawal the accrued charges were made part of the price. Where the sale was to another distillery or a rectifier or someone with a Federal bottling license the buyer assumed the charges. In such case the buyer took the whiskey and paid the Federal withdrawal tax and an amount equivalent to the Kentucky production tax to petitioner. The invoice did not itemize the reimbursement of production tax but showed one gross amount. Petitioner included in income on its books and tax return $9,722.15 accrued storage charges as of December 31, 1935.
The greater part of petitioner's production for 1935 was sold on some form of deferred payment, generally with a down payment of $5 per barrel and a note due in four months, renewable four times for four months each. The average price for a 48 1/2-gallon barrel was approximately $40. In such sales, the whiskey was not delivered to the purchaser but was covered by a warehouse receipt on which the barrel numbers were listed. The warehouse receipts were held as collateral for the unpaid portion of the price. In most cases the invoices given by petitioner showed the number of proof gallons, *9 the price, and the month*1068 of production and inspection, but not the storage. The warehouse receipts were delivered to the purchaser upon payment of the notes. The receipts were negotiable or nonnegotiable, as the purchaser desired. Most of them were in negotiable or "street" form. On December 31, 1935, petitioner's general ledger showed a balance of $105,042.47 due from purchasers on those notes.
Whiskey could be withdrawn only upon surrender of the warehouse receipt. Upon withdrawal of the whiskey from bond the Federal withdrawal tax of $2.25 per proof gallon, the Kentucky production tax of 5 cents per gallon, the Kentucky ad valorem (personal property) tax of approximately 40 cents per barrel, and the storage charges at the rate of 10 cents per barrel per month were paid to petitioner by the holder of the warehouse receipt. At that time a second invoice was given to the purchaser showing accrued storage charges, accrued city and county taxes, and Kentucky ad valorem and production taxes. Where no time limit was stated on the warehouse receipt the whiskey could stay in storage eight years.
In some cases the purchaser reimbursed petitioner for the production tax when he purchased the whiskey, and*1069 in such event petitioner's original invoice stated on its face that such tax had been paid and was included in the purchase price. In such cases the amount collected was included in petitioner's taxable income for 1935. In most cases the amount was not collected at the time of sale and the invoices contained the following statement: "When this whiskey is withdrawn from our distillery boned warehouse, the state manufacturing excise tax of $.05 per gallon is due and payable." In most cases the reimbursement was received by the petitioner upon removal of the whiskey from the warehouse and the amount was not included in income on petitioner's books until collected from the purchasers. On December 31, 1935, there was accrued $47,699.39 production tax on sales made by petitioner for which the petitioner had not received reimbursement. The amount of the production tax paid by petitioner in 1935 was reflected by it in its cost of sales for that year. In 1936 petitioner accounted for the reimbursement of tax on its books as it did in 1935.
As a general rule petitioner did not carry any insurance on whiskey for which warehouse receipts were issued and outstanding. Insurance was carried*1070 by each customer as he wished. In a few cases petitioner carried the insurance and was paid therefor by the customer. The insurance carried by petitioner covered accrued storage costs and taxes as they increased.
Petitioner's warehouse receipts were freely bought and sold, and petitioner generally did not know the identity of the holders. Much *10 of the whiskey distilled by petitioner was sold to known brokers and promptly resold.
Petitioner was in the bottling business, as well as the distilling business, and it sold substantially all the whiskey which it produced in 1935, expecting to buy back whiskey in the market for bottling purposes, since whiskey for bottling purposes had to be at least eighteen months old. Petitioner had to pay Kentucky production tax on whiskey which it bought for bottling purposes.
On December 31, 1935, petitioner's general ledger showed 11,530 barrels of its own bonded whiskey, carried at a value of $268,986.39. In the years 1936 through 1939 it repurchased its own whiskey in amounts and at prices, including storage charges but excluding any reimbursement of Kentucky production tax, as follows:
| Barrels | Price | |
| 1936 | 5,852 | $249,961.72 |
| 1937 | 5,429 | 252,136.48 |
| 1938 | 3,144 | |
| 1939 | 281 |
*1071 The major portion of petitioner's repurchases in 1936 and a large part of its repurchases in 1937 were of warehouse receipts for whiskey sold by it in 1935. Petitioner in 1936 collected $4,202.91 as reimbursement of production tax, and reported it as income on its return. In 1937 it collected $22,684.13 as reimbursement of production tax, and reported that amount on its return. In 1938 about 6,000 barrels of petitioner's whiskey were removed from its warehouse, resulting in the receipt of approximately $14,400 reimbursement of tax, and in 1939 about 10,000 barrels, resulting in a reimbursement of approximately $24,000 tax.
In a "Report on Examination" prepared for petitioner for 1935 by a firm of certified public accountants, the sum due from its customers as at the end of that year in respect of the Kentucky production tax is recorded as an asset in petitioner's financial statement as follows:
| Deferred Receivables - Kentucky distilled spirits excise tax paid on goods sold and collectible from purchasers upon withdrawal of spirits from bond (see contra) | $47,699.39 |
On the other side of the balance sheet appears the following:
| Deferred Credit - Excise taxes paid, to be transferred to income when collected (see contra) | $47,699.39 |
*1072 An explanatory paragraph in the report states:
DEFERRED RECEIVABLES $47,699.39
There has been accrued on the records of the company against holders of warehouse receipts at December 31, 1935 an amount of $47,699.39 representing *11 the Kentucky five cents per gallon production tax. The company has paid this tax and included it in their production costs. According to the terms of warehouse receipts the purchasers thereof agree to pay this tax in addition to warehousing charges, etc., but by mutual agreement between the parties to the contract, payment therefor has been deferred until the whiskey is withdrawn.
This report was based on monthly "financial Reports" prepared for petitioner, in which the amount of Kentucky production tax paid by it on whiskey which had not yet been withdrawn was shown on a balance sheet under assets as "Other Assets" and under liabilities as "Deferred." This information did not appear on any of petitioner's books. These monthly reports were used in obtaining bank loans. Until the fall of 1935 the form of warehouse receipt used by petitioner did not make specific reference to Kentucky production tax, but the form used thereafter did so*1073 and stated that the whiskey represented thereby was:
1. Deliverable only upon (a) the surrender of this receipt, and (b) the repayment to us of any taxes, Federal or State, of any description, including any Kentucky State production tax which may be now or hereafter imposed upon said whiskey or upon us as producers thereof, and (c) the payment to us of the United States Government taxes, and all other taxes and charges of every character and description assessed against or that may constitute a lien upon said whiskey, and all licenses and other taxes that are now or hereafter may be imposed upon us because of the manufacturing, storing, warehousing, withdrawing, bottling, or other handling of the aforesaid whisky, and (d) the payment to us of all unpaid storage charges and such other legal charges as may hereafter accrue in connection with the withdrawal and delivery of the whisky.
Petitioner, in making credit arrangements with a bank, usually pledged the warehouse receipts in its possession. On December 31, 1935, petitioner had pledged receipts for 7,323 barrels of its total inventory of 11,752 barrels as collateral for loans of $191,561.37. On February 23, 1939, petitioner*1074 filed a claim for refund in respect of accrued storage charges which it had included in its income for 1935.
OPINION.
STERNHAGEN: 1. The Commissioner's determination included the following adjustment:
(a) Income has been adjusted to reflect the accrual of Kentucky production tax, assumed by the purchaser, in income for the taxable year. After a careful consideration and review of all the facts and information submitted in support of your contention that the production tax on whiskies is not income until actually received from the purchaser upon withdrawal from the warehouse, you are advised that the Bureau holds that all items entering into the transaction whereby the sale of your product is recorded on your books must be treated alike. There can be no segregation whereby a part of the total sale price (including storage charges and taxes) can be set aside and reported at some *12 future or problematical date. Such a method would contravene the provisions of article 41-2 of Regulations 86, which provides that "a method of accounting will not, however, be regarded as clearly reflecting income unless all items of gross income and all deductions are treated with reasonable*1075 consistency."
The petitioner assails this ruling. It contends that the $47,699.39 production tax applicable to whiskey sold in 1935 which had not yet been withdrawn from the warehouse was not accruable as a reimbursement to it because (a) there was no enforceable right to its collection is 1935; (b) the holders of the warehouse receipts were unknown to it; (c) there was doubt as to its collection; and (d) in fact some was not collected.
The contention must be rejected. When the whiskey was sold, whether for immediate delivery or upon a warehouse receipt, the consideration invariably included the amount identified as the exact equivalent of the amount which petitioner had been required to pay as the production tax. Petitioner as the producer was alone subject to this tax. When it paid the tax, either directly or by credit against its advance deposit, the tax obligation was discharged, and to speak of the amount thereafter as a tax was but a convenience. Between seller and buyer it was merely a factor of the sale price. Thus it was among petitioner's accrued receipts equally with the other elements of the sale price which petitioner was to receive and the purchaser or his*1076 assignee or successor was to pay. To omit it as an accrued item while including the rest of the unpaid price and deducting the taxes as an item of cost would be a distortion rather than a clear reflection of income.
There was in petitioner an enforceable right to receive the contract price protected by the withheld warehouse receipt and collectible from the person, regardless of identity, who presented the receipt and took delivery. Whether such person was unknown to petitioner was of no importance in respect of the accrual of the elements of the sale price.
The doubt as to whether the amount would ever be received is no more than the doubt inherent in every such market transaction. It does not affect the accrual of the fixed price when the sale is made even though it may be necessary or proper to make an adjustment in a later year if things turn out differently from the supposition upon which the accrual was made. . This is not a case where the amount in all reasonable likelihood will never be received. The respondent's determination must be sustained.
2. The same reasoning requires the denial*1077 of petitioner's contention that the storage charges which it makes for holding the whiskey until the warehouse receipt is presented and the whiskey withdrawn *13 should not be accrued until delivery is made. Such charges are at a fixed and definite rate. Each year the accrued but unpaid storage charges are ascertainable. The petitioner accrues them on its books and properly included the amount of such accrual on its tax return. It is not entitled to have this item changed.
Decision will be entered under Rule 50.