*2572 The normal income tax imposed by the State of Wisconsin upon taxpayer's income for the year 1919 accrued and became a fixed liability on December 31, 1919. It, therefore, was a proper deduction from gross income for that year for the purpose of the Federal income tax upon the accrual method of accounting, notwithstanding such tax did not become due and payable until the subsequent year. The fact that a receipt for any personal-roperty tax subsequently assessed and paid shall be "accepted by the tax collector to their full amount in payment of income taxes assessed against such person "does not postpone the accrual of income tax.
*541 The Commissioner determined a deficiency in income and profits tax for the calendar year 1919 in the amount of $1,352.60. It is claimed that the Commissioner erred in refusing to permit the petitioner, which employed the accrual method of accounting, to deduct from 1919 gross income for the purpose of the Federal tax the amount of $2,730.80, representing the Wisconsin state normal*2573 income tax, and $433.56, representing the Wisconsin State Soldiers Educational Surtax imposed by the laws of Wisconsin upon petitioner's income for the calendar year 1919.
The Commissioner concedes that he erred in refusing to allow petitioner the deduction from 1919 gross income of the Soldiers Educational Surtax but claims that the state normal income tax was not a proper accrual on December 31, 1919, for the reason that the state statutes provided that a receipt for the payment of a personal-property tax assessed upon tangible personal property owned on May 1, 1920, operated to reduce petitioner's liability for income tax upon its income for 1919.
FINDINGS OF FACT.
Petitioner is a Wisconsin corporation with its principal office at Watertown in that State. It regularly employed the accrual method of accounting in keeping its books. Its accounting period was the calendar year.
In March, 1919, a petitioner made and filed with the State of Wiscosin, as required by law, a return of its income for the calendar year 1918 showing an income upon which a normal income tax of $223.94 was due. This tax was certified by the Tax Commission as required by law, on or before October 15, 1919, and*2574 was entered on the tax roll for 1919. It became due on December 1, 1919, but petitioner was permitted to pay the same at any time on or before February 1, 1920, without penalty. In the year 1919 there was levied and assessed upon the value of the tangible personal property owned by petitioner on May 1, 1919, a personal-property tax in the amount of $1,369.59. This tax was assessed in the year 1919 upon the same tax roll with the income tax. Petitioner paid the personal-property-tax assessment of $1,369.59 in the year 1919, and presented the receipt therefor, which was accepted in payment of the amount of the assessment of $223.94, normal income tax, upon its income for the calendar year 1918 under the provisions of section 1087 M-26, Wisconsin Normal Income Tax Law. Petitioner in its Federal income and profits-tax return claimed a deduction of $1,145.65 from gross income for the calendar year 1919, being the difference between $1,369.59, the total of the personal-property tax, and $223.94, the amount of the normal income tax upon its 1918 income, upon the ground that the income tax of $223.94 accrued and became a liability *542 on December 31, 1918, and was, if at all, *2575 deductible in the year 1918. The Commissioner held that petitioner was entitled to a deduction for 1919 of the full amount of $1,369.59, representing 1918 personal-property tax assessed in 1919.
On or before March 1, 1920, petitioner made and filed with the State of Wisconsin, as required by law, a return of its income for the calendar year 1919 showing an income upon which a normal income tax of $2,730.80 was due. As provided by law this tax was certified by the State Tax Commission on or before October 15, 1920, and was entered upon the tax roll in 1920. The tax became due on December 1, 1920, but petitioner was permitted to pay it without penalty at any time before February 1, 1921. During the year 1920 the taxing officials of the State of Wisconsin, in accordance with the provision of the personal-property-tax law of that State, determined and assessed personal-property tax for the year 1920 of $1,33.64 in respect of the tangible personal property owned by petitioner on May 1, 1920. This personal-property tax was assessed at the same time and upon the same tax roll as the normal income tax of $2,730.80 upon the income for 1919. There was, therefore, assessed against petitioner*2576 on the 1920 tax roll the following taxes:
| Wisconsin normal income tax upon 1919 income | $2,730.80 |
| 1920 personal-property tax on tangible personal property owned May 1, 1920 | 1,333.64 |
| Total | 4,064.44 |
Petitioner paid the 1920 personal-property tax of $1,333.64 in cash and presented the receipt in partial payment of the 1919 income tax amounting to $2,730.80. At the same time petitioner paid the balance of the income tax, i.e., $1,397.16, in cash. Petitioner claimed a deduction of $2,730.80, the amount of the normal income tax, upon its income for 1919, from its gross income for the calendar year 1919 for the purpose of the Federal income and profits tax. The Commissioner disallowed this deduction, giving as his reason therefor that, "until the assessment of the personal property taxes, it can not definitely be determined whether any income tax assessment will be paid by such taxpayers to the State of Wisconsin. It is the opinion of this office that the Wisconsin income tax should be held accruable only in the year in which it is definitely determined by the application of the personal property, offsetting how much income taxes, if any, will have to be paid."
*2577 Based upon petitioner's income for the year 1919, as shown by its return filed on or about March 1, 1920, the State of Wisconsin, in addition to the normal income tax, assessed against it a tax amounting to $433.56, known as the Soldiers Educational Surtax. This tax was also claimed by petitioner as a deduction from gross income *543 for 1919. There was no provision of law whereby the petitioner's liability for this surtax could be discharged in any way other than by payment in cash. This tax was paid in cash subsequent to 1919. The Commissioner disallowed the deduction of this tax but now concedes that it was a proper accrual at December 31, 1919, and, therefore, a legal deduction from gross income for that year.
OPINION.
LITTLETON: The issue in this proceeding is whether the petitioner is entitled to deduct from gross income for the calendar year 1919, as an expense of that year, the Wisconsin normal income tax levied upon the income for 1919, which was assessed in 1920 and became due and payable on December 1, 1920, considering the circumstance that under the provisions of the statute levying that tax the petitioner was entitled to have its liability therefor discharged, *2578 in whole or in part, by, and to the extent of, the payment of any personal-property tax assessed against it in 1920, in respect of such tangible personal property as might be owned on May 1, 1920.
Petitioner contends that the tax amounting to $2,730.80 was an ordinary and necessary expense of its business for 1919; that the income and the rates of tax applicable thereto being known, the amount of the tax could be definitely determined at the close of th year; that liability for the tax accrued on December 31, 1919, concurrently with the close of the taxable year; and that under the method of accounting regularly employed in keeping its books, it correctly deducted the tax, in the full amount thereof, from gross income in its Federal income-tax return for 1919. The Commissioner traverses on the ground that since the tax in question could be discharged, in whole or in part, by the payment of any personal-property tax made in 1920, nthe liability at December 31, 1919, was purely a contingent one, and it, therefore, did not accrue and was not a peroper deduction for 1919.
It is necessary that there be a clear conception of the Commissioner's position on the issue. He does not contest*2579 the proposition that ordinarily a tax of this character accrues under the method of accounting employed by the petitioner concurrently with the close of the taxable year; that it constitutes an expense and a proper deduction for the year in which the income upon which it is levied is earned. At the hearing, he conceded that the Wisconsin Soldiers Educational Surtax for 1919 of $433.56, levied upon the income for that year, accrued at December 31, 1919, and was properly deducted by the petitioner in its Federal income-tax return for 1919, since there is no provision in the state statute under which that tax was levied, whereby it could be discharged or satisfied by the payment of any personal-property tax in the following year, or the liability *544 for payment of the full amount of the tax affected by any other subsequent event. On the other hand, he takes the position that the statutory provision under which the petitioner was entitled to present a receipt for the payment of its personal-property tax for 1920, and to have such a receipt accepted in payment in whole or in part of its income tax for 1919, made it impracticable for the petitioner to definitely determine, at*2580 December 31, 1919, the exact amount, if any, which it would be required to pay to the State of Wisconsin, as income taxes for 1919.
There is also involved as a feature of the issue in this proceeding the action of the Commissioner in respect of the deduction claimed by petitioner on account of the personal-property taxes of $1,369.59 assessed and paid during 1919, the receipt for which was tendered by the petitioner and accepted by the tax collector in payment of petitioner's 1919 income tax amounting to $223.94. The petitioner in this instance claimed a deduction of only $1,145.65 from its gross income for the purpose of the Federal tax for the reason that the income tax of $223.94 on its income for 1918 accrued at December 31, 1918, and the personal-property tax of $1,369.59 accrued in 1919. Petitioner further claims that to the extent of $223.94 the assessment and payment of the personal-property tax for 1919 represented a settlement and discharge of the 1918 accrued liability for the income tax. The position of the Commissioner is that since the amount of 1918 state income tax was less than the 1919 personal-property tax subsequently determined and assessed along with the*2581 income tax, there never was any accrual of the income tax and, accordingly, there should be no deduction on account thereof at any time.
We think the position taken by the petitioner is correct and that the decision of the Commissioner that there can be no accrual in respect of any portion of the income tax until the personal-property tax for the succeeding year is determined, and then only to the extent that the income tax exceeds the amount of the personal-property tax, is erroneous.
A study of the Wisconsin statute applicable to the situation here presented convinces the Board that the Commissioner's position is based upon a misconception of the intent and purpose of its provisions. So far as pertinent here, the statute provides as follows:
SECTION 1087 M-26. Any person who shall have paid a tax assessed upon his personal property during any year shall be permitted to present the receipt therefor to the Collector, together with any similar receipts for personal property taxes paid by members of his family whose incomes have been assessed to him, and have the same accepted by the tax collector to their full amount in the payment of income taxes assessed against such person*2582 during said year.
The Commissioner construes the foregoing provisions of the statute to mean that the payment of the personal-property tax and the *545 presentation of the receipt therefor, in payment of the preceding year's income tax, effects a reduction in the amount of the income tax and determines for the first time the liability of the taxpayer to pay it. Thus construing the statute, he concludes that all of the events that fixed the amount of the tax and the liabiliy of the petitioner to pay it, had not occurred at the close of 1919, and, therefore, liability for the income tax could not have accrued within that taxable year. We do not so construe the statute.
The language of the statute seems to us so clear as to leave no doubt as to its meaning, or the intent and purpose of the legislature in its enactment. Its purpose is clearly to provide a method of payment by which the liability for the income tax, fixed and determined by other sections of the statute, may be discharged or satisfied, in whole or in part. There is nothing in the statute which can be construed as changing the amount of the tax or affecting the status of the taxpayer's liability therefor*2583 to the State. The amount of the income tax is not reduced by the amount of the personal-property taxes paid, nor is the taxpayer relieved from the liability to pay the whole amount by virtue of having paid a personal-property tax. The income tax is paid, and the liability therefor discharged, by presentation of receipts for personal-property taxes subsequently determined, assessed and paid, to the full amount of the income tax if less than the personal-property tax and to the full amount of such receipts if the income tax is greater than the personal-property tax. Until thus paid, or otherwise satisfied, the liability for the income tax continues just as it was fixed at December 31 of the preceding year. that is the sole effect of this section of the statute. Its provisions do not affect the amount of the tax which is determined by applying the prescribed rates to the net income in excess of the credits and exemptions, and do not alter the liability of the taxpayer to pay that tax. The decision of the Supreme Court of Wisconsin in the case of *2584 , lends support to this construction of this section of the Wisconsin statute. In that case, many provisions of the Wisconsin income-tax law of 1911 were attached as offending against the Federal or the State constitutions. During the course of its opinion, the court stated:
By the present law it is quite clear that personal property taxation for all practical purposes becomes a thing of the past. The specific exemptions of all money and credits and the great bulk of stocks and bonds, as well as of all farm machinery, tools, wearing apparel, and household furniture in actual use, regardless of value, goes far to eliminate taxation of personal property; while the provision that he who pays personal property taxes may have the amount so paid credited on his income tax for the year seems to put an end to any effective taxation of personal property.
*546 In , the same court stated:
But when a statute, giving its language its ordinary and natural meaning, expresses a result neither absurd nor harsh, but on the contrary one in harmony with the*2585 general scheme of the law, namely, that an income tax shall, substantially, become a substitute for a personal property tax, then such natural and ordinary meaning should be given to the language used, and there is no room for construction. A tax was levied upon incomes for 1911. A tax upon personal property was levied for said year. The statute says that a person who has paid a tax upon his personal property during any year may have the same offset for the taxes due upon the income of such person during said year. Plaintiff paid a tax upon his personal property for 1911. He paid a tax upon his income during said year. The statute says the first may be applied in payment of the latter.
These decisions of the highest court of Wisconsin seem to indicate very clearly that the primary liability is for the income tax; that such tax may be paid, in whole or in part, by payment of the personal-property tax; but that there is no exemption from, or reduction of, the income tax by virtue of the payment of the personal-property tax. In view of what has been said we see no reason why the accrual of the income tax for the taxable year should await a determination in a subsequent year*2586 of whether the taxpayer has any personal property upon which a property tax may be levied. If, in the following year, the taxpayer owns no tangible personal property upon which a property tax may be assessed, he is compelled to pay the amount of his income tax assessed. If he has taxable personal property, both his income tax for the preceding year and his personal-property tax for the current year are assessed. He in fact pays the larger of the two, but his liability for the income tax for the preceding year is not reduced by reason of any personal-property tax. It is merely satisfied by payment. If the personal-property tax for the taxable year should be greater than the income tax for the preceding year, as was the case with respect to the 1919 personal-property tax, the taxpayer is entitled to a deduction in that year on the accrual basis of only the excess of the personal-property-tax assessment over the income tax for the preceding year for the reason that the personal-property tax, to the extent of the income tax which accrued at the end of the preceding year, is merely a payment of such income tax. If the amount of the personal-property tax levied and assessed within*2587 the taxable year is less than the amount of the income tax for the preceding year, there is no deduction on account of the personal-property tax for the reason that the payment thereof is a partial discharge of prior accrued liability.
We believe there can be no question but that, in view of the law and facts involved in this proceeding, the petitioner was, at the close *547 of 1919, legally bound and obligated to pay the State of Wisconsin a normal income tax of $2,730.80. All of the events had occurred which fixed the amount of the tax and the liability of the petitioner to pay it. The income having been realized, within the purview of the Wisconsin statute, there was no contingency that could have happened after the close of that year that would have released the petitioner from its liability to pay the tax, other than the payment of the tax which might be accomplished by the presentation of a receipt for personal-property taxes paid. Such being our conclusions we hold, in accordance with the decisions of the United States Supreme Court in *2588 , and in , that the liability for the normal income tax for the year 1919 accrued at December 31 of that year, and that under the method of accounting regularly employed by the petitioner in keeping its books, there being no evidence that such method does not clearly reflect income, the petitioner is entitled to deduct the income tax amounting to $2,730.80, from gross income of 1919 in computing net taxable income for that year. We also hold that the deduction to which petitioner is entitled for 1919 in connection with personal-property taxes for this year is $1,145.65 as claimed by it, instead of $1,369.59 allowed by the Commissioner. The Soldiers Educational Surtax of $433.66 should also be allowed as a deduction for 1919.
Reviewed by the Board.
Judgment will be entered on 15 days' notice, under Rule 50.