United States v. Consolidated Edison Co. Of New York, Inc.

366 U.S. 380 (1961)

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Nature of the Case

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Facts

P owned numerous tracts of real estate in New York City which were subject to annual local property taxes. The City Council annually fixes the tax rate, and the City Tax Commission annually fixes the property valuations. The tax rate is not contestable, but a timely application (commonly called a 'protest') may be made to the City Tax Commission to correct an erroneous valuation. Upon exhaustion of this administrative procedure, a review of the Commission's determination may be had by a judicial proceeding, commonly called a certiorari proceeding, in the State Supreme Court, which is the taxpayer's sole and exclusive remedy. The institution of such a suit does not stay or suspend the maturity of the tax bill, the accrual of 7% interest on it, nor the seizure and sale of the property to satisfy the tax lien. The taxpayer must either 'pay' the tax or suffer the interest penalty and run the risk of seizure and sale of its property. P timely filed a bona fide protest (100's of them) claiming overvaluations of 15%. The Commission rejected the protest. P paid the taxes and then sued in state court. In December 1951, the court, upon the consent of the parties to the action, entered its order in (each of) the certiorari proceedings fixing P's tax liability at 5% less than accessed. P got a refund of the monies it paid in taxes. P used the accrual method of accounting and deducted on its federal income tax returns, for each of the years 1946 through 1950, the full amount accessed and paid; and in its return for the year 1951 -- in which year the real estate tax liability was determined to be 5% P failed to deduct the 10% from, and included the 5% in, its gross income for that year. P filed in February 1955 its claim for refund of so much of its 1951 income taxes as resulted (1) from its failure to deduct the 10% of real estate tax that was determined, in that year, to be valid, and (2) from its inclusion in gross income of the 5% returned to it in that year. D rejected that claim. P sued in District Court. The question was whether the contested part of a real estate tax accrued (1) in the year it was assessed and, for the purpose -- and as the only mode recognized by the local law -- of avoiding seizure and sale of the property for the contested tax while the contest was pending, was 'paid' by the taxpayer, or (2) in the year the contest was finally determined. The District Court held that such a 'payment' of the tax 'accrues the item even though payment is made under protest and even though litigation is started within the taxable year to obtain repayment,' that the contested part of the tax accrued in the year of the 'payment.' The Court of Appeals held that the contested part of the tax accrued in the year the contest was finally determined, and reversed the judgment. It held that the contested part of the tax accrued 'only when all events [had] occurred which determined the fact and amount of the tax liability.' D appealed.