Greenport Basin & Construction Co. v. United States

Background

The dispute involves the Greenport Company, a business with $215,615.55 in invested capital and $76,361.20 in net income for the year ending October 31, 1917. The company had a calculated prewar allowance of $15,093.08 (at 7%) plus a $3,000 fixed deduction. The Treasury assessed an excess-profits tax of $16,837.76 for five-sixths of the year. Greenport paid under protest and sued in federal court seeking $4,420.40 back; the lower court entered judgment for the Government. The case reached the Supreme Court by writ of error and appeal.

Reasoning

The central question was how to apply the Revenue Act’s staged tax rates to net income and where the prewar allowance and fixed deduction should be subtracted. The company argued the deductions should be taken from total net income before splitting income into the tax brackets. The Government (following Treasury Regulation No. 41) apportioned the whole net income across the statutory brackets first, then applied the deductions against the first bracket. The Court found the Treasury’s method to follow the clear language of the Act and endorsed the explanation and tables presented by the chairman of the Ways and Means Committee. The Supreme Court affirmed the lower-court result.

Real world impact

The ruling confirms that, under the Revenue Act as applied here, corporations’ entire net income is allocated into the tax stages and the statutory deductions reduce the first bracket amount rather than shrinking the total taxable base. Practically, firms with large wartime gains will see higher computed excess-profits taxes when deductions are confined to the first bracket. This decision resolves the specific calculation dispute between Greenport and the Government under the 1917 law.