V. Loewers Gambrinus Brewery Co. v. Anderson
Headline: Brewer allowed tax deduction for building obsolescence from impending Prohibition, as Court reverses appeals court and permits deductions that reduced the company’s 1918–1919 taxable income.
Holding:
- Allows businesses to deduct loss from legally caused obsolescence when calculating annual taxable income.
- Specifically benefits brewers whose buildings became unusable because of Prohibition.
- Requires taxes reflect annual allocation of obsolescence, not deferred until disposal.
Summary
Background
A brewing company sued after paying income and profits taxes for 1918 and 1919 and winning a refund in the District Court. The company had operated breweries and specially built plants in New York from 1879 until 1919. By January 31, 1918, it was widely known that Prohibition would take effect, and the buildings — made solely for brewing and having no salvage value — became effectively obsolete when Prohibition began January 16, 1920.
Reasoning
The narrow legal question was whether the Revenue Act of 1918 allows a deduction for obsolescence of tangible property. The Court looked at the statute’s plain words and its legislative history, and concluded that the provision permitting allowances for exhaustion, wear and tear “including a reasonable allowance for obsolescence” covers tangible property obsolescence regardless of its cause. The Court distinguished earlier decisions that dealt only with loss of goodwill and held that obsolescence of plant and buildings can be deducted when fairly attributable to the tax year.
Real world impact
The ruling lets businesses count legally caused declines in the value of their physical plant as deductible operating costs in the years the loss is attributable. That can reduce taxable income for years before property is formally discarded. The Court reversed the Circuit Court of Appeals and affirmed the District Court’s judgment that the brewer was entitled to obsolescence allowances for 1918 and 1919; the precise amounts and allocation were not before the Court.
Dissents or concurrances
Justice Stone joined in the result; no dissent is reported in the opinion.
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