The opinion
RANIER GRAND CO., PETITIONER, v. . COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Ranier Grand Co. v. Commissioner
Docket No. 4236.
United States Board of Tax Appeals
11 B.T.A. 520 ; 1928 BTA LEXIS 3780 ;
April 12, 1928 , Promulgated
*3780 1. An amount contributed under the facts herein represents an ordinary and necessary business expense.
2. Expenditures for rearranging and improving the electrical wiring system in petitioner's hotel should be capitalized.
Robert B. Walkinshaw, Esq., for the petitioner.
J. E. Marshall, Esq., for the respondent.
MORRIS
*520 This proceeding is for the redetermination of a deficiency of $1,078.24 income and profits taxes for 1919. The questions involved are:
(1) Whether a contribution of $150 to the Fleet Entertainment Committee in 1919 was an ordinary and necessary expense.
(2) Whether an expenditure of $1,087.45 in 1919 for electric wiring alterations is an ordinary and necessary expense or a capital expenditure.
FINDINGS OF FACT.
The petitioner is a Washington corporation engaged in operating the Ranier Grand Hotel, in Seattle, Wash., under a seven-year lease.
During the week of September 13 to September 19, 1919, Seattle Harbor was the scene of a presidential review of the fleet. The city, under the auspices of the local chamber of commerce, attempted to make its first presidential review a gala occasion in honor of President *3781 Woodrow Wilson, Secretary of the Navy Daniels, and the fleet. A large sum of money was needed by the committee in charge of arrangements in order to defray the expenses of advertising, providing entertainments, purchasing and erecting appropriate decorations, and meeting administrative expenses.
*521 Subcommittees, composed of business men from the various lines of businesses most directly to be benefited by the expected influx of tourists and visitors, solicited contributions from the business houses in their particular groups. Professional men were not solicited. The hotels, the retail stores, restaurants, etc., were asked for contributions and a large sum was raised. These funds were expended for the purposes aforementioned and the celebration during fleet week was one of the greatest in the history of Seattle. There were more vessels in the harbor and more people in the city than ever before or since although fleet week is now an annual occasion. A rodeo from eastern Oregon was secured and constituted one of the special attractions to which men in uniform were admitted free. The subcommittee which visited the hotels asked petitioner for a contribution of $150, *3782 which amount was contributed.
Petitioner's best business months during the summer are July and August, due to the tourist trade, but in September, when school starts, the tourist trade drops about 50 per cent, and hotel receipts fall off noticeably. Room receipts of the hotel in August and September 1919 are shown below. Aug. 4-10 $1,824.45
Aug. 11-17 1,920.95
Aug. 18-24 1,744.40
Aug. 25-31 2,141.35
Sept. 1-7 $1,949.60
Sept. 8-15 1,841.40
Sept. 16-23 1,666.35
Sept. 24-30 1,483.25
On the representation of the Puget Sound Power & Light Co. that it could furnish electric current more cheaply than the petitioner could generate its own, as it had been doing, a connection was made with the transmission line of that company. The change, however, did not result in decreasing the cost. A survey to determine the reason therefor showed that the hotel was furnishing electricity to four or five stores located in the same building, due to a common meter and switchboard being used by all.
Petitioner employed an electrician to remedy this situation, which was accomplished by the installation of a new switchboard in the elevator room and by cutting out the *3783 old switchboard which was located in the engine room. The work was handled on a time and material basis and was completed in approximately 60 days. During this period the hotel and stores had to have electricity at all times, so that in cutting out the old switchboard a great deal of temporary work had to be done to maintain current to the various tenants. The old subfeeders to the various floors of the hotel were torn out to prevent further pilfering of the current, and new subfeeders were established in connection with the new switchboard. The hotel had no conduit system, the old subfeeders having been tubed to the basement, and in tearing them out it was necessary to cut out parts of the building. Likewise, in installing the new switchboard *522 the electrician was forced to cut the elevator shaft to the basement. The petitioner spent $1,087.45 in 1919 in making these changes in its wiring system. The entry on the books showing the expenditure is dated March 12, 1919.
The petitioner deducted the amounts of $150 and $1,087.45 in its return for 1919, which deductions were disallowed by the respondent.
OPINION.
MORRIS: At the hearing the parties stipulated or *3784 conceded certain questions raised by the petition. The petitioner conceded that of the $245 claimed as a deduction as an ordinary and necessary business expense under the first assignment of error, $95 was not allowable. It abandoned its contention as to $1,159.77 of the $2,247.22 claimed as a deduction under the second assignment of error. The parties stipulated that the second-hand furniture and equipment covered by the third assignment of error should be depreciated at the rate of 14 2/7 per cent. The respondent conceded that the item of $524.50 contained in the fourth assignment of error represented a deductible expense for 1919.
The first question left for consideration is the deductibility of a $150 contribution to the Fleet Entertainment Committee. The petitioner made the contribution with the expectation of receiving a direct benefit therefrom in proportion to the number of people which would be attaracted to the city during fleet week. The relationship which exists between petitioner's business and the assembling of a large number of visitors and tourists within the city needs little comment. The direct benefit which flowed to the petitioner is revealed by the table *3785 of room receipts in our findings of fact. It appears that petitioner's business prior to and during fleet week closely approached the receipts of the corresponding weeks in August which is one of the best business months of the summer. The facts herein distinguish this case from our decisions in , and , where the contributions were held to be too remote. Our opinion that the $150 contributions is a deductible expense item is in accordance with the rule laid down in , and followed in , and . See also .
The second question is whether the cost of rearranging the wiring in the hotel should be capitalized or deducted from current earnings as an expense item. The wiring system was changed as to location, enclosed in part by conduits, a new switchboard installed and the old board cut out, and portions of the old wiring torn out by tearing *523 up parts of the building. We would *3786 not go so far as to say that these expenditures improved or prolonged the life of the building or equipment, but we do hold that the expenditures were for a betterment, or alteration and were properly chargeable to capital account.
We have not failed to consider the cases cited by counsel on brief in support of petitioner's contention that the cost should be charged against 1919 earnings. An examination of the cases cited fails to convince us that they are authority for allowing petitioner the deduction claimed. Each case must stand on its own facts, and the facts here indicate that the expenditure of $1,087.45 was not an ordinary and necessary expense.
Judgment will be entered on 15 days' notice, under Rule 50.