
    Appeal of PACIFIC CAR & EQUIPMENT CO.
    Docket No. 1093.
    Submitted June 24, 1925.
    Decided July 14, 1925.
    
      Arthur E. Redington, Esq., and B. E. Eichlin, O. P. A., for the taxpayer.
    
      Ward Loveless, Esq., for the Commissioner.
    Before GeaupneR, Trammell, and Phillips.
   Taxpayer appeals from the determination by the Commissioner of a deficiency in income and profits taxes for 1920 in the sum of $1,970.13. The petition alleges two errors on the part of the Commissioner, one of which was withdrawn at the time of the hearing,, leaving for consideration by the Board only the question as to whether error was committed by the Commissioner in reducing the rate of depreciation upon railroad tracks, roads and fences, shop buildings, and water system, from 5 per cent per annum to 3 per cent per annum.

FINDINGS OF FACT.

The taxpayer is a California corporation with its principal office and shops at South San Francisco. The cost to the taxpayer of the property upon which depreciation was claimed is not in dispute and is as follows:

Railroad tracks_ $7, 033.47
Roads and fences_ 1,741.89
Shop buildings- 23,760.23
Water system_ 593.35

The shop buildings all have corrugated iron sides and roofs, the floors, foundation, uprights, and beams being wood. The plant is located on the west shore of San Francisco Bay between the bay and the Pacific Ocean at a point where it is exposed to the heavy fogs and high winds which cross the San Francisco peninsula. The fogs leave a deposit of salt upon the iron roof and sides and cause excessive corrosion. The high winds cause the iron sheets and the window frames to become loose. The foundation posts and floors of the shops are also under the constant attack of a fungus growth believed to be caused by the high state of fertilization of the ground ■on which the shops are situated, such grounds having previously been used for truck gardening. The shop buildings require constant repairs and renewals. The reasonable probable life of these buildings, kept in constant repair, is not more than 20 years.

In 1912 taxpayer caused a railroad siding to be built to its plant. The track was built of 60-pound rails and the ties were widely spaced. At that time the railroad was using a light switching engine and the track was sufficient for the weight of such engine. In recent years the railroad traffic has increased and the railroad is now using much larger and heavier switching engines, causing much greater wear and tear on the tracks than they were built to withstand. The railroad ties are also subject to rapid deterioration because of the effect of the same fungus growth which attacks the woodwork of the building. This railroad siding, even though kept in constant repair, did not have a useful life in excess of 20 years under the conditions which obtained in 1920.

Testimony was adduced to show that the fences built by the taxpayer did not have a useful life in excess of 20 years, due to the action of the heavy fogs upon the wire and the fungus growth upon the posts, but no testimony was offered to show the cost to the taxpayer of the fences as distinguished from roads, the cost of fences and roads being one item. No satisfactory testimony was offered upon which depreciation upon the water system could be determined.

DECISION.

The deficiency determined by the Commissioner is allowed in part and disallowed in part. Depreciation for 1920 at the rate of 5 per cent should be allowed as a deduction upon the shop buildings costing $23,760.23 and the railroad track costing $7,033.47, instead of at the rate of 3 per cent as allowed by the Commissioner. Final determination will be settled on consent or on 15 days’ notice, in accordance with Rule 50.  