B-155636, FEB. 11, 1965

B-155636, FEB. 11, 1965

TO MR. JOSEPH F. BOYLE:

THIS IS IN RESPONSE TO YOUR LETTER OF OCTOBER 12, 1964, FORWARDED TO THIS OFFICE THROUGH THE FOREST SERVICE OF THE UNITED STATES DEPARTMENT OF AGRICULTURE, IN THE MATTER OF YOUR COMPANY'S CLAIM FOR REFUND OF SPECIAL USE PERMIT FEES AGGREGATING $314.87 PAID TO THE SERVICE UNDER PROTEST. THE FACTS INVOLVED, AS CONTAINED IN ENCLOSURES TO YOUR LETTER AND THE COVERING LETTER FROM THE FOREST SERVICE MAY BE SUMMARIZED AS FOLLOWS:

THE MT. SNOW DEVELOPMENT CORPORATION OPERATES A CONCESSION IN THE GREEN MOUNTAIN NATIONAL FOREST, VERMONT, UNDER A SPECIAL USE PERMIT, ISSUED BY THE FORST SERVICE, WHICH AUTHORIZES THE COMPANY TO DEVELOP AND OFFER TO THE PUBLIC COMMERCIAL SKIING FACILITIES AND SERVICES ON THE GOVERNMENT LAND INVOLVED. IN CONSIDERATION OF THIS PERMIT, THE COMPANY AGREED TO PAY A FEE BASED ON ITS NET SALES.

A FOREST SERVICE AUDIT DISCLOSED THAT DURING ITS FISCAL YEAR ENDED OCTOBER 31, 1962, THE COMPANY ISSUED 349 SEASON PASSES TO A NUMBER OF ITS STOCKHOLDERS AT $5 EACH AND THEN SOLD 214 OF THESE PASSES TO THE PUBLIC FOR $12,840 ON BEHALF OF THE STOCKHOLDERS REMITTING THIS AMOUNT TO THEM. THE AUDIT FURTHER DISCLOSED THAT THE COMPANY DID NOT INCLUDE THIS ACCOUNT IN "NET SALES" REPORTED TO THE FOREST SERVICE AND USED IN COMPUTING THE FEE PAID FOR THAT YEAR. THE SERVICE THEREUPON BILLED THE COMPANY AN ADDITIONAL FEE OF $321 (LESS A $6.13 CREDIT ON ANOTHER ITEM) ON THE BASIS THAT THE RECEIPTS FOR SALES ON BEHALF OF STOCKHOLDERS WERE IMPROPERLY EXCLUDED FROM ,NET SALES.' THE $1,070 AGGREGATE OF THE $5 CORPORATE RECEIPTS FOR EACH OF THE 214 STOCKHOLDER PASSES SOLD TO THE PUBLIC WAS NOT CONSIDERED IN CALCULATING THE TOTAL FEE DUE.

THE TERM "NET SALES" IS DEFINED IN THE SPECIAL USE PERMIT TO BE:

"* * * FIFTY PERCENTUM (50 PERCENT) OF ALL RETURNS FROM THE SALE OF LIFT AND TOW SERVICES (BOTH WINTER AND SUMMER) ON BOTH PRIVATE AND NATIONAL FOREST LANDS USED IN CONNECTION WITH THE DEVELOPMENT. IN ADDITION TO THE ABOVE, GROSS AMOUNT (100 PERCENT) DERIVED FROM ALL OTHER BUSINESS CONDUCTED ON NATIONAL FOREST LANDS WILL BE CONSIDERED AS PART OF "NET SALES" * * * MINUS CERTAIN ITEMS NOT PERTINENT HERE. SECTION 1A OF SPECIAL USE PERMIT NO. 12-11-007-9139, DATED DECEMBER 12, 1956, AND AMENDMENT NO. 4 THERETO, DATED DECEMBER 15, 1961.

THE CORPORATION ENGAGES IN THE PRACTICE OF SELLING PASSES TO ITS STOCKHOLDERS FOR A NOMINAL FEE UNDER THE FOLLOWING CHARTER PROVISIONS AS REPORTED BY ITS VICE PRESIDENT TO THE FOREST SERVICE:

" "THE HOLDERS OF RECORD ON THE 15TH DAY OF NOVEMBER OF EACH YEAR OF THE COMMON CAPITAL STOCK OF THE CORPORATION SHALL HAVE THE PRIVILEGE OF PURCHASING EACH YEAR FOR THE SUM OF FIVE DOLLARS ($5.00), UNITED STATES CURRENCY, ONE (1) PASS FOR EACH SHARE OF COMMON CAPITAL STOCK SO HELD ENTITLING THE PURCHASER, DURING THE FOLLOWING SKIING SEASON, TO USE, WITHOUT FURTHER PAYMENT, THE SKIING FACILITIES OF THE CORPORATION, INCLUDING ALL LIFTS, TOWS, AERIAL TRAMWAYS AND SIMILAR DEVICES OPERATED BY THE CORPORATION. EACH SUCH PASS SO PURCHASED SHALL BE TRANSFERABLE BUT MAY ONLY BE USED BY ONE PERSON DURING THE SEASON OF ITS VALIDITY (UNLESS THE DIRECTORS SHALL WAIVE THIS REQUIREMENT); PROVIDED, HOWEVER, THAT NO SUCH PASS SHALL BE SOLD BY A STOCKHOLDER PURCHASING IT WITHOUT FIRST OFFERING SUCH PASS TO THE CORPORATION, WHICH SHALL HAVE THE OPTION TO PURCHASING SUCH PASS FOR THE SUM CHARGED BY IT FOR SIMILAR PASSES WHEN SHOULD (SIC) BY THE CORPORATION TO THE PUBLIC. THE CORPORATION MUST EXERCISE ITS OPTION TO PURCHASE SUCH PASS SO OFFERED TO IT HEREUNDER WITHIN TEN (10) DAYS AFTER THE PASSSHALL HAVE BEEN TENDERED TO IT AT ITS OFFICE SPECIFIED ON THE FACE OF THE PASS. THE CORPORATION MAY EXERCISE PAYMENT OF THE PURCHASE PRICE, OR BY MAILING TO THE STOCKHOLDER, AT HIS ADDRESS AS STATED IN THE STOCK BOOKS OF THE CORPORATION, A NOTICE OF ACCEPTANCE, TOGETHER WITH A CHECK FOR THE PURCHASE PRICE.'"

FOR THE YEAR ENDED OCTOBER 31, 1962, THE ACCOUNTING FOR PASSES SOLD ON BEHALF OF STOCKHOLDERS WAS RECORDED ON THE CORPORATION'S BOOKS. THEREAFTER, HOWEVER, THESE SALES HAVE BEEN HANDLED BY A BROKER SEPARATE AND APART FROM THE COMPANY RECORDS. IN ADDITION TO DENYING MT. SNOW'S CLAIM FOR REFUND OF THE $314.87 PAID BY IT UNDER PROTEST, THE FOREST SERVICE ADVISED THE COMPANY THAT IT WILL BE NECESSARY FOR EACH YEAR AFTER OCTOBER 31, 1962, TO INCLUDE IN THE COMPANY'S "NET SALES" FOR FEE COMPUTATION PURPOSES THE VALUE OF STOCKHOLDERS' PASSES ISSUED.

THE FOREST SERVICE TAKES THE POSITION THAT THE VALUE OF STOCKHOLDERS' PASSES ISSUED CONSTITUTES AN IMPROPER DIVERSION OF CORPORATE RECEIPTS WHILE THE CORPORATION TAKES THE VIEW THAT SUCH PASSES ARE DIVIDENDS TO THE STOCKHOLDERS AND IN NO WAY RELATED TO CORPORATE SALES.

TO THE EXTENT THAT THE STOCKHOLDERS USE OR SELL THEIR PASSES AT A PROFIT, THERE IS NO QUESTION BUT THAT THEY REALIZE A PERSONAL GAIN THROUGH FACILITIES MADE AVAILABLE BY THE CORPORATE ENTERPRISE. WHETHER SUCH GAIN CONSTITUTES A DIVIDEND, OR PERHAPS COMPENSATION OR A GIFT IS AN INTERESTING QUESTION, BUT ONE WHICH WE NEED NOT DECIDE. SEE IN THIS CONNECTION AS RELATED TO TAX MATTERS PEACOCK V. COMMISSIONER OF INTERNAL REVENUE (1958) 256 F.2D 160, AND CASES CITED THEREIN; AND THE ANNOTATION AT 56 ALR 2D 474, PARTICULARLY SECTION 8 AT P. 493. THE ONLY QUESTION WHICH MUST BE DECIDED HERE IS WHETHER THE AGREEMENT BETWEEN THE CORPORATION AND THE FOREST SERVICE IS TO BE CONSTRUED AS INCLUDING IN "NET SALES" THE ITEMS IN DISPUTE.

IT IS WELL-ESTABLISHED THAT A CORPORATION IS AN ENTITY DISTINCT FROM ITS STOCKHOLDERS. AND IT IS CLEAR THAT A STOCKHOLDER MAY CONTRACT WITH THE CORPORATION IN WHICH HE HOLDS STOCK AND THAT WHERE HE DOES SO HE ACTS AS AN INDIVIDUAL RATHER THAN IN HIS CAPACITY AS A STOCKHOLDER. FLETCHER CYCLOPEDIA CORPORATIONS, PERMANENT EDITION, SECTIONS 5709 AND 5737. SINCE STOCKHOLDERS MAY DEAL WITH THE CORPORATION IT NECESSARILY FOLLOWS THAT, IN THE ABSENCE OF FRAUD, THEIR PROFITS MADE IN SUCH DEALS BELONG TO THEM PERSONALLY AND THE OTHER STOCKHOLDERS HAVE NO INTEREST IN THEM. ID. 5736. HOWEVER, IT IS EQUALLY WELL-ESTABLISHED THAT UNDER SOME CIRCUMSTANCES IN A PARTICULAR CASE THE CORPORATE ENTITY MAY BE DISREGARDED AS AN INTERMEDIATE BETWEEN THE ULTIMATE PERSON OR PERSONS OR CORPORATION AND THE ADVERSE PARTY. A CORPORATION WILL BE LOOKED UPON AS A LEGAL ENTITY AS A GENERAL RULE, AND UNTIL SUFFICIENT REASON TO THE CONTRARY APPEARS; BUT WHEN THE NOTION OF LEGAL ENTITY IS USED TO DEFEAT PUBLIC CONVENIENCE, JUSTIFY WRONG, PROTECT FRAUD, OR DEFEND CRIME, THE LAW WILL REGARD THE CORPORATION AS AN ASSOCIATION OF PERSONS. ID. 41.

IN THE INSTANT CASE THE CORPORATION HAS SOLD TO STOCKHOLDERS A NUMBER OF PASSES AUTHORIZING USE OF ITS FACILITIES. THE PRICE CHARGED WAS CONSIDERABLY LESS THAN THAT CHARGED TO THE GENERAL PUBLIC OR FOR THAT MATTER TO STOCKHOLDERS AFTER EXHAUSTION OF THEIR RIGHTS TO SUCH PASSES UNDER THE QUOTED BY-LAWS. NOT ALL STOCKHOLDERS TOOK ADVANTAGE OF THEIR RIGHTS TO BUY PASSES AT THE REDUCED RATE. AND THE AMOUNT OF FEE DUE THE FOREST SERVICE ON THE BASIS OF THE FULL VALUE OF THE PASSES SOLD TO STOCKHOLDERS FOR A NOMINAL PRICE IS NOT SIGNIFICANT IN TERMS OF THE FEE PAID BY THE CORPORATION ON ITS NET SALES EXCLUSIVE OF STOCKHOLDER PASSES. WE HAVE BEEN ADVISED THAT THE TOTAL FEE PAID FOR THE YEAR FOR WHICH THE $314.87 UNDER CONSIDERATION WAS ASSESSED AMOUNTED TO $12,697.38 INCLUDING THE AMOUNT PAID UNDER PROTEST.

THERE CAN BE NO DOUBT BUT THAT THE FEE REQUIREMENTS UNDER THE SPECIAL USE PERMIT RELATE ONLY TO NET SALES OF THE CORPORATION. AND IT IS CLEAR THAT THE CORPORATE SALES REGARDING THE QUESTIONED STOCKHOLDER PASSES AMOUNT TO ONLY $5 PER PASS. TO CONCLUDE OTHERWISE WOULD REQUIRE A DETERMINATION THAT APPLICATION OF THE GENERAL RULES OF LAW REFERRED TO ABOVE CALLS FOR TREATING THE STOCKHOLDERS AND THE CORPORATION AS ONE AND DISREGARDING THE CORPORATE ENTITY. WE DO NOT BELIEVE SUCH A DETERMINATION IS JUSTIFIED IN THE INSTANT CASE. THE SMALL DIFFERENCE IN THE RESULTING FEE MAKES UNREASONABLE ANY PRESUMPTION THAT THE PRACTICE IS CARRIED ON FOR THE PURPOSE OF EVADING THE CONTRACT REQUIREMENTS, AND THE CORPORATE OWNERSHIP IS DIVERSIFIED WITH ONLY A PORTION OF THE STOCKHOLDERS GAINING ADVANTAGE THEREBY NEGATING CONSIDERATION OF THE CORPORATION AND ITS STOCKHOLDERS AS ALTER EGOS OF EACH OTHER. NOR DO WE BELIEVE THAT THE CORPORATE ACCOUNTING FOR THE SALES ON BEHALF OF THE STOCKHOLDERS IN 1962 MATERIALLY AFFECTS THE BASIC NATURE OF THE SITUATION.

ACCORDINGLY, OUR CLAIMS DIVISION HAS BEEN INSTRUCTED TO ALLOW YOUR COMPANY'S CLAIM SUBJECT TO REDUCTION ON ACCOUNT OF FEE DUE ON $1,070 OF NET SALES FOR 214 PASSES SOLD AT $5 EACH TO STOCKHOLDERS, WHICH SALES HAVE NOT BEEN REFLECTED IN THE FEE COMPUTATION BASE. THE NET AMOUNT OF THE CLAIM ALLOWED IS $288.12, DERIVED BY SUBTRACTING $26.75 ($1,070 TIMES 50 PERCENT TIMES 5 ..END :