JOHNSON v. COMMISSION, 2 OTR 220 (1965)

JOHNSON v. STATE TAX COMMISSION

In the Oregon Tax Court.
October 18, 1965.

Capital gains and losses — Allocation of purchase price — Leaseholds

1. Where an agreement of sale included no mention of a lease or an assignment of a lease, the sale constitutes a sale of a going business plus equipment and inventory; especially where the lease was oral, with an indefinite term, and the landlord had the right to accept or reject a new tenant.

Trial had in Jackson County.

Bernard P. Kelly, Medford, argued the cause for plaintiff and filed a brief for plaintiff.

Alfred B. Thomas, Assistant Attorney General, Salem, argued the cause for defendant.

Decision for defendant rendered October 18, 1965.

EDWARD H. HOWELL, Judge.

Plaintiffs filed this suit to set aside an income tax deficiency assessed by defendant for the year 1961.

Plaintiffs sold their bakery business in 1961 for $31,500 and assigned $20,000 of the sales price to the value of their lease and claimed this was entitled to special treatment as a capital gain. ORS 316.436, et seq.

The critical question in this case is whether or not the leasehold interest was a “valuable long-term leasehold” as the plaintiffs contend. There are other issues raised by the defendant but this court’s determination that the lease had no value makes it unnecessary to consider the other issues.

Plaintiffs had a written lease with the predecessor of the present landlord but this lease had expired in

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June, 1959, almost two years before they sold the bakery. After the lease expired plaintiffs discussed another lease with their landlord and it was agreed plaintiffs could continue at the same rental. However, the term was indefinite. The evidence in this regard was that the plaintiff could rent “as long as I wanted to” or “as long as nothing happens to either one of us.” The landlord also considered that he had the right to accept or reject a new tenant.

1. The agreement of sale between plaintiffs and the present owners of the bakery made no mention of a lease or an assignment of a lease. It is this court’s conclusion that at the time of the sale of the bakery the plaintiffs did not have a valuable leasehold interest to sell to the buyers. Plaintiffs sold a going business, plus equipment and inventory, for $31,500 and not a “valuable long-term leasehold.”

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