Inland Steel Company v. United States

Inland Steel Company (Inland) (plaintiff) was a United States corporation filing suit against the United States (defendant) for a refund of tax paid in the calendar years 1964 and 1965. The suit centered on two issues— the deductibility of accruals in Inland’s Supplemental Unemployment Benefits plan and credit for taxes paid under the Ontario Mining Tax Act (OMT), the latter of which was the main consideration. The foreign tax credit was a concern under which double taxation was avoided by allowing an exemption from taxation to the extent of income tax paid to a foreign country. Accordingly, this case centered on whether the OMT was an income tax. To qualify as an income tax for the foreign tax credit, the foreign tax must attempt to reach some net gain in the normal circumstances in which the tax applies. For instance, a banking levy did not qualify as an income tax because no provision was made to account for costs or expenses. Additionally, an asbestos-related tax was not considered an income tax because it allowed deductions only for costs that arose from mining operations but not from the general conduct of business. The OMT was established by Canadian ministries concerned with mining. The OMT produced a graduated rate of tax on net profits from mineral extraction. Gross revenue could be calculated on three different methods, and Inland used two methods—one that calculated gross revenue on unprocessed ore and another on processed ore that calculated gross revenue based on the mine assessor’s appraisal. Although the OMT allowed 10 categories of expenses as deductions, these categories were specific to the mining expenses. The mine assessor excluded many expenses not directly related to the extraction of ore, including land purchase costs and taxes. The OTM also specifically excluded interest or dividends, royalty payments to private parties, and other nonextraction-related business expenses. Inland argued that the tax was a creditable foreign income tax because the tax was restricted to income from a specific source and had many available deductions. The government argued that the tax was not creditable, as no attempt at finding a true net gain was made, typified by the many items not deductible despite being standard business expenses. The trial court ruled for the government on the creditability question, and Inland appealed.