Growmark Inc. v. Comm., 160 T.C. No. 11 (May 16, 2023)
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COGS Includes Net Amount of Excise Tax After Credit (Growmark Inc. v. Comm., 160 T.C. No. 11 (May 16, 2023))
Growmark incurs liabilities for excise taxes on fuels that it sells and is entitled to federal tax credits for some of the fuels that it produces or blends. Growmark claimed that it should be allowed to include the gross federal excise tax liability in its cost of goods sold before reducing the amount for any federal tax credits.
Excise taxes are generally not deductible. (Treas. Reg. §1.164-2(f)) However, excise taxes incurred or paid in a trade or business as part of the cost of acquiring or producing property can be recovered as such property is disposed of or sold. Growmark claimed that the proper method of accounting for the excise taxes it incurred was to add the full amount of the excise tax to its other costs flowing through COGS. By doing so, COGS would be increased, and the fuels tax credits claimed would be considered payment of a federal tax, neither a reduction to an expense nor additional income.
The Court held that the excise taxes included in COGS must be reduced by the amount of any credit allowed to be claimed with respect to those excise taxes.