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DEEN, Judge.
Income tax assessment. Chatham Superior Court. Before Judge Harrison.
After the decision of the Supreme Court above referred to, which held that the contract should be considered a lease rather than a sale, and the proceeds taxed as rent (ordinary income rather than capital gains) the legislature in an apparent effort to put income tax requirements in timber farming cases on a par with those of the Internal Revenue Code, enacted Code Ann. 92-3119 (e) (8) (Ga. L. 1960, p. 117) as follows: "In the case of the disposal of timber held for more than 6 months before such disposal, by the owner thereof under any form or type of contract by virtue of which such owner does or does not retain an economic interest in such timber, the difference between the amount realized from the disposal of such timber and the adjusted depletion basis thereof, shall be considered as though it were a gain or loss, as the case may be, on the sale of such timber." Since this part of the law was enacted after the decision in Superior Pine Products v. Williams, 214 Ga. 485, supra, and since the cases, although involving the same lease, seek to settle tax liability for different years, the former case is not res judicata as to this one. Ga. R. & Bkg. Co. v. Wright, 124 Ga. 596 (2) (53 SE 251). Code Ann. 92-3119 is in the language of the Federal Internal Revenue Code of 1939. Originally the above quoted portion, which appeared in that Code as Section 117 (k) and is Section 631 of the present Code, was omitted from the Georgia Act. As specifically noted in the former appeal, 214 Ga. 485, 494: "Subsection (k) of 117 of the Federal Revenue Code of 1939 was not adopted by the General Assembly, and is not of effect in this State, and the terms and provisions of this subsection have no application in the present case."
It seems obvious that the application of the statute, once added by amendment to the tax laws of this State, should be given a construction in accordance with its plain meaning in State as well as Federal matters. "It must be remembered that the statute speaks of a disposal 'by any form or type of contract.' This language covers just about every means by which people come to an understanding with one another." Barclay v. U. S., 333 F2d 847, 855. Obviously there was a "disposal of timber"--the contract referred to the cutting of standing timber of stated size by the purchaser, who also agreed at its own expense to manage and operate the lands in accordance with good forestry practice. Obviously under the terms of the Act it no longer matters whether the seller did or did not retain an "economic interest" therein. As to the other elements involved in the former case, appellant has for the years presently under consideration separated out the small amount of income attributable to turpentining operations rather than sale of timber and admitted tax liability thereon at the regular rate. The lease has also been modified, as to those provisions allowing the purchaser to use certain buildings, to state a rental figure for this use, which also has been returned as ordinary income.
This case under its facts does not come under the rule in Giustina v. U. S., 267 FSupp. 40, where a set amount per year was paid for timber regardless of the amount cut, or under U. S. v. Brown Wood Preserving Co., 275 F2d 525, which involved turpentining operations. The buyer is not obligated in all events to pay a fixed sum regardless of the growth potential of the timber lands, and there are lease provisions for raising or lowering the minimum cutting requirements in accordance with the growth factor. The agreement as executed in the years 1962-1964 inclusive lies well within the requirements of Code Ann. 92-3119 (e) (8), and the transaction should be given capital gain treatment.
Arthur K. Bolton, Attorney General, William L. Harper, Melvin E. Thompson, Jr., Assistant Attorneys General, for appellee.
Tillman, Brice, McTier & Coleman, B. Lamar Tillman, for appellant.
Friday May 22 18:06 EDT

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