## Facts

- Georgia School-Book Depository, Inc. (Depository) was a Georgia corporation that, since 1924, acted as a depository or distributor of schoolbooks published by various publishers on a commission basis.
- Depository’s business included contracting with publishers, storing and distributing books, and handling billing and collections for book sales.
- Depository earned an 8% commission on schoolbooks purchased by the State of Georgia through it; it also handled a smaller volume of sales to independent colleges.
- Depository kept its books and filed its federal returns on the accrual method of accounting.
- Depository accrued (reported) its commissions from independent-college transactions at the time the textbooks were purchased.
- In 1937, Georgia enacted legislation directing the State Board of Education to administer a system of free textbooks for public schools.
- The free-textbook program was tied to a designated “free textbook fund” financed from excise taxes on malt beverages; payment for books was made from that fund as tax receipts became available.
- During the fiscal years ended March 31, 1938 and March 31, 1939, payments by the State for textbooks (and thus Depository’s commissions) were delayed because the designated fund did not immediately provide enough cash to pay invoices as they arose.
- Despite using accrual accounting, Depository did not accrue its commission income on Georgia transactions until the State actually paid, arguing that the commissions were not properly accruable earlier because payment was uncertain.
- The Commissioner determined deficiencies (income tax for both years and excess profits tax for 1938), taking the position that Depository’s commissions on Georgia sales accrued in the taxable year when the textbook sales were made.

## Issues

1. For an accrual-basis taxpayer, do commissions on schoolbook sales to the State of Georgia accrue in the year the sales are made (when the right to the commissions becomes fixed), or only in the later year when the State pays from a designated statutory fund?

## Decision

- The Tax Court held that Depository’s commissions on the State of Georgia textbook sales accrued in the taxable year in which the sales were made, not in the later year of payment.
- The court sustained the Commissioner’s deficiency determinations.
- The court treated the statutory funding mechanism and delayed payments as matters of payment timing and collection risk, not as conditions preventing Depository’s right to commissions from becoming fixed once the sales were completed and the amounts were determinable.

## Legal Principles

- Under the accrual method, income is included when all events have occurred that fix the taxpayer’s right to receive the income and the amount can be determined with reasonable accuracy.
- A delay in payment does not defer accrual if the right to payment is fixed and the amount is ascertainable.
- Concern about collection, standing alone, generally does not prevent accrual where a legally enforceable obligation exists; the tax system addresses nonpayment risk through bad-debt rules rather than by postponing accrual.
- When payment is expected to come from a designated or limited public fund, that limitation usually concerns the source and timing of payment, not whether the liability exists.
- A taxpayer’s mixed treatment of similar commission income (accruing one category at sale but another at payment) does not change the all-events analysis for the deferred category.

## Conclusion

Because Depository used accrual accounting and its right to commissions became fixed and measurable when the State’s textbook purchases were made, the commissions were taxable in the year of sale even though Georgia’s payments were delayed and were made from a designated fund fed by malt-beverage tax receipts.


Georgia School-Book Depository, Inc. v. Commissioner, 1 T.C. 463 (1943)