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In performing its contracts, petitioner took delivery of the
materials directly from the asphalt supplier. Petitioner's
driver picked up the asphalt and took it directly to the job
site. The asphalt had to be laid within 2 to 5 hours from the
time it was picked up from the plant, or it would become rock
hard and have to be thrown away. Petitioner had no way to extend
the time that asphalt is in an emulsified condition. Once the
asphalt hardened, it could not be melted and reused; nor could it
be returned for credit to the asphalt supplier.
Petitioner generally worked on only one job at a time,
lasting a week or less. When the job was finished, petitioner
billed the customer and created an accounts receivable on its
books. The asphalt company sent petitioner an invoice, usually
due within 30 days, which petitioner paid only after it received
payment from its customer. Although petitioner, not the
customer, usually paid the supplier, there were some customers
who paid the supplier directly for the asphalt used on a job.
This was an uncommon event, however, that did not occur during
the years at issue. Occasionally, customers issued a joint check
to petitioner and the supplier so that, in effect, the customer
paid the supplier.
Petitioner's asphalt costs for the tax years 1989 and 1990
were $930,960 and $855,566, respectively. Petitioner deducted
the cost of the asphalt as a supplies expense on its tax returns
for the years at issue.
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Last modified: May 25, 2011