Association had no interest in either Brewer-Fay or Rice Dryers at any time material hereto.

In 1957 and 1958 there were five companies, including1963 U.S. Tax Ct. LEXIS 181">*197 agricultural cooperatives, engaged in the milling of rice in California. A sixth company that had been so engaged was purchased by Association in November 1956. Three of the millers were cooperatives; Association was one of these. The three cooperatives controlled approximately 80 percent of the California rice industry, and Association was the largest of these, accounting for 60 or 65 percent of the entire industry in the State.

Association owned two rice mills in West Sacramento, one in Biggs, and one in Woodland, Cal. The mill owned by one of the other cooperatives was also located in West Sacramento, and the mill owned by the third cooperative was in South Dos Palos, Cal. Two noncooperative mills were in San Francisco and Stockton, California.

The facilities in question here are located on property which adjoins the property on which is situated one of the Association-owned rice mills. There are warehouses located adjacent or nearly adjacent to all rice mills throughout California with the exception of the mill in San Francisco.

39 T.C. 894">*901 In the California rice industry those warehouses that are located very close to rice mills generally store rice that is ultimately destined1963 U.S. Tax Ct. LEXIS 181">*198 for those mills. All of the rice stored in the years in question, pursuant to the agreements mentioned above, in Brewer-Fay's Warehouse No. 3 and Rice Dryers' storage bins was delivered to the adjoining Association mill after it left said facilities.

One who was not a member of Association would be at a disadvantage in storing his rice in petitioners' facilities, as he would eventually have to transport his rice to another mill and would therefore be paying additional freight. Conversely, those members of Association intending to have their rice milled by Association could minimize freight costs by storing their rice in facilities close to an Association mill.

Storage in petitioners' facilities was not restricted to rice belonging to Association members, and there was no rule or regulation, written or oral, that it should be so restricted. Shellooe and Storage Company did not refuse to negotiate with anyone who was not an Association member and never turned down an applicant for storage on the ground that he was not a member.

Storage Company stored rice, pursuant to certain of the storage agreements made in 1952, for commercial rice driers who could dry more rice than they could1963 U.S. Tax Ct. LEXIS 181">*199 store. A number of these driers were not members of Association, and Association had no interest in or connection with them. A few were driers the major portion of whose rice storage was milled by a competitor of Association.

In addition to the rice stored for growers and commercial driers of rice, substantial amounts of rice owned by the Commodity Credit Corporation (hereinafter sometimes referred to as C.C.C.) have been stored in the facilities here in question. In excess of 20,000 tons of C.C.C. rice were stored in 1957 and 1958 in the facilities operated by Storage Company, and a considerable portion of the income of petitioners in the years under review was derived from such Government storage. The C.C.C. held part of its rice from the 1956 crop for as long as 2 years in Brewer-Fay Warehouse No. 3.

The C.C.C. became the owner of rice stored in these facilities in connection with the Government's commodity support program. Those rice producers who were unable to market their crop could elect, if there was compliance with certain regulations, to sell their rice to the C.C.C. The rice purchased by the C.C.C. was taken over while in storage, and payment was made to the seller. 1963 U.S. Tax Ct. LEXIS 181">*200 The Government was then the absolute owner of such rice.

When the Commodity Credit Corporation became the owner of rice, its policy was not to move such rice as long as it was in qualified 39 T.C. 894">*902 storage. Qualification for this storage primarily involved a showing of the warehouse's financial responsibility. At a time in 1953 when there was considerable rice to be placed under support, an arrangement was devised in order to provide rapid qualification of the facilities in question along with about 15 other warehouses. This arrangement involved the "leasing" of the facilities to Association so that they could in effect be guaranteed by Association, thus necessitating only one application for all the warehouses.

The agreements with Association covering the facilities in question provided for a nominal consideration of $ 1 per year to be paid by Association. No more than $ 1 per year was paid by Association in respect of petitioners' facilities. The agreements provided in part:

3. This property is being leased for the purpose of providing storage for rough rice of the Lessee which is sold to and owned by the Commodity Credit Corporation.

4. Each of the parties hereto has the1963 U.S. Tax Ct. LEXIS 181">*201 right and privilege of terminating this lease at at any time after the rough rice now owned by the Commodity Credit Corporation has been entirely removed from said storage facilities which termination may be effected by either party by giving a notice in writing, delivered to the other party, setting forth such termination and upon the delivery of such written notice, said lease and all leasehold interests thereby created shall terminate ten (10) days thereafter.

Association had no interest in the rice stored in petitioners' facilities by the C.C.C. All of the fees received from the Government for storage of C.C.C. rice in these facilities were paid to Association, but all of these fees were in turn passed on by Association to the storing corporations.

When the C.C.C. disposed of the rice it had in storage, such rice was usually offered to rice mills on a competitive bid basis. The best bidder got the rice, and Association got no preference in bidding on the rice stored in petitioners' facilities. C.C.C. rice stored in these facilities has been purchased by mills that are competitors of Association.

All rice stored in the facilities in question was stored in bulk. It was commingled, 1963 U.S. Tax Ct. LEXIS 181">*202 and a sampling was taken in order to appraise the rice of each party storing rice therein. Statements of storage were issued to identify ownership of said rice.

There was a shortage of storage space for rice in California in the years 1952, 1953, and 1954.

Respondent's deficiency notice to both petitioners disallowed amortization deductions under section 169 of the Internal Revenue Code because of his determination that "the facilities were not used to store grain produced by [petitioners] or in a public warehouse business."

39 T.C. 894">*903 ULTIMATE FINDING OF FACT.

Brewer-Fay's Warehouse No. 3 and Rice Dryers' storage bins were public grain warehouses within the meaning of section 169(d)(2) of the Internal Revenue Code for the taxable years under review.

OPINION.

Those structures in respect of which an amortization deduction is allowable under section 169(a) of the Internal Revenue Code are delineated in section 169(d) thereof, which provides in pertinent part as follows:

SEC. 169(d). Definition of Grain-Storage Facility. -- For purposes of this section, the term "grain-storage facility" means --

(1) any corn crib, grain bin, or grain elevator, or any similar structure suitable1963 U.S. Tax Ct. LEXIS 181">*203 primarily for the storage of grain, which crib, bin, elevator, or structure is intended by the taxpayer at the time of his election to be used for the storage of grain produced by him (or, if the election is made by a partnership, produced by the members thereof); and

(2) any public grain warehouse permanently equipped for receiving, elevating, conditioning, and loading out grain,

Petitioners do not contend that the facilities in question were ever intended to be used for the storage of grain produced by them, within the purview of section 169(d)(1), but rely on 169(d)(2) for support of the disputed deductions. The requirements of the portion of section 169(d) set out above as to the completion date and permanent equipment of these facilities have been met, therefore the determination to be made is whether, for the taxable years under review, the said facilities were "public grain [warehouses]" within the meaning of said section.

Petitioners and respondent agree that this determination is to be made in the light of how the warehousing business1963 U.S. Tax Ct. LEXIS 181">*204 was in fact conducted with respect to these facilities. No cases involving the question of what is meant by the words "public grain warehouse" in section 169(d)(2) have been cited to us, and we have found none.

Respondent urges that the fact that petitioners had neither registered their facilities under the California Agricultural Code ⁴1963 U.S. Tax Ct. LEXIS 181">*205 nor 39 T.C. 894">*904 received a license under the California Public Utilities Code ⁵ is conclusive of the matter against petitioners. His contention is that the lack of registration or licensing under the California statutes results in the facilities not being public warehouses under California law, and he would have us conclude consequently that they are not public grain warehouses for purposes of Federal income tax legislation. ⁶

1963 U.S. Tax Ct. LEXIS 181">*206 Our decision is not governed by California law in this respect. Burnet v. Harmel, 287 U.S. 103">287 U.S. 103, 287 U.S. 103">110 (1932).

Here we are concerned only with the meaning and application of a statute enacted by Congress, in the exercise of its plenary power under the Constitution, to tax income. The exertion of that power is not subject to state control. It is the will of Congress which controls, and the expression of its will in legislation, in the absence of language evidencing a different purpose, is to be interpreted so as to give a uniform application to a nationwide scheme of taxation. * * * State law may control only when the operation of the federal taxing act, by express language or necessary implication, makes its own operation dependent upon state law. * * *

We find no such language or necessary implication with regard to what is included by the phrase "public grain warehouse" in section 169(d)(2) of the Internal Revenue Code, and we think Congress intended a uniform standard as to the availability of the deduction for amortization of grain-storage facilities.

Congress has not made explicit what facilities are to be deemed encompassed by the language1963 U.S. Tax Ct. LEXIS 181">*207 employed in section 169(d)(2), however. 39 T.C. 894">*905 The meaning of the words used in this section is ambiguous. ⁷ Therefore we look to the purpose of the section to ascertain what is meant by them. United States v. Pelzer, 312 U.S. 399">312 U.S. 399 (1941).

Where the language and purpose of the questioned statute is clear, courts, of course, follow the legislative direction in interpretation. Where the words are ambiguous, the judiciary may properly use the legislative history to reach a conclusion. * * *

United States v. Public Utilities Commission, 345 U.S. 295">345 U.S. 295, 345 U.S. 295">315 (1953).

1963 U.S. Tax Ct. LEXIS 181">*208 The provisions of section 169 were carried over without substantive change from section 124B of the Internal Revenue Code of 1939. ⁸ S. Rept. No. 1622, to accompany H.R. 8300 (Pub. L. 591), 83d Cong., 2d Sess., p. 207 (1954). Section 124B of the Internal Revenue Code of 1939 was added by section 206(a) and (c) of the Technical Changes Act of 1953. The relevant part of the accompanying House Report stated as follows:

A critical shortage of facilities for storing grain has developed throughout the Nation during the past several years. This shortage has been felt particularly by producers of such grains as wheat and corn. In view of the situation which has arisen, your committee has felt impelled to provide an inducement for taxpayers to construct new grain-storage facilities, to increase the capacity of those already in existence, or to adapt existing construction to the storage of grain.

* * * *

This special amortization deduction is available to a farmer constructing a grain-storage facility. * * * The deduction is also available to any person who constructs any public grain warehouse permanently equipped for handling grain. Under the definition of a grain-storage facility1963 U.S. Tax Ct. LEXIS 181">*209 the special amortization deduction is not allowed to persons who store only grain purchased for consumption in their business. For example, persons engaged in the milling of flour who construct storage facilities for purchased grain used in such processing would not be allowed to deduct the cost of any facilities under this provision.

H. Rept. No. 894, 83d Cong., 1st Sess., p. 6-7 (1953), 1953-2 C.B. 512. The Senate report is identical in all material aspects with regard to this section.

39 T.C. 894">*906 It is evident that the purpose of section 124B of the Internal Revenue Code of 1939 was to encourage the construction of facilities for the storage of grain at a time when there was an urgent need for such construction. The need was general, not just for a specific class or classes of such facilities. We do not think that a narrow interpretation1963 U.S. Tax Ct. LEXIS 181">*210 of the words "public grain warehouse" was intended.

It is not necessary to repeat the facts of this case at length. During the years in question the facilities of petitioners that are here under review were used by numerous producers for the storage of rice grown by them, as well as by others who had agreed to store the rice of such producers and by the Commodity Credit Corporation. To hold that facilities such as these are not "public grain [warehouses]" within the meaning of section 169(d)(2) of the Internal Revenue Code would be to restrict the scope and effectiveness of this legislation to a degree not required by its language and not consistent with the urgency reflected by it.

Section 1.169-2(c), Income Tax Regs., provides in part as follows:

The term "public grain warehouse" as used in section 169(d) includes only a grain warehouse or elevator transacting business with members of the general public. The amortization deduction, however, is not available to a person who stores only grain purchased for consumption in his business, such as a milling company which constructs storage facilities for purchased grain held for processing. * * *

Interpreting this regulation in1963 U.S. Tax Ct. LEXIS 181">*211 the light of the congressional purpose, we find that the facilities in question were public grain warehouses during the years under consideration.

Respondent argues that an exclusive-dealing agreement between petitioners and Association must be implied by reason of the fact that the rice-storage fees received by petitioners in the years in question were derived from members of Association and from Association itself (referring to the fees received from Commodity Credit Corporation via Association). This conclusion is contradicted by the record. There was no limitation of the use of these facilities to Association's members or to others dealing with Association. Nonmembers were given long-term storage contracts, and rice stored in the facilities was on occasion milled by others than Association. The so-called "lease" of the facilities to Association did not serve as anything more than a method of qualifying them for C.C.C. storage.

That the rice stored in these facilities in the years in question was milled by Association does not alter our conclusion that they were public grain warehouses. The members of Association comprised a 39 T.C. 894">*907 very substantial portion of the California1963 U.S. Tax Ct. LEXIS 181">*212 rice-producing public, and the common practice in the California rice industry is to store rice close to the mill in which it is to be processed. To hold in this case, in the words of section 1.169-2(c), Income Tax Regs., that the "general public" with which a grain warehouse is to transact business to qualify as "public" must include persons who would not find it desirable or practical to do business with petitioners would be to ignore economic reality.

Respondent contends that it would be inappropriate for us to find these facilities to be public warehouses when they have been held out to the public and denominated in lease agreements as private warehouses. Our decision is necessarily limited to a determination as to the status of said facilities for purposes of section 169 of the Internal Revenue Code. How the facilities were represented to the public for reasons of State laws not binding upon us is not determinative of this issue. Petitioners' lack of compliance with certain California regulatory legislation which used the same definitive words as are used in section 169(d)(2) of the Internal Revenue Code, is material and has been weighed by us in arriving at our ultimate 1963 U.S. Tax Ct. LEXIS 181">*213 conclusion, but it is not the sole determinant, and after weighing all of the evidence we have concluded that these warehouses came within the definition of a grain-storage facility contained in section 169(d)(2) of the Internal Revenue Code, and therefore that the amortization deductions claimed by petitioners were properly taken.

Because of this finding, it is not necessary to consider the issue of what useful life would properly be assignable to the warehouse facilities in question for purposes of depreciation under section 167 of the Internal Revenue Code.

A portion of each of the deficiencies assessed in Docket No. 93149 involved a determination that the useful lives of certain ranch buildings, fences, and improvements were other than those used by Brewer-Fay for purposes of depreciation deductions taken in the years in question. The petition placed this matter in issue with respect to the taxable year ending August 31, 1957, but the issue has not been pursued with proof or argument. Accordingly, respondent's determination is upheld with respect to this issue.

Decision will be entered under Rule 50 in Docket No. 93149.

Decision will be entered for the petitioner in Docket1963 U.S. Tax Ct. LEXIS 181">*214 No. 93150.