Tax implications in Joint Products and by products: Joint products and by products inventories are assigned costs for income tax purposes, the tax director must study the proposed costing program and inform the producer whether it will be allowed.
It is a genuine problem for the tax director to decide whether or not a cost policy conforms closely enough to the accepted standards of the industry, or whether or not the alleged cost of a joint products and by products is reasonably related to the market values. So much depends upon the judgment of the tax director that one might justifiably claim that in joint products and by-product costing disputes, the tax director is virtually the enactor of the law. Of course, decisions may be appealed, but the higher tribunals find themselves beset by the same vague, general statute; and thus they, too, must rely almost entirely upon their own independent discretion and practically make the law.
Clearly, tax laws have not solved the problem of costing joint products and by products for the accountant and manufacturer. Tax officials find themselves in exactly the same predicament as any coke producer, oil refiner, or chemical manufacturer even though their immediate objective may be limited to collecting a proper tax.
The necessity of defining and interpreting accepted practices in a given industry proves, at least partially, that if the present tax law on joint products and by products costing with its implication that the market value method is desirable — is unfair or manifestly inaccurate and illogical, it can and will be changed if industry and the accounting profession can offer better reasons for the use of other procedures. Tax laws have not solved the problem of costing joint products and by products yet for the global accountant and product manufacturer. Legislative committee is thinking to overcome the problem soon.
