The sun., 1895-01-29
THE IxcoxE TAX on CORPORATIONS
THE Tax Not Coieetibie on che EsrninE- OF
Corporations q. sOt-Deeisions or the
a. =. s-pre.e t'ourt 20 that EGeet.

Gorporattous In 1sOA-Deetsions ot the
a.. =. s-preme Court 20 that Easet.
To rHE EDiron or THE suN-Sir: AZ the
lst Of March draws near the accountants OF tho
| thousands OF corporations. large and small, In
the United states are at work making up the
figures for the return required by the income
tax sections of tho Tariff law Besides the de-
tails required to bc given by corporations for
the year 1904. the Commissioner OF Internal
Revenue has prescribed ss an Indispensable fes-
ture statement OF the tax due thereupon.
Tho income tax statute which is substan-
TALLY repeated In the act OF Aug. 2S. 1894. was
repealed twenty-four years ago. Those who
were then active In its enforcement have largely
given their attention to other matters. So II is
that u feature of the old law which was the
subject Of much litigation. and upon which the
Supreme Court Of the United States has passed
several times. with varying consistency. is about
to go into effect without challenge or comment.
to exact millions of dollars rs tax for 1894, in
direct conflict with the latest decisions OF the
Supreme Court. In point of fact, as | will
demonstrate, IL is more than doubtful whether
the Act Of Aug. aS. 1904, can DO construed TO
impose any tax on the net earnings OF corpora
tions for 1904
upon the face Of the law. the section i'm
posing the corporate tax, section 32. seems to
be but part OF whole. the instrumentality
for collecting the tax upon individual incomes.
That was the earlier view of the Supreme
Court respecting tho corresponding features
Of the old law. 1t was accordingly several
times held that the collection OF tho tax upon
corporations was dependent upon the liza
bilty of the creditor TO whom interest was
paid, or the shareholder TO whom dividends were
paid. to a tax upon the sum as income. In one
case. the shareholder was the city OF Balti-
more. and the supreme Court held that
inaa Oh /, Il, aoft nit a dxia
of tho State Government was not subject TO
Federal taxation. the taX could not be collected
from the railroad corporation. In another case
II was held that where corporate bonds were
owned by nonresident aliens, the situs Of the
property and Of the interest at the time of pay
ment being at the domicile OF the creditor and he
being, himself. not subject to taxation upon his
property by the United States. the tax could not
be collected from the corporation.
But after the period for the tar on personal
incomes expired, the Government asserted the
claim that the tax on corporate earnings was q
separate and distinct tar; that the statute i'm
posing 1t must be read by itself, as q distinct
enactment, not dependent upon the tax on in
comes; that the provision for deducting the tax
so imposed upon paying over dividends and in
terest was incidental relief. but not tho
essential feature of the tax on corporate
earnings; that the statute must be
construed to permit tho deduction Of the tax
from payments to stock and bondholders only
when they were subject to income tax, hence.
not when they were nonresident aliens: and
that the termination of the tax on incomes had
no relation to the termination Of the tax on
corporate earnings. This is the result Of q case
tried before Judge Blatchford by me upon an
agreed statement of facts, and reported in
Benedict, p. 81, tho United States agt. the Erie
Railway Company. Judge Blatchford followed
the earlier authority of the Supreme Court and
denied the doctrine contended for by the Gov
ernment. But upon writ Of error the Supreme
Court reversed the judgment and held the doc
trine above stated 106 L. s.. 327). The dissent
ing opinion in the last report. rendered by Mr..
Justice Field, presents with admirable force tho
doctrines of the earlier cases thus overruled.
This statement, necessarily meagre in these
limits, brings me to the application to the
Tariff act of Aug. 2S of the doctrine to which
the Supreme Court is thus committed. Pre-
missing that the tax proposed by section SO is by
this authority not a tax incomes; that the
statute stands as independent OF the section
respecting personal taxes II 1t were in
a separate enactment: that there is no
warrant for deducting the corporate tar
from payments to individuals except tho
express language Of the act, in other words,
that the corporation is paying its own debt and
not the debt of the bondholder or of tho share
holder; that this tax may continue after tho tax
on individuals ceases, and therefore may be-
gin after that tax commences 1t remains but to
ask what tire statute provideS as to tho i'm
position Of the tax OH corporate earnings? 1t
is q principle so well settled as to need no
citation of authority that taxes do not rest upon
a doubtful construction. The right Of the Gov
ernment to exact the tax must be free from doubt.
Section 30 provides that there shall be
sessed, levied, and collected, except as herein