The times., 1899-09-25
THE TAX ON STOCK Deals
The Internal Revenue Bureau Hopes
10 Collect a Double Amount.
Investigating the Local Brokers'
Busfness-The Contention That in
Every Purchase or Sale Made by
Washington Firm for n Customer
Two Distinct transactions Occur.

The Internal Revenue Bureau has been
examining into the business of various
Washington brokers recently with view
10 the possibility that it may be able 10
impose an additional tax under q strict
construction Of the War Revenue act 1t
is understood that the authorities have
only begun their examination OF the meth
DDS OF brokers and bankers who deal in
stocks in this city, and that if a new prin-
ciple that they have conceived proves to
be correct the entire speculative field out
side Of New York viii receive their at
tention. The contention of the Internal
Revenue Commissioner is. in brief, that
the nature Of the transactions by which
q customer outside OF New York ordinarily
buys or sells stocks makes possible the
collection of two taxes on each block OF
stock bought OF sold.
The tax on stock transactions is at the
rate Of 81 for every 100 shares transferred.
The bill Of sale or other paper is sup
posed in every case to be stamped to this
amount The Government has received an
immense revenue from this source since
the war tax went into effect. During the
days Of the boom eight months ago, when
transactions on the New York Stock Ex-
change amounted to over a million shares
day, and transactions on the Consolidated
Exchange sometimes 10 500 600 shares
day, this revenue was sometimes nearly
$4,000 day on these two exchanges alone.
The internal Revenue Office, however,
wishes to secure still greater revenue. 1t
is understood that the object of the present
investigation is partly to find evidence of
deliberate attempts TO defraud the Govern
ment as well as TO establish if possible its
new double tax proposition.
The business OF the Legitimate brokers"
outside of New York City who deal in
stocks on margins on the New York Stock
Exchange is conducted in one of two ways
A broker may be either simply the out
side manager for a New York brokerage
firm, with a branch Office or he may be
correspondent of a New York house. 1t
is not understood that the Internal Reve-
nue. Office wishes to try to collect any ad-
ditional tax from New York houses having
branches in Washington or in any other
city. Il is among the outside brokers who
are simply correspondents of New York
houses that the enquiry is being made.
When customer wishes TO buy or sell
stock on margin through an outside brok
er his order is sent Immediately 10 the
New York correspondent, who executes il
on the New York Stock Exchange or the
Consolidated Exchange. Notification Of the
execution OF the order and Of the price
paid OF received is then given TO the out
side broker. who in turn notifies his Gus
toner. The question that the Internal
Revenue people are considering is whether
there are two purchases or sales in this
transaction. Does the New York broker
buy for the Washington broker or for the
washington brokers' customer? II the
first purchase is for the Washington broker
then does not the Washington broker in
turn make another transaction when ne
turns over the stock to his customer?
The chief ground on which the Govern
nent seeks 10 base its claim rests on the
fact that some of the Washington brokers
at least doing business through New York
correspondents send all their orders TO
New York in their own names, keeping
their accounts with their customers in this
city. SO that the New York houses have no
knowledge OF any party in Washington ex-
cept the broker. Houses with branches in
this city. on the other hand, execute the
business OF the customer direct in his own
name.
The brokers who have been seen re-
garding the question by reporter for The
Times are generally of the opinion that the
point Of the Internal Revenue Office is not
well made, and that it viii not stand if
the Office decides TO try and collect the
additional tax for the second alleged trans
action.
one broker said yesterday: THE brokers
pay license to do the business of broker
age or buying and selling of stocks and
other securities for other people. 1t is
true thar the names Of all their customers
are not sent to New York, but il is equally
true that they do not buy the stock for
themselves, but simply execute the orders
OF their customers. The Washington Gus
toner is clearly a client of the New York
broker who executes the order. II is TO
this broker that he looks in case Of q faulty
or unsatisfactory execution. and not to the
Washington broker The fact that his
name is not on the New York broker S
books means nothing. The order comes
from the Washington broker but il is not
for him, but for his customer
/. ID. Fowler the Washington manager
OF the New York Stock Exchange firm of
Ra1hborne & CO., takes the opposite view OF
the case. He said yesterday: In any pur-
chase OF stock on margin made by New
York broker for his Washington cores
pondent the stock is bought by him on the
order Of the Washington broker and held
by him in the Washington brokers' name
until ii is ordered sold by him. The Wash
ington broker may be buying the stock fol
himself or he may intend TO deliver it tc
some other party, his customer; of this the
New York broker knows nothing. II tbs
Washington broker keeps the stock him
self there is, of course, only cne trans
action but IL be in turn delivers il to Z
customer there lis second transaction
very clearly. This fact is shown when ;
customer wishes TO take up a stock he hai
bought on margin. or, in other words, wheI
he desires to buy IT outright and have i
delivered TO him. The stock has been III
70 thai time Ia the name OF the Washing
ton broker in the Office of the New Yorl
broker. II must then be transferred from
the account Of the Washington broker t.
that OF the customer"
Some Of the Washington brokers ar
members OF the New York Stock Exchang'
themselves, as well as being correspondent
Of New York houses, and il is though
probable that in the case of these firms
there viii not be any attempt TO collectt b,
extra tax.
The Internal Revenue Office has not a.
yet made any final decision in the matter
II is understood, though, some brokers
have been notified that they VIII be expect
ed 10 pay the extra tax from this time. anC
also probably taxes on all back business
from the date Of the war tax law.
A BANQUET TO DIAZ