The Pacific commercial advertiser. [volume] (Honolulu, Hawaiian Islands) 1885-1921, 1901-12-23
MUST PAY TAX
ON SURPLUS
Collector Chamberlain Receives
New Decision from Washington
Relative to Banks.

Collector of Internal Revenue Roy II
Chamberlain has received a recent ruling
from Washington which is likely tc
cause Hawaiian bankers considerable
worry.
By the new ruling Commissioner
Yerkes overruIes an opinion of Attorney
General Griggs and banks are required
to pay special tax on undivided profits,
surplus and borrowed money, as well as
on capital.
The following is copy of the circular
letter received by Collector Chamber
/ lain:
Washington, D. c., Dec 8. 1901.
! Sir:-Your letter of October D. 1901, in
closing certain claims for the refunding
of certain amounts alleged to have been
paid in excess as special tax on the bust
ness of banking, has been received.
These claims have been examined. and
have been rejected, as you nave already
been advised.
You are informed that the act of June
49, 1898, and the act of March ?, 1901, pro-
vide that bankers using or employing
a capital not exceeding $4,000 shall pay
$50; when using or employing a capital
exceeding SO, 600, for every additional
8, 600 in excess of $4,000, 81 and in esti-
mating capital surplus shall be included.
This office holds that capital is taxa
BILE whether invested, as in the case of
the United States bonds or the bank
building (see T. D. 1888. PIP 4 and 81, or
circulating as in the case of money, in
GLIDING money borrowed (see T. D. 2015D
also surplus including undivided profits.
In providing that surplus shall be in
Guided as capital, it is obviously the pur-
pose of the law to have the tax imposed
apply to all money used or employed by
banks as capital in carrying on their
business.
Money borrowed by banks, and used as
capital. is held to be taxable IT d. 19S43).
and il is clearly no less liable to tax
because of the fact that il is borrowed
by bank from its own undivided profits
The fact that surplus so used consists |
wholly or in part of undivided profits, or |
that such undivided profits have or have !
not been formally set apart for such use, |
seems wholly immaterial so far as the !
purpose of the act is concerned. 1t is !
the use, and not the authority to use, |
that brings such profits within the tax !
Ing provisions of the act.
Banks should, therefore, return for
taxation the capital. the surplus fund,
loss account, except so much thereof as
may be actually necessary and has been
set apart to meet ascertained liabilities
md losses, or to pay dividends actually |
declared by the directors of the bank.
o pay taxes, or 10 pay fixed annual
'hargeS, such as salaries and other nee
ssary annual expenses.
The opinion of this office is that 'capi-
al and surplus" include all funds en-
'loyed by the bank in the business of
'anking, and that naturally and in the
rdinary course of banking business are
o be employed, excluding only such
unds which, though temporarily used by
ne bank, are of necessity withdrawn
rom the banking business through the
ayment Of dividends. taxes, ascertained
osses. or fixed charges of whatever
haracter.
Any decision of this office at variance
nth the above is hereby resclnded.
Respectfully,
J. w. YERKES
Commissioner.