Evening star. [volume] (Washington, D.C.) 1854-1972, 1903-02-18
PERSONAL TAX LAW
ITS APPLICATION TO BUILDING
ASSOCIATIONS DISCUSSED.
Opinion Rendered by Arthur II. 0'Con-
nor, Assistant Corporation
Counsel

counsel Duvall, on the subject Of the per-
sonal tax law as applied to building asso-
Citations in the District The matter was
first brought to the attention of the Com
missioners by Wharton E. Lester, attorney
for the National Permanent Building Asso.
citation. The new law provides that build
ing associations shall pay to the collector
Of taxes per cent on their gross earnings
each year. The question involved Is the
construction of the term gross earnings;
in the law. and Its application to the busI-
ness Of the association.
1t appears from the brief of Mr. Lester"
says the assistant counsel, that the sum
OF $l9,124.64 was returned by the assoc
citation to the board of assessors, as the
gross earnings Of the association within
the meaning Of the law; that-the return
was rejected, and that the association was
assessed by the board of assessors or the
sum of $4,000. 1t does not appear in the
papers before me what items may have
been included to fix the amount at $53 900
as the sum of the gross earnings of the
association. On the other hand, the sum
of $19124.64, returned by the association as
the amount of their gross earnings is de-
termineo.
The last item mentioned in the statement,
SO, 1880, is regarded by Mr.. OConnor as
the most important one to be considered. IT
understand he says. this last item to ac-
crue under the following circumstances: This
aSSocia ton. and distinction Is sought to
be made In the situation Of this company
from that of an Incorporated company or
from company which issues stock to its
members upon which 1t pays dividends In
such cases., says Mr.. Lester, referring to
stock companies. a certain capital is in
vested, and the gross earnings may we'll
include money made by the capital stock
we have no such stockholders; we pay no
dividends; but do pay interest on money
we borrow. whether it be from our own
members, special depositors or banks to
whom We give promissory notes. MANY
other building associations are joint stock
companies, and have members who sub
scribe to stock, and receive dividends 1t
may be that such dividends would be in
cluded in gross earnings. The capital stock
Is invested by them and earns for them
Other persons deposit lump. sum with
these associations and receive certain
price or rate of interest for their money so
deposited. This price or rate Of interest
could hardly be called gross earnings Of
such an association. 1t Is similar to inter-
est paid by our trust companies to its
depositors, which has been held by the con-
troller not to be a part of gross earnings
Makes a Comparison.
Having in view this distinction between
the association he represents" continues
the counsel. land that Of an Incorporated
company, Mr.. Lester by way of analogy,
makes this comparison: If we invest $780,
900 in merchandise and sell the same article
for $120OOO our gross earnings are $25 900,
out Of which we must pay our operating
expenses, the balance being net earnings 1t
cannot be commended that our gross earn
ings would be the $4,000 received
Using this comparison, it may be stated.
that an association such as this is deemed
10 De partnership, consisting Of all the
members. They operate usually by Issuing
series OF shares taken up by such per-
sons as desire to contribute and who
thereby become members. When the nee
esSary contributions are made, or shares
taken, the series is closed the money paid
for the shares turned in to the association
and handled by it for the Joint benefit of all
the contributors. When the transactions
rising out Of this particular series are.ended
1t Is determined from the earnings of the
money what each member is entitled to-
and he is paid his share according to the
amount invested.
Not Chargeable as Earnings.
ut is no doubt true that the amount paid
In by the member could not be charged as
earnings but it seems to me that all sums
returned to him in excess of the amount
paid In is as clearly earnings as is the
profit of So. 600 made upon the Investment
of 100000 In merchandise in the example
given by Mr.. Lester. If this amount, which
the business of the association has earned
for the investing members, be not classed
as gross earnings by the association it ap-
pears to me that the principal If not the
entire business of the association Is over
looked.
Possibly small sum may be reserved as
surplus or for safety but this is only an
Incident to the business Of the association,
its principal business being the handling of
money for the mutual benefit Of Its MEM
sum Of 81. 1880, set forth as interest paid
to depositors for the use Of their money,
should be included in the estimate of gross
earnings for the purposes Of taxation.
ION the other hand. If the association
borrows money from banks, in the regular
way of making loans from banks, the in
terest paid for the use of that money could
not. In my opinion, be classed as earnings,
and perhaps this would apply to loans made
from any other persons, including members
OF the association or special depositors
such as is referred to In the business of
trust companies. where they take deposits
and pay stipulated sum as interest on the
deposits.
Difference Suggested.
ut is suggested. however by other asso-
Citations or companies that the only differ
ence between members who take paid-up
stock or make cash deposits and the ordi-
nary member Of these associations Is that
one pays by the mouth stated sum, while
the other makes his payment in a lump
sum and at one time, and that the interest
paid to one Of these classes should not be
regarded as q debt. while the interest paid
upon the current monthly paid stock is not
so considered: and 1t is suggested that as
fact some Of the associations Of this Dis
trict receive most Of their funds by way of
large deposits or the sale Of paid-up stock
while doing the same character Of bust
ness as the other associations, and they
will largely profit by this Interpretation Of
the law.
ut Is not intended in this opinion to 1--WE
an Interpretation of the law that would
extend to situations that are not clearly
presented. but In the case now before me-
II have the facts correctly, the distinc-
ton seems very clear between the case of
the member who invests his money to be
pooled with an investment OF others ana
the earnings thereafter divided and a case
OF person who deposits q specific sum
with the association at a specified rate OF
interest
The status of special deposits should be
determined upon the facts In each case. re
the facts show a loan made by the associa
ton for which a certain amount of Interest
Is to be paid. such interest should not be
considered gross earnings but if a deposit
be made to be withdrawn with interest de-
pending upon the earnings of the associa-
ton. such interest would, in my opinion. be
gross earnings and should be assessed ac-
cording1y."
The Commissioners have approved the
opinion. 49, a.
Proposad Deduction