The Hawaiian gazette. [volume] (Honolulu [Oahu, Hawaii]) 1865-1918, 1904-03-25
SIX BIG TAX APPEAL
CASES ARE DECIDED
Question of Deductions for Losses in Business
Is Discussed at Length by Chief
Justice Frear.
(From Thurday's Daily)

written by Chief Justice Frear, was
unanimously rendered by the Supreme
Court yesterday. The taxpayers whose
assessments were in question were the
following named: First American
Savings and Trust Company of Hawaii,
First National Bank of Hawaii, c.
Brewer & Co., Z. o. Hall & Son,
Western and Hawaiian Investment Co.
and Castle < Cooke.
Robertson & Wilder appeared for the
tax assessor; w. A. Whiting and c.
f, Clemens for the taxpayers in the
first three cases, and Castle & Withing
ton for the taxpayers in the last three
cases. The decisions of the Tax Appeal
Court are sustained except as to an
item of $3.50 in the case of c. Brewer
& Co, Ltd, as to which the decision OF
that court is reversed.
AS the law given and the reasoning
therefor are likely to be of interest to
the business community. the syllabus
and opinion are here quoted i'll full.
LAW OF THE CASE.
Mere depreciation in the value OF
bonds cannot be deducted under the
income tax law of 1901.
Under the provision allowing dcduc
tons of all losses actually sustained
during the year incurred in trade or
arising from losses by fire not covered
ly incurred" losses of capital used in
business may be deducted, if they occur
during the tax year, as, for example,
bank loans lost during the year though
made prior thereto. notes given in pay
ment for merchandise but which become
valueless during the year, etc.
CASES IN GENERAL.
These are appeals under the income
tax law, In the case OF the First Ma
tional Bank, i'll which both sides APP
peal the appeal of the taxpayer is from
decision of the Tax Appeal Court
sustaining the assessor i'll disallowing
deduction of $1,000 for depreciation in
the market value of certain United
States bonds. We are of the opinion
that that decision was correct. See
Haw. Com. & Sug c. VS.. Assessor, IA
Haw. COL, 600.
The assessor appeals in all these cases
from decisions of the Tax Appeal Court
allowing certain deductions-mostly of
bad debts. He contends that only losses
of income as distinguished from losses
of capital may be deducted and only
such losses as have occurred during the
year in question, and that i'll these cases
the losses were in general losses of
capital and occurred before the year.
The statute is somewhat involved and
not altogether clear. 1t is somewhat
arbitrary in its provisions. Statutes i'll
England, Canada and the United States
have differed considerably from our
statute, and the decisions under them
have been comparatively few and more
or less contradictory. 1t would be dif-
ficult and unsafe to attempt to lay down
general propositions applicable to all
cases or to state what may or may not
be deducted under varying circum-
stances. In general it may be said that,
in our opinion losses of capital, at least
working capital used in business, as
distinguished from ordinary invest
ments, may be deducted under certain
circumstances, but that only such losses
may be deducted as have occurred with
in the year in question. The latter
proposition seems to be clear. The other
proposition is not as clear as it might
be, but it receives more or less support
in decisions elsewhere under statutes
that do not go as far as ours in this
direction Our statute is extremely broad
as compared with most other statutes,
even including the Federal statute of
1904, which ours most resembles, but
which was held unconstitutional with
the result that we have not the benefit of
decisions constituting it. Ours allows de-
auctions, among other things, of "all
losses actually sustained during the year
incurred in trade or arising from losses
by fire not covered by insurance, or
losses otherwise actually incurred"
Laws of 1901, Act 20, Sec. a. That
losses of capital may be deducted under
certain circumstances seems to be as
sumed in Haw. Conn., & slug. Co. vs.
on the motion for rehearing, IA Haw.
6s7; also Little Miami & Colum. &
Zenia r. Co. VS.. u. s., 1903 u. S. Ell;
us. VS. Mayer, Deadly I27; Lawless VS..
Sullivan, l.. X. 6 App. Cas-. 1873; Reds
Brewery Co. VS.. Male, (I89I) A. c.
I. As to whether particular losses have
occurred in particular year or in some
other year it is sometimes difficult to
say. More or less latitude should be al
lowed as to when debts, for instance
have become worthless. Probably a
worthless debt could not be held to be
written off in whole or in part in subse
quent years for the purpose of evading
the income tax law,
FIRST AMERICAN SAVINGS AND |
TRUST co.
In the cases of the First American
Savings & Trust Co. and the First
National Bank the losses were OF $I3,-
DSI.47 and $Io.27s,oo respectively on
note OF NJ. w, McChesney K Sons, This
was demand note given in 1000 II
was for $4,000, divided into $4,000 and
$4,000 between the two appellants in
respect OF ownership, The loan was
made by them in the usual course OF
banking business. Interest was paid up
TO January 81, 1902 In July, 1902, de
fault was made in the payment OF in
.erest The balance OF the note, after