The Pacific commercial advertiser. [volume] (Honolulu, Hawaiian Islands) 1885-1921, 1907-11-03
DEPRECIATION
IS AN EXPENSE
Decision of Tax Appeal Court
in an important
Case.

| depreciation" in its relation to the in
come tax. The question before the
| court was whether depreciation Is al
| expense of the business which may
be deducted from the gross income II
determining the amount of the income
tax to be paid. The court decided thai
it is.
The decision was in the appeal OF
the Eva Plantation Company from the
refusal of the Tax Assessor to allow
a deduction of $50, 30436 for deprecia-
| ton. A number of other cases pend
| ing involve the same question. An
appeal will be taken to the Supreme
| Court of the Territory and the case
may go to the United States Supreme
/ Court.
| The decision is as follows:
| The appellant in this case appeals
| from the ruling of the Tax Assessor
who disallows the amount Of $85,304.36
| claimed by appellant as depreciation
deductible from gross income for the
year 1906, and urges before this court
that such depreciation is a necessary
expense in the production of its sugar
crop. and as such is fairly and legally
deductible under the provisions of the
income tax law of this Territory.
It is urged by counsel for the AS
SCISSOR that the question at issue has
been definitely decided by the Supreme
Court of the Territory, more particu-
larly in the case of the Rapid Transit
a. Land Co, v. Tax Assessor (18th
Haw. page 49,, and with equal con-
fidence by the appellant that the decl-
sion in the case of the Little Miami
22O iustifies the claim for deduction
made in this case. The evidence pre-
scented leaves mo- reasonable doubt that
the depreciation claimed IS actually
part of the expense of producing the
movable property named IN ScneouIe
A of the Tax return. The wasting OF
a steam roller is as real an expense as
the consumption of the fuel oeneath
it. Argument is hardly needed on TINS
point, and no business man Will as
pute it.
In the decision of the Supreme Court
of the Territory in the case OF the
Rapid Transit Co. VS.. the Tax Asses
sor- referred to, the court held that
depreciation of property due TO ch-
mate and wear and tear is not deouct-
ible under the head of losses actualIy
sustained or incurred" and that such
classification of an operating expense
is incorrect is not to be questioned
The court further held that e4-
penses for repairs and requirements
when actually made, may be deduct-
yble under the head of necessary ex-
penses actually incurred. IN the
opinion of the court expressed IN TINS
case, the Chief Justice remarks: "One
question is whether the company may
write off q certain amount annuaIy
for depreciation of its property-lh
cases in which repairs can not be
made annually, as where certain por-
tons of the property are used for a
number of years before II co1Iipleleiy
wears out and requires replacing. a
trolley wire of the Rapid TRANSIT q
Land Co. might be of this nature but
hardly the miscellaneous property On
these questions and on the arguments
presented in this court we may not
conjecture, an@sturn to the income tax
law itself as basis for decision III
this case.
The intent of the law is clear: Sec
1879 Revised Laws PROVIDES that d
tax of two per cent. shall be assessor
and paid on the net profits or incomes
above actual operating ana business
exnenses' of all corporations, and Sec.
1880 includes as income amount VI
all sales of all movable property less
the amount expended in the purchase
or production of the same. Expense
as defined by recognized authof1tieS
not limited to the disbursement OF
money. but includes Century bhclloi-
arv, cost through diminution or de-
the laying out or expanding of money
or other resources as time or stfehStn,
drain ON recources, detriment, loss.
The reasonableness of such oennl-
tions of expense in connection with
business enterprises is clear IN hu-
mkrous adjudicated cases brought to |
the attention of this court, the prin>
cinIe is, fully and clearly recognized |
that for the true estimate OF net proIit
account must be taken of all the
expense incurred including depreciation |
Of the income producing property
No corporation could make true
to it's stockholders by any
other method, and it is the true
amount of net profit for which the law
prescribes the tax.
The law requires the taxation OF net
nrofits for the respective taxation Pc
RODS.
1t would appear impossible Tor such
to be met, except by the
deduction for each period of all OF the
expense for such period.
Such method appears to be justlned
On sound business principles, and 10
be in accord with the intent Of the
law.
As the amount of depreciation claim
cd in this case is admitted by the AS
SCISSOR to be a fair one. we find that the
appellant is entitled to the deduction
claimed of $50. 304.36.
ySionad) JAS. f. MORGAN, 4
WILLARD f. BROWN,
]. F. BROWN.
SOME UNIQUE PosTALS.
-+oI y