The sun., 1909-06-23
THE ooRpoRAT1oN TAx.
A Gigantic Job Of Inquisitaon and 40
comtlng-what Arc Not EaEuinEs7

ceuntins-what Arc Not Earnings7
To THE EpIroB OF THE SUN-Sir: So far
as have observed, no one has called atten-
ton to q most serious objection to the pro-
posed tax Of the net earnings OF corpora
tions. How 10 the amount Of net earnings
10 be ascertained and settled?
Ever since the attempt by the Interstate
Commerce Commission to prescribe the
method Of railroad accounting there has
been q controversy as TO tho manner In
which the cost Of betterments 10 to DO
charged. 1t Is the same question which has
given rise to so much discussion between
American directors and English stockhold-
ers- In England expenditures for new I'm
proveme ents are represented by new securi-
ties, but In this country 1t is generally
thought that any outlay necessary to keep
railroad UP TO the his standard should be
charged as an operating expense. To replace
iron rails by steel rails or wooden bridges by
iron or stone bridges: to improve the align
ment or to reduce the grades does not
make o new road or increase the earnings,
and 1t is properly considered by all COM
petent railroad managers as much an
operating expense as wages. IT 10 under
stood that the Interstate Commerce Com
mission insists upon changing this method
Of accounting. though no rule has yot been
established. The question az affecting rail-
roads il simple. as compared with the oharg-
ing of Of depreciation or charging up the
betterments Of "industrials.
In the case Of private corporations, II
II be q well managed mining company IL
charges against the cost Of ore or coal the
value Of the mineral in the ground for
when exhausted the company IA simply the
owner Of hole In the ground. The original
cost Of improvements which cannot be used
or removed elsewhere, such as shafts. tun-
nels. dead work, breakers, tracks, must be re-
funded. for when the mine 10 exhausted they
are worthless. Machinery In cotton and WOOL
len mills as a rule must be thrown out to be
replaced by new equipment every hve or
six years; charge must be made upon every
ton Of iron ore produced by blast furnace.
to ascertain the real furnace cost. The SOL
vency OF all manufacturing concerns de-
pends upon making full allowan against
the gross profits for the purpose OF renewal
and replacement, or insolvency is fhevi-
table. and hence 1t Is essential for the safe
should be ample, and rather too great than
too small. 1t is doubtful, however. II any
two large concerns make precisely the same
OF charge for such depreciation
or exhaustion, and hence differences OF
opinion may arise in every department OF
a large concern. II not as to every item In
the account.
1t WILL Of course. be necessary for the
Government to employ expert accountants.
who will as rule be appointed as q reward
for political service and be quite innocent
OF any knowledge OF real business. Under
the present Administration and In the pres
ent state Of public opinion thereis Of course
a strong presumption against any person,
AL. L- -.
full and accumulated property; and the eX-
perts will naturally begin their investiga-
tions upon the assumption that they can
manage other peoples affairs better than
the owners can themselves. 1t takes weeks
and months to go through the books Of q
large concern. and II the expert und ertakes
to change the returns the owners will
naturally object, and unless the citizen
is to be denied the protection of the courts
months or years must elapse before the
amount Of the tax can be fixed. Every
lawyer knows instances In which months
have been occupied in controversies In
respect to income bonds. or in disputes
between the owners OF preferred All COM
mon stock. where only the earnings OF
railroads were involved. In dealing with
the affairs Of private corporations. how
would 1t be possible to fnd accountants
enough to go through their books in single
year. even where there is no contest, and
II there should be disputes. how will the
net earnings. which are to be the basis
Of taxation, be sscertained and deter
mined? II the citizen is to have access to |
the courts Of law the members OF the bar |
may look forward to the most fruitful |
harvest of litigation that has yet been pro- |
vided for them.
In view OF this single objection It would |
seem that the pretext assigned. that it is O |
tax on the privilege Of doing business as |
IN artificial entity, and OF freedom from |
general partnership liability" ts, hardly |
when it is remembered that the |
privilege does not come from the Federal |
,ut from the State Government: 80 that |
he tax collector would be exacting price |
or a franchise which 1t had not conferred, |
hus -reapins where II had not sown and |
gathering where it had not strewed."
PHILADELPHIA. June %. SESEx.