The Oskaloosa herald., 1909-12-16
HOW CORPORATION
TAX WILL OPERATE
4
Secretary of the Treasury Mac
veagh Explains.
WMKiA
INTENT OF LAW SET FORTH
Gross and Net Income Are Defined
and Instructions for Ascertainlng
Them Are Given In
Detail.

washington, dec. lS.-Secretary Oh
the Treasury MacVeagh has just is
sued detailed explanation of the
working of the new corporation tax
plan. 1t is in part as follows:
In the preparation of blanks and
regulations for the administration Of
the corporation excise tax, provided
for in section 3S of the tariff act
of August 5, 1909 the first question
was to ascertain the real intent of
the law. After ascertaining the real
intent of the law, the problem was
then to so prepare the forms and reg
ulations as to carry out that intent
and at the same time avoid, as far as
consistent, unnecessary and unreason-
able interference with ordinary prac-
tees of business. The standard adopt
ed in making the regulations was that
they should be fair, Just, and reason
able to the taxpaying corporations as
well as the government.
A study of the act discloses clearly
that the intent of the law is as fol.
lows: Ia. .r o rssou.e .rras
/. That the law is a revenue meas
ure and should be construed literally
for the purpose of producing revenue
for the government. .eI. 81 .rs .,a 8
2. That the real intent of the law
is to collect a tax of one per cent. on
the net income, less $4,000, of the indi-
vidual corporation, stock company, or
association liable to the tax.
In order to clearly understand the
intent Of the law few primary def
nitions are Essential:
.s Net and Gross Income.
The term net income" as used in
this law means not only net profits
arising from the operation of the
principal business of the corporation,
but also items of income received
from other sources, such as invest
ments, holdings in other companies,
and businesses, etc. The expression
met income" is used because there
can be no question as to its embrac-
ing amounts Of income received from
these outside sources, whereas there
might be some question as. to wheth-
er or not such items would be in.
cluded IN the expression met profits
or met earnings"
In the same manner the term gross
income" includes gross profits, the ex-
preston being used because there can
be no question but what it embraces
all items of income received by any
corporation from any source, while
whether gross profits" or gross
earnings" would embrace such items.
Tax on Profits Intended.
A great amount of adverse criti-
cism of this law is due to misappre.
hension of the proper definitions of
these terms. The opinion was ad-
vanced that because gross income"
was not gross profits" it must be
gross receipts" and that, in the same
way, because met income" was not
met profit" 1t meant met receipts"
An examination of the law, however,
will show that If gross income means
gross receipts the statutory deduc.
lions therefrom would not leave net
receipts, but would leave merely an
arbitrary sum. 1t also appeared from
calculations that If these interpreta.
tions were given to the law from mer.
camille and manufacturing companies
alone the amount of tax received
would be many times the sum which
was estimated to be collected from all
corporations, joint stock companies,
and associations Of whatever nature
1t is clear, therefore, that the pur.
pose of the law, is not to put tax
on receipts, but tax on profits; and
that the terms gross income" and
met income" are used because, while
they are practically identical with
gross profits" and met profits" they
are yet more embrasive and conse,
quently permit more comprehensive
administration of the law.
Glasses of Corporations.
Corporations have, been divided into
six classes, and the following defni
lions adopted: r. .,. 49,.
1 (a). Banks and Other Financial
nstitutions.-Gross income consists
of the gross revenue derived from the
operation and management of the
business and property of the corpora.
ton making the return, together with
all amounts of income Gncluding divi
dends received on stock of other cor
porations, joint stock companies, and
associations subject to the taxi de-
rived from all other sources as shown
by the entries on its books from Jan
uary / to December 81 of the year for
which return Is made.
(b) Insurance Companies.-Same
as (a) above. ...
2. Transportation Companies
Same as (a) above.
8. Manufacturing Companies. -
Gross income received during the
year from all sources will consist OF
the total amount ascertained through
an accounting that shows the differ
ence between the price received for
the goods as sold during the year and
tho cost of such goods as manufac'
tvred. The cost of goods manufac'
tured shall be ascertained by an ad
dition OF charge to the account oil
the cost of goods as manufactured
during the year OF the sum OF the