The Richmond palladium and sun-telegram. [volume] (Richmond, Ind.) 1907-1939, 1909-07-02
Junior Indiana Senator Ques-
tions the constitutionaIity
OF Levy, Concerning Ind
lana Concerns.
HE DRAWS AN ANSWER
FROM SENATOR ROOT
lShoWs That the Decision in
The Pollock Case Covers
The Same. Point Regarding
Tax on Rentals.

Washington, July In the senate
yesterday Senator Shivey of Indiana
created something of a sensation by
challenging the constitutionality of
1.-The proposed tax on tthe net earnings
OF corporations. He raised new
point, basing his contention of uncon.
etitutionality on the application of the
tax to form of corporation organized
in Indiana for the holding of real
estate and the collection of rents
therefrom.
The supreme court held in the in
come tax cases that federal tax on
rental income is unconstitutional. Sem
ator Shively showed that the proposed
tax on corporations, applied to Indiana
real estate corporations, would levy a
tax on rental income. and he held
that under the clear and unequivocal
language of the supreme court In the
income tax (PollocD case, the corpor-
alton tax also would be sunconstitu-
tional -
Senator Shively's contention was
brought ont in spirited colloquy
which he had with Senator Elihu Root
OF New York. whose legal talent was
employed In drafting the corporation
tax The coloouy follows:
Mr.. Shively: MIR. President, the
senator from New York Gdr Root1
viii permit me to state a case to Illus
trate and sharpen the question | have
In mind. We have in Indiana a sta
ttute authorizing the creation Of a cor.
lporation to purchase, own, hold, i'm.
prove. rent, sell and otherwise deal in
real estate. Does the senator under
stand that the corporation tax now
proposed would apply to the profits OF
that corporation
Mr.. Root: MIR. President, the sen
ator appears to address ,sts question to
me and will assume to answer it.
understand that the proposed tax
would apply to such corporation"
Cites Pollock Decision.
Mr.. Shively: THAT is to say. here
lis corporation which owns sixty
pieces of improved real estate and
collects rents from them. Those rents,
OF course. make net profits or income
accruing to the corporation. The sen.
ator says those profits would be sub.
ject to the proposed tax. The court
expressly held in the Pollock income
case that a tax on rents or income
from real estate is direct tax and
UNCONSTITUTIONAL. The profits of this
corporation so derived would certain.
ly not be subject to tax under the
rule In the Pollock case. would they?''
Mr.. Root: The senator. Mr.. Presi.
dent, uses words collouuially when he
said the profits would be subject to a
tax Speaking accurately, it is not
the prC.dts that would be subject to
the tax, but the privilege or facility OF
transacting the business through cor
porate form. It matters not from what
source may come the income which is
seized upon by the law as a measure
for the value OF the facility or privi-
lege which is taxed. That l under
stand to be the very question which
was decided by the supreme court in
the Spreckles case referred to by the
senator from Idaho q few months ago.
In that case the company claimed that
certain rentals received by it from the
use of a wharf were not to be regard
ed as liable to be included in the
measurement Of the tax which was i'm
posed. because they said this is in.
come from real estate and under the
income tax decision 1t can not be sub.
jected to such tax The court said !:
No: you got this money in the course
OF vcnr business, the facility or privil-
eee of doing business is what is tax
ed ard no matter where you got the
money the income is adopted as the
measure IF the tax
Tax Same in Substance.
Mr.. Shively:: Then. to speak accur.
ately. the tax is exactly the same in
substance and result in both cases
and only the peculiar language of the
statute describing it differentiates this
amendment and the Spreckles case
from the Pollock case..
Mr.. Root: Precisely"
In further explanation Of his views
Senator Shively made the following
statement:
The supreme court held in the Pol.
lock case that a tax on incomes from
real estate under the act of 1894 was
unconstitutional. The proposed tax
which it is held will apply to rents
from real estate is precisely the same
in Sl,hStanco and r0snlf Nn;th- 1.
apportioned. To give thing a DIFF.
ferent name does not make it a DIFF.
ferent thing. To call It a special en-.
else tax with respect to carrying on
Or doing business may bring it with.
n The rule In the Sprsckles case. but
$4,000 1anrna.nnl 80