Omaha daily bee., 1909-12-13
EXPLANATION OF NEW TAX
Secretary Of Treasury Submits State
msnt on Corporation Law.
ABOUT INCOMES
DETAILS
Full Particulars About Requirements
of Act and How the Business
interests WIN Have to
Meet IL.

Treasury M0CNeagn mas prepared y w
tailed statement on the preparations of
blanks for the new corporation excise tax
Witch affects the larger business inter-
ests Of the country.
Text Of the Statement.
The statement in part is as follows:
In order to clearly understand the intent
of the law a few primary definitions are
essential:
''The term net income as used in this
means not only net profits arising from
the operation Of the principal business of
the corporation, but oil items of income
received from ,other sources, such as In
vestments, holdings in other companies
and businesses. etc. The expression net
income is used because there can be no
question as to its embracing amounts Of
income received from these outside sources,
whereas there might be some question as
to whether or not such items would be in
cluded in the expressions net profits or
net earnings
TN the same manner the term gross In
come includes grgss profits, the eXpres-
sion being used because there can be no
question but what 1t embraces all items of
income received by any corporation from
any source, while there might be some
question as to whether gross profits or
gross earnings would embrace such items,
"A great amount Of adverse criticism of
law Is due to misapprehens!on of the proper
definitions Of these terms. The opinion
was advanced that because gross income
was not gross profits it must be gross
receipts and that, in the same way, be-
cause net income was not net profits it
meant net receipts An examination Of
kha 1auy nuuaxrr xnII Inxr NhaN A. -
income meant gross receipts the statutory
deductions thereform would not leave net
receipts. but would leave merely an arbi-
trary sum. 1t also appeared from calcu-
~lations that II these Interpretations were
given to the law from mercantile and man
ufacturlng 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.
Tax ON Profits.
1T is clear, therefore, that the purpose
of the law was not to put a tax on re-
ceipts, but a tax on profits, and that the
terms gross income and net income are
used because, while they are practically
Identical with gross profits and net
profits they are yet more embrasive and
~ NAAk - AAAOAO SOAhRAOACA9AN
administration of the law.
1.-The law requires that the return from
every corporation, Jolnt-stock company,
and association liable to the tax show
the gross amount of the income
received during the year from ali sources,
and authorizes certain deductions such as
ordinary and necessary expenses actually
paid out of earnings in the business and
property of such corporations . "
within the year; all losses sustained during
the year; amount of interest actually paid
within the year,; amount paid by 1t within
the year for taxes; amount received within
the year as dividends upon stock OF other
Operations liable to this tax, etc. ..q
Very careful consideration has been
given to these expressions in order to de-
tel mine what evidence shall be required
in order to determine what items are to
be considered as income in calculating
gross income and what items should
be allowed as DEDUCTIONS under the Ian
guage Of the law. An impression has OBJ
tanned in some quarters that no item should
be considered In making up the account
OF the corporation, either as income or q
deduction, unless it's receipt or dIsburse-
ment was evidenced by ar actual cash
transaction. 1t was owing to this fnterpre-
tation placed on the law that a great
number of accountants throughout the coun-
try declared that the law was impossible
of administration, and If their interpreta-
ton of the law had been correct, there
would indeed nave been the most serious
difficulty.
Definition of Actually Paid
Upon first reading the law and study
ing the authorities relating to the lang
go .,noa A. u.-,,l5 49, :. tbar Az. r,oraa
admit of no Interpretation other than that
an item must have been evidenced by the
actual disbursement of cash. or something
Of equal value, before it could be con-
sidered in making up the account Of a cor
poration. 1t is interesting to note, however,
that all definitions and decisions regarding
the expression actually paid. consider
the matter from the standpoint Of debtor
and creditor, and not from the standpoint
Of the individual himself, or in this case,
from within a corporation concerned solely
with It's own accounts from which alone
the law requires this return for taxation
to be made. and not taking into eonsld-
Grafton the standpoint of the debtor,
at is clear that to hold that the phrase
actually paid within the year requires
evidence Of actual disbursement in cash
during the year would prohibit anything
like accurate returns being made by any
corporation, and would render 1t impos-
slble to carry out what is the main pur-
pose OF the law, because to subtract from
the gross income the deductions specified
in the statute. calculated on a cash basis,
would give net income, on which the tar
lie to be measured, only when the entire
business transacted by the corporation is
lone in cash and the transactions are com
pleted every day. 1t is not believed thai
there is any such corporation In existence
The return, predicated on gross income
received In cash and deductions represented
by cash transactions, will vary from the
real net income somewhat in proportion al
the business transacted by the corporation
varies from tho absolutely cash basis
This is viewing the matter in its simplest
aspect.
when we contemplate the complication
and intricacies of the business affairs of
great corporation, with it's many dealings
with other corporations and Individual
which are never settled in cash, but arr
settled on somewhat the clearing hous
plan; its many advances of funds anC
long-deferred statements OF accounts. pur
chases OF supplies and materials at on,
time, which are mixed wit h supplie
and materials already on ham
and those purchased at other time
which are used and disbursed with
out any relation to their time OF pur
ohosa -, attarapt 10 fcilnu zach ~ fhaa