New-York tribune., 1910-01-26
EXCISE OR INCOME TAX7
Puzzles Which Arise from a Case of
Confused Identity.
To the Editor of The Tribune.


Sir: The editorial in your issue of the
22d instant on the subject of the federal
corporation tax seems to call for some re-
ply because you state that the ruling un-
der which incomes from United states
bonds can be taxed will greatly surprise
the general public.
In the first place. let me say. you en-
tirely misapprehend the theory of the cor
poration tax; it Is not a tax on incomes
as was the income tax Of 1894 The corpo-
ration tax is, to be sure. measured by IN
comes, but 1t is @ tax on a class; IT IS
much the same as the license tax imposed
upon the conduct of the wholesale liquor
business. In this case the class comprises
corporations engaged in business for
profit; the tax is not fiat sum for IL
cense: 1t is a measured tax-measured py
income as defined by the statute. The tax
might just as well have been measured by
the amount of sales, or by the number OF
employees or by any one of hundred other
items Of the corporation business and af-
fairs.
In the second place, beg to suggest that
you underestimate the general knowledge
and intelligence OF your readers. Many OF
them know what it is to comply with the
franchise tax law of this state and OF
other states having similar laws. Many
Of them know what II is to comply with
the inheritance tax law of this and other
states. Under the franchise tax laws 1T is
well established that a state may include
in the valuation upon which the tax Is
measured the amount of capital invested
in United States bonds. Under the in
heritance tax laws it is well established
that the states may impose the tax upon
the transmission of property by inheritance,
even though the property consists OF United
States bonds. These are only two of the
ways In which the ownership of United
States bonds is taxed, notwithstanding the
fact that the bonds themselves are exempt
from taxation.
l have not seen the opinion of the At
torney General TO which you refer. but it
undoubtedly takes the position that tax
on the class of business corporation i'm
posed by the federal corporation tax may
be measured by incomes from whatever
source, on the same reasoning that a state
franchise tax may be measured upon the
amount of capital invested in whatever
property. even including United States
bonds and patent rights The distinction
is too we'll established to be open to dis
pute P. LEWIS ANDERSON.
New York. Jan. 25. 1910.
THE Tribune is we'll aware that the
corporation tax imposed in the Payne
law was described as an excise tax, but
whether it is in reality an excise tax
measured by income or an income tax
applied under the guise of excise will
remain undecided until the Supreme
Court hands down an opinion. The So
licitor General of the United States, who
is to defend the tax provisions of the
new law. does not seem to think that
there is no ground for questioning the
character of the corporation tax, for in
a brief just submitted to the Supreme
Court he puts first among the specific
questions of highest Importance to be
passed upon whether the tax is direct
in the constitutional sense and is void
because not apportioned among the
states In proportion to their popula-
ton" If the tax We're indisputably an
indirect excise tax the government would
hardly lay such stress on the impor-
tance of determining whether it was
valid because nominaIly or substantially
indirect or invalid because essentially
The government frankly admits that it's
position is "open to dispute
We did not argue that the United
States bonds were exempt from taxation
of all sorts. They are taxed when used
as basis of circulation and may also
be taxed incidentally under other cir
cumstances, as in helping to constitute
the total of an inheritance But to tax
the income from them year by year
while maintaining that the governments
pledge exempting the principal from
direct taxation is being kept seems ito
us to add one more perplexity to a case
in which many perplexities arise from
trying to make an excise tax do not so
much its own work as the work of a
tax on incomes.-Ed.1