The San Francisco call., 1910-03-16
DEFENDS FEDERAL
CORPORATION TAX
Solicitor General Files Brief
With Court Denying That
Property Is Affected

WASHINGTON, March 15.-The gov
ality of the corporation tax provision
of the new tariff law was submitted
today in printed form to the supreme
court of the United States. 1t is the
work of Lloyd w. Bowers. solicitor
general. but bears the signature also of
his chief. Attorney General Wicker
sham. Upon it the government will
shape it's oral defense of the law when
the corporation tax cases come up for
argument, probably Tuesday.
The first point sought to be made is
that the tax is not a direct tax upon
property, but is an excise tax upon the
carrying on or doing business" The
declarations of the statute, as well as
decisions of the courts, are relied upon
to support this point
ONLY A TAX UPON BUSINESS
AS to the statute. Bowers says in his
brief that it shows the transaction of
business to be the subject of the tax
and that the income of business Is
used merely as measuring the amount
of tax (which rests not upon that in
come. but upon the occupation from
which it is derived.
These reasons, together with the de-
cision of the supreme court in the
Spreckels case, which the solicitor gen.
eral explains as holding that a tax de-
clared in the statute to be laid on bust
ness in an amount equivalent to a GER
tain percentage of income is an excise
tax on the business, are taken by him
as sufficient to show that the corpora
tion tax is an excise on the transaction
of business.
The second point Bowers seeks to
make is that the tax is not a direct tax
upon the shares of the stock holders,
nor upon the income The reasons
given for the tax not being direct
tax on property is held to apply to the
assertion that it is not a direct tax on
the shares or income of the stock
holders.
REALTY MEMS PLEAS ANSWERED
The third point is that the tax does
not become direct In the special case of
a company engaged in the business
handling or dealing in real estate. Five
of the Is cases for consideration by the
court involve such corporations. Bow
ers says that they raise no constitu-
tional question, but only the query as
to whether they are engaged in carry
ing on or doing business" If any cor
poration is not so engaged, 1T is not
reached by the statute, he argues.
The fourth point Bowers seeks to
establish is that the tax is not an in
fraction of the general power Of the
states to authorize the formation of
corporations and stock companies.
The several objections to the law as
an excise tax, because of its alleged
lack of uniformity, are considered by
Bowers. The constitutional require
ments are met, he says, if the tax is
geographically uniform.
One reason assigned for exempting
individuals and partnerships is that
they are without the aid of legal rules
applicable to corporations and joint
stock companies. Both reason and au-
thority. 1T is said, justify the exemption
of corporations whose net income is not
over $4,000.
Labor, agricultural and horticultural
organizations are exempted, he says,
because they seem hardly to be or
ganized for profit" He adds that IL 1t
is necessary the statute could well be
construed as not exempting such asSo-
Citations if their primary purpose is
business profit.
The exception of societies operating
under the Lodge system, he contends.
justifies itself. Such. Bowers says,
are the knights of Pythias, knights of
Labor, certain Masonic orders, the Red
men and the Woodmen of the World.
HUMOR IN OPPOSITION
1T is almost humorous" he adds, Ito
urge that such organizations must be
considered insurance companies having
purely or chiefly pecuniary functions
Reply is made to the objection to the
limitations to the amount of interest
deduction in arriving at the net in
come.
without the limitation" says Bow
ers, corporations and joint companies
by issuing bonds for all or most of
their capitalization with or without
an accompanying issue of stock-could
distribute the business profits, how
ever large, in the form of interest pay
ments; and the tax in that way could
be entirely or largely avoided"