Kingsbury County independent. (DeSmet, Kingsbury County, S.D.) 1894-1929, 1911-03-24
CORPORATION TAX
ADJUDCED LAWFUL
IN HIGHEST COURT
Justice Day Who Wrote 1t, Up.
Holds the Contention Of the
Government at All
Points.

\ uIICIl ldT1ll act were BuSldlIlcu To-Day IN
constitutional by the supreme court OF
the United States. The court waa
unanimous in the corporation tax de-
cision. Thereby a source OF income OF
approximately $25,0 o0, 900 annually Is
assured to the government.
or all the objections to the tax
raised by suits in all parts OF the coun-
try none OF them was oun sufficient
TO nullify the law. The our did hold
that the tax was not applicable to the
real estate trust of Boston. which Is
organized not under any statute, but
\ under the common law. The law was
held not applicable to the Minneapolis
syndicate, a real estate concern, on the
ground that 81 was not doing busi-
ness" within the meaning of the law.
Valid Tax Is Defined.
Near the outset OF the opinion as It
appears In printed form, is the state
ment hat the tax lis imposed not upon
the franchises OF the corporations ir-
respective Of their use in business. nor
upon the property OF the corporation
but upon the doing OF corporate or In.
surance business and with respect to
the carrying on thereof in a sum equiv.
alent to ] per cent of the entire net in
come over and above 5000 received
from all sources during the year; that
is, when imposed In this manner IL Is q
tax on the doing business with the ed-
vantages which inhere In the peculiarf-
ties of corporate or joint stock organi-
zation OF the character described.
"As the latter organizations share
many benefits Of corporate organiza-
ton, II may be described generally as
a tax upon the doing of business In q
corporate capacity.
This tax, 1t is expressly stated, Is
to be equivalent to one percentum OF the
entire net income over and above $4,000
received from all sources during the year
this is the measure OF the tax ex-
plicitly adopted by the statute.
Levied on Doing of Business.
1.-THE income Is not limited to such
as is received from property used in
the business, strictly speaking, but 1t
is expressly declared to be on the en-
tire net income above $4,000 from all
sources, excluding the amounts re-
ceived as dividends on stock In other
corporations, joint, stock companies or
associations or insurance companies
also subject to the tax In other words
the tax is imposed on the doing of bust
ness of the character described and the
measure OF the tax is to be the income
with the deducation stated, received
not only from the property used In
business, but from every source.
This view of the measure Of the
tax Is strengthened when we note that
as to organizations under the laws OF
foreign countries. the amount of net
income over and above 5000 includes
that received from business transac-
ton and capital invested in the United
States, the territories, Alaska and the
District of Columbia"
After Justice Day had thus given the
Interpretation which the court had put
IN the provisions Of the act. he pro-
ceeded to answer h various objec-
tons urged against the constitutional
ity of the tax.
Objections Swept Away.
He first took UP the contention that
1t was a direct tax and unconstitu-
tional for the same reasons that the
famous income tax Law was declared
unconstitutional In 1895. He pointed out
that the ipcome tax was held to be
direct because imposed upon property
simply becanse Of It's ownership.
IN the present case" said Justics
Day, the tax is not payable Unless
theTe>Is a carrying on or doing OF
and this Is made the occasion for the
tax, measured by the standard pre-
scribed. The difference in the acts Is
not merely nominal, but rests on the
substantial differences between the
mere ownership OF property and the
actual doing OF business in a certain
way"
Justice Day next took up the OBJ.
lection that the provisions in question
levied a tax on the exclusive right of
a state to grant corporate franchises
In that It taxed franchises which are
the creation OF the state IN it's SOW
ereign right and authority.
I'VE think says the opinion. 1T Is
the result OF the cases heretofore de-
cided in this court, that such business
activities, though exercised because of
state-created franchises, are not be-
yond the taxing power OF the United
States"
State Can't Deprive Nation.
After reviewing cases hitherto de-
cided by tfsS court, Justice Day said:
If IL be true that the forming of q
state corporation woul defeat this
purpose by taking the necessary steps
required by the state law to create a
corporation and carrying on business
under rights granted by a state statute
the federal tax would become invalid
and that source Of national revenue be
destroyed, except as to the business In
the lands of individual or partnership.
It cannot be supposed that ii was in
tended that it should be within the
power OF individuals acting under
state authority TO thus impair and
limit the e&ertion of authority which
may be essential to national existence"
Justice Day next addressed himself
to the objection hat the tax was un-
equal and arbitrary. He first consid.
cred whether, as claimed. the law made
an unconstitutional distinction between
corporations and partnerships and in
dividua!s.
He said there was a substantial diff
ference TIVE the carrying on OF
business between corporations taxed
and the same business when conducted
by a private firm or Individual.
THE thing taxed" said he. "is not
the mere dealings in merchandise. In
which the actual transactions may be
the same, whether conducted by indi-
viduals or corporations, but the tax Is
laid on the privileges which exist in
conducting business In which inhere In
the corporate capacity OF those taxed
and which are not enjoyed by private
irms or individuals.
These advantages are obvious and
nave led to the formation of such com
panies In nearly all branches OF trade"
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