Evening star. [volume] (Washington, D.C.) 1854-1972, 1913-05-27


On the floor of the Senate Mr.. Aldrich
admitted that he was going to vote for
the corporation
Used to Defeat tax law as a
the Income Law. Ing the income
tax Senator Flint pronounced it a make
shift to serve until the income tax
amendment could be passed and an in
come tax law of undoubted constitution
atty enacted. Senator Root declared him
self for it because he believed it was a
wise measure, and against the income
tax law because he believed it would be
an unWise one.
Fifteen cases were submitted to test
the constitutionality of the law. and
perhaps the first one taken up by the
court afforded the best Illustration of the
injustice it might work. 1t was the case
of Flint against Stone. Tracy & Co. Some
years previous to this suit there was
big firm by the name of Tuxbury &
Stone. 1t was dissolved and two separate
businesses established. which became
active competitors. One business was
corporation and the other a partnership.
Under the law the one business was COM
PEELED to pay the tax and the other was
not. The one business was required to
open its books and the other was not.
The Supreme Court. however. in spite of
this inequality of two similar businesses
conducted in a dissimilar way. upheld
the constitutionality of the tax. The
greater privileges and immunities of the
corporation as compared with the part
nership neutraliZe the apparent dscrim-
ination.
This was not the first time that it had
upheld the right of the federal govern
ment to tax corporations 1t had done
so in the income tax suits in 1895. and
again under law enacted In 1898. aimed
at the sugar trust and Standard Oil.
This law provided a tax of one-fourth of
per cent upon all gross receipts of cor
porations engaged in the oil sugar re-
filming businesses where these receipts
amounted to more than S2JaND a year.
The constitutionality of this tax was
called into question upon the ground that
1t was discriminatory. tax and in con
travention of the decision of 1885 But
the court held otherwise.
The corporation tax law has proved
one of the most easily administered Of all
the revenue laws of
Small Cost, the federal govern
ment. and at the
Large Returns. same time the tax
has proved to be the cheapest to collect
of all the taxes by which the government
is supported. The amount collected in
1872 was S2s.3S3,Wn. and the expense Of
collecting it-inciuding the cost of classi-
flying corporations amounted to approx
mately S16!,GN The cost of collection
was. therefore. about four-sevenths of l
PEI; cent.
The internal revenue authorities have
nothing but good to say for the corpora
tons attitude toward the operation of
the law. They say that the number of
cases of willful attempts at evasion are
almost negligible. Sometimes they see
returns which indicate that a corpora
ton has charged up money srent for bet
terments to the account of expenses, but
these are much more frequently due to a
misrepresentation of the law than to any
intention to evade the tax. Sometimes
close corporations make undue allowances
for salaries. but ruling Of the Treasury
Department has put check to that. And
where there are errors they are not al
ways against the United States, by any
means Frequently a corporation finds
that 1t has paid too much tax, that its
books show greater net profit than
really was made. For instance. a cor
poration dealing in securities made its
returns on it's profits from the sale of
bonds. The bookkeeper entered upon his
books the cost of the bonds in one ac-
count and in another account the interest
his corporation advanced on them. When
the securities were sold he entered the
sales price of the bonds plus the interest
in his account of the sales. In making
his returns to the internal revenue bureau
he deducted the price paid for the bonds
from the price at which they were soiu.
including the interest. and thus found the
gross profit This failed entirely to take
off the interest paid out. and conse-
quently. they showed net income far in
excess of the realities. The corporation
overpaid the government more than $500,
as result