The Washington herald. [volume] (Washington, D.C.) 1906-1939, 1913-05-27
RAILROADS HIT
BY INCOME TAX
Brief Declares Proposed Law
Imposes Additional Bur-
den Of $6,500,000.
TAX OUTSKIRTS REVENUE
TAX OUTSKIRTS REVENUE
Penalizaion and Double Payments
Are Alleged by Attorney
for Railroads.

pose an additional burden of IS 100000 a
year upon the railroads of the country.
| OF this amount between 100000 and
s., 100000 year will have to be paid by
the railroads on bonds issued by them
with the understanding that the interest
| was to be paid free of any tax collected
at the source. Another 100000 will be
drawn from the railroads on account of
double taxation features in the bill which
do not appear in the present corporation
tax law.
These facts were alleged yesterday in
brief filed by Walker d. Hines on be-
half Of twenty-five of the big railroads
| of the country with the subcommittee of
the Senate Finance Committee, which is
considering the income tax bill
| The brief warns Congress that the
4 tendency of pronounced and continuing
increases in taxes upon the railroads Is
/ a matter of very grave concern to the
people of the United States. 1t shows
| that the taxes per mile of line on the
railways Of the United States has in
creased since 1900 by "A per cent, and
| that the ratio of taxes TO net operating
revenues has jumped in the same period
from $50 to 12-36 per cent.
Railroad Credit Injured.
The cumulative effect of the income
tax imposed upon the railroad COM
| panies," says the brief, eventually will
make itself felt in the matter of railroad
credit, and then will have its effect upon
| impairing the development and improve
ment of railroad service"
One of the features of the pending bill
to which the railroads object particularly
is that which imposes a tax upon divi-
bends received by holding companies
from other corporations. Notwithstanding
the fact that the tax already has been
paid once by the subsidiary corporation
The railroads contend that this is double
taxation and imposes a burden upon
present corporation tax law and which
does not fall upon individuals under the
terms of the pending bill.
Members of Congress acknowledge
frankly that the purpose of this addi-
tional burden upon corporations is to
discourage the formation and continuance
of holding companies. The railroads
contend that the tax will not accom-
plish this end. They say not only the
exegencies of financing the construction
Of a new road. but also the laws in
many of the States compel the organiza-
ton of a separate corporation. They
contend that railroad company in hold
ing the stocks of other corporations is
obliged to adopt this course in order to
unity and extend its system In the pub
lie interests. Oftentimes the State
charter under which a railroad company
is operated, permits 1t to acquire the
stock of another company. but not its
physical property. The railroads charge
that the provision in the present bill
really amounts to penalizing road for
unifying its system as a benefit to the
public.
Additional Tax Levied.
The brief estimates that the plan of
inaugurating a tax upon dividends re-
ceived by railroad companies from other
corporations which also are subject to
the tax will burden the railroad COM
panies with an additional tax of about
g 600, 600 1t is estimated that 100000
more a year will be added by the plan
proposed in the pending bill of treating
as net incomes the interest paid by rail-
road companies upon that part OF the
Indebtedness which exceeds their capital
stock
The case Of the Kansas City Terminal
Company is cited as an illustration of
how the latter Limitation will work.
This company" says the brief, has
a paid-up capital stock of s., Oo00 which
is owned in equal proportions by ten rail
road companies entering Kansas City.
When the terminal company's facilities,
which are now in the course of con-
struction, are completed, the company
will have a bonded Indebtedness of So
Occ 900, upon which its annual interest
payments will be 100000. Yet IL this
limitation continues to operate the re-
suit will be that the company can de-
duct only $4,000 per year of the 5000
600 of interest which is paid. The re-
suit will be that the limitation will at
tribute to the company a fictitious net
income of 81 $50, coo per year, upon which
the company will have to pay an unjust
income tax of 1880.
This instance is typical of conditions
applying to terminal companies through
out the United States. They are insti-
buttons of the highest public Importance,
their capitalization is above criticism,
the method of capitalization is unavoid-
able, and yet the limitation in question
will operate to penalize this system and
create a palpably unjust double taxa
ton"