El Paso herald. (El Paso, Tex.) 1901-1931, 1913-05-26

M The corporation tax law enact /
ed in connection with the
Payne-AIdrich tariff bill under cir I
curnstauces that constitute a remark
able episode in American fiscal legis- ]
Iatfon, has proved an efficient revenue 1
raising instrument, and whatever the /
defects of the other parts of the Payne
AldriCh law, no one seems TO crlt- [
else the operation of the corporation
tax clauses 1t has raised an average
of about S2T, 00OO 600 a year In revenue.
Furthermore, it has compelled corpora
tons to keep accurate records 81 their
business and to give the federal gCv-
eminent a loOkin upon their affairs
that has generally been regarded as
statements to the internal revenue
bureau might be used against them IN
other than tax proceedings II mas Deen
followed by a general tendency upon
the corporations to keep their houses
III " Incomes Total sa,aSO,OOO,OOO.
There are a little less than 100000
corporations making returns showing
their annual net incomes They rep
resent a total capitalization Of about
$50, 1000, 100000, and total bonded ana
other Indebtedness OF approximately
$4,000, 900, 900. Their net income ap-
proximates s3,25OOOO,0OO a year. A
look at the records Of the tax IN the
internal revenue bureau disclOses some
interesting facts concerning different
lines Of business For instance Wnlle
the major portion of the adverse crtti-
cism Of corporations, has been directed
against the railroads and Othcr public
service corporations, the records eEeaI
the fact that they make smaller net
earnings than any other class Of cor
pOratiOns.
On the other hand, until recently,
few people have had much to say
against financial institutions and in
surance companies and yet the cor
poratiOn tax records disclose the fact
Ia l = @
any other class of institutions. OF
course, the fact that railways and the
like are quaSi-public partly accounts
for this These returns show that the
and insurance companies amount 10
1854 percent upon their capital stock
while those Of mercantile corporations
amount TO 1913 upon their capital
stock. The percentage Of Industrial
corporations averages $50 percent, and
that Of public service corporations All
Pennsy lvanla- Illinois, and Ohio pay
more than half of the tax. New York
itself pays nearly a fourth Of IL.
History OF Corporation Tax.
As intimated above. the legislative
history of the corporation tax law is
remarkable one The measure was
not discussed or even thought Of In
the presidential campaign that pre-
ceded its enactment. and although the
constitution vests in the house Of rep
resentatives the right Of originating
all revenue legislation, it did not
originate there was never before Il for
consideration, discussion or vote, eX-
cept as IL came up in conference re-
port 1t was not mentioned in the in
augural address Of Mr.. Taft, was not
introduced by any member Of congress-
and had many other peculiar and IN
usual experiences AS matter of fact.
when It seemed that something had to
ing an income tax law, the attorney
general, George w. Wickersham.
drafted the law and had it placed in
the hands of congress
Designed to Defeat Income Tax.
On the floor Of the senate Mr.. Al
driCh admitted that he was going TO
vote for the corporation tax law as a
means OF defeating the income tax ,
Senator Flint pronounced il a make
shift to serve until the income tax
amendment could be passed and an in
come tax law OF undOubted cOnstitu-
tlOnaltty enacted Senator Root de-
clared himself for it because he be-
ueved 1t 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 cOnStitutiOnaIty Of the law, and
perhaps the first one taken up by the
court afforded the best Illustration OF
tint injustice IL might work. 1t was
the case OF Flint against Stone Tracy
& company Some years ago previous
70 this suit there was a big firm by
the name of TuXbury & Stone. It was
dissolved and two separate businesses
established. which became active COM
petitOrs- One business was q corpora
ton and the other a partnership. I'm
der the law the one business was com
PEELED to pay the tax and the other
was not The one business was re-
CURED TO open its books and the other
was not The supreme court, how
ever, in spite OF this inequality of two
similar businesses conducted in dis
similar way. upheld the constitution
atty of the tax. The greater privileges /
"a
compared with the partnership neu-
tralize the apparent discrimination.
This was not the first time that Il
had upheld the right OF the federal
government 10 tax corporations It
had done so in the income tax suits
IN 1855 and again under law
enacted in 1895 aimed at the sugar
trust and Standard Oil. This law pro-
yided tax of One-fOurth of 1 per-
cent upon all gross receipts of cor
poratons engaged in the oil or sugar |
refining businesses, where these re-
ceipts amounted TO more than $780,
600 a year The cOnsutuuOnality OF [
this tax was called into question upon Z
the ground that il was a discrimina- {
decision Of 1885 But the court held i
otherwise.
Law Is Easily Administered.
The corporation tax law has proved I
one Of the most easily administered [
of all the revenue laws of the federal /
government, and at the same time the I
ldA mas lAONE4 70 ue the cheapest I
to collect Of all the taxes by which ]
the government is supported The I
amount collected IN 1912 was S2S,5S3,- {
600, and the expense Of collecting it (
including the cost Of classifying cor /
pOratiOns-amOunted to approximately I
S164, 600. The cost Of collection was I
therefore about Al OF 1 percent
The internal revenue authorities have /
nothing but good to say for. the cor I
pOratiOns' attitude toward the opera Z
ton Of the law. They say that the [
number OF cases Of Wilful attempts at I
evasion are almost negligible. Some /
times they see returns which indicate /
that a corporation has charged up Z
money spent for betterments to the [
account Of expenses. but these are /
much more frequently due to a mis- Z
apprehension Of the law than to any I
intention to evade the tax
ErrOrs in Rendition
Sometimes close corporations make Z
undue allowances for salaries, but a I
ruling Of the treasury department has Z
put a check to that And where there I
are errors they are not always against I
the United States, by any means. I
Frequently a corporation finds that IL .
has paid too much tax, that its books I
show a greater net profit than really 4
was made. For instance. a corpora