Newark evening star and Newark advertiser. [volume] (Newark, N.J.) 1909-1916, 1914-10-30

was one requiring that companies
issuing participating policies should
set aside q fund for payment Of an
agreed-upon share OF the companyss
earnings TO holders of this GLASS OF
policies The person who took out
one of these policies entered into
contract TO permit the company to
II in excess OF thee ost OF maintain
ing the policy. The money so re-
tanned was to remain In the conn
pany's hands and draw interest until
the policy rnatured,
Before the law was passed the Pra1~
Dental had NOD been definitely setting
aside money for this special fund but
had simply retained the money as a
part of the companys surplus, This
plan had been In effect for ten years,
for the Prudential began to write par
tinuad them In 1907 The new law, IN
directing the setting aside OF the fund.
declared that the fund should be .
distinct and separate liabil.ty.s
On the strength OF these words In
the act. the Prudential claimed that
the fund was made by the legislative
enactment practically a new debt due
the pollcyholders and was therefore
not taxable The city, on the other
hand. claimed that the money In the
fund was not such q liability as would
entitle Ii to escape taxation.
She State Board Of Equalization of
Taxes decided against the city on the
strength of the strict letter Of the law,
but that body was reversed by the SUI
prerne Court, and the Supreme Court
has now been sustained by the Court
OF Errors.
Should Bo Taxed ms an Asset.
1t is necessary to know tnls history
In order TO understand the scope OF
the decision. The courts hold that the
law of 1907 did not create new la
billy of the insurance company, AL
that that law was intended TO do was
to apportion the amount from the
general surplus of the company and
assign Ii to a fund that was 10 be-
come distinct and separate lisbil-
itY" to the holders of participating
policies There was no intent on the
part OF the Legislature to change the
method of assessing the property of
the insurance company for purposes
of taxation. In other words, the fund
was In the nature of guaranty that
the policyholders would receive the
amounts their policies earned under
the contract with the company. This
ing. portion of the assets of the
Prudential and should be taxed as an
asset and not as liability.
Had the contention OF the company
been sustained, 1t would have meant
that all of this great sum would have
entirely escaped taxation-that Is to
saw, that 1t would have been treated
differently by the taxing authorities
from other moneys held by individ-
uals or institutions. In fact, the
fund. under those circumstances,
would have been doubly exempt from
taxes, for the commissioner of bank
ing and Insurance. In fixing the value
of all policies under the law for the
purposes of taxation had taken into
considera son the liability of the COM
pany or deferred dividend policies.
Such double exemption would have
been similar to failure to tax
mortgage and also failure to tax
property covered by the mortgage
Only Way to Tax Fund.
The situation came down to this.
Here was so much money-property.
1t should be taxed somewhere 1t
was properly taxable either on the
policyholders of their eventual prop
erty, or on the Prudential, as tenn
porarily making use of that property
AS holding II IN truSt-depend1np on
how one looked at 1t. 1t was an i'm
possible task to divide the tax among
the policyholders. The only way to
tax the fund was against the COM
pany.
No money has been paid out by the
Prudential on these participating
policies, because none will mature be-
fore 1913, as they have fifteen years
to run and the first was written In
1897 This explains whv the fund will
continue to grow rapidly in size for
the next three years, while the fund
will not be wiped out before 1923.