Evening public ledger. [volume] (Philadelphia [Pa.]) 1914-1942, 1918-10-30
h. h.
LIABILITY TO TAX
Burden Lies Upon Subsidi.
aries as Lessons, Coun. !
sci Contends
ARGUMENT TECHNICAL
Attorneys for Underlying
Companies Claim Protec.
ton Under Lease
ARGUMENT TECHNICAL

Before President Judge McMichael
and Judges Ferguson and Davis IN
Court No 3. today. argument was heard
in the suits brought by the Rapid Trans.
1t Company against the Union Traction.
Philadelphia Traction. ana ten other
underlying companies, to determine
whether the former or its subsidiaries
are to pay the excess war proat taxes
to the Government
The taxes sought to be recovered
not only include the excess proft tax,
but In cases Of some Of the companies,
also portion Of the straight income
tax exacted by the Government from
CORPORATIONS. The amount involved
reaches several hundred thousand dol
lars for 1917 an dwill be materially in.
creased for the present year.
In some cases the underlying com.
panies had filed demurrers to the suits
or the Rapid Transit and argument on
these demurrers was in order. In other
instances the argument was based on
rules for judgment taken by the Rapid
Transit Company.
Ellis hmes Ballard, chief counse, for
the rapid transit company, made the
principal argument In support Of the
conttntions OF that corporation that the
s,ocknolders OF the underlying compa-
nies should be made to bear their part
OF the burden Of war taxes. In reply.
the attorneys for the differtnt subsidia-
r1es declared that they were fully pro-
tected by the lease Of tho rapid transit
company which. they c6ntended, forced
INT r. X. T. to meet all these oblira-
tions
During his argument, MIR. Ballard,
saio. i can assure you with great con-
loence mat had 1t ever been contem-
plated that tax, which might easilv
equal upwards of 80 per cent ~ ,he.
amount Of the rental, would have "A
ne paid the leases would never have
been made or would have ben made an
inanc'al conditions very different from
tnose agreed upon. and while the Court
must now determine that the proper
construction Is either to increase the
rental by so per cent. or diminish IL
10 the same extent It cannot be said
tnat IN SO doing IT 3 giving effect to
anything either party had in contern.
piation.
Alleged Inequalities Cited
Among the leased lines of the p. r
+. system there Ia one company rece,v-
ing rental Of 100000 on a paid.in
capital Of less than 100000. Unless
tnat company can bring within the def
milton OF invested capital money spent
upon its property by the lessee some.
one VIII have to pay upwards of 960. 900
war excess profits into the Federal
Treasury.
In the same system there is another
company receiving a rental of exactly
ten times that amount. Wig, $1,000. 900.
and 1t Is not called upon to pay one
dollar OF war excess proiits tax because
1t has a paid-in capital of 10000. 900
and Is therefore not receiving an excess
proht on its capitalization. Yet thie
company must pay Just ten times the
incometaxe that the other COMPANY
pays In other words, the income tar
mas been held to be tax upon the
specific and fixed thing-the income-or
IN the case Of a leased line, the rental
which In the present cases could be set
out in dollars.
IN the case Of an operating conn
pany (Which, bear in mind) must. in the
nrst instance. pay this tax for itself
on Its own earnings) 1t may have. As
mas the company represent, many
leased lines receiving rentals Showing
abnormally high interest returns on
invested capital. and II, instead of each
company bearing its own burden, they
are all bound together and laid on
the shoulders of q single taxpayer, 1t
may readily be conceived that there
VIII be one taxpayer less when the
next year comes around
Mr.. Ballard contended that under any
view Of fair dealing. 1t was incumbent
upon the lessor to pay the tax.