The evening herald. [volume] (Albuquerque, New Mexico) 1914-1922, 1920-03-08
KNOCKS OUT
INCOME TAX
ON DIVIDENDS
Supreme Courts Ruling
Means u. S. Win Have
To Refund Millions

WAHlilAOTDN. March Stock
dividends may not be- taxed a. Income
the supreme court held today In de-
cluring Unconstitutional the provisions
Of the 1918 income tax act taxing A.
ircome tuch dividends declared ny
corporations Out of earnings nud
profits ACQUIRING after March L. fgf1.
The count divided. 20 4. Justice
ilincy rendering the majority opln-
iun. Justices nlmes ard ilay ininiur
in ono q saenfine opinion. and justices
Charlie aud irindcls in aroihcr
nder the courts ruhnE the fed
ertl ro'ernWcnt must refund millions
of 61iiars IN taxes collected On .toct
dividends since the 1915 law became
effective. Internal rctenuo huseau
officials said today The exact total dt
the refunds could not be estimated at
this time and that u would not no
known until 81 claims 7iad been filed
Majority Opinion.
Justice fitney. in his majority
opinion. Ha q stock t.vidend "is ~
sssence not dividend but rather the
opposite"
mo part of tae assets OF tho COM
nany s scuara ed from tho common
fund he said. nothing diHigihnicn
eStenf nsner certit cnies that evidence
1W ante lett Increase tn the value
Or the stockholders capital Interest
resulting from an accumulation "
profits by tho company but profits
50 Gar absorbed Ia the huslners az 10
reader it impfactlcshic- TO separate
them from Withdrawal ana c.atribu-
tlon.
"Far from being rcadzauon Of
profits OF the siockholde.t b tends
rather % postpone such reaiiraiion IN
that the fund Represented hV The new
stock has been transferred from sur
plus to capital and no longer is avail
able Tor actual distriuutisn
Thu essnniiai and controlling fact
n hat the siociholder has received
nothing out ~ the company nasets
Tor his separate use and hcnefit. on
the contrary, every dollar of mis- orig
inal investment together with what
ever aucretiuns ana accuniulutionr
have rcsculted from employment OF
his money aud that of the other stock
holders IN the business of tho COM
pany atiii remains the property of
Tie colnpNte hnd subject tn business
,isks which may result ~ viplng out
The entire investment. Having regard
substance ana not 10 form he has re-
ceNei noihire that answers the dcfi-
uiiion o. Income IN the meaning Of
the sixteenth amendment.
Not IN Inconr
we are clear that not only does a
N|NNM NNhNNfNN NfNNNH ANFf NNNNlINA
from fie property of the corporation
and add nothing 10 that Of the share
holder. hut that the arfefcdeut nc-
cumuiation 0f profits evidenced there
hy. while indicating that the share-
hplder ~ the ricler because of an in
crease ~ his capital, az the same tiusr
shows DC has not realized or received
any income IN the transaction
1T IL said that a Htockhoider may
sell the new shares acquired In the
stock dividend and 30 he may n he
cnn find q buyer Il N equally true
that " ke does sell, and In doing 30
realizes profit. such profit like any
other. n income anc so far as u may
have arisen since the sixteenth amcnd-
mend IN taxable by congress without
apportionment. The same would be
true were he to sell some Of his orig
inai shares az profit. But Il a share
holder sells dividend stock he ncccs-
sarily disposcs Of q part n his capital
interest. just as n he should sell a
part OF his old stock, either before or
after the dividend What he retains
no longer entities him "a the same
proportion Of future dividends as be-
fore the sale. Yet, without selling.
the shareholder. unless possessed OF
other resources. has not the whore
wiihai to pay an income tax upon the
dividend stock. Nothing could more
clearly show that to tax q stock divi-
dend Is 20 tax a capital Increase and
not Income than this demonstration
that IN the nature OF things ID re-
qulres conversion OF capital In order
to pay the tax