New-York tribune., 1920-01-25

Q.-J. s. b.: The concern I dm connected
with made an approximate profit last year
Of $4,000 Investment of s., 900 900.
and OF this profit $3.50, 900 represents a gain
on 1"dr contract on 1Uhich / understand q
special tar must be paid. Will you please
assist me in figuring out 1chat tho special
tar uiU amount to? The Investment fol,
thls apdr contract amounted to 1000.
Also, il not asking too much OF your time.
yd1 no this item Is deducted, / then deduct
from the totol profit of the business the
$l50,000 and deduct from the total ,mrest-
n,cnt the 500. 900 and calculate the ordinary
income and excess profits taTes on the re-
,ndinder?
A.-Where a corporation derives net in
come in excess of $4,000 from an. govern
April s. 1917, and ovember H. 1918 its
excess profits and profits tax tor the
year 1919 is the sum of the following:
tl) Such a portion of the tax computed
at the rate specified for 1918 as the part
OF the net income attributable to such gov
entire net income. and
CD Such a porion of the tax computed at
the rate specified for 1919 and thereafter as
the part of the net income not attributable
to such government contract or contracts
bears to the entire net income
1nasmuch as you have not stated the
amount of your prewar income and pre-
war invested capital. it is impossible for
me to compute the amount of your tax. If
you will furnish ME with this information
snail be pleased to make the necessary COM
putation.
"a. c. M: A personal service corpora
a t.on ~nh capital stock Of $4,000. PAID in
ca$h, shoWs profit for the year 1919 Of
$4,000. None OF this has been distributed.
The members OF the corporation are paid
sola'D and it IS the purpose of the cor
porat'on to use this profit as q basis Of in
vcst'nent during the nert year.
Is the corporation or its stockholders sub
3ect to either Federal or state income tar
ana in 1rhGt manner?
A.-Under the Federal law personal
service corporation is not subject to tax as
such, but the individual stockholders are
subject to tax on their distributive shares
of the net income of such corporation
whether distributed or not. The term per
sonal service corporation is purely crea-
ton of the Federal law. and is not recog
Gized under the New York State tax law.
consequently the individual stockholders arc
subject to tax on the profits of Il corpora
tion which would be classed under the Fed
eral law as personal service corporation,
only when the profits are distributed in the
form Of dividends. The New York State
franchise tax on business corporations q u
per cent income taxi is assessed against ali
corporations doing business in the State of
New York except G) steam surface rail-
roads, canal steamboat and other trans
portation corporations (2) corporations
owning or operating elevated railroads or
surface railroads which not operated by
steam. water works companies gas COM
panies, electric steam heating. lighting
and power companies CD insurance COM
panes. trust companies and investment COM
panles: lOs savings banks taxable under
Section lS9 of the state tax law, including
banks. savings banks, institutions of saw
'ngs. title guaranty. insurance or surety
gagged in the purchase, sale and holding of
real estate for themselves; (6) holding cor
Iorations whose principal income is derived
from holding the stocks and bonds of other
corporations.