Martinsburg W Va evening journal. [volume] (Martinsburg, W. Va.) 1913-1920, 1920-03-19
fWHY an ELONS"
ARE NOT INCOME

fWHY MELONS"
ARE NOT INCOME
1t puzzles lots of people to hear
from the Supreme Court that when a
CorpoI alton cuts a big "melon" the
stockholders do not have to pay in
come taxes on it. If a man owns
stock in a prosperous enterprise
which decides to distribute its sur
plus in the form of "stock diyi-
dend,' why should he not have to
report such a dividend as taxable in
come, just as If he had received 1t in
CASH
"The cutting of an apple into four
parts instead of two does not i'll
Grease the size of the apple" says
the Boston Post Qnd. Deml by way
of Illustration. 80. the lewiston OF
"a corporations assets into 100000
shares instead of $4,000 shares does
mot increase the value of the shares.
nor give the shareholder a larger
\1nnity in the assets" In the same
way, the Sun and New York Herald
sQnd) points out that IF man owns
q dollar bill and srlits it into two
silver half.dollars. or into four quar-
tiers, or into ten dimes, or divides it
as many times as YOU please he has
not penny more and not a penny
less than when il was in the single
dollar bill"
Thus stock dividends represent
really capital, and not income, or. as
the Chicago Daily News Hnd1 de-
>Tcribes il, the promise or possibi-
fty of income. The fact that the
etock dividend is a gitt-a melon
docs not alter the essential feature
or the situation, since the gift takes
l9he form of Il paper title to dividends,
should they be earned II dividends
Hre paid on the stock, OF course. they
are taxable.
+ he effect OF this decision is lin
the direction Of removing hampering
bnrdenS ana restrictions from capital
san0 freeing it 10 engage in the devSl-
opm-at 81 the cOuutry's industries
On The ofiaiou Of the New York Mail
NInd.). and the Ital goes on to say:
No tax investments, in addition to
5taXIng earnings in the form of diYi-
dends, is the surest way to dscour-
age ENTERPRISE, block expansion, and
make the road to prosperity difficult.
3 To realize that fact il is not neces-
;6ary to go further than the consid-
seration that, in order to pay an in.
come tax on share of stock given
him in lieu OF dividend. il would be
necessary for the holder to invade
his savings from other sources or sell
his share, perhaps at loss"
The far-reaching effect of the decis-
son is illustrated by the Wheeling
Register Dem), which notes that:
z For instance the American Car
Ind Foundry with a total of $31,324,-
ie21 undivided profits is ready 10 de
Eciare stock dividends equal 10 Sl04
u share; Morris & Co, packers, are
holding s52,S2S,S64 or S1760 per
xhare; the Standard Oil Companies
of Indiana, New York and Ohio have
Dig dividends on which the tax as
Earnings has been paid and can be
distributed as stock dividends. while
the Republic Iron and Steel. National
biscuit. Pittsburgh Coal and many
gother industries are in similar posi-
itions, which means that the court S
decree is 0Vnd to send prices SKY
high in the market as there will NOW
be sharp buying in order 10 e-au
Ehloc6s Ut the common stocE @. sHas
companies n7on which Stock dE
dends are sure to be paid
But II the correctness Of the q
eision appears obviot from the az
guments above quoted, il mast be r..