The Redwood gazette. [volume] (Redwood Falls, Minn.) 1873-1940, 1921-01-19
CASUAL PROFITS NOT INCOME

finitely established by the Supreme
Court in Eisner v. Macomber, supra,
page 214:
| First: - Enrichment through in
crease in value of capital investment
is not income in any proper meaning
of the term"
and
Second: - If it requires conversion
of capital in order to pay the tax, it
must follow that the tax is on CAPT.
tai increase and not on income, for on
page 213, the Court said:
| "Yet without selling, the sharehold-
er, unless possessed Of other resourc-
es, has not the wherewithal to pay
an income tax upon the dividend stock.
Nothing could more clearly show that
to tax a stock dividend is to tax a
capital increase, and not income, than
this demonstration that in the nature
of things it requires conversion of
| capital in order to pay the tax"
Had the plaintiff possessed no re-
sources other than the bonds which he
sold,-prior to the sale his capital
would have been their entire value.
The increase since March l, 1913, was
capital increase. To collect the tax
on this increase in value because the
capital was converted in to cash must
of necessity diminish his capital to
that extent. Before the sale all the
plaintiff possessed was capital with
out any part of if constituting in
| come. The sale of capital results only
in changing its form and like the
mere issue of a stock dividend, makes
the recipient no richer than before
Gibbons v. Mahon, supra; Towne v.
Eisner, supra; Eisner v. Macomber,
supra.
Profit Attaches to Regular Finding.
The exact question presented in this
case has not been before the Supreme
Court since its decision in Gray v.
Darlington, supra, nor did it arise in
Eisner v. Macomber, supra. Notwith-
s. lding certain passages in the opin-
liza of the Court in the Macomber
case stating that when dividend
stock is sold at a profit, the profit
| is taxable like other income, which
consider, in view of all that has
been written by the Supreme Court
in a long line of income tax decisions,
must mean that the profit derived
from such transactions, if it is in
d
and not in the case of an individual
who merely changes his investments.
Therefore, under the authority of
Gray v. Darlington, which is approx
ed in Lynch v. furnish, supra, feel
constrained to hold that the appre-
citation in value of the plaintiffs bonds,
income taxable as such, and in reach
even though realized by sale, is not
ing this conclusion I find support for
| it in the Macomber case where Mr.
Justice Pitney says:
Enrichment through increase in
value of capital investment is not in
come in any proper meaning of the
term"
It follows that the Income Tax Law
of 1916, in so far as it attempts to
tax such increase, is in conflict with
the apportionment requirements of
the First Article of the Constitution,
being direct tax and not apportioned
among the several States according
to population.
Counsel for plaintiff contended that
the Act should be so construed as to
limit the tax to the actual increase
from the dates of acquisition, although
the value Of such prior thereto, in the
event that the gain in value of the
bonds when sold was taxable at all.
In view of the Lewiston that such in
creases are not income it becames
unnecessary to discuss the point.
Judgment Entered for Plaintiff.
The conclusion herein expressed has
been reached only after very careful
consideration of all the respective
claims presented by able counsel in
exhaustive and persuasive briefs and
with full appreciation of the admoni-
tion given by the Supreme Court in
Nicol v. Ames, 173 U. S. 500, at page
514. This Court fully appreciates
that.
at is always an exceedingly grave
and delicate duty to decide upon the
constitutionality of an act of the Con-
gress Of the United States"
and that
"The duty imposed demands in its
discharge the utmost elaboration and
care and invokes the deepest sense of
esponsibility'-as was said by Chief
Justice Fuller in the opening para
graph Of the opinion in Pollock v.
Farmers Loan & Trust Co., 158 U,
-. oU1, dt pdSC OIi. LII tllC ufSCIldA *
of that duty, as I see it, it follows
that the word incomes" in the Six
lteenth Amendment should not and can
not be SO construed as to include prop
erty other than income even If such
property is described as income by ar
Act of Congress, as such construc-
ton permits the Congress to nullify
the provisions of the second Section
of Article / of the Constitution, that
direct taxes shall be apportioned.
Let judgment be entered for the
plaintiff to recover of the defendant
$17,756, together with interest on the
same from July 19, 1918, together
with costs of suit.
Ordered Accordingly.
(signed) Thomas, D. ].
December 16, 1920.