The Brattleboro daily reformer. (Brattleboro, Vt.) 1913-1955, 1921-01-05
NEW TAX ruling
HELPS MERCHANTS
Inventories May Be Taken
on Market Value of
Commodities
INSTEAD OF THEIR
PURCHASE PRICE
But if Store Keepers Make Their Tax
Returns on Low Inventory Figures
the Government Intends to See the
Public Gets the Benefit
BY DAVID LAWRENCE.


Especial Despatch to The Reformer.) |
Copyright 1920
WASHINGTON. Jan. 5.-Business 4
men throughout the United States are
breathing easier as a result of two deci- .
si0ns by the treasury department with ref +
ercnce to income taxes. but they are to /
bear in mind a warning which officials !
of the government are expressing infor-
mally. namely. that unless the public gets
the benefit of the same prices as are put !,
on income tax blanks there will be prose-
cutionS for fraud.
The ruling the treasury department is
bound to relieve business men every !
where for thousands of them protested by
letter and telegram against existing reg
ulatiOns and argued that in view of the
abnormal conditions they should be per-
+ mitted in way TO charge this years
losses against last years business. The
treasury took the matter under advise
mcnt and has ruled that under the law ii
was permissible for firms to adopt as a
basis for inventory the actual market
value today of the goods on hand. This
means that the government will not exact
a. income money that which is really not
earned and the effect of the ruling on
business in general should be exceedingly
wholesome.
Because the terms of the ruling are
technical and rather complicated. it can
better be understood by an illustration.
If Il merchant had on hand $1,000 worth
of goods Dee 81. 1919, or. at any rate. if
in his income tax statement he told the
government that he had 5000 in goods
in stock, that item is used AZ a basis for
the calculation. Thus, if during the year
+. 1920 ne bought more goods for $4,000.
+ the total of $1,000 would represent the
value Of the goods ordinary, but in view
of the fact that i'll most instances the sell
ing prices have fallen below actual cost.
a merchant il permitted to estimate what
Is the market value of his goods ON hand.
Surprising. in this instance. that prices
have >hrunk 50 that the market value of
the goods * only $1,000. The merchant
therefore. can deduct 5000 from SIT, 900
and the remainder of $4,000 becomes the
actual cost of his goods. Then if he re-
ceived $4,000 for his goods during the
year his actual profit on which taxes
would be paid would be the difference be-
tween the cost. $4,000 and the sales
$4,000, or 81 900. Similarly. if his
money receipts were only $1,000 he could
subtract il from the cost of 1000 and
show loss of $1,000 and pay no taxes
whatsoever. The important factor.
therefore in the ruling is the market
price.
What does the term mean? Every
merchant will have to make his own esti-
mate. Naturally. If ne thinks the market
price * much lower than his original cost
he Is able to show that the goods have cost
him great deal and that his profits from
sales are less. But the government will
exercise careful check on the marker
price and will investigate and compare
all classes of returns 80 as to discover
just what the prevailing prices were at
any given period If il should be diScov-
cred that merchant on his income tax
return said the market value of so many
articles was Such-and-such a price the
government will see if the merchant act
uaIiy gave the public the benefit of those
prices and did sell his goods at those fig
ures. Should there be material diScrep-
ancy between what the income tax return
said was the market price and what the
public actually paid. the government will
consider the difference a prima facic evil
dence OF fraud and will prosecute often
derS.
Actual cost market price. according to
government officials. means the cost to a
merchant of replacing the goods After
all, that Is the price which a connection
would have to pay for the same kind of
goods II he had no stock on hand and
there viii be plenty of instances of This
kind on income tax returns which will
enable the government to tell whether the
man with the goods on hand properly
valued his goods. 1t is naturally to the
interest of the merchant to show on his
income tax return that his goods have
Shrunk to small price because that helps
II diminish the size of the profits on which
taxes are paid but if the government
doesn't find the merchant selling to the
public ut somewhere near the prices at
which he inventored. the charge of fraud
will be entered and the income tax return
Will be held up and all sorts of compiled
tions would follow.
On the other hand, government officials
anticipate that business in general will
obey the spirit of the ruling and will be
more than anxious to give the public the
benefit of reductions because in taking
losses at this time the merchants will
not have to pay 50 much money to the gov
eminent in taxes and may indeed. i'm
many instances. have more money indi-
vidually than they had year ago. Fur
thermore by clearing their shelves and
storehouses' of last years goods at low
prices, the way will be paved for the pur-
chase of new goods at low cost prices.
making possible the earning of reasonable
profits during the year 1921.
The ruling of the treasury is not pater-
nalistic, no sudden Outburst of generosity.
but is a strictly legal Interpretation of the
revenue law. Legal experts figured it out
that unless the government permitted
firms to use present market values as a
basis for cost. the government would be
exacting money that was not actually