Evening journal., 1921-03-08


cause taking the law as a whole II
Is better than that afforded by any
other state, having a fair tax rate
and fixed policy, and. what is more
important, having had most of its
sections judicially interpreted. They
regard Il with favor because OF the
fixed policy that has been followed
up TO the present time Of hands
or no legislation having been
passed since its adoption that was
in any way detrimental or burden
some.
"The ALLEGATION provisions OF sec
tion 81 are almost confscatory in
the case OF holding companies not
technically exempt.
''Under the prvisions OF this bill
corporation whose sole business is
the holding of shares of stock of
other corporations (Which holdings,
however. are not sufficiently large
to enable it to control the manage
ment and affairs of such other cor
poration) must be construed to be
doing business entirely in the State
of Delaware. thereby subjecting all
the dividends thus received to a
tax Of three per cent No exemp-
tion from tax is provided in case
the dividends so received are from
other Delaware corporations sub
ject 10 and actually paying the tax
on their net earnings, this resulting
in many cases in doubling and even
trebling the tax
These provisions discourage the
transaction of business and the hold
ing of property in the State Of Del
aware, with resultant loss to the in
habitants Of the State.
'Tnasmuch as all net income de-
rived from intangible property,
such as securities. moneys. royal
ties, ETC., are allocated to Delaware
in the proportion that the tangible
property located and the business
transacted in Delaware is to the
total tangible and total business
transacted, 1t is OF course to the ad-
vantage of every corporation sub
ject TO the tax to minimize its in
vestments in this State and to as
great an extent as possible transact
its business outside OF the State.
Where. as in Delaware, inducements
are being constantly offered to cor
porations to locate here with as large
transact as much Of their business
as possible inside the State. the wis
dom of such a tax provision is so ap-
parent as to need no comment
THE ALLEGATION provisions for for
eign corporations invite retaliation
by other States.
"The trainers OF this bill must
have overlooked the retaliatory fea-
lures 6f the laws Of several States
for instance, the State of New Jer-
sey, whereby a Delaware corpora
ton doing business in New Jersey
will be taxed in that State at the
same rate and under the same con-
ditions as a New Jersey corporation
doing business in the State of Del
aware would be taxed. When the
New Jersey corporation law became
unpopular several years ago a large
number of her corporations were re-
Incorporated in Delaware, much OF
the property OF these corporations
being located in New Jersey and
their business being transacted in
that State, The taxation Of one New
Jersey company by Delaware under
the provision Of section % Of this
bill would cause hundreds of Della.
ware corporations to be taxed in the
same way in the State OF New Jer.
sey. A recognition of this by tn,
Delaware corporations concerned
would OF course Immediately sug
gest the advisability of reincorpor
alton in some other State. The his
tory Of taxation indicates that sucl
States do not have these retaliator
provisions will at once place then
, on their statute books II their cor
ations are taxed in Delaware in tn
manner provided for in section 93
This alone would be a very seriou
blow at the Delaware incorporation
law.
: This BIN rs, IN many respects
merely a copy OF the 1917 Fedora
= income tax law, now out Of date.
"An instance in point is subdivi
; sion (e) OF Section 80. concernin
losses which are only deductable
incurred in connection with a trad
or business. This provision is foun,
in the 1917 Federal income tax Law
the present Federal income tax lay
permitting deduction Of all iossel
, The present Federal income tax lay
- will be amended in the forthcomin
session Of Congress in many impor
- tant particulars, and the passage q
this bin would place upon our stat
ute books substantially a copy OF a
old law which the experience Of sew
eral years has shown to be full {
Objectionable features"