The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1922-12-21
STOCK DIVIDENDS.

In the last few weeks the declara
I ton of stock dividends by ind6str.a
| corporations, large and small, ha!
taken on huge proportions. The av
erage-Stock trader, says the WollmaI
Review, apparently has little concep.
| ton of the meaning of this action, a:
I there have been times when an an.
nouncement of the capitalization Of
surplus has been looked upon in the
| light of melon cutting" while al
other times it has been regarded as al
[ effort to effect distribution on a scale
that would have been impossible had
the par value of various issues re-
manned at the original level.
One of the most common errors OF
popular judgment on the issuance OF
stock dividends, continues the Review
has expressed itself in the assumption
that they had for their purpose the
desire to escape taxation of surplus
under some new revenue legislation
that might be enacted by congress
Apparently, those who held sucn
opinions were ignorant of the fact
that an attempted evasion of this
character would afford no protection
plenty OF legal expedients that could
be employed if occasion required.
1t is only necessary to recall that
Section 220 of the Revenue Law of
1921 contains a provision for the tax
alton OF SURPRISES accumulated for the
purpose of evading surtaxes. In
part. it says that if any corporation
attempts to prevent "the imposition
of the surtax upon its stockholders or
members thru the medium of permit
ting its gains and profits to accumu-
late instead of being divided or dis
tributed, there shall be levied, collect
ed and paid for each taxable year
upon the net income OF such corpora
ton a tax equal to IS per centum of
the amount thereof which shall be in
addition to the regular tax. The pro-
visions of this section have never been
invoked.
The Standard Oil company of New
Jersey. in declaring its stock dividend
of 400 per cent, points out, in a state
ment by the chairman of the board,
that the surplus of the company was
represented by refineries, steamships,
pipe lines, raw and finished petroleum
products, and other investments in
property in the United States and
elsewhere. Cash represented a rela-
lively small proportion of the surplus.
Another point is that every dollar
been subjected to all taxes applicable
income, excess profits and others,
both at home and abroad.
Examination of the excerpts from
Section 220 and even a casual reading
of the Standard Oil analysis, SAYS the
Review, disclose two important ele-
ments in the situation. The first is
that there has been no occasion for
any scramble to declare stock divi-
dends or otherwise capitalize surplus
accommodations for the purpose of
evading taxation. and the other is that
there has been a strong incentive for
this action in the necessity of pre-
serving such Accommodations for use as
working capital. and under certain
conditions to obtain additional capital
from investors Both of these results
have been accomplished by the type
Of distribution recently effected. The
issue of new stock by capitalizsng sur
plus, it says. is not an attempt to
water securities of the company
taking such a step.
ItSeems that the fears frequently
expressed about the likelihood of the
radical element in congress getting
after the companies making stock
dividend declarations are groundIess.
Apparently there has been no evasion
OF taxation It is further pointed out
by the Review that. as a result of
these stock dividend declarations.
the annual revenue OF the government
Will be actually increased.
In most cases these new stock is
sues, owing to the fact that the finan-
cial condition OF the corporations
warranted their declaration, will form
the basis of future dividend disburse-
ments. These will represent income
and the recipients will pay taxes on
them. For example. in the case of
the Studebaker Corporation, it has
been generally understood that the
rs per cent stock dividend would
carry the same dividend rate as the
Did stock. namely. $40 per share |
This is merely a case in point, and it
shows that the government, instead |
IF being a loser, is actually a gamer 1
n consequence
According to the bureau of public
roads. the fiscal year 1922 broke all