Daily Kennebec journal. [microfilm reel] (Augusta, Me.) 1870-1975, 1922-12-19

The agitation, for the taxation Of
corporation surplus or stock divi-
! oends representing transfers from
surplus account to capital account,
mas been revived, and is at once the
cause and result OF numerous stock
dividends recently. The announce
ments OF these dividends, which
under decision of the u. S. Su-
preme Court are non-taxable for
the very good reason that they do
not transfer anything, has excited
portion of the public, which
understands them to be a distribu-
uon OF profits, and prompted de-
Hland tor more taxation. On the
other hand, the revival of the de-
'mand for the taxation of such sur
plus or stock has naturally prompt
cd corporations to complete any
action OF the kind they may have
been contemplating.
What Is surplus7
1t is not strange that many peo-
pie should be unfamiliar with cor
poration finance, in which the term
surplus" is used in a technical
sense! In the case of a corporation
1t does not mean cash on hand or
an excess of any kind of assets
over its needs, but simply an ex-
cess over the sum of obligations
and capital stock outstanding. The
surplus" shown in a corporations
statement may be, and commonly
is. all invested in buildings, ma
chinery, and necessary working
capital. In the operation of the
business it is indistinguishable
from that part of the capital repre-
sented by capital stock.
An individual in an unincorpor-
ated business does not have sur
plus in the same technical sense,
nor does a partnership, because
they have no outstanding stock.
They do not ordinarily make the
distinction between capital" "sur-
plus" and undivided profits" that
is done in corporation bookkeep-
ing.
When it comes to taxation, indi-
vidual proprietors and members of
partnerships pay the regular per-
sonal income taxes upon that por-
ton of the profits of the business
which belongs to them, whether
they withdraw any part OF it from
the business or not, and that is all
the taxes paid upon those profits.
The profits are counted as income
to the proprietors once, and that
is all.
The Corporate Organization
The foregoing is something to
bear in mind in considering what
is just and fair treatment as be-
tween persons who choose to carry
on business under the corporate
form and those who carry on per-
haps the same kinds of business as
individual proprietors or in part
nerships. From the standpoint OF
public policy, there is no good rea-
son why the Government should
discriminate against the corporate
form of proprietorship. 1t is the
greatest agency in existence for the
widespread distribution of the
ownership of large undertakings.
1t is the most practicable means
available for promoting cooper
alive industry on large scale. 1t
has become common practice for
corporations operating public utili-
ties to sell their new stock issues
to their patrons and employees,
a notable example of such dis
tribution being the case of the
American Telephone and Tele-
graph Company, which has over
235,000 stockholders, of whom over
10000 are telephone employees.
Although a great portion of the
business of the country is carried
on by individual proprietors and
partnerships, in many lines the OPP
erations are of such magnitude, re-
curing so great an investment of
capital, that they cannot be handled
economically and for the best SER
vice of the public except by cor
porations. 1t is not desirable that
the development of industries on
large scale shall be limited to indi-
viduals rich enough to own them
alone or in partnership with few
others. The joint stock corpora
ton has opened the way for gen.
eral participation in industry on a
large scale.
Even in the case of small enter
prises, there are advantages on the
side of corporate organization.
Thousands of such ORGANIZATIONS