Every evening, Wilmington daily commercial., 1922-04-20
Partnerships AND
SERVICE CONCERNS
Taxable Under Income Law, A.
torpey-C General Holds. But
Court May be Asked.

Partnership and personal service
corporations. unless specifically ex-
empted. must pay the state income tax
on their invested capital. M provided
In tho school tax law. according to an
opinion given today by Attorney-Gcn-
eral Sylvester d. Townsend, Jr., TO
State Tax Commissioner Jester.
There n much diversity of opinion
among lawyers An to the taxability OF
partnerships and tho same Ia truc OF
personal service corporations. the Mt
tornsy general states and adds "thore
= some doubt in my mind as to the
taxability OF either"
II am not satisfied. however, that
h balance swings In favor OF OK
emption.' the attorney general adds
and inumAtes that u court decision
will DO necessary to satisfactorily set
tie tho Issue.
April goth. 1922.
NJ. Howard Jester. ESQ,
State School Tax Commissioner,
Wilmington. Delaware.
Dear SIR
You havo asked for my opinion as
TO whether or not a so called personal
service corporation Il exempt from
taxation under the provisions OF an nc,
entitled An Act to Provide Revenue FOR
School Purposes" being Chapter 3
Volume 50. Delaware Laws. In reply
will advise you az follows:
Section 7 OF said law provides tina,
for the privilege OF ~cxerclelng its
franchise In this state in a corporal,
or organized capacity. every u
ton doing business In this state, not
exempted. shall pay for school pur.
poses a tar OF two and onc-halt mill,
on each dollar OF It's capital used and
invested in this state during the pro.
ceding calendar year. The corporation,
specifically exempted from the pay.
ment OF tax are clearly enumerate,
In section . OF eaid act, and persona
service corporations are not In tho ex.
empted class.
Under tho United States Revenu.
Act OF 1918. IN attempt wac made q
eouallxe tho relative burdens Of cor
portions and partnerships by n new
system OF taxation for n certain typ.
OF corporation called "a personal ser
vice corporation I cannot find tina
such a corporation was recognize,
prior 10 the adoption OF the above &C
creating such n type.
Under the United States Revenu,
Act Of 1921 the exemption 20 persona
service corporations Is abolished a.
Of December 81. 1891. and after tn.
last mentioned date such corporation
are 10 be reated IN the same mamie
as all other corporations. Therefore
under tho Federal law. a personal ser
vice corporation IS not nov recognize
except with reepect TO taxes FOR tn
year 1921 and certain prior years. Tn
Revenue Act OF 1871. however, impose
an alternative retroactive tax or. per
sona service corporations In the even
that the scheme Of taxation OF sue
corporations IL held unconecitutions
and invalid. and st therefore seem
that Congress had sone doubt az Z
its rtght TO tax personal service cor
porationS when not taxing partner
Extraordinarily upon the theor
. hat the interests OF stockholders I
! a personal service corporation ar
Identical with the interests OF par,
] ners IN a partnership.
II. under the Delaware law. par
nerships are taxable on invested cap
tai. undoubtedly personal service COZ
porstions are also taxable. and IL
] probable. under the language OF OF
, net. that the latter would be taxabl
even though the former might not
There Is considerable diversity
S opinion among members OF the bar q,
this state as TO the taxabllity OF par
nerships. 60 much in fact, thai N
matter will not be Satisfactorily Sc
= tied without q decision by the cour
and the same IS probably true wit
respect 20 personal service corpor,
ions. There n some doubt IN my mir
= as 10 the t~axabtlity OF either. ! am n,
8 satisfied. however, that the balans
8 swings IN favor OF exemption n vi
deg n circumstances n r. my offic.
duty to resolve that doubt IN fav,
S OF the state and In this connection ar
o for the above reasons 20 hold IN.
= until the courts OF this state otherwi
determine. personal service corpori
s tons and partnerships. unless spec
hcally exempted, are subject 10 Il
p payment OF tax on their invested car
tai.
e Yours very truly,
. Sylvester d. Townsend, Jr.
Attorney General.