Milford chronicle., 1927-07-01
STATE TAX BOARD
TO REVIEW RULING
ON DIVIDEND TAX
(continued from first page)

existence is not due TO Jne LeglS-
lature of 1925. Moreover had the
law been changed it's provisions
would not apply to taxes collected
for 1926 and prior years.
Ouestion-It has been stated
that the draft of law prepared by
the Tax Department changed the de-
fiHition of dividends so that all dis
tributions by corporations, except
stock dividends, would be taxable.
Is this statement correct?
Answer-Yes. The Importance
of the wording of the law as it now
stands has been known to the Tax
Department for year or more and
the above mentioned change was
proposed to the Legislature. If
this suggestion had been accepted
all questions of taxability of divi-
dends would have been settled for
the year 1927 and 1928 but the
change would not have affected the
year, 1926, and prior years.
Question-Might not the new law
' have been made retroactive, that is,
to apply to these prior years?
Possibly but not in any
sense fairly or justly. The income
Tax Law requires certain action on
the part of every citizen, 81 years
of age and over, every year. The
penalty for failure to act under the
law is both fine and Imprisonment.
It would be gross injustice to change
such a law to make illegal what had
been legal when the required ac-
ton was taken. Such procedure
could accomplish little more than to
increase disrespect for law. We
should not forget that laws to be
respected must be respectable.
Why Ruling Was Made
Question-If what you have just
said is true is it not an injustice to
the State and to the public schools
to change the accepted meaning of
the Income Tax Law when it has
been in force for six years?
Answer-Until lately no taxpayer
has claimed the advantage offered in
the law and without such claims
the Tax Department had no infor-
nation on which to revise returns
The State is not entitled to taxes
beyond the provisions of law and
must return any amount wrongly
collected.
Question-Does it not seem stran-
ge that dividends declared from
last years earnings should be inten-
ded to remain untaXed when the law
states that met income" means the
aggregate of all gains, profits, sal
aries, wages, compensation for per-
sonal service of whatever kind and
in whatever form paid?
Answer-While the general defini-
tion of taxables income is as above
there are some very notable and
clearly expressed exceptions:
l. All capital gains accruing prior
to January 1, 1920.
2. Dividends from earnings or
profits accruing in year prior to
the income year.
8. All income of a person who
has been a resident of the State dur
ing the first half of the income year
only.
4. $1,000 for a single person, $4,000
for married person or head of
family.
The latter exception is by far the
most important as through it one
half of total net income of taxables
and 80 per cent of the taXables them
selves are exempted from tax.
The State law of 1917 exempted
capital gains accruing prior to Janu-
ary l, 1917, and dividends from earn
ings or profits accruing prior to
January 1, 1917. If the Legislature
had intended to make the same
change with respect to both of these
provisions the date, January l, 1920
would have been substituted. If re-
moval of all limitation on taxable
dividends was intended the limiting
date would have been stricken out.
However, the Legislature substained
words of undoubted meaning evil
IDENTIFY intending a change from the
1917 law. 1t must also be re-
membered that undistributed earn
ings or profits of corporations doing
business in Delaware are taxed as
added capital, though at less rate.
Therefore the Legislature may have
thought it unfair to gain tax this
capital as income when distributed
as dividend.
Question-Under this ruling will
the State lose a material amount of
income?
Answer-It is impossible to state
the amount of claims for refund
that may be presented. Probably
the reduction in income will not be
sufficient to jeopardize the fund for
operation of schools, though the loss
of the filing fee income and the de-
duction in the real estate together
with this added loss may leave a
cTon11 11noroin ITrdnIIhfn ndlU
there will be no increase in surplus
that will be applicable to building
program after the expenditure of
the $2,000,000 already allotted.
Question-How long will it be be-
fore the law can be changed?
Answer-If thought desirable a |
special session of the Legislature |
can be called and the law amended |
so that this loss of income will not |
occur for the income year 1927, that |
is, there need be no loss other than |
to repay taxes wrongly collected.
Question-Would much change |
be required to correct the law?
Answer-No. All that is necessary
is to strike out the words accrued |
during the income year"
QUESTIONABLE there any other |
provisions of the law that should be
changed?
Answer-When the law was orig
inally written it was impossible to
provide for all cases that might
arise so that rulings have been
made by the Tax Department. These
rulings should be made part of the
law so that the latter may be clear
and understandable. However, it is
not necessary that any furthur
l. IL