Evening star., 1928-11-05
Court Rules That Dividends
From Holdings Are Part of
"GrOSs Receipts"
100000 PREFERRED
STOCK IS NOT AFFECTED
Interest From Investments and
Rents of Power Company Also
Declared Taxable.

The dividends received by the Wash
ington Railway & Electric Co. from
the stock of the Potomac Electric
Power Co., which it owns, form a part
of its gross receipts" and are taxable
under the law at 4 per cent, according
to an opinion of the District Court of
Appeals rendered today by Justice
Charles H. Robb. Interest and divi-
dends from investments and rent from
lands, buildings and equipment received
by the Potomac Electric Power Co. are
also held to be taxable as part of gross
earnings" after allowance for cost of
raw materials and the like.
The decision means that the railway
company will be called upon to pay
$151 200 to the District tax collector,
representing per cent on the dividends
paid by the power company since the
case was taken to court in 1925.
Total Dividends SS,7S0,OOO
The total of dividends paid since the
case went to court 20 date is 3,78O, 900.
OF this $840,000 was paid in 1925,
$3.50, 900 in 1926, 81 ,080, 900 in 1927 and
100000 thus far in 1928 .. The dividend
rates in the various years we're as fol-
lows: 1925, IA per cent; 1926, Is per
cent; 1927, 18 per cent, and 1928, 20
per cent.
The railway company owns $4,000 900,
or the entire issue of common stock
| III the power company. In addition to
this stock issue there is outstanding
S5.O00,O00 Of sig per cent preferred
cfN0ly 80 q
ferred stock not owned by the railway
company and therefore not affected by
this decision.
The Commissioners included the
power company items in the. assessment
but the companies disputed the mat
ter and brought suit in the District
| Supreme Court for an Injunction to
prevent the collection of the taxes. The
lower court upheld the action of the
Commissioners and the companies ap-
| pealed
unless the meaning of gross earn
| 1ngS' in this statute" says Justice Robb,
| referring to the power company, sis to
| be so restricted as to Illustrate the ap-
| parent intent of Congress as expressed
In the terms OF the statute, interest and
dividends received from investments
and rent from land, buildings and
equipment were rightly included as part
OF the gross earnings of the company"
Ruling on Real Estate Item.
One of the items on which the rail-
way company claimed exemption was
the sum of $3,86818 received from a
real estate firm to reimburse the COM
pany for deficit by reason of the ex-
tension OF its bus service to Foxhall
village. The deficit occurred during the
first year of the extension. The court
declares it fails to perceive why it is
not part of gross earnings, since 1t
came to the company in lieu of receipts
from passengers, which obviously would
nave been included in gross earnings.
Inc railway company also claimed
exemption from taxation on the rent
OF equipment and for furnishing DOW
er to related utilities; from rent of
buildings and other property to related
utilities; Tor furnishing power to un-
related utilities; use of equipment to
unrelated companies; use of tracks by
unrelated companies; rent of buildings
ana otner property to unrelated utilities.
1t also asserted it should not pay tax
on the excess received over the actual
cost OF reclairning oil for unrelated
parties; interest on bonds and notes
OF subsidiary companies and the inter-
est ard dlvioendS from investments.
The real question" says Justice
Robb, involved in these cases is what
was the intent of Congress as express
ed in the taxing acts. If that intent
clearly appears and constitutional lin
lCatlons have been observed, it is no
part OF the function of a court to in
quIre INTO the reaSonablenesS of the
exercise, either as respects the amount
or lne property upon which it is i'm
posed"
Tax Assessor Raises Question.
The question of including the power
company's dividends in the gross re-
ceipts OF the railway company first -Sas
raised in 1925 by William P. Richards,
TAX assessor. On his suggestion the
DlStrlct Commissioners called a con-
ference attended by representatives of
the Public Utilities Commission and the
companies involved. AS result of this
conference a decision was made to take
the case to court.
The power company now pays divi-
dends to the railway company repre-
Senting S1,200,000 in cash annually.
The decision means that these div
dends in the future must be included
In the railway company's gross receipts.
The power company now pays a
per cent tax annually on its gross in
SOHhc' ASSS IAAe COSC OF coal, water and
lubricants, which are considered the
raw materials in the production of
electricity. When the question of the
taxation was raised at the conference
Public Utilities Commission officials
took the view that inclusion Of the
dividends in the railway company's
gross receipts would amount to double
taxation and therefore would be illegal
The District Commissioners disagreed
with them, however. and the suit fol-
lowed