Court Opinion

ID: 6862952
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:50:53.641897+00
Date Added: 2024-06-11T16:05:16.446768
License: Public Domain

LINDLEY, District Judge
(dissenting).
I cannot see any distinction between depletion and depreciation, considered as items to be deducted from gross income from property. Depletion of a body of ore purchased by investment of capital funds lessens such capital investment and eventually exhausts it. Depreciation by wear and tear of property purchased by investment of capital funds likewise lessens the capital investment and eventually exhausts it. In either instance, if the taxpayer is required to pay a tax upon that part of the income which represents depreciation or destruction pro tanto of capital investment, such tax is not a tax upon income, which Congress is impowered by constitutional amendment to levy. Pursued to the inevitable logical end, depreciation and depletion each inevitably eat up and exhaust capital investment. Thus, in the end, the taxpayer will have paid a tax upon the pro rata installments of return of’capital represented by depreciation. Such is not a tax upon income; it is a tax upon capital,'beyond the authority granted in the amendment under which incomes may be taxed.
We may illustrate this by specific example: If the beneficiary of a naked trust receives the income from a building costing $100,000 and must account for it as income *144without deduction for depreciation, if there is an actual annual depreciation of 3% per cent, for 30 years, at the end of such period he will have paid a tax upon a return of his entire capital investment. If the building is then replaced with a new one costing another $100,000 and for another 30 years he accounts for income upon the same basis, at the end of another 30 years he will have paid a tax upon a return of his second capital investment. This, I do not believe the constitutional amendment justifies.
I believe the judgment of the District Court should be affirmed.