Abbildungen der Seite
PDF
EPUB

A declared diviWhen the profits

assessment." Annual premiums received by an insurance company constitute a part of its income, and when the charter of a city vests in the corporation in general terms, the power of taxation and assessment of all property within the city, such premiums received by an agent residing in the city are not subject to taxation; they are not property, but income.2 Dividends received from shares of stock in corporations constitute income, and may be taxed as such, and this is true whether such profits are divided or not. If such dividends are paid in stock certificates, or if instead of being paid to the stockholders, they are invested in real estate, machinery or raw material for the purpose of being manufactured for the use of the company, or even if they are appropriated to the payment of debts of the corporation, they are liable to tax as income. In each of these methods of disposing of the profits of the corporation, the value of the shares is increased. These profits are incidents of the shares, and the property of the shareholder, subject to sale, gift or devise.3 dend will furnish the measure of tax on income. or earnings of a corporation are used to increase the capital stock of the company, they are taxable as dividends. The earnings of the capital belong to the owners of stock in proportion to their shares; so long as they remain charged to profit and loss, there is no division, but when added to the capital and made a basis of future dividends to stockholders, they then reap the benefit of this earning of their stock, therefore in such case the earning becomes a dividend. A company having a capital of $11,497,700, leased its franchise to another company, who paid the twelve per cent. on the capital; it then increased its number of shares 71 per cent., the par value of old and new shares being $50. The capital thus increased was $19,665,000, on which a dividend of seven per cent. was declared, equal to twelve per cent. on the original capital. A tax was claimed on the increase in capital as a stock dividend, but the company was held not liable. A profit on the investment or capital of the corporation is the measure of the tax, whether paid as a dividend to stockholders, or going to increase the capital, but a mere nominal increase of shares, without transferring anything out of the treasury or property of the corporation, is not a dividend made or declared." Agnew, J.: "A dividend is not capital,

1 Commonwealth v. Penn. Ins. Co. 13 Penn. St. 165. Dubuque v. Northwestern Ins. Co. 29 Iowa, 9.

The Collector v. Hubbard, 12 Wall. 1. This case was decided both upon principle and the express words of the statute. March v. Railroad, 43 N. H. 520.

4 Atlantic & Ohio Tel. Co. v. Com. 66 Penn. St. 57.

Lehigh Crane Iron Co. v. Com. 5 P. F. Smith, 448.

6 Commonwealth v. Pittsburgh, Ft. Wayne & Chicago R. R. Co. 74 Penn. St. 83.

but the product of capital, and this product it is which the law by its own terms makes both the criterion and measure of the taxation of the capital. * * * If it be made and added to the investment of the stockholders in the form of new capital, though not declared as a dividend, still it must be taken and deemed a dividend; the new stock is a stock dividend. * * * A mere nominal increase in the

*

*

It is a

*

A

shares is not a dividend or profit, either made or declared. mere change in the form of the investment or capital. dividend, ex vi termini, is a product of stock; it is the legislative synonym of profit, not the capital which made it." There is no presumption that an increase of stock is a dividend; it is a question of fact. A tax on dividends exceeding six per cent., has reference to the actual capital paid in, not to the nominal capital of a corporation.2 Where the tax is imposed on the annual net earning or income of a corporation, the income, after deducting running expenses, is the amount to be taxed; that portion of income devoted to repayment of capital is included as a part of the income, and liable to the tax.3 A tax on net earnings or income, is on the product of business, deducting expenses only; no allowance is made for capital exhausted, or waste of capital in business. But if the tax be upon "profits or income," it will not be construed to mean net profits or income." Where a tax is imposed on dividends, the declared dividend furnishes the means of ascertaining the amount of the tax. A corporation chartered by Pennsylvania, leased its line to another company, who agreed to pay ten per centum per annum upon the par value of the stock, except the amount owned by the lessee. It was claimed that the tax should be only on the ten per centum of the stock owned by the lessor. It was held liable for ten per centum on the whole capital; the State will not look to the relations between lessor and lessee in such a case. The treasurer of the corporation having returned to the auditor general ten per centum as the amount of the dividend of the company, that will be regarded as the true amount. A question has been raised as to whether the increase in value of the property is income. Political economists hold, that such increase is but deferred

1 Commonwealth v. Erie R. R. Co. 74 Penn, St. 94.

Citizens' Passenger Railway Co. v. The City of Philadelphia, 13 Wright, 251; Philadelphia v. Phil. & Gray's Ferry R. R. Co. 52 Penn. St. 177.

3 Commonwealth v. Ocean Oil Co. 59 Penn. St. 61.

4 Commonwealth v. Penn. Gas Coal Co. 62 Penn. St. 281; Jones & Nimick Manuf, Co. v. Commonwealth, 69 Penn. St. 137.

"People v. Supervisors, &c. 18 Wend. 605.

• Atlantic & Ohio Telegraph Co. v. Commonwealth, 66 Penn. St. 57.

*

* *

* *

* *

income, and if taxed, the tax shall be laid upon the yearly increasing value. The Supreme Court of the United States seems to take a different view of the matter in construing the statute in reference to the tax by the federal government on income. In that case the party purchased government bonds, and after holding them for four years, sold them at an advance of $20,000. It was claimed that this gain was liable to the income tax in the year of the sale of the bonds, under the act of March, 1867, which provides that, "there shall be levied, collected and paid annually upon the gains, profits and income of every person, whether derived from any kind of property, rents, dividends, interests or salaries, or from any profession, trade or employment, or vocation, * or from any source whatever, * a tax of five per centum on the amount so derived over $1,000. And the tax herein provided for shall be assessed, collected and paid upon the gains, profits and income for the year ending the 31st of December next preceding the time for levying, collecting and paying said tax." Another portion of the statute provided that the profits made upon the sales of real estate within the year, or two years previous, should be deemed a part of the income. liable to tax. The court in their opinion lay much stress upon the fact, that the profit upon sales of real estate arising from increased value, is expressly provided for, while the gains, profits, and income referred to in the first part of the act are evidently the gains of a particular year, which are to be taxed annually, and are the gains of the year immediately preceding that in which they are assessed. And they decided that the advance in the value of this personal property during a series of years, did not constitute the "gains, profits or income" of the owner for the year in which the sale was made, liable to tax under the act of March 3d, 1867.2 While the court lay great stress upon this view, they use this language: "The mere fact that property has advanced in value between the date of its acquisition and sale does not authorize the imposition of the tax on the amount of the advance. Mere advance in value in no sense constitutes the gains, profits or income specified by statute. It constitutes and can be treated merely as an increase of capital." This is adverse to the views of the political economists, who regard the advance as deferred income, while the courts regard it as an increase of capital. The taxation of the income received from property, and the property itself, may be regarded as double taxation, and will not be presumed, al

1 Walker's Science of Wealth, 352.

3

9

Gray v. Darlington, 15 Wall. 63.

3

Field, J., Ib. 66.

though when distinctly expressed it is a valid exercise of the taxing power. In Massachusetts there is a provision by statute that, "no income shall be taxed which is derived from property subject to taxation." W. was engaged in business as a leather dealer in Boston, and resided in Medford; he was held liable to be taxed on his income from his business at his residence in Medford, although his stock in trade was taxed in Boston, where it was situated. This statute was not intended to apply to income derived from dealings in merchandise.1 Under a statute taxing "trades, professions and occupations," the salary of a professor of a college is taxable; it is an occupation.2 The income of a non-resident of a State, whether an alien or citizen of one of the States, is not liable to be taxed by a State in which he does not reside, although the income be derived from the bonds of a corporation chartered by that State, and secured upon property within its territory. If the tax-payer refuses to give information concerning his income to the assessor, he may ascertain it from inquiry, and fix it to the best of his judgment. If acting in good faith under these circumstances, it is fixed at an amount really larger than the true income, the tax is valid, and its collection cannot be resisted. Nor is it any

3

defense to a suit for a tax on income, that it has been applied to the reduction of indebtedness upon a purchase of real estate, upon which a tax is paid. In the case of Gray v. Darlington, while the court decided that the increase in value of personal estate was not taxable as income under the act of 1867, and expressed the opinion that such increase in value was not income, but capital, they did not express any opinion as to the validity of that part of the statute which imposes a tax on the increased value of real estate in express words, in which Congress treats such increase as income, and not as capital. Should Congress in express words tax the increased value of personal estate as income, no doubt such tax would be held valid, and the effect of the case under consideration would then be restricted to holding merely that Congress, by act of 1867, did not intend to tax such increased value as income. The income of a judge may be taxed, and such taxation does not conflict with the provision of the Constitution, that "the compensations of judges shall not be diminished during their continuance in office."

1 Wilson v. County Commissioners, 103 Mass. 544,

* Union County v. James, 21 Penn. St. 525.

3 Railroad Co. v. Jackson, 7 Wall. 262; State Tax on Foreign-held Bonds, 15 Wall. 300. 4 Lott v. Hubbard, 44 Ala. 593. 15 Wall, 63,

"Northumberland Co. v. Chapman, 2 Rawle, 73.

CHAPTER X.

CORPORATIONS.

§ 83. Elements of a Corporation.-A corporation is an artificial person created by law; its rights and privileges are measured by its charter which gives it birth. It is authorized to raise a specified amount of capital by subscription of its members. The amount subscribed is called its capital, sometimes its capital stock. This capital stock is divided into shares, each representing an integral part of the capital, and is owned by the members in proportion to the respective amounts subscribed. The certificate issued by the proper officers of the corporation, is the evidence of the number of shares held by each member, and is called his stock. The interest of the shareholder entitles him to participate in the profits or dividends of the corporation, in proportion to the number of shares owned, during the existence of the charter, and at its dissolution to his pro rata share of the assets after payment of its liabilities. It is his property in the same sense as a horse or cow, or any other property owned by him, and is entirely separate and distinct from the capital stock of the corporation, which is the whole undivided fund paid in by the stockholders, the legal right to which is vested in the corporation, the artificial person created by law, to be used and managed in trust for the benefit of all the members. The right of the corporation to exist and exercise the powers vested in it by its charter, is called its franchise.

In considering the subject of the taxation of corporations, it is necessary to keep distinctly before the mind the distinctions between the franchise of the corporation, the capital or capital stock of the corporation, the property in which this capital is invested, such as land, buildings, machinery, or other property suitable to the purposes of the corporation, the shares of the stockholders, and the dividends or profits accruing from the management of the property of the corporation. These artificial persons may be made to contribute to the support of the government in which they exist, and the tax may be

1 Angell & Ames on Corporations, 8th ed. §§ 556, 557; Union Bank of Tenn. v. State, 9 Yerg. 490; Van Allen v. Assessors, 3 Wall, 584; Regina v. Arnaud, 9 Ad. & Ell. N. S. 806,

« ZurückWeiter »