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Show CORPORATION TAX 18 DEFENDED " BEFORE THE U. 8. SUPREME COURT Stress is Placed Upon the Declaration Thaf the Tax is Not a Direct Tax or an Infraction Infrac-tion of General Powers of States Washington. March 13. The gov- I cinment's defense of the constitution- I alily of the corporation tax provision of the new tariff law was submitted I today In printed form to the supreme I court of the I'nlted States. It Is the I work of Llod W, Bowers, solicitor general, but bears the signature also ot his chief. Attorney General Wick-esham. Wick-esham. Upon It the government will shape its oral defense of the law when the corporation tax cases corne up for argument, probably Tuesday. The first point suiight to be made it that the tax Is not a direct tax upon properly but lo an excise tax upon "the carrying on or doing business." The declarations of the statute, a- well as decisions of the courts are relied re-lied upon to support this point As to the statute, Mr. Bowers saya Jn his brief (hat It shows the transaction trans-action of business to be the subject ot the tax and that the income of buhi-ness buhi-ness Is used merely as measurlrfg the amount of tax "which rests, not upon I that Income, but upon IhJ; 'occfipa- I tion from which It Is derived,.'' These reasons, together with the decison of the supreme court In t.h-j Spreckels case, which, the. solicitor general explains as holding . that, a tax declared In the statute to .bo Jaid on business In an amount equivalent to a-fiTtnliupc.rcentage of income is an excise tar on -the business arJ taken by him as sufficient to show that the corporation tax is an excise on the transaction of business. How-ever, How-ever, he proceeds to cite cases to prove that, although the tax were laid on Ihe income of business, it would still be an excise upon ino business. A list of Inheritance tax cases are cited to show it Is an excise ex-cise tax. If a tax up the right to receive property, personal or real by inheritance inherit-ance Is not a direct tax on the-property, though (as was true of all the i federal inheritance lax laws) the ln-I ln-I heritauce tax is measured by the vnl-I vnl-I ue of Uie inherited properly." said the solicitor general, "it must be equally true that a tax upon the er- erclse of the right to use property i in one or another kind of business especially under the peculiar nuidl-I nuidl-I tioiis and disadvantages of corporate , business-is not a direct lax." In his consideration of cases beai-I beai-I lng upon the point whether the eor-I eor-I po rat ion tax was a direct tax or an excise. Mr. Powers refers to the famous fam-ous Income lax cases. He says tneso cases have been Interpreted, undoubt-dly undoubt-dly with the concurrence of Iho c.t tire supreme court, as referring to a tax Imiiosed on property solely by reason of Its ownership. "That must mean," says the solicitor solicit-or general, "a tax upni property b-reason b-reason of Its mere existence or ordinary or-dinary enjoyment, though the property prop-erty is not put to somn special use. A tax upon business is not a tax imposed im-posed upon property 'solely by reason of Us ownership, for ii the property Is not put to business use, no tax falls upon it or its income'" It Ih in the argument that tnc ta-is ta-is not a direct one, that Mr. Mowers first considers the claim that. Inasmuch Inas-much as the fax Is not levied upon partnernhips or Individuals, but Is put m corporations and joint stock companies and it Is, therefore, as-sesfcd as-sesfcd oil franchises. "The distinction between partnerships partner-ships and individuals on the one baud and corporations and Joint stock companies com-panies on the other i explained n I such corporations. Mr. How-en claims they raise no constitutional question, but only the. queiy as to whether tLe aie engaged In "carrying on or doing do-ing business." If any corporation Is not engaged. It Is not reached by the statute, he argues. The fourth point Mr. Bowers seeks tn establish is that the tax Is no an Infraction of the general power of the I states to authorize the formation or corporations and stock companies. Even If the tax were on franchise- it, I still would not be a tax on. the legislative legis-lative power of tiie state. Corporn'o franchises, he adds, grow out of at offer by the state and an uct of free ehoico of election by the persons to whom the offer Is extended. Hence, he concludes, franchises are created not by th state but by the person which arcopt them. No authority exists, Mr . Bower continues, that holds -or "even suggests" sug-gests" that the I'nlted States cannot can-not tax the franchises of a state cor-, cor-, ppratiou. established for ordinary business purposes on the theory that !eh- -federal tax wfll interfere, with legislative independence of the stated In their own sphere. "It does not follow and, is not true," lie" contends, "that the United Statee may not by taxation burden or hamper the opurat ions of a state. law hoca-ufe a. state jnay ..not by taxation burden or hnbper the operation bra law of the United States.'-' , This statement is explained on thi ground of the asserted supremacy or each power of the nnMonal government govern-ment over all powers of a slate, whenever when-ever the two meet. The several objections to tue law a an excite tax. because of its alleged al-leged lack of uniformity, arc considered consid-ered by Mr. Bowers. The constitutional constitu-tional requirements, ' he claims, are met If the fax is geographically uniform. uni-form. In this connection he proceed! to explain several features of the law and to cite cases to substantiate th claim that an excise tax given th greatest freedom of classification ol any taxes imposed by congress. One reuvon assigned for exempting Individuals and partnerships Is that they are without the aid of legal rules applicable to corporations and joint stock companies. Both reason and authority, au-thority, it is claimed, justify the exemption ex-emption of corporations whose net income in-come Is not over JI.im'iO. "Exemptions from taxation of n limited lim-ited amount of individual property are well tii?h universal," says Mr. Bowers, "and they rest, doibtless. upon the just and necessary policy of leaving a living opportunity unburdened unbur-dened by government." Ialor. agricultural and horticultural horticul-tural organizations are exempted, h cays, 'because they beem hardly to be organised for profit He adds that, I) it Is necessary, ihe statute could well be construed as not exempting such association. If the primary purposes pur-poses in business profit. The exception of Mclcties operating under the lodge system, he contends, justifies Itself. Such. Mr. Bowers vays, are the Knights of Pythias Knights rt Jtbor. certain Masonic orders, the Pved Men of America and the Woodmen of the World. "it is almost humorous." he says, "to nrgo that snch.orgauieatloos must be considered insurance- toinpn'?i haxjng purely or chiefly pecuniary functions." He then named a few of tne grrtt American mutual Insurance companies whose financial power and operatioun. lie declared, are iut surpassea in tno entire business world-Reply world-Reply is made to the objection to tho limitation to ttie aniouat of Inter, est deduction in arriving at tho uc-l income. "Without tbe UmiUtlon," says Mr. Bowers, "corporations and joint companies, com-panies, by issuing bond Xor all or most of tbe-lr capital cither with or without an nccoinpanying issue of fctock could distribute the business profits, however large,-in the form of Interest payments; and the tax in that way could be entirely or largely avoided." The solicitor general urges that tho tax does not subject the corporations to unreasonable search or Boixnro by reason of Its publicity feature. Nettier the making nor tho publication of the returns can by any possible- view bo interpreted as a sarch ot seizure, he-contends. he-contends. ... Finally, it is contended that the fax may properly be collected In 1910. This is batted on the argument that' the tax Is not laid on tho income which wa-s received before the' law went into effect, August 5, 1909. but Is morel measured by that Income. - r.ol proceeding from the presence or absence of franchises, but from the j wide and important diversity ot j legal rules affecting the two kinds ot i business, of tbese two groups. "Even If this' tax were regarded merely as a tax upon the oxcrciso of use of franchises," continues Mr. Bowers, "instead of being a- tax on the entire conduct or transaction of business under many special conditions. condi-tions. It would be altogether different differ-ent from a direct tax on the franchises fran-chises themselves. A tax upon the ut?c of franchises in business, is no more a direct tax upon the franchises lhan a tax upon the use of property lis business is a direct tax upon the property so used." . Finally, on this point. Mr. Bowers contends that franchises cannot be tbe specific subject of the tax as no tax is Impost in any way unless business busi-ness Is actually done. The second point Mr, Bowers seeks to make is that the tax is not a direct di-rect tax upon the shares of the stockholders, stock-holders, nor upon tho income, The reason for the tax not being a direct tax on property Is held, to apply to tbe claims that it is not a direct to or. tho chares or Income of the Hock-holders. Hock-holders. The third point is that the lax does rot become direct in the spcclsl case of a company engaged In the business of, handling or dealing in real estate. Five of the fifteen caitytJ&f coiLklderatloa by tr frr" t |
