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Consequently, the valuation of property is not here involved, except in those cases where property was paid into the business. In other cases, only the amount of money invested is material.

14 Tangible Property. Where tangible property was invested in the business, it is included in capital to the amount of its actual cash value when transferred to the corporation in payment of stock subscriptions, or when put into the business by a partner or individual proprietor. Where such transfer occurred prior to January 1, 1914, the cash value as of that date is to be used. But in no case is the capital of a corporation or partnership to include a valuation of property which exceeds the par value of the shares or stock originally issued therefor. For example, if a coal mine worth $250,000 was turned in as the payment for all of the stock of a $100,000 corporation, the invested capital of the corporation must be taken as not more than $100,000.

15. Intangible Property. In an individual or corporate business, intangible property such as patents, trade marks, brands, good will, and franchises, purchased with cash or with tangible property, máy be included in the capital invested at their actual value when invested, but not to exceed the actual cash, or the cash value of the tangible property, paid for such intangible property in good faith when invested. Patents and copyrights paid for in the stock or shares of a corporation or partnership may be included to the amount of their cash value when so purchased, but not to exceed the par value of the stock or shares issued therefor. Good will and similar intangible assets, purchased with shares in a partnership or corporation subsequent to March 3, 1917, must apparently be disregarded in computing capital. Such assets purchased in good faith, prior to that time, with shares in the business may be included in the capital at their cash value when purchased, but not to exceed the par value of the shares issued therefor. This is only on the condition that such shares were issued prior to March 3, 1917, and did not amount to more than 20% of the total shares or interests in the partnership or corporation on that date.

16. Cash Investment. Any profits or surplus employed in the business are to be included in the capital, but profits earned during the taxable year are not to be included. Money or property borrowed and employed in the business is not to be included in the capital upon which the rate of profit is determined, because such money draws interest, which as a rule is not a part of the net income of the business, and does not share in the division of the profits which are subject to this tax. All those assets the income from which, according to the Income Tax Law, is not to be included in net income, are also excluded in determining capital.

17. Average Capital. In all cases, the amount of the invested capital for any year means the average for the year, as the amount of capital may change and it is desired to use a figure which will represent the condition during the entire year in which the profits were being earned. The amount of the investment as of each month should be determined, and those amounts averaged to find the capital for the year. 18. Capital of a Reorganized Business. As already stated, the capital prior to the change in organization or ownership is deemed the capital of the business resulting from the reorganization. But where

a reorganization, consolidation, or change of ownership takes place after March 3, 1917, and one-half or more of the ownership or control is retained by any of the persons who held the ownership or control prior to the reorganization, then the property paid into the reorganized business and not paid for in cash shall not be allowed a greater value, in computing the capital of such business, than would have been allowed in computing the capital of the prior business. Except for this limitation, the property would be valued at its cash value when turned into the new business. For example, Frank Walsh was operating a department store in which he had invested a capital of $60,000. His business had grown so that it was worth $100,000, although the investment had not been increased. As he needed more capital, a partnership was formed on July 1, 1917. Walsh turned in his business at a valuation of $100,000 and was given a one-half interest; Wallace Ridgley and Donald McKay each invested $50,000 in cash and received a one-quarter interest. The capital of the partnership for the second half of the year is $160,000, $60,000 of tangible property and $100,000 of cash. The capital for the year will be $110,000, the average of the amount for each month, six at $60,000 and six at $160,000. If the business had been sold for $100,000 cash to a third person who turned it into the partnership at that valuation, the allowable capital for the second half of the year would have been $200,000. Or if the same kind of a partnership had been formed prior to March 3, 1917, the capital would have been $200,000.

19. Capital Not Ascertainable. Where the Treasury Department is unable to determine to its satisfaction the amount of the invested capital, the deduction shall be computed as follows: regulations will be prescribed under which the Treasury Department will determine the proportion between the total net income and that part of the net income which is equal to the variable item in the deduction, in the case of representative persons and corporations engaged in the same business during the same year. This proportion shall then be applied to the total net income of the business in question. For example, if the net income of representative persons or corporations in the manufacturing hardware business is 17% of the capital invested, and that part of the net income which is allowed as the variable item of the deduction, computed in a large number of cases according to the rules here discussed, is 82% of the invested capital, then the proportion here referred to is the ratio of 82% to 17%, or one-half. Therefore, in the case of any manufacturing hardware business where for some reason the capital cannot be ascertained, one-half of the net income of such business shall be taken as the variable amount of the deduction. The remaining onehalf will be taxed as though it represented another 82% of the capital, 20% on the first 62% and 25% on the remaining 2%.

III. INCOME NOT FROM CAPITAL.

20. All income not subject to tax under the above provision, including salaries, professional incomes, and other compensation for personal services, is taxed at the fixed rate of 8% of the income in excess of the fixed deduction, which is $6,000 to an individual or partnership, and $3,000 to a corporation. To make this rate applicable it must appear

that the income was derived from a trade or business having no invested capital, or no more than a nominal capital.

21. The law does not provide for any exemption in the case of income from a partnership where the partnership has already paid an excess profits tax before the distribution of the profits. While there is, therefore room for a possibility of assessing the tax upon the income of a partner as well as upon the income of the partnership, this would be a double taxation which is not within the fair spirit of the law. Bonds, yielding capital income, apparently are taxed only on the capital basis.

IV. ASSESSMENT AND COLLECTION OF THE TAX.

22. The Return. The tax will be assessed upon the Return rendered under the Income Tax Law, except that additional information will be required to show the amount of the capital invested, and partnerships, which are not taxed as such under the Income Tax Law will be required to file Returns where the net income is $6,000 or more.

23. Payment. The tax is to be paid at the same time and in the same manner and subject to the same penalties as the Income Tax.

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1. The Date When the Tax Becomes Effective. The stamp taxes take effect on and after December 1, 1917, and the stamps must be affixed to all the instruments or documents, described in the schedule of the law, issued on or after that date. Tax.

SCHEDULE A.

2.

Bonds of indebtedness, debentures, and certificates of indebtedness, issued by a person, partnership, or corporation, when issued or renewed, on each $100 of face value or fraction thereof.

.$0.05

3.

All other bonds, including indemnity, surety, and penal bonds, but not including bonds required in legal proceedings,

-on each $1.00 or fractional part thereof of the premium charged. -if no premium is charged.

.01

.50

4.

Capital stock of association or corporation when originally issued, in organization or reorganization-on each $100 of face value or fraction thereof of each certificate-if no face value on each $100 of actual value or fraction thereof of each share.

.05

5.

6.

Sales or transfers of stock in association or corporation-on each $100 of face value or fraction thereof of each certificate-on each $100 of actual value or fraction thereof of each share without face value.. Sales of products and agreements to sell, on exchanges and boards of trade, for future delivery, for first $100 and for each additional $100 or fractional part thereof in value of the merchandise.

.02

.02

7.

Drafts or checks, payable otherwise than at sight or on demand, and promissory notes, except bank notes issued for circulation, when issued or renewed, on each $100 or fractional part thereof..

.02

8.

9.

Conveyance of real estate in case of sale, on each $500, of the consideration or value of the interest conveyed, if more than $100. Entry of goods at custom house,

.50

-not exceeding $100 in value.

.25

exceeding $100 and not exceeding $500 in value.

.50

exceeding $500 in value.

1.00

10.

Entry for withdrawal of goods from customs bonded warehouse.

.50

11.

Passage ticket by vessel to a port or place not in the United States,
Canada, or Mexico, sold or issued in the

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12. Proxy for voting at election or business meeting of a corporation (except religious, educational and other exempt corporations)

.10

Playing cards, not more than 54 in pack, in addition to the existing tax,
per pack (in effect from Oct. 3, 1917).

13. 14.

Power of attorney..

15.

Parcel post packages, for first 25c and each additional 25c or fraction
thereof charged

II. GENERAL EXPLANATIONS AND PENALTIES.

.25

.05

.01

16. Date of Issue. Date of actual issue, and not merely date on face of instrument determines liability to tax. A deed dated and signed before the law was effective, but not delivered until afterward, must be stamped.

17. Form and Face of Instrument. The liability of an instrument to a stamp duty, as well as the amount of such duty, is determined by the form and face of the instrument, and can not be affected by proof of facts outside of the instrument itself. For example, if an instrument is in form a contract to buy a piano and pay the price in installments, it is not taxable as a promissory note, nor is a check payable on demand taxable as a promissory note, even though it is taken under an agreement not to collect it for sixty days.

18. Internal Revenue Stamps. The law is not complied with if postage stamps of the required amount are affixed and canceled. Documentary stamps issued by the Treasury Department for this purpose must be used.

19. Persons Responsible for the Payment of the Tax; Penalties. The primary duty to pay the tax and affix the stamps to the documents or instruments described is upon the "person, corporation, partnership, or association who makes, signs, issues, sells, removes, consigns, or ships the same or for whose use or benefit the same are made, signed, issued, sold, removed, consigned, or shipped." But the law also provides that any person shall be guilty of a misdemeanor and subject to a fine of not more than $100, who does, or causes to be done, any of the following, without the full amount of the tax being duly paid: (1) accepts any instrument, document, or paper of any kind or description whatsoever; (2) consigns or ships, by parcel post, any parcel, package or article; (3) manufactures or imports and sells or offers for sale any playing cards, package, or other article; (4) makes use of a stamp to denote a tax without canceling or obliterating the stamp as required by the law.

20. Where the law states that a tax shall be paid by some described persou such provision is merely directory and any arrangement between the parties to have some one else pay the tax would be valid and not unlawful, provided the act is done at the proper time.

21. Penalties. The law makes special provision for cases of deliberate evasion of the law. Any person liable to pay the tax for a transfer of stock, or for a sale of produce on an exchange, or any person acting as the agent or broker for such person, who shall make such transfer or such sale, or who shall deliver the stock or the merchandise or a memorandum or other evidence of sale, without having the proper stamps affixed, with intent to evade the law, shall be guilty of a misdemeanor and shall pay a fine of not more than $1,000 or be imprisoned for not more than six months, or both. Fraudulently using stamps of insufficient value is punishable by fine of not more than $1,000, or imprisonment for not more than five years, or both.

22. Canceling Stamps; Penalties. The person using or affixing a stamp shall write or stamp thereon the initials of his name and the date upon which the stamp is affixed, or shall cancel the stamp in some other method which may be prescribed by the Commissioner of Internal Revenue. The initials and date may be perforated in the stamp. A person acting on behalf of another person or a corporation may use the initial or symbol of the person or corporation for whom he acts. The stamp should be effectually canceled so that it may not again be used. Using a stamp without effectually canceling or obliterating it is a misdemeanor, punishable by fine of not more than $100. It will probably be required by regulation, as it was under the former law, that any stamp for more than 10c must be canceled by three parallel incisions or cuts, made lengthwise through the stamp after it has been affixed to the instrument, or by perforation.

23. Effect of Failure to Affix Stamps. Instruments are not void or invalid by reason of the fact that they have been issued without the stamp required by the war tax law. The federal government is without authority, under our Constitution, to control the proceedings of the state courts, and, therefore, does not have the right to prohibit the bringing of suits upon unstamped documents nor to prevent their being received in evidence. Likewise, the state governments have control of the transfer of property, and the federal government can not fix conditions upon which deeds and conveyances shall be operative. Nor may the federal government control the official acts of the public officers of the states by requiring such officers to determine whether an instrument has been properly stamped, or by directing what instruments shall be recorded or filed. But no suit may be brought in a federal court upon an instrument which lacks the required stamps, nor will such an instrument be received for filing or record by any federal government officer. Many state government officers, even though not compelled so to do, will refuse to receive or recognize unstamped instruments, or will advise against making public record of the fact that the law has been violated. Banks will of course refuse to

accept unstamped time drafts or notes, because of the penal provisions of the law, to which they are subject, and transfer agents will likewise refuse to perfect the transfer of corporate stocks if the tax has not been paid.

24. Subsequent Affixing. There appears to be no reason why an unstamped instrument may not be stamped at any time by any person having an interest therein. Such stamping would not absolve any person for prior violations of the act. For example, a person who has issued a note without affixing the stamp has become liable for a fine of not more than $100. If a bank discounts such unstamped note, the bank also is subject to fine. However, by requiring the holder to stamp the note, the bank avoids any violation of the law on its part, although the maker of the note remains responsible for his act. Where the maker has inadvertently omitted to stamp a note, the holder may do so as the agent of the maker.

25. Penalty for Fraudulently Using Forged or Canceled Stamp. Fraudulently using stamps as, for instance, by using forged stamps or by effacing the marks of cancelation of a used stamp is a misdemeanor and subjects the wrongdoer to a fine of $1,000, or imprisonment for not more than five years, or both.

are

26. Government Documents. Instruments issued by any government exempt. Bonds, conveyances, or other taxable instruments are exempt from the stamp tax when issued in the exercise of a governmental, taxing, or municipal function by the United States or any department of the federal government, by any foreign government, by any state, county, or subdivision of the state, or by any city assessment district, or other municipal corporation.

III, BONDS OF INDEBTEDNESS.

27. Bonds, Debentures, and Certificates of Indebtedness. This classification of taxable instruments is intended to include all formal evidences of indebtedness, whether issued by an individual or corporation, of the kind commonly known as "securities." While not essential, the following features are characteristic of such instruments: They mature after a relatively long period, five years or more; they may be declared due upon a default in interest; they are secured by an indenture of trust and bear a trustee's certificate; they are issued in series and are numbered; an engraved or lithographed instrument is issued; coupons for the collection of interest are attached; they are transferrable by delivery, but registration is provided for; they may be enforced only by the trustee or by the holders of a majority of the issue. "Gold Notes" of corporations, having these characteristics, are taxable as bonds rather than as promissory notes. The notes ordinarily issued by an individual in connection with a mortgage would not be considered to be bonds, but where instruments embodying some of the above features are issued by an individual for the purpose of sale to investors they would be classified as bonds and not as notes. The traditional form of bond bears a seal and begins with words like the following: "Know all men by these presents, That John Doe is held and firmly bound unto Richard Roe in the sum of $500, for the payment of which sum, well and truly to be made, he binds himself, his heirs, executors, administrators and assigns, firmly by these presents." A promise to pay in this form would be a bond and not a note, but the absence of this form would not conclusively determine that the instrument was not a bond, as many bonds are issued in other forms. Debenture is a word of very indefinite meaning, but it usually refers to a general obligation of a corporation, often unsecured. A certificate of indebtedness would include any formal acknowledgment of indebtedness. Receivers' certificates are taxable under this description. Bankers' certificates of deposit are not included. 28. There is no tax upon the transfer of bonds, but only upon the issue. 29. Penal Bonds. Where a bond of indebtedness is issued in a penal sum, the amount of tax is determined by the amount secured, and not the amount of the penal sum. A bond for a penal sum, conditioned upon the doing of some act other than the payment of a debt, is not a bond of indebtedness.

30. Temporary Bonds. The law requires that the bond be stamped when issued. But frequently the first issue of a series of bonds is in the form of temporary bonds or certificates which are destroyed when the permanent engraved bonds are secured. To meet this situation a regulation issued by the Treasury Department under the 1914 law authorized the stamping of the indenture or trust deed when temporary bonds were issued. The same rule will probably apply under the present law. In such a case, the bonds should bear a notation to the effect that the stamps had been placed upon the indenture. Except in such cases, the stamp must be placed upon the bond itself.

IV. OTHER BONDS.

31. Defined. The instruments taxed under this heading include all bonds, or obligations of the nature thereof, without regard to form, sealed or unsealed, with or without sureties, given to indemnify for loss, damage, or liability, or for the doing or not doing of anything therein specified. This also includes all undertakings, proposals, or agreements of every character, promising indemnity or guaranteeing validity to any person or thing, but not policies of insurance. If such instrument is issued for a premium the tax is lc for each $100 of the premium charged; in other cases, it is 50c for each instrument.

32. From the above definition, there should be excluded instruments not under

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