CHAPTER 47 THE STAMP TAX The present stamp tax is imposed under Title XI of the Revenue Act of 1918, which became a law on February 25, 1919. This title is to some extent a re-enactment of the War Stamp Tax Act of 1917 (Title VIII of the Act of October 3, 1917, referred to in this chapter as the "former" or 1917 law), but the two acts differ in certain respects. The Revenue Act of 1918, like the former law, does not contain Schedule B of the Act of October 22, 1914 (referred to in this chapter as the 1914 Law), which provided for a tax on perfumery, cosmetics and similar articles, and chewing gum or substitutes therefor. The 1914 Law was . preceded by the Act of June 13, 1898 (referred to in this chapter as the 1898 Law). The taxes imposed by the Revenue Act of 1918 are, in the case of any article upon which a corresponding stamp tax was hitherto imposed by law, in lieu of such tax.2 The date of the incidence of the tax, that is, the first day on which the tax applied, is February 25, 1919.3 General Scope of Present Law. The present law taxes the following subjects: Bonds (of indebtedness, indemnity and surety), the original issue of certificates of stock or of profits or interest in property or accumulation of corporations, the sale or transfer of shares or certificates of stock 1 Other stamp tax acts will likewise be referred to in this chapter for the sake of brevity by the year of their respective enactments. 2 Revenue Act of 1918, § 1100. 3 The former law went into effect on December 1, 1917, except as to the tax on playing cards, which became effective on October 4, 1917. or of profits or of interest in property or accumulation in corporations, sales of produce on exchange, drafts or checks (payable otherwise than on sight or on demand), promissory notes, conveyances, entries of goods at custom house, entry for withdrawal of goods from custom bonded warehouse, passage tickets on vessels to foreign countries (except Canada or Mexico), proxies, powers of attorney, playing cards, parcel post packages and certain insurance policies. The several subjects appear below in alphabetical order, together with the rates applicable to each and rulings with respect to each. This list includes a number of instruments not taxable under the present law to which reference is made for the convenience of the reader who may be searching for positive assurance that a particular instrument need not be stamped. General Exemptions. The following are not subject to stamp tax: (a) bonds, notes, or other instruments issued by the United States, or by any foreign government, or by any State, Territory, or the District of Columbia, or local subdivision thereof, or municipal or other corporation exercising the taxing power; (b) bonds of indemnity required to be filed by any person to secure payment of any pension, allowance, allotment, relief, or insurance by the United States; (c) stocks and bonds issued by co-operative building and loan associations which are organized and operated exclusively for the benefit of their members and make loans only to their shareholders, or by mutual ditch or irrigating companies. Special exemptions applying to various instruments specified in the law are referred to in the paragraphs dealing with such instruments. Stamps. Stamps are kept on sale by the various postmasters in the United States,5 and are also on sale at United States depositaries. WHERE STAMPS ARE AFFIXED. As a rule, stamps are affixed to the taxable document or instrument, but in some 4 Revenue Act of 1918, § 1101. 5 Revenue Act of 1918, § 1106. 6 Revenue Act of 1918, § 1107. F. T.-51 instances a different rule prevails, as will appear in the following paragraphs. WHO AFFIXES STAMPS. It is contemplated that stamps shall be affixed by the person issuing the document or instrument. Thus, the maker of a promissory note is primarily obliged to affix the proper stamp thereto, and likewise, the obligor should affix the proper stamp to a bond. However, it is secondarily the duty of a person accepting or receiving any such document or instrument to affix a stamp thereto and he is subject to penalty if he does not do so. It has been held that it makes no difference who affixes the stamp, as long as a stamp of the proper denomination is affixed to the instrument. CANCELLATION OF STAMPS. Stamps are cancelled by the person using or affixing the stamp, by writing or stamping thereon in ink his initials and the day, month, and year on which the stamp is used or affixed. In addition, stamps of the value of 10 cents or more are required to be cancelled by either (a) three parallel incisions made by some sharp instrument lengthwise through the stamp after the stamp has been attached to the instrument, or (b) by cutting or cancelling the stamp with a machine or punch which so defaces the stamp as to render it unfit for reuse. The cancellation by either method should not so deface the stamp as to prevent its denomination and genuineness from being readily determined. The perforating machine may also imprint the initials and date or outline the same in small perforations, thus effecting complete cancellation, or the initials and date may be written on the stamp and several perforations, sufficient to prevent washing and resale of the stamp may be made with an ordinary hand punch before fixing the stamp to the document.8 Where the initials of a person, firm or corporation have been perforated on the stamps before being used it is sufficient when the stamps are actually attached to the document to stamp the same 7 Reg. No. 40, Part 1, Art. 7. 8 T. D. 2098. with the full initials and date. Where the initials of a firm or company have been stamped or written on a stamp it is not required that the individual employee affixing the stamp shall also place his own initials thereon. It has been held that stamps on promissory notes were properly cancelled when they were so used and defaced that they could never be legally used again.10 It has also been held that the failure to write the initials of the payee's name on a promissory note, when he was affixing a stamp and cancelling the same in the presence of the court before offering the note in evidence, did not affect its sufficiency.11 In a case decided in 1865,12 it was held that when a bond was executed by two obligors, it was sufficient if the stamp was attached and cancelled by one of them. Bonds of Indebtedness. Bonds, debentures or certificates of indebtedness, however termed, issued on and after February 25, 1919, by any person, corporation, partnership or association are taxable at the rate of 5 cents on each $100 of face value or fraction thereof.13 WHERE STAMPS ARE AFFIXED. The stamps denoting the tax should ordinarily be affixed to the bonds. If temporary bonds are first issued, to be later exchanged for permanent or definitive bonds, the stamps may be affixed to the indenture, in which case a statement that the stamps were 9 Letter from Treasury Department dated December 9, 1914. 10 Taylor v. Duncan, 33 Tex. (1870) 440. 11 Foster v. Holley's Adm'rs, 49 Ala. (1873) 593. The court in this case does not decide the question whether an improperly stamped note could be excluded from evidence in the state courts. See Page 867. 12 Teagarden v. Garver, 24 Ind. 399. In this case, the court says: "The object of the Act of Congress is to raise revenue, and the stamps are required to be cancelled to prevent their use a second time. This was fully accomplished by one of the obligors cancelling it, as required by the Act of Congress. The court referred to the doubtful character of the power of the federal government to make a rule excluding improperly stamped instruments from evidence in the state courts, and the court's opinion indicates that this doubt was a factor in its decision. See Page 867. 13 Revenue Act of 1918, § 1107, Schedule A-1. affixed to the indenture must be printed or engraved on each bond.14 DEFINITIONS. Under the 1914 Law the tax was imposed only on bonds issued by corporations or associations. It is to be noted that the present act imposes the tax on bonds issued by persons and partnerships as well.15 There is no clear distinction between bonds of indebtedness and promissory notes, and it is sometimes difficult to determine whether an instrument should be taxed under the higher rate applying to bonds of indebtedness or the lower rate applying to promissory notes. If the instrument is called a note but contains features not usual in or recognized as appertaining to the promissory note generally known to commerce, it is held in department practice to be taxable as a bond. Thus, under the 1914 Law it was held that an instrument designated as a "gold note" issued in the amount of $1,000 with interest coupons attached, and containing a promise by a corporation to pay a certain sum of money to the holder thereof under certain terms and conditions prescribed by the indenture of trust, was more in the nature of a bond or certificate of indebtedness than a promissory note and was, therefore, held taxable as a bond.16 Instruments containing the essential features of a promissory note, but issued by corporations in numbers under a trust indenture, either in registered form or with coupons attached, embodying provisions for acceleration of maturity in the event of any default by the obligor, for optional registration in the case of bearer bonds, for authentication by the trustee, and sometimes for redemption before maturity, or similar provisions, are held to be bonds within the meaning of the statute, whether called bonds, debentures or notes.17 Cer 14 T. D. 2164; T. D. 2220. 15 Revenue Act of 1918, § 1107, Schedule A-1. See the definition of "person" contained in Revenue Act of 1918, § 1. 16 T. D. 2257. See definition under Promissory Notes, p. 842. 17 T. D. 2713. |