! 6 On the first $1000 of net income or any part thereof, one per cent; 2. Such tax shall first be levied, collected and paid in the year 1921 and with respect to the net income received during the calendar year 1920 or during any income year ending during the twelve months ending March 31, 1921. Sec. 201. Fiduciaries. 1. The tax imposed by this act shall be imposed upon resident fiduciaries, which tax shall be levied, collected and paid annually with re spect to: (a) That part of the net income of estates or trusts which has not been distributed or become distributable to beneficiaries during the income year. In the case of two or more joint fiduciaries, part of whom are non-residents of the state, such part of the net income shall be treated as if each fiduciary had received an equal share; (b) The net income received during the income year by deceased individuals who, at the time of death were residents and who have died on or after April 15 of the tax year without having made a return; (c) The entire net income of resident insolvent or incompetent individuals, whether or not any portion thereof is held for the future use of the beneficiaries, where the fiduciary has complete charge of such net income. 2. The tax imposed upon a fiduciary by this act shall be a charge against the estate or trust. ARTICLE III COMPUTATION OF TAX Sec. 300. Net income defined. The words "net income" means the gross income of a taxpayer less the deductions allowed by this act. Sec. 301. Gross income defined. 1. The words "gross income" includes gains, profits and income derived from salaries, wages, or compensation for personal service, of whatever kind and in whatever form paid, or from professions, vocations, trades, business, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever. The amount of all such items shall be included in the gross income of the income year in which received by the taxpayer, unless, under the methods of accounting permitted under this act, any such amounts are to be properly accounted for as of a different period. be exempt from taxation under this act: 2. The words "gross income" does not include the following items, which shall (a) The proceeds of life insurance policies and contracts paid upon the death of the insured to individual beneficiaries or to the estate of the insured; (b) The amount received by the insured as a return of premium or premiums paid by him under life insurance, endowment or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract; (c) The value of property acquired by gift, bequest, devise or descent (but the income from such property shall be included in gross income); (d) Interest upon the obligations of the United States or its possessions; (e) Salaries, wages and other compensation received from the United States by officials or employees thereof, including persons in the military or naval forces of the United States; (f) Any amounts received through accident or health insurance or under workmen's compensation acts, as compensation for personal injuries or sickness, plus the amount of any damages received, whether by suit or agreement, on account of such injuries or sickness. Sec. 302. Basis of return of net income. 1. Taxpayers who customarily estimate their income on a basis other than that of actual cash receipts and disbursements may, with the approval of the tax commission, return their net income under this act upon a similar basis. Taxpayers who customarily estimate their income on the basis of an established fiscal year instead of on that of the calendar year, may, with the approval of the tax commission, and subject to such rules and regulations as it may establish, return their net income under this act on the basis of such fiscal year, in lieu of that of the calendar year. 2. A taxpayer may, with the approval of the tax commission and under such regulations as it may prescribe, change his income year from fiscal year to calendar year or otherwise, in which case his net income shall be computed upon the basis of such new income year. 3. An individual carrying on business in partnership shall be liable for income tax only in his individual capacity and shall include in his gross income the distributive share of the net income of the partnership received by him or distributable to him during the income year. 4. Every individual, taxable under this act, who is a beneficiary of an estate or trust, shall include in his gross income the distributive share of the net income of the estate or trust, received by him or distributable to him during the income year. Unless otherwise provided in the law, the will, the deed or other instrument creating the estate, trust or fiduciary relation, the net income shall be deemed to be distributed or distributable to the beneficiaries (including the fiduciary as a beneficiary, in the case of income accumulated for future distribution) ratably, in proportion to their respective interests. Sec. 303. Determination of gain or loss. For the purpose of ascertaining the gain or loss from the sale or other disposition of property, real, personal or mixed, the basis shall be, in the case of property acquired before January 1, -, the fair market price or value of such property as of that date, if such price or value exceeds the original cost, and in all other cases, the cost thereof; Provided, that in the case of property which was included in the last preceding annual inventory used in determining net income in a return under this act, such inventory value shall be taken in lieu of cost or market value. The final distribution to the taxpayer of the assets of a corporation shall be treated as a sale of the stock or securities of the corporation owned by him and the gain or loss shall be computed accordingly. Sec. 304. Exchanges of property. 1. When property is exchanged for other property, the property received in exchange shall, for the purpose of determining gain or loss, be treated as the equivalent of cash to the amount of its fair market value, provided a market exists in which all the property so received can be disposed of at the time of exchange, for a reasonably certain and definite price in cash; otherwise such exchange shall be considered as a conversion of assets from one form to another, from which no gain or loss shall be deemed to arise. 2. In the case of the organization of a corporation, the stock or securities received shall be considered to take the place of property transferred therefor and no gain or loss shall be deemed to arise therefrom. 3. When, in connection with the reorganization, merger or consolidation of a corporation, a taxpayer receives, in place of stock or securities owned by him, new stock or securities, the basis of computing the gain or loss if any shall be, in case the stock or securities owned were acquired before January 1, -, the fair market price or value thereof as of that date, if such price or value exceeds the original cost, and in all other cases the cost thereof. Sec. 305. Inventory. Whenever in the opinion of the tax commission the use of inventories is necessary in order clearly to determine the income of any taxpayer, inventories shall be taken by such taxpayer, upon such basis as the tax commission may prescribe, conforming as nearly as may be to the best accounting practice in the trade or business and most clearly reflecting the income, and conforming so far as may be, to the forms and methods prescribed by the United States Commissioner of Internal Revenue, under the acts of Congress then providing for the taxation of incomes. ! tions: Sec. 306. Deductions. In computing net income there shall be allowed as de (a) All the ordinary and necessary expenses paid during the income year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered, and including rentals or other payments required to be made as a condition to the continued use or possession, for the purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity; (b) All interest paid during the income year on indebtedness; (c) Taxes paid or accrued within the income year, imposed by the authority of the United States or of any of its possessions or of any state, territory or the District of Columbia or of any foreign country; except inheritance taxes, and except income taxes imposed by this act and taxes assessed for local benefits, of a kind tending to increase the value of the property assessed; (d) Losses sustained during the income year and not compensated for by insurance or otherwise, if incurred in trade or business; (e) Losses sustained during the income year and not compensated for by insurance or otherwise, if incurred in any transaction entered into for profit, though not. connected with the trade or business; (f) Losses sustained during the income year, of property not connected with the trade or business, if arising from fires, storms, shipwreck or other casualty, or from theft, and not compensated for by insurance or otherwise; (g) Debts ascertained to be worthless and charged off within the income year, if the amount has previously been included in gross income in a return under this act; (h) A reasonable allowance for the depreciation and obsolescence of property used in the trade or business; and, in the case of mines, oil and gas wells, other natural deposits, and timber, a reasonable allowance for depletion; Provided, That in computing the deductions allowed under this paragraph, the basis shall be the cost. (including in the case of mines, oil and gas wells and other natural deposits, the cost of development, not otherwise deducted), and in the case of property acquired prior to January 1, -, the fair market value of the property (or the taxpayer's interest therein) on that date shall be taken in lieu of cost up to that date. The reasonable allowances under this paragraph shall be made under rules and regulations to be prescribed by the tax commission. In the case of leases the deductions allowed may be equitably apportioned between the lessor and lessee; (i) In the case of taxpayers who keep regular books of account, upon an accrual. basis and in accordance with standard accounting practice, reserves for bad debts and. for contingent liabilities, under such rules and restrictions as the tax commission may impose. If the tax commission shall at any time deem the reserve excessive in amount, it may restore such excess to income, either in a subsequent year or as a part of the income of the income year and assess it accordingly. Sec. 307. Items not deductible. In computing net income no deduction shall in any case be allowed in respect of: (a) Personal, living or family expenses; (b) Any amount paid out for new buildings or for permanent improvements or betterments, made to increase the value of any property or estate; (c) Any amount expended in restoring property for which an allowance is or has been made; (d) Premiums paid on any life insurance policy covering the life of any officer or employee or of any individual financially interested in any trade or business carried on by the taxpayer, when the taxpayer is directly or indirectly a beneficiary under such policy. Sec. 308. Exemptions. 1. There shall be deducted from the net income the following exemptions: (a) In the case of a single individual, a personal exemption of $1000; (b) In the case of the head of a family, or a married individual living with husband or wife, a personal exemption of $2000. A husband and wife living together 9 shall receive but one personal exemption of $2000 against their aggregate net income; and in case they make separate returns, the personal exemption of $2000 may be taken by either or divided between them; (c) $200 for each individual (other than husband and wife) dependent upon and receiving his chief support from the taxpayer, if such dependent individual is under eighteen years of age or is incapable of self-support, because mentally or physically defective; (d) In the case of a fiduciary; if taxable under clause (a) of paragraph 1 of section 201, a personal exemption of $1000; if taxable under clause (b) of said paragraph, the same exemption as would be allowed the deceased, if living; if taxable under clause (c) of said paragraph, the same exemptions to which the beneficiary would be entitled. 2. The status on the last day of the income year shall determine the right to the exemptions provided in this section; Provided that a taxpayer shall be entitled to such exemptions for husband or wife or dependent who has died during the income year. ARTICLE IV Sec. 400. Individual returns. 1. Every resident, having a net income during the income year of $1000 or over, if single, or if married and not living with husband or wife; or having a net income for the income year of $2000 or over, if married and living with husband or wife; shall make a return under oath, stating specifically the items of his gross income and the deductions and exemptions allowed by this act. 2. If a husband and wife living together have an aggregate net income of $2000 or over, each shall make such a return, unless the income of each is included in a single joint return. 3. If the taxpayer is unable to make his own return, the return shall be made by a duly authorized agent or by a guardian or other person charged with the care of the person or property of such taxpayer. Sec. 401. Fiduciary returns. 1. Every fiduciary subject to taxation under the provisions of this act, as provided in section 201 hereof, shall make a return under oath, for the individual, esate, or trust for whom or for which he acts, if the net income thereof amounts to $1000 or over. 2. The return made by a fiduciary shall state specifically the items of gross income, and the deductions and exemptions allowed by this act and such other facts as the tax commission may prescribe. Under such regulations as the tax commission may prescribe, a return may be made by one of two or more joint fiduciaries. 3. Fiduciaries required to make returns under this act shall be subject to all the provisions of this act which apply to individuals. Sec. 402. Information at source. 1. Every individual, partnership, corporation, joint stock company or association or insurance company, being a resident or having a place of business in this state, in whatever capacity acting, including lessees or mortgagors of real or personal property, fiduciaries, employers and all officers and employees of the state or of any political subdivision of the state, having the control, receipt, custody, disposal or payment of interest (other than interest coupons payable to bearer), rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments or other fixed or determinable annual or periodical gains, profits and income, amounting to $1000 or over, paid or payable during any year to any taxpayer, shall make complete return thereof under oath, to the tax commission, under such regulations and in such form and manner and to such extent as may be prescribed by it. 2. Every partnership, having a place of business in the state, shall make a return, stating specifically the items of its gross income and the deductions allowed by this act, and shall include in the return the names and addresses of the individuals who would be entitled to share in the net income if distributed, and the amount of the distributive share of each individual. The return shall be sworn to by any one of the partners. 3. Every fiduciary shall make, under oath, a return for the individual, estate or trust for whom or for which he acts, if the net income thereof, distributed or distributable to beneficiaries during the year is $1000 or over, in which case the fiduciary shall set forth in such return the items of the gross income, the deductions allowed by this act, the net income, the names and addresses of the beneficiaries, the amounts distributed or distributable to each and the amount, if any, lawfully retained by him for future distribution. Such return may be made by one of two or more joint fiduciaries. Sec. 403. Time and place of filing returns. Returns shall be in such form as the tax commission may from time to time prescribe and shall be filed with the tax commission, at its main office or at any branch office which it may establish, on or before the fifteenth day of the fourth month next after the preceding calendar year or any income year ending after such calendar year and on or before the thirty-first day of March. In case of sickness, absence or other disability, or whenever in its judgment good cause exists, the tax commission may allow further time for filing returns. There shall be annexed to the return the affidavit or affirmation of the taxpayer making the return, to the effect that the statements contained therein are true. The tax commission shall cause to be prepared blank forms for the said returns and shall cause them to be distributed throughout the state and to be furnished upon application, but failure to receive or secure the form shall not relieve any taxpayer from the obligation of making any return herein required. Sec. 404. Failure to file returns; supplementary returns. If the tax commission shall be of the opinion that any taxpayer has failed to file a return, or to include in a return filed, either intentionally or through error, items of taxable income, it may require from such taxpayer a return, or a supplementary return, under oath, in such form as it shall prescribe, of all the items of income which the taxpayer received during the year for which the return is made, whether or not taxable under the provisions of this act. If from a supplementary return, or otherwise, the tax commission finds that any items of income, taxable under this act, have been omitted from the original return it may require the items so omitted to be disclosed to it, under oath of the taxpayer, and to be added to the original return. Such supplementary return and the correction of the original return shall not relieve the taxpayer from any of the penalties to which he may be liable under any provision of this act. The tax commission may proceed under the provisions of section 502 of this act whether or not it requires a return or a supplementary return under this section. ARTICLE V COLLECTION AND ENFORCEMENT OF TAX Sec. 500. Time and place of payment of tax. 1. The full amount of the tax payable, as the same shall appear from the face of the return, shall be paid to the tax commission at the office where the return is filed, at the time fixed by law for filing the return. If the time for filing the return shall be extended, interest at the rate of 6 per cent per annum, from the time when the return was originally required to be filed, to the time of payment, shall be added and paid. 2. The tax may be paid with uncertified check, during such time and under such regulations as the tax commission shall prescribe, but if a check so received is not paid by the bank on which it is drawn, the taxpayer by whom such check is tendered shall remain liable for the payment of the tax and for all legal penalties, the same as if such check had not been tendered. Sec. 501. Examination of returns. 1. As soon as practicable after the return is filed, the tax commission shall examine it and compute the tax, and the amount so computed by the tax commission shall be the tax. If the tax found due shall be greater than the amount theretofore paid, the excess shall be paid to the tax commission within ten days after notice of the amount shall be mailed by the tax com mission. 2. If the return is made in good faith and the understatement of the tax is not due to any fault of the taxpayer, there shall be no penalty or additional tax added |