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RAFTS

OF PERSONAL INCOME AND

DR BUSINESS INCOME TAX ACTS, PRE-

PARED FOR THE NATIONAL TAX ASSOCIA-
TION BY THE COMMITTEE APPOINTED TO
PREPARE A PLAN FOR A MODEL SYSTEM
OF STATE AND LOCAL TΑΧΑΤΙΟΝ

WITH INTRODUCTORY REMARKS

BY

CHARLES J. BULLOCK, Chairman

January, 1921

COMMITTEE

CHARLES J. BULLOCK, Harvard University, Chairman
THOMAS S. ADAMS, Yale University

WILLIAM BAILEY, State Board of Equalization of Utah
SAMUEL T. HOWE, Kansas Tax Commission

CELSUS P. LINK, Colorado Tax Commission
SAMUEL LORD, Minnesota Tax Commission

OGDEN L. MILLS, Member of Congress from New York
THOMAS W. PAGE, United States Tariff Commission
A. C. REARICK, Attorney at Law, New York

W. L. TARBET, Illinois Central Railroad Company

Ex-officio

ZENAS W'. BLISS, Board of Tax Commissioners of Rhode Island
President, National Tax Association.

ALFRED E. HOLCOMB, Secretary, National Tax Association

COUNSEL

HENRY H. BOND, Attorney at Law, Boston

GEORGE E. HOLMES, Attorney at Law, New York

Reprinted from

BULLETIN OF THE NATIONAL TAX ASSOCIATION
Secretary's Office, 195 Broadway, New York

HARVAR UNIVERSITY LIBRARY 51758

DRAFTS OF PERSONAL INCOME AND BUSINESS INCOME TAX
ACTS, PREPARED FOR THE NATIONAL TAX ASSOCIATION
BY THE COMMITTEE APPOINTED TO PREPARE A

PLAN FOR A MODEL SYSTEM OF STATE

AND LOCAL TAXATION

INTRODUCTORY REMARKS

BY

CHARLES J. BULLOCK, CHAIRMAN

At the Conference held in September, 1920, at Salt Lake City by the Nationa! Tax Association, a resolution was adopted 1 requesting the Model Tax Committee to take steps to outline definitely the recommendations made in its report presented to the Conference held in Chicago in June, 1919; and the Executive Committee of the Association thereafter authorized the committee to prepare drafts of personal and business income tax acts, designed to carry out the recommendations contained in its report. It later developed that a number of the state officials desired to have these drafts ready for consideration during the coming sessions of the state legislatures. Pursuant to these various requests the Model Tax Committee held a meeting at The Inn at Buck Hill Falls, Pennsylvania, from November 29th to December 3d, 1920; and is now able to submit the following drafts of a personal income tax act and a business income tax act.

The meeting was attended by all of the members of the committee except Professors T. S. Adams and T. W. Page, whose duties at Washington prevented them from being present. In addition to the regular members of the committee, President Z. W. Bliss and Secretary A. E. Holcomb of the National Tax Association were present at the meeting in their ex-officio capacity, and gave the committee the benefit of their expert advice. Their assistance contributed materially to the success of the meeting, and the committee is greatly indebted to them for their valuable cooperation in this work.

When the committee confronted the task imposed by the resolution of the Salt Lake City Conference, it felt the need of obtaining the assistance of counsel; and therefore invited Mr. Henry H. Bond, of the Boston Bar, and Mr. George E. Holmes, of the New York Bar, to act in that capacity. Mr. Bond is known to members of the National Tax Association as the official who had charge of the administration of the Massachusetts income tax during the first two years of its existence, and as a member of the Advisory Tax Board organized by the Internal Revenue Bureau of the United States in 1917. Mr. Holmes is well known to students of taxation as the originator of the income tax service of the Corporation Trust Company of New York and as the author of a leading treatise on federal taxation. Both of these gentlemen gave the committee their valuable services, and they have thereby placed the committee and the National Tax Association under a heavy debt, which will not be forgotten.

After coming to an agreement upon all the substantive provisions of the tax acts, the committee placed the final drafting of the acts in the hands of a Committee on Form, which was composed of Messrs. Holcomb, Mills and Holmes, who conferred freely with Mr. Bond and the chairman. Upon these gentlemen, especially upon Mr. Holcomb, devolved the very difficult and important task of putting the conclusions of the committee into proper form, and simple justice requires that the chairman should

1 See Bulletin of the National Tax Association, October, 1920, page 4.

2 See Bulletin of the National Tax Association, October, 1920, page 34.

:

state that the completion of the work within the appointed time is due wholly to the devoted efforts of the Committee on Form. Mention should also be made of important expert advice and counsel kindly given by Mark Graves, Director of the New York Income Tax Bureau; Irving L. Shaw, Income Tax Director of Massachusetts; and other tax officials in the states where income tax laws are in force, who have invariably evidenced deep interest in the work and have cordially cooperated.

The two acts submitted herewith are based, as far as is practicable, upon the provisions of the federal income tax and of the laws now in operation in Wisconsin, Massachusetts, and New York. Since none of these existing laws aim to do precisely what the proposed acts are designed to accomplish, it was impossible to adopt the provisions of any one of them at all points. The task before the committee was to draft a personal income tax which should tax persons in respect of their net incomes and a business income tax which should be applied to business carried on within a state. Such acts must necessarily differ at various points from any income taxes now in operation, but it has been the effort of the committee to follow existing methods as far as practicable and to depart from them only when necessary to carry out logically the plan of taxation proposed in the Preliminary Report of the committee on a Model System of State and Local Taxation.

A number of the provisions of the proposed acts, principally those relating to administrative details or those requiring the use of the precise language of existing tax laws, cannot possibly be drafted in a form satisfactory for every state. In such cases, we have contented ourselves with a general statement of the nature of the provisions that should be made and have, where necessary, referred to the Preliminary Report for further explanation. It is desirable, in this connection, to call attention to the vital importance of the suggestions offered in sections 900, 901, and 904 of the personal income tax act and sections 201, 900, 901, and 903 of the business income tax act. Unless the recommendations of the committee are followed at these points, it cannot be expected that the measures we propose will operate in a satisfactory

manner.

The theory and purpose of the two measures herewith submitted are so fully set forth in the Preliminary Report of this committee that it is unnecessary to repeat them here. Suffice it to say that the personal income tax is intended to provide a just and reasonable method of taxing all individual residents of any state in respect of their net incomes, and thus carry out in a logical manner the principle that every citizen should pay, at his place of domicile, a personal tax for the benefits he derives from the government under which he lives. The business income tax, on the other hand, is designed to provide a fair and practicable method of taxing income derived from business carried on in any state. Supplemented by the taxation of tangible property in the state where it is located, these measures will bring about a just distribution of the subjects of taxation among the several states and will avoid such conflicts of jurisdiction as have hitherto led to unequal and discriminatory taxation. As a basis of discussion these acts are now offered for the considerate judgment of the members of the National Tax Association.

January, 1921.

3 Attention is called particularly to pages 437-9, 441, 443, 454-6, 459 and 461-6 of the Report as printed in Volume 12 of the Proceedings of the National Tax Association.

PERSONAL INCOME TAX

AN ACT PROVIDING FOR THE LEVYING, COLLECTING AND PAYING

OF AN INCOME TAX ON INDIVIDUALS

Be it Enacted by the Legislature of the State of

ARTICLE I

SHORT TITLE AND DEFINITIONS

Section 1. Short title. This Act shall be known and may be cited as The Per

sonal Income Tax Act of 192-.

Sec. 2. Definitions. For the purposes of this act and unless otherwise required by the context:

1. The words "tax commission " mean the state tax commission.

2. The word "taxpayer" includes any individual or fiduciary subject to the tax imposed by this act.

3. The word "individual" means a natural person.

4. The word "fiduciary" means a guardian, trustee, executor, administrator, receiver, conservator, or any person, whether individual or corporate, acting in any fiduciary capacity for any person, estate or trust.

5. The word "person" includes individuals, fiduciaries, partnerships and corporations.

6. The word "corporation" includes joint-stock companies or associations and insurance companies.

7. The words "tax year" mean the calendar year in which the tax is payable. 8. The words "income year" mean the calendar year or the fiscal year, upon the basis of which the net income is computed under this act; if no fiscal year has been established they mean the calendar year.

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9. The words "fiscal year mean an income year, ending on the last day of any month other than December.

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10. The word "paid" for the purposes of the deductions under this act, means paid or accrued " or paid or incurred", and the words "paid or accrued", "paid or incurred" and "incurred" shall be construed according to the method of accounting upon the basis of which the net income is computed under this act. The word "received" for the purpose of the computation of the net income under this act means "received or accrued", and the words "received or accrued" shall be construed according to the method of accounting upon the basis of which the net income is computed under this act.

11. The word "resident" applies only to individuals and includes for the purpose of determining liability to the tax imposed by this act, with reference to the income of any income year, any individual who shall be a resident of the state on April 15 of the tax year.

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12. The words "foreign country mean any jurisdiction other than one embraced within the United States. The words "United States", when used in a geographical sense, include the states, the territories of Alaska and Hawaii, the District of Columbia and the possessions of the United States.

ARTICLE II

IMPOSITION OF TAX

Sec. 200. Individuals. 1. A tax is hereby imposed upon every resident of the state, which tax shall be levied, collected and paid annually, with respect to his entire net income as herein defined, computed at the folowing rates, after deducting the exemptions provided in this act:

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