DECISIONS OF THE COMMISSIONER OF INTERNAL REVENUE. (261.) Special tax-Bowling alley. A table called a "10-pin bowling alley," 12 or 16 feet long, 21 inches high, and 23 inches wide, on which bowls are thrown, when set up in any place and "open to the public with or without price," is held to be a howling alley for which special tax must be paid. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., January 2, 1901. SIR: Your letter of the 19th ultimo has been received, submitting in behalf of your clients, Messrs. Colby & Oveson, inventors of a miniature bowling alley, the question whether, as held by the collector of internal revenue in Chicago, a tax of $5 is required to be paid thereon. Although this differs from the ordinary bowling alley by reason of the fact that the bowls are thrown on a table instead of on an alley level with the floor, and is much smaller than an ordinary alley, nevertheless, as it is to be set up in saloons or other places and is designed for games played by means of throwing bowls, I am unable to find sufficient ground for holding that it is not a bowling alley for which special tax is required to be paid under the ninth paragraph of section 2 of the act of June 13, 1898, in view of the explicit provision of that paragraph that "every building or place where bowls are thrown, * * * open. to the public with or without price, shall be regarded as a bowling alley." The facts which you state that the tables sell for from $15 to $18 retail ($12 wholesale), and the tax is merely "prohibitory of all sales," are not of themselves sufficient to warrant this office in holding that the table in question, which in the circular accompanying your letter is described as a " 10-pin bowling alley," is not a bowling alley within the meaning of the statute. Respectfully, ROBT. WILLIAMS, Jr., Acting Commissioner. Mr. CHARLES TURNER BROWN, Chicago, IN. 1 IR 1 (262.) Capital and surplus of banks. Opinion of the Attorney-General on capital and surplus of banks.—Previous opinion of February 4, 1899, reaffirmed.-Congress, in taxing capital, meant to tax only the capital of the bank in its strict technical sense under the banking laws, and that, in taxing surplus, it meant the fund formally set apart by the board of directors as surplus in its restricted and technical sense in banking. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, To collectors of internal revenue : 99 DEPARTMENT OF JUSTICE, Washington, D. C., December 27, 1900. SIR: I have the honor to acknowledge the receipt of your letter of June 7, 1900, in which you ask my opinion as to whether the "undivided profits" or "profit and loss" account are taxable as capital and surplus under section 2 of the act of June 13, 1898. It appears from your letter that this question arises from two claims for refunds made, respectively, by the Girard Trust Company and the Philadelphia Trust Company. In the claim of the Girard Trust Company, the returns show that its capital is $1,000,000 and its undivided profits, for 1898, were $2,635, 298.99, and for 1899, $2,617,439.74. In the claim of the Philadelphia Trust Company the capital is given as $1,000,000, and the so-called profit and loss account for 1898 was $2,157,325.84, and for 1899, $2,240,404, the two last mentioned amounts showing undivided profits to the amounts mentioned. You refer me to an opinion of this Department, dated February 4, 1899, in which I advised you that the section of the war-revenue act above referred to had reference to "the capital of the bank and other funds belonging to it, which by law, or the action of the bank authorities, assumed the character of capital, and which the bank uses in carrying on its business," and you ask whether the facts stated in the present claims for a refund will "warrant the refunding of the amount which these banks have paid on undivided profits' in one case, and the 'profit and loss' account in the other case While the sentence from the opinion last quoted might seem to justify the conclusion that undivided profits, or the profits represented by the so-called profit and loss account, may "assume the character of capital" and be taxable as such, or at least as surplus, yet the opinion as a whole seems to me to negative such suggestion. The question then submitted was as to whether the undivided profits of a national bauk were to be excluded from the capital and surplus of the bank in estimating the amount of the special tax imposed by section 2 of the war-revenue act, and this Department then reached the conclusion that "the undivided profits of a bank are not surplus, and can not be estimated under the law in question as a part of the bank's surplus." The opinion defines the term surplus as "such amount as has been set apart by a vote of the directors, or other authorized action of the bank, to strengthen the capital." While in the sentence cited in your letter reference is made to the "other funds" belonging to the bank "which by law, or the action of the bank authorities, assumed the character of capital, and which the bank uses in carrying on its business," yet the expression "other funds" refers only to the surplus, and the surplus had already been defined as the amount formally set apart by action of the board of directors. and, as has been shown, the opinion expressly excluded undivided profits from such surplus. 66 As the general language used in the sentence from the opinion of February 4, 1899, and quoted in your letter, has apparently led to some doubt in your mind as to whether undivided profits, if used as working capital, become, for purposes of taxation, either capital or surplus, I have reexamined the question, and now reaffirm the opinion of February 4, 1899, as I have interpreted it. I am clearly of opinion that Congress, in taxing capital, meant to tax only the capital of the bank in its strict technical sense under the banking laws, and that, in taxing surplus, it meant the fund formally set apart by the board of directors as surplus in its restricted and technical sense in banking. It is true that the word surplus, in its general and popular meaning, would include undivided profits, for the excess of receipts over disbursements is, in a certain sense, surplus or profits, but it could be said, with equal force, that the profits of a bank are part of its working capital if not distributed as dividends, and yet it can not be contended that, for purposes of banking, undivided profits constitute a part of the capital of a bank in the sense in which the word "capital" is ordinarily and generally used. The national banking laws clearly distinguish between surplus and undivided profits. By section 5199 of the Revised Statutes, every national bank is prohibited frc. declaring 'any dividend until one-tenth part of the net profits of the preceding half year have been carried to the surplus fund, until a surplus of twenty per centum of the capital stock has been accumulated." In determining whether the twenty per centum has thus been accumulated, it could not be pretended that the undivided profits were to be added to the fund formally known as surplus, and there is, therefore, a clear distinction between such fund and the undivided profits of a bank, for nine-tenths of the profits may be excluded from the fund called “surplus.” It is clear, moreover, from the section cited that, in addition to the capital, the bank must have the additional security of a surplus of at least twenty per centum of the capital stock before dividends are payable. This surplus fund, therefore, has the idea of permanence, and, while not capital in its restricted sense, yet assumes the character of capital." Undivided profits, however, have no necessary permanence; they come to-day and may be gone to-morrow. If the necessary surplus fund is in existence, the undivided profits are immediately distributable among the stockholders in the form of dividends. It is thus apparent that the word surplus means a distinct and special fund, plainly recognized by statute, and which must exist independent of the fund called "undivided profits" as a condition for the payment of dividends, and the Comptroller in requiring quarterly reports from national banking institutions requires this distinction to be observed. It is true that the present claimants are not national banking institutions and have no “surplus" fund, but Congress did not mean that the expression surplus should have one meaning when applied to national banks and another when applied to State banking institutions or trust companies. The only question, therefore, is whether Congress, when it provided by section 2 of the revenue law of 1898 that bankers should pay a special tax, and when it provided that, "in estimating capital, surplus shall be included," meant surplus in the restricted and technical sense with which Congress had used it in the national banking laws, and in which banking institutions of every kind use the term, or whether Congress had reference to every form of excess of receipts over disbursements, however evanescent and uncertain in character. The latter construction would cause much confusion and uncertainty in the effort of your Department to administer the law and would often lead to inequality between banking institutions of the same class. Such construction should be avoided. I am clear that Congress used the word surplus in its technical and restricted sense, and meant a fund formally set apart and called surplus by the authorized officers of the bank, and the previous opinion of this Department of February 4, 1899, is to be so understood. JOHN W. GRIGGS, Attorney-General. 66 Very respectfully, The SECRETARY OF THE TREASURY. (263.) Publication of receipts from tobacco. Collectors may furnish for publication monthly statements of the aggregate receipts from sale of stamps for tobacco, snuff, cigars, and cigarettes, but any information that would disclose the business done by, or the value of stamps issued to, any individual manufacturer must be withheld. TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Washington, D. C., January 9, 1901. SIR: The Tobacco Leaf Publishing Company, of New York City, have notified this office that you have informed the company that you can not, under Circular No. 583, furnish them for publication a monthly statement of the value of cigar stamps, cigarette stamps, and manufactured tobacco and snuff stamps issued to manufacturers, holding that these data would be disclosing official information in contravention of the circular. In this connection, you are advised that the regulations, series 7, No. 8, revised January 20, 1900, concerning the manufacture and sale of tobacco products, on page 64, provides that collectors may furnish for publication to any person interested a monthly statement of the aggregate receipts from the sale of stamps for tobacco, snuff, cigars, and cigarettes, but they will not furnish to any person, for any purpose, any data which would show the quantity of tobacco, or snuff, or the number of cigars or cigarettes manufactured by any person, firm, or corporation, nor information relating to the sale of stamps to individual manufacturers. This circular (No. 583) does not affect the regulations, and Circular No. 354, dated December 9, 1890, relating to information to be furnished trade journals, has not been revoked. The office has no objection to collectors furnishing information relating to aggregate monthly receipts from the sale of stamps, when such information does not disclose the business of an individual manufacturer. If you have but one manufacturer of tobacco, snuff, or cigars in your district, any information relating to the receipts from that source must be withheld. Respectfully, J. W. YERKES, Commissioner. Mr. L. J. SOUR, Collector Internal Revenue, New Orleans, La. (264.) Modifying existing regulations in relation to returns required from manufacturers of, and wholesale dealers in, oleomargarine. [Regulations No. 9, revised January, 1900.-Supplement No. 2.] TREASURY DEPARTMENT, OFFICE OF COMMISSIONER OF INTERNAL REVENUE, Section 5 of the act of Congress approved August 2, 1886, reads, in part, as follows: That every manufacturer of Oleomargarine shall file with the Collector of Internal Revenue of the district in which his manufactory is located such notices, inventories and bonds, shall keep such books and render such returns of material and products, shall put up such signs and affix such number to his factory, and conduct his business under such surveillance of officers and agents as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, may, by regulations, require. Section 41 of the act of Congress approved October 1, 1890, is as follows: That wholesale dealers in Oleomargarine shall keep such books and render such returns in relation thereto as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, may, by regulations, require, and such books shall be open at all times to the inspection of any Internal Revenue officer or agent. The returns to be made and the books to be kept by manufacturers of and wholesale dealers in oleomargarine are fully set forth in regulations series 7, No. 9, revised. Hereafter, in all cases where the regulations require that returns of manufacturers of, or wholesale dealers in, oleomargarine shall be made under oath, such returns must be signed and sworn to by the manufacturer, or wholesale dealer, as the case may be, if an individual, and if a firm, by some member of the firm; and if the manufacturer or wholesale dealer be an incorporated company, then by the president, vice-president, secretary, or treasurer of the corporation, and such officer or officers must be authorized by proper act of the corporation to so sign and swear to such returns. Hereafter collectors will refuse to accept returns from manufacturers of, or wholesale dealers in, oleomargarine, which are not signed and sworn to as herein required, beginning with returns for the month of January, 1901. Any regulations or instructions in conflict with the foregoing are hereby rescinded. Collectors of internal revenue will place a copy of this supplement in the hands of each manufacturer of, and wholesale dealer in, oleomargarine, in their respective districts without delay. J. W. YERKES, Commissioner. Approved: L. J. GAGE, Secretary of the Treasury. |