GENERAL INSTRUCTIONS A. CLASSIFICATION OF INCOME OF ESTATES AND For the purpose of the income tax, income of estates and trusts may be divided into two classes: First: Income, the tax upon which is imposed upon the estate or trust and the tax paid by the fiduciary, consisting of (a) Income received by estates of deceased persons during the period of administration or settlement except as provided in "f" below; (b) Income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent in terests; (c) Income held in trust for future distribution under the terms of the will or trust. Second: Income, the tax upon which is imposed upon and paid by the beneficiaries, consisting of (d) Income which is to be distributed to beneficiaries period. ically whether or not at stated intervals; (e) Income collected by the guardian of an infant to be held or distributed as the court may direct; (f) Income of the estate of any deceased person which during B. RESIDENT AND NONRESIDENT ESTATES AND For the purpose of the income tax, estates and trusts are (a) resident estates and trusts, or (b) nonresident estates and trusts. If the decedent was at the time of his death a resident of New York State, his estate is a resident estate and any trust created by his will is a resident trust. If the decedent was at the time of his death a nonresident, his estate is a nonresident estate and any trust created by his will is a nonresident trust. If the creator of a trust was at the time the trust was created a resident of New York State, the trust is a resident trust. Conversely, if the creator of a trust was at the time the trust was created a nonresident of the State, the trust is a nonresident trust. The residence or situs of the fiduciary does not in any sense control in the classification of estates and trusts as resident or nonresident. C. INFORMATION (NON-TAXABLE) RETURNS ON (a) Income which is to be distributed to beneficiaries (b) Income collected by the guardian of an infant to be held or distributed as the court may direct, (e) Income of the estate of any deceased person which dur ing the period of administration or settlement, is properly paid or credited to any legatee, heir or other beneficiary. No tax is to be paid by the fiduciary on this return as the income is taxable to the beneficiaries, but there shall be included in computing the net income of each beneficiary, his distributive share, whether distributed or not, of the net income of the estate or trust for the taxable year. D. TAX RETURNS ON FORM 200 OR 201 FOR ESTATES AND TRUSTS. The fiduciary of every resident estate or trust must make a tax return on Form 200 or 201 and the fiduciary of every nonresident trust or estate must make a tax return on Form 200 or 201a and pay the tax on the taxable income of each estate or trust taxed as an entity, having a net income of $1,000 or more during the taxable year in the case of (a) Income received by estates of deceased persons during the period of administration or settlement; (b) Income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interest. (e) Income held for future distribution under the terms of a will or trust. In (a) the fiduciary is entitled to deduct the amount of income properly paid or credited to any beneficiary. In the absence of any specific allocation of income under the will or deed of trust every distribution shall be deemed to apply ratably to taxable and non-taxable income of the estate or trust. The fiduciary of a resident estate or trust is entitled to a personal exemption of $1,000 in ascertaining the tax liability of the estate or trust. The fiduciary of a nonresident estate of trust is not entitled to any personal exemption whatever E. TAX RETURNS FOR BENEFICIARIES. Every fiduciary must make a return of income on Form 200 or 201 for every individual whose entire income is in charge of such fiduciary, if such individual is a resident and ha net income is $2,000 or over, if living with husband or wife, or $1,000 or over in other cases. If such individual is a nonresident, the fiduciary must make a return of income of such individual on Form 200-a or 201-a, regardless of the amount of his taxable income. In all such cases, the fiduciary must pay the tax duo thereon. F. RETURN FOR DECEDENT. If the net income of a decedent from the beginning of a taxable year to the date of his death is $1,000, if unmarried, or $2,000 if married and living with wife or husband, the execu tor or administrator shall make a tax return for such decedent on Form 200 or 201 if he was a resident, or on Form 200-a or 201-a if he was a nonresident, and pay the tax due thereon. G. RETURNS WHERE MORE THAN ONE TRUST. In the case of two or more trusts the income of which is taxable to the beneficiaries, which were created by the same person and are in charge of the same trustee, the trustee may at his option make a single return on Form 205 for all such trusts, notwithstanding that they may arise from different instruments. When, however, a trustee holds trusts created by different persons for the benefit of the same beneficiary, he shall make a return on Form 205 for each trust separately. H. ACCRUED OR RECEIVED INCOME. (a) On a cash basis, that is reporting income received and (b) On an accrual basis, that is showing income accrued and expenses, etc., incurred or accrued, in accord with the method of accounting regularly employed in keeping the accounts of the estate or trust provided such rethod clearly reflects its true income. If the books are not kept on the accrual basis, fiduciaries should report income received sed expenses paid, but in any event, must report all the income of the estate or trust even if not entered on the books. If income is reported on the cash basis there must be included all income constructively received, such as bank interest credited or interest coupons due and collectible, but not collected. I. PERIOD TO BE COVERED BY RETURN. The dates on which the period covered by the return began and ended, if other than the calendar year 1919, must be plainly stated at the head of the return. If the books of the estate were regularly closed in 1919 at the end of some month other than December, the return must be made on the basis of the fiscal year which ended in 1919. J. WHEN AND WHERE RETURNS SHOULD FE FILED. This return should be filed at the office of the New York State Income Tax Bureau, Albany, N. Y., and should be sent or mailed on or before March 15, 1920. Penalties attach for failure to file return within the time required by law. Fiduciaries should become familiar with the Comptroller's regulations concerning estates and trusts, fiduciaries and fiduciary returns, which will be sent on request. SPECIFIC INSTRUCTIONS The following instructions are numbered to correspond with the questions of the return, and relate to the corresponding questions and items therein. (a) Salaries, wages and other compensation State of New York between June 1, 1917, and received as an official or employee of the May 14, 1919 United States in civil, military or naval service. (b) Interest upon bonds or other obligations of the United States (c) luterest on securities issued under the July 17, 1916, and on bonds of the War Finprovisions of the Federal Farm Loan Act of ance Corporation INSTRUCTION 8-NON-TAXABLE IN- of the State of New York or of any munic The following classes of income are exempt from taxation and need not be reported on page 2 of the return but should be entered and reported in reply to question 8 (d) Interest on bonds or other obligations ipal corporation or political subdivision of the State of New York (but interest on the obligations of other states and their political subdivisions is taxable) (e) Interest on bonds or other obligations on which the juvestment tax was paid to the CONCERNING PAGE 2 OF RETURN (a) Report bere all dividends including Those from personal service corporations received in 1919 whether paid in cash. "tock or other property except dividends received in 1919 which were declared payable to stockholders of record in 1918 (b) When dividends are paid in property or stock of the corporation the fair market value of property or stock of the corporation at the time made payable should be reported and a statement should be attached to the return explaining the valuation placed on such dividends (c) The time when the profits distributed in dividends were earned by the corporation is of no significance under the State Income Tax Law that law differing somewhat in that respect from the Federal Income Tax Law. INSTRUCTION 11 INCOME FROM PARTNERSHIPS, AND FROM OTHER ESTATES AND TRUSTS. or Report the whare of the estate or trust whether distributed or not) in the net in rowe of a partnership, or other estate trust, during the accounting period (whether fiscal or calendar year) of the partnership or other estate or trust which cuded during your taxable year (whether fiscal or calendar Jear). INSTRUCTION 12 INCOME BUSINESS OR PROFESSION FROM (IN Estates or trusts Laving several businesses BUY submit 5 separate schedule for each business in the same form as that shown on The return and enter the combined total net income on item W of the return. Report here income from (a) Sales of merchandise, or of the prod its of manufacturing, construction, mining and agriculture (b) Farms, fishing and logging operations (c) Business service, such as transporta fion, storage, laundering, hotel and restaurant service, livery and garage service, etc In general, report in item 12 any income in the earning of which expenses for labor, rent, etc., were incurrel Do not report here partnership profits which should be entered under item 11. or dividends from personal service corporations, which should be entered under New 10 Income received from the sale of lands, buildings, equipment stocks, bonds and other property not dealt in as a business should be reported under items 14 or 15 Income Accrued or Received: See Instruc. tion on the reverse side of this page. Item a - Kind of business: State kind of goods dealt in or kind of services rendered and whether manufacturer, jobber, wholesaler, retailer, importer, broker, etc Items to an Cost of goods sold. Do not include cost of business equipment or faralture, expenditures for permaneat Improvements to property, or living and family expenses of any beneficiary. OTHER BUSINESS DEDUCTIONS Interest: Do not include bere interest on business indebtedness. All deductible interest is to be claimed specifically as a deduction in item 18a. Item p-Tores Do not include taxes for local benefits of a kind tending to increase the value of the property assessed as for paving, etc, nor income taxes. Item 9-Repairs, depreciation and depletion Report here (a) Minor repairs required to keep prop. erty in usable condition; (b) A reasonable allowance for exbaustion, wear and tear to-the extent not offset by re pairs, replacements or lowes claimed as de ductions in this return. (c) Any claim for depletion of mines, olf and gas wells or timber lands (f) Gifts (other than those received as conand property acquired under a will or by in sideration for service rendered) and money beritance that the income derived therefrom must be included in gross income, subject to the provisions of the law) (g) Proceeds of life insurance policies and contracts paid on the death of the insured, to individual beneficiaries or the estate of the insured (but the income therefrom must be reported), but the aciouat by which the total received on surrender or expiration of policies during the life of the insured exceeds the total premiums paid, is income and must be reported in item 16 INSTRUCTION 14-PROFIT (OR LOSS) DEALT IN AS A BUSINESS: Sale price. State the actual consideration or price or in the case of an exchange, the value of the property received. fair market Cust Enter the original cost of the prop erty or if it was acquired before January 1, 1919 the fair market value on that date. For the manner of determining the fair market value on Jaouary 1, 1919, see regulations. INSTRUCTION 15-PROFIT (OR LOSS) FROM THE SALE OR EXCHANGE OF LANDS, BUILDINGS AND OTHER PROPERTY NOT DEALT IN ASA BUSINESS: Sale price State the actual consideration or price or in the case of an exchange the fair market value of the property received. Cost: Enter in item F the cost of the prop erly or if it was acquired before January 1, 1919, its fair market value on that date. Depreciation See Instruction 12 above. INSTRUCTION 18-GENERAL DEDUCTIONS: (a) Interest on indebtedness: Show the total interest paid by the estate or trust. If it has no non taxable income, the fiduciary may de duct all the interest paid by the estate or Trust If it has non taxable income, the fiduciary may deduct only a proportion of the interest paid to be determined as fatlows To the gross taxable income of the es The amount claimed for depreciation should fate or trust add its non-taxable income. be based on some approved accounting Thist will give its "total gross income. method and must be based on the cost of the The fiduciary is entitled to deduct such a property (or its value on January 1, 1919. if acquired before that date) Do not claim depreciation for articles that have been taken into your inventory proportion of the interest paid by the es tate or trust, 88 its gross txable income bears to ha total gross income. re (b) Tases Report here al taxes paid by the estate or trust not already claimed as a deduction in the foregoing part of the turn except (a) taxes for local benefits of a kind tending to increase the value of the property assessed, (b) income taxes or (c) estate or inheritance taxes. (D) Contributions Report here the amount of gross income which pureuant to the terms or the will or deed creating the trust, was, during the period covered by this return, paid to of permanently set aside for the United Statée at any state, territory. or any political subdivision thereof. or the District of Columbna Gi 3DY or corporation association organized and operated exclusively for religious. cbaritable. scientific or educational purposes, or for the prevention of cruelty to Children or animels no part of the net earnings of which cares to the benefit of any private stockholder or Individual. Bad Debts Bad debts arising out of loans not connected with basiness, may be reported bete CHAPTER XXXIX NEW YORK STATE FRANCHISE TAX ON CORPORATIONS Amendments to the New York Franchise Tax Law (enacted June 4, 1917) were approved May 14, 1919. The 1917 law applied only to manufacturing and mercantile corporations. With the exception of increasing the rate from 3 per cent to 42 per cent and including all business and financial corporations (with certain exceptions), the amendments have not made any radical changes in the 1917 law. The tax is imposed upon the privilege of a domestic corporation exercising its franchise in the state and, in the case of foreign corporations, upon the privilege of doing business in the state of New York. The basis of the tax is the entire "net income" reported to the United States. The law also provides for the payment of a minimum tax of not less than ten dollars and not less than one mill upon each dollar of an "apportioned" face value of capital stock.2 The 1919 law relieves all corporations from paying any personal property tax in the state of New York. An attempt has been made by the city of New York to collect personal property taxes from foreign corporations, but such action is clearly illegal. The State Tax Commission made the following statement on November 19, 1919. To resort to the contention that the imposition of such a personal property tax would be unconstitutional is not necessary, however, because section 7 of the tax law itself expressly and absolutely precludes the taxation of a foreign corporation upon its capital invested in business in the state except "to the same extent as if they were residents of the state." Domestic corporations not being subject to the personal property tax or to a tax upon capital stock, this 'For a discussion of "Doing business," see page 1007. 'Section 214 (6). provision seemingly concludes the whole matter by exempting the personal property and capital of all business corporations taxed. under Article 9 (a) of the tax law. Administration.-Administration of the law and collection of the tax are vested in the State Tax Commission, which consists of three commissioners, one of whom is president.3 Tax imposed on domestic and foreign corporations.— LAW. Section 209. For the privilege of exercising its franchise in this state in a corporate or organized capacity every domestic corporation, and for the privilege of doing business in this state, every foreign corporation, except corporations specified in the next section, shall annually pay in advance for the year beginning November first next preceding an annual franchise tax, Section 208. . . . . I. The term "corporation" includes a jointstock company or association; What constitutes "doing business" in the state?-It is sometimes hard to determine whether or not the acts or transactions of a non-resident individual, foreign corporation or partnership within the boundaries of a state constitute "doing business" within such state. Individuals or partnerships may do business in another state, may sue or be sued within such state and cannot be required to register or take out a license. Non-resident corporations, however, must register in order to maintain an action at law. The distinction does not affect taxation on net income arising from the doing of business; therefore where the word "corporation" is used in this discussion it should be regarded as including individuals, partnerships, corporations and associations. A foreign corporation may be doing business in a state so as to subject it to the process of its courts, and yet not be liable to taxes imposed by such state. In such a case the corporation would be engaged in doing business wholly of an interstate character. The state cannot, of course, place restrictions upon interstate commerce, and the courts have held 'Article 8, section 170 of the tax laws. that the subjecting of such corporations to the process of state courts is a "long way" from restricting interstate commerce. The New York Court of Appeals has declared: DECISION.. to be doing business in this state implies corporate continuity of conduct in that respect: such as might be evidenced by the investment of capital here, with the maintenance of an office for the transaction of its business, and those incidental circumstances which attest the corporate intent to avail itself of the privilege to carry on a business. (Penn. Collieries Co. v. McKeever, 183 N. Y. 98.) Generally speaking, if a corporation conducts and concludes in New York a series of transactions or regularly renders services in such state, constituting a substantial portion of its regular business, such corporation is doing business in the state. Occasional business transactions or rendering of services is not sufficient to subject it to the franchise tax law. The transactions must be completed within the state. The mere employment of traveling agents to solicit orders and send them to the home office for approval and filling does not constitute doing business in the state, so far as the franchise tax is concerned. The fact that an office is maintained in the state for the convenience of the agents soliciting orders to be executed in other states is not sufficient to bring such corporations within the purview of the law. If a corporation maintains no sales office in New York but keeps a supply of replacement parts in storage in New York from which sales are made, this would constitute doing business in this state so far as the part business is concerned. Likewise, the sending of machines into this state, to sell, try, rent; keeping a mechanic to make repairs, is doing business within the state. Activities such as the above would require the corporation to make a return of its entire business to this state in order to determine the portion of its entire net income that would be subject to the franchise tax. In case such a line of International Harvester Co. v. Kentucky, 234 U. S. 579; International Text Book Co. v. Tone, 220 N. Y. 313; and Tauza v. Susquehanna Coal Co., 220 N. Y. 259. Dalton Adding Machine Co. v. Virginia, 246 U. S. 498; 118 Va. 563. |