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paid with the filing of the return the excess shall be paid by the taxpayer within thirty days after the corrected computation has been mailed by the Comptroller.
If the amount as computed is less than the amount previously paid, the difference shall be refunded by the
Comptroller out of the proceeds of the tax retained by him. Presumably taxes deducted at the source in excess of the amount to which the State is entitled are returned in this way. An important feature of the new Act is the fact that Exemption
of Certain certain personal property owned by an individual or
Personal constituting a part of a trust or estate subject to the in- Property come tax imposed by this law and from which
from Tax is derived shall not after July 31, 1919 be included in the personal property assessment rolls of the State, or its political sub-divisions. The personal property So exempted from the assessment rolls consists of money on hand, on deposit or at interest, bonds, notes and choses in action and shares of stock in corporations other than banks and banking associations. In general, the income tax virtually supersedes the personal property tax in its application to income-producing bonds, money, stock, etc.
In disposing of property, either real or personal, by Profit and sale, maturity, gift or other form, the amount of gain Loss in or loss is the difference between the cost of the property Individual and the selling price, unless the property was purchased or Partner
ship prior to January 1, 1919. In that case the cost would be considered the fair market value of the property as of that date.* A dealer inventorying his stock would be governed by the inventory value.
*Market values as of the nearest business day of January 1, 1919, are given for a considerable number of representative issues beginning on Page 43.
The Comptroller has issued regulations treating a gift of property in the same manner as a sale; that is the gift when made would create profit or loss to the extent of the difference between the cost of the property or market value as of January 1, 1919, if acquired prior thereto and the market value as of the date the gift is made. According to the Federal regulations in their present form, property disposed of by gift does not create profit or loss.
In disposing of a gift the profit or loss to be determined Disposing of for State income tax purposes would be the difference
between the market value of the property as of the date received or as of January 1, 1919, if acquired prior thereto and the value received through its sale or other disposition.
In the case of an estate or beneficiary of an estate the cost price is the appraised value of the property as of
the date of death of the decedent unless the appraised Beneficiary
value as of that time was made prior to January 1, 1919 in which case the cost price would be the fair market value as of January 1, 1919.
Losses resulting from a shrinkage in value of securities caused by a decline in the market or otherwise may not be written off for tax purposes, except in the case of a "dealer in securities,” who is permitted to inventory his holdings as stock in trade. Losses are an allowable deduction, however, when sustained as the result of actual disposition of the security by maturity, sale or otherwise.
of an Estate
If a security becomes worthless its value may be de ducted in arriving at the amount of net income subject to the tax for the year in which the security was ascertained to be worthless and actually charged off on the records of the taxpayer. The amount of the deduction is limited, however, to the cost of the security or if acquired prior to January 1, 1919 its market value as of that date. In the case of an estate or beneficiary, the appraised value as of the date of the death of the decedent is the governing factor unless such appraisement was made prior to January 1, 1919 in which case the market value of the security at that time is taken. Satisfactory proof must be submitted showing the worthlessness of the obligation. This proof need not necessarily show court proceedings, but will be sufficient if it indicates adequately that even though legal action had been taken, it in all probability would not have resulted in the satisfaction of a judgment. Should any value be received later on, either as the result of a payment or other disposition of the security, such value would be income in its entirety for the taxable year in which received.
Practically all of the covenants made by various corporations to assume that portion of the tax which they of Tax-Free are called upon or allowed to deduct or withhold at the source include deductions required by States as well as those required by the Federal Government. Deductions at the source under this Act are required with respect to payments made in the form of compensation for personal services and are not required in connection with payments made in the form of interest, etc. This automatically relieves the various corporations, whose obligations contain the so-called Tax-Free Covenant clause, from liability with respect to assuming any portion of the tax. The Act goes still further in stating:
"It shall be unlawful for any person to agree or contract directly or indirectly to pay or assume or bear the burden
of any tax payable by any taxpayer under the provisions of this article. Any such contract or agreement shall be null and void and shall not be enforced or given effect by any court."
Under the Federal Act an amount not in excess of 2% is required to be withheld at the source where the obligation contains the so-called Tax-Free Covenant, with the result that under certain conditions where the clause exists the issuing corporation pays for account of the taxpayer, 2% of the interest payment. The taxpayer in turn takes credit for the item in finally computing the tax to be paid. The Treasury Department at Washington have held that the tax so paid by the corporation constitutes additional income to the taxpayer and is subject to both normal and surtax rates.
As pointed out, the taxpayer is not entitled under the New York State Personal Income Tax Law to any benefit from the so-called Tax-Free Covenant clause. Following the Federal regulations, however, the New York State authorities have ruled that the tax so paid by the issuer under the provisions of the Federal Act and to the Federal Government must be considered by the taxpayer as additional income subject to the tax.
Dividends paid in cash insofar as they are paid from earnings or profits represent income for the year in which they are paid, regardless of when such earnings or profits were accumulated, except that dividends de clared payable to stockholders of record before January 1, 1919, are free from the tax, even though received on or after that date.
The payment of dividends in securities or other property of the corporation other than its own stock is treated in the same manner and represents income subject to
Dividends Received by a Resident
the tax to the extent of the market value of the property received as of the date the dividend is payable.
Concerning dividends paid in stock of the corporation, the Comptroller has ruled that it represents “income to the amount of the fair market value of the stock received as a dividend. But stock distributions made out of surplus when there are no earnings or profits, are free from tax as dividends." In this connection the Comptroller has issued more detailed regulations. Limited space, however, does not permit of a general discussion of them. The subject of dividends paid in stock of a corporation is necessarily considerably involved and it would seem of value to those receiving income in this form to consult, prior to filing the tax return, with the office of the Comptroller or others qualified to give assistance in the matter.
In respect to dividends, whether paid in cash, in other property or in stock of the corporation paying the dividend, the Federal Law and regulations recognize as free from the tax any distribution made by a corporation out of earnings or profits accumulated prior to the date the law affected income (March 1, 1913). The State Law defines “dividend” to mean:
any distribution made by a corporation out of its earnings or profits to its shareholders or members, whether
in cash or in other property, or in stock of the corporation” but does not specifically exclude distributions made from earnings or profits accumulated prior to January 1, 1919, the date the law affected income. The regulations of the Comptroller provide that
“ * * * Dividends are income for the year in which payable, regardless of when the earnings or profits out of which they were paid were accumulated, except that dividends declared payable to stockholders of record prior to January 1, 1919, are to be excluded from gross income, even if received on or after January 1, 1919. * * * ”