act any such amounts are to be properly accounted for as of a different period; but (2) does not include the following items which shall be exempt from income tax under this act; (a) any debt for rent or hire of real or personal property while owned by the landlord or hirer, and all income from lands used for agricultural purposes. (b) The proceeds of life insurance policies and contracts paid upon the death of the insured to an individual beneficiary or to the estate of the insured. (c) The amount received by the insured as return of premiums 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 the surrender of the contract. (d) The value of property acquired by gift, bequest, demise or descent, (but the income from such property shall be included in the gross income). (e) Interest upon obligations of the United States or its possessions; or securities issued under the provisions of the Federal farm loan act, of July 17, 1916; or bonds issued by the War Finance Corporation; or obligations of the State of Alabama, or of any municipal corporation or political sub-division thereof. (f) Any amount received through accident or health insurance, or under any workmen's compensation act 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, or through the war risk insurance act, or any law for the benefit or relief of injured or disabled members of the military or naval forces of the United States. (g) Salaries, wages and other compensation received from the United States by officers or employees thereof, including persons in the military or naval forces of the United States. (h) Income received by any officer of a religious denomination, or by any institution or trust for moral or mental improvement, religious, Bible, tract, charitable, benevolent, fraternal, missionary, hospital, infirmary, educational, scientific, literary, library, patriotic, historical, or cemetery purposes, or for the enforcement of laws relating to children or animals, or for two or more such purposes, if such income be used exclusively for carrying on one or more of such purposes; but nothing herein shall be construed to exempt the fees, stipend, personal earnings or other private income of such officer or trustee. (i) Interest on bonds, notes or other obligations secured by mortgage, conditional sale, agreement or contract, the privilege tax for the recording of which has been paid; (3) In the case of non-resident taxpayers and foreign corporations doing business in the State, gross income includes only the gross income arising from sources within the State, including interest on bonds, notes or other interestbearing obligations of residents, corporate or otherwise, the privilege tax for the recording of the mortgage securing which in the

State of Alabama has not been paid, and including all amounts received (although paid under a contract for the sale of goods or otherwise), representing profits in the manufacture and disposition of goods within the State of Alabama.

Section 324. DEDUCTIONS.-In computing net income, there shall be allowed as deductions: (a) all ordinary and necessary expenses paid or incurred during the taxable 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 and other payments required to be made as a condition of the continued use or possession for the purpose of 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 or accrued within the taxable year on indebtedness, but in the case of a non-resident or a foreign corporation, the proportion of such interest which the amount of gross income from sources within the State of Alabama bears to the amount of gross income from all sources within and without the State of Alabama. (c) Taxes paid or accrued within the taxable year imposed (a) by the authority of the United States; (b) by the authority of any of the possessions of the United States; (c) by the authority of any State or territory, including the State of Alabama, or of any county, school district, municipality or other taxing sub-division of any State or territory, but not including those assessed against local benefits of a kind tending to increase the value of the property assessed; or in the case of a non-resident individual or foreign corporation, taxes paid or accrued within the taxable year imposed by the authority of the State of Alabama or any county, school district, municipality or other taxing sub-division of the State of Alabama, plus the proportion of tax imposed by other authorities above mentioned which the amount of gross income from sources within the State of Alabama bears to the amount of gross income from all sources within and without the State of Alabama. (d) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in trade or business. (e) Losses sustained during the taxable 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; but in the case of a taxpayer other than a resident of the State, only as to such transactions within the State. (f) Losses sustained during the taxable year of property not connected with the trade or business (but in the case of a taxpayer other than a resident of the State, only of property within the State), 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 taxable year. (h) A

reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence. (i) In the case of mines, oil and gas wells, other natural deposits and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar conditions in each case based upon the cost, including cost of development not otherwise deducted; provided that in case of such property acquired prior to January 1, 1919, the fair market value of the property (or the tax-payer's interest therein) on that date shall be taken in lieu of the cost up to that date; provided further that in the case of mines, oil and gas wells discovered by the taxpayer on or after January 1, 1919, and not acquired as the result of a purchase of a proven tract or lease, where the market value of the property is materially disproportionate to the cost, the depletion allowance shall be based upon the fair market value of the property at the time of the discovery, or within thirty days thereafter; such reasonable allowance in all above cases to be made under rules and regulations to be prescribed by the State income tax supervisor. In the case of leasehold interests, the deductions allowed by this section shall be equitably proportioned between the lessor and the lessee. (j) Contributions or gifts made within the taxable year to recognized religious, charitable and scientific or educational institutions or institutions for the prevention of cruelty to children or animals which are not operated for profit and no part of the net. earning of which inures to the benefit of any private stockholder or individual, or contributions to the special fund for vocational rehabilitation authorized by section 7 of the United States vocational rehabilitation act, the amount of such deduction not to be, however, in excess of 15% of the taxpayer's net income as computed without the benefit of this paragraph. Such contributions or gifts shall be allowable as deductions only where made to institutions recognized as institutions for the above purposes under rules and regulations prescribed by the chairman of the State tax commission. In the case of a non-resident individual or foreign corporation, this deduction shall be allowed only as to contributions or gifts made to domestic corporations or institutions. within the State of Alabama or to such vocational rehabilitation fund, and as to such contributions to the vocational rehabilitation fund only in the proportion of the total of such contributions which the amount of gross income from all sources within the State of Alabama bears to the amount of gross income from all sources within and without the State of Alabama. (k) In the case of a non-resident individual or foreign corporation, the deductions allowed in paragraphs a, d, f, g, h and i, shall be allowed only if and to the extent that they are connected with income arising from a source within the State of Alabama, and a proper

apportionment or allocation of the deductions with respect to sources of income within and without the State of Alabama shall be determined under rules and regulations prescribed by the State tax commission. (1) Life insurance premiums to the extent of two hundred dollars annually.

Section 325. 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 or in making good the exhaustion thereof, for which an allowance is or has been made; or (d) premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the taxpayer when the taxpayer is directly or indirectly a beneficiary under such policy.

Section 326. EXEMPTIONS.-The following exemptions from income tax shall be allowed to every resident taxpayer: (a) The amount received as dividend from a corporation which is taxable under this act upon its net income. (b) In the case of a single person, or a married person not living with husband or wife, a personal exemption of one thousand dollars; or in the case of a head of a family, or a married person living with husband or wife, a personal exemption of two thousand dollars. A husband and wife living together shall receive but one personal exemption or two thousand dollars against their aggregate net income; and in case they make separate returns, the personal exemption of two thousand dollars may be taken by either or divided between them. (c) Three hundred dollars for each person (other than husband or wife) dependent upon and receiving his chief support from the taxpayer, if such dependent person is under eighteen years of age or is incapable of self-support because mentally or physically defective.

Section 327. CREDIT FOR TAXES IN CASES OF TAXPAYERS OTHER THAN RESIDENTS OF THIS STATE.Whenever a taxpayer other than a resident of this State has become liable to income taxes to the State or country where he resides, upon his net income for the taxable year derived from sources within this State, and subject to taxation under this act, there shall be credited the amount of income taxes payable by him under this act, with such proportion of taxes so payable by him to the State or country where he resides as his income subject to taxation under this act bears to his entire income upon which the taxes so payable to such other State or country were imposed: provided that such credit shall be allowed only if the laws of said State or country grant a sub

stantially similar credit to residents of this State subject to income tax under such laws.

Section 328. PARTNERSHIPS.-Individuals carrying on business in partnerships shall be liable for income tax only in their individual capacity. There shall be included in computing the net income of each partner his distributive share, whether distributed or not, of the net income of the partnership for the taxable year, or, if his net income for the taxable year is computed upon the basis of a period different from that upon the basis of which the net income of the partnership is computed, then his distributive share of the net income of the partnership for any accounting period of the partnership ending within the fiscal or calendar year upon the basis of which the partner's net income is computed. Taxpayers who are members of partnerships may be required by the State income tax supervisor to make a return stating the gross receipts and net gains or profits of the partnership for any taxable year. The net income of the partnership shall be computed in the same manner and on the same basis as provided in computing the net income of individuals, except that the deduction provided in sub-division j of section 324 shall not be allowed and the personal exemption provided for in section 326 shall be allowed only to the individual part

ners.

Section 329. ESTATES AND TRUSTS.-1. The tax imposed by this act shall apply to the income of estates or of any kind of property held in trust. including: (a) Income received by estates of deceased persons during the period of administration or settlement of the estate. (b) Income accumulated in trust for the benefit of unborn or unascertained persons with contingent interests. (c) Income held for future distribution under the terms of a will or trust; and (d) income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct. 2. The fiduciary shall be responsible for making the return of income for the estate or trust for which he acts. The net income of the estate or trust shall be computed in the same manner and on the same basis as provided in this act for individual taxpayers, except that there shall also be allowed as a deduction any part of the gross income which pursuant to the terms of the will or deed creating the trust, is during the taxable year paid to or permanently set aside for the United States, any state, territory, or any political sub-division thereof, or the District of Columbia, or any corporation or association organized and operated exclusively for religious, charitable, scientific or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or