« PreviousContinue »
SECTION 701 (a) AND (c) (8) OF THE REVENUE ACT OF 1934
fa) For each year ending June 30, beginning with the year ending June 30, 1934, there is hereby imposed upon every domestic corporation with respect to carrying on or doing business for any part of such year an excise tax of $1 for each $1,000 of the adjusted declared value of its capital stock.
(c) The taxes imposed by this section shall not apply
(3) to any domestic corporation in respect of the year ending June 80, 1934, if it did not carry on or do business during a part of the period from the date of the enactment of this Act to June 30, 1934, both dates inclusive; or * * *
ART. 31. Nature of the tax.—The tax is an excise tax imposed with respect to the carrying on or doing business by a corporation during any part of a taxable year ending June 30. It is an excise tax on carrying on or doing business and not on the business itself. See articles 51 and 93.
ART. 32. Application of the tax.—The words “carrying on or doing business” must be given their ordinary and natural significance. “Business” is a very comprehensive term and embraces whatever occupies the time, attention, or labor of men for the purpose of livelihood or profit. In other words, business necessarily involves the idea of the pursuit of gain. If a corporation was organized for profit and is doing what it was principally organized to do in order to realize profit, it is doing business.
As a general rule corporations are organized to do business, and ordinarily if a corporation has embarked in business its corporate organization is maintained to that end until the business is completed (as, for example, a real estate subdivision developed and sold), abandoned (as, for example, where prospective oil properties are proven to be worthless), or turned over to another (as, for example, where the use and control of all its property is conveyed under a long-term lease), or the control and management of all its business and property are assumed by a Federal, State, Territorial, or court officer, either temporarily or for final liquidation (as, for example, a conservator, a trustee in bankruptcy, or a receiver).
If a corporation does not fall within one of the foregoing classes, but nevertheless claims exemption on the ground that it was entirely inactive during the whole of a taxable period, doing nothing more than holding its property, a detailed statement of its activities during the taxable period will be required. Any activities with respect to its properties or business other than such as are necessary to their protection and retention (as paying taxes thereon) will subject the corporation to the tax.
In most cases there will be no difficulty in determining whether a corporation is doing business. In cases where there is doubt the decision must necessarily depend upon the facts presented. Doing business (on or after May 10, 1934) for any part of a taxable year ending June 30 results in liability for the tax for the entire year.
Corporations will be presumed to be subject to the tax unless they submit proof, satisfactory to the Commissioner, that they have not actually carried on or done business (on or after May 10, 1934) for any part of the taxable year. If a corporation claims exemption on the ground that it was organized for the sole purpose of owning and holding property and distributing its avails and that it is not otherwise engaged, or that it has retired from the business for which organized, it will be required to file an excerpt from its charter setting forth its corporate powers; copies of the minutes of all meetings of the board of directors held during the taxable year; an itemized statement of receipts and disbursements for such period, including money borrowed and loaned, as well as all property disposed of or acquired; and a comprehensive statement showing the nature of the activities, if any, in which the corporation was actually engaged during the taxable period. (See articles 89 and 95.)
A corporation that has retired from business is one that has changed its status, as, for instance, by divesting itself of all control over and management of the property formerly employed by it in the doing of business, and has reduced its activities accordingly.
The leasing of all the property of a corporation, whereby it divests itself of all control and management thereof, or the sale of all the property of a corporation and the reduction of its activities to the mere collection of the proceeds of the sale on an installment plan, are other instances of retirement from business.
ART. 33. “Carrying on or doing business ” illustrated.—Corporations organized for the purpose of, and actually engaged in, such activities as buying, selling, or dealing in mineral or timber land or other real estate; leasing property; collecting rents; managing office buildings; leasing lands and collecting royalties; managing wharves; and in some cases investing profits or surplus, are engaged in carrying on or doing business within the meaning of the statute. No particular amount of business is required in order to bring a company within the terms of the Act.
A corporation may complete its organization and sell its capital stock for cash without incurring liability, but additional activities, such as entering into contracts for the purchase of property or construction of a plant, constitute the doing of business. In other words, it is not necessary that a company be actually engaged in manufacturing or that it be actually creating profit or gain to incur liability. Making contracts, buying materials or machinery, constructing buildings, employing and discharging individuals, are necessary business acts leading to the ultimate object of engaging in manufacturing.
The letting of a contract and the construction of a hotel preparatory to engaging in the hotel business are sufficient activities to constituto doing business.
A corporation organized for the purpose of, and actually engaged in, buying mineral or timber land or other real estate and holding it for future sale at an advance is carrying on or doing business.
A corporation organized for the purpose of owning and leasing real estate, which has leased all of the property under its control, may still be engaged in doing business unless, under the terms of its lease, its activities have been reduced to the mere receipt and distribution of the avails of the leases at the actual cost of so doing. If it is maintaining its organization for the purpose of continued effort in the pursuit of profit or gain, it is doing business.
A corporation owning or managing real estate, which leases all of its property but under the terms of the lease is required to maintain or keep the property in repair, is doing business.
A corporation engaged in mining or in developing or speculating in mineral lands is doing business.
A corporation engaged in buying and selling securities or other property is doing business, even though for a period it makes no purchase or sale because of unfavorable market conditions.
A corporation organized for the purpose of taking over and holding securities is held to be doing business if it makes investments or reinvestments of its surplus income or funds in excess of an amount necessary to maintain its original investments.
A corporation formed to take over miscellaneous stocks, bonds, or other property (as of an estate), to negotiate sales of various items from time to time as opportunity and judgment dictate, and to distribute the profits as liquidation is effected, is, while so engaged, carrying on or doing business.
A parent corporation which finances or manages the operations of its subsidiaries is doing business.
A corporation organized for the purpose of uniting in one ownership the undivided, fractional interests of its various stockholders in real properties, and to own, conveniently manage, and distribute to the stockholders the proceeds of the properties as disposed of, is, while so engaged, carrying on or doing business.
A corporation owning and leasing property on a royalty basis is doing business.
A corporation which has leased all of its properties for a long term to one who operates them is, nevertheless, engaged in business, if, under the terms of the lease, it is required to and does engage in activities necessary to enable the lessee properly to manage and operate the leased properties. It makes no difference that the activities are performed on the behalf and under the order of the lessee, nor that such acts are not of major importance.
A corporation which has retired from its principal business (as, for example, the manufacture of automobiles) by turning that part of its business over to another is, nevertheless, doing business, if it engages in or carries on other activities which constitute doing business within the meaning of the Act.
ART. 34. Capital stock.—The term “ capital stock” as used in the statute is not to be construed technically so as to include only the sum fixed by the charter of the corporation as the amount paid or to be paid in by the stockholders for the prosecution of the business of the corporation and the benefit of its creditors, but it also includes surplus (whether earned or paid in), undivided profits, and contributions to capital. In the absence of a fixed share capital the term is equivalent to the net value of the property owned by the corporation.
Art. 35. Rate of tax.—The tax is imposed at the rate of $1 for each $1,000 of the adjusted declared value of the capital stock of a corporation. See article 43.
ADJUSTED DECLARED VALUE
SECTION 701 (f) OF THE REVENUE ACT OF 1934
(f) For the first year ending June 30 in respect of which a tax 18 Imposed by this section upon any corporation, the adjusted declared value shall be the value, as declared by the corporation in its first return under this section (which declaration of value cannot be amended), as of the close of its last income tax taxable year ending at or prior to the close of the year for which the tax is imposed by this section (or as of the date of organization in the case of a corporation having no income-tax taxable year ending at or prior to the close of the year for which the tax is imposed by this section). For any subsequent year ending June 30, the adjusted declared value in the case of a domestic corporation shall be the original declared value plus (1) the cash and fair market value of property paid in for stock or shares, (2) paid in surplus and contributions to capital, (8) its net income, (4) the excess of its income wholly exempt from the taxes ? imposed by Title I over the amount disallowed as a deduction by section 24 (a) (6) of such title, and (5) the amount of the dividend deduction allowable for income tax purposes, and minus (A) the value of property distributed in liquidation to shareholders, (B) distributions of earnings or profits, and (0) the excess of the deductions allowable for income tax purposes over its gross income; adjustment being made for each income-tax taxable year included in the period from the date as of which the original declared value was declared to the close of its last income-tax taxable year ending at or prior to the close of the year for which the tax is imposed by this section. The amount of such adjustment for each such year shall be computed (on the basis of a separate return) according to the income tax law applicable
to such year. * * * ART. 41. Definitions. As used in this chapter the term
(a) Original declared value means the value of the capital stock as first declared by the corporation in its capital stock tax return for the first taxable year.
(6) Taxable year means any year, ending June 30, with respect to which a corporation is subject to the tax under section 701.
(c) Income-taw taxable year means the calendar year, fiscal year, or fractional part of a year with respect to which the corporation is required to file a return for Federal income tax purposes, irre