derived from holding the stocks and bonds of other corporations.” It does not apply merely to owning corporations but to purely hold ing corporations. If the word holding before the word corporations be eliminated from the sentence then all companies deriving their principal income from stocks and bonds would be entitled to exemption from the provisions of Article 9-A of the tax law and the contention of certain securities holding companies could not be gainsaid. But the wording holding, as used in the statute before the word corporations must have some definite meaning as affecting the word corporations and it is difficult to ascribe any such meaning except that of the ordinary significance in business, that is to say, that of a company holding stocks for purposes of control. REAL ESTATE CORPORATIONS.- -It should be noted that real estate corporations to be exempt under this section must be "wholly engaged in the purchase, sale and holding of real estate for themselves." Therefore, a real estate corporation engaged in the purchase, sale and renting of real estate for others would not be exempt from the provisions of this law, and would be required to file a return. Rate of tax. LAW. Section 215. The tax imposed by this article shall be at the rate of four and one-half per centum of the entire net income of the corporation or portion thereof taxable within the state, determined as provided by this article. Minimum tax. LAW. Section 214. It is further provided that every domestic corporation exercising its franchise in this state and every foreign corporation doing business in this state, other than those exempted by section two hundred and ten of this chapter, shall be subject to a minimum tax of not less than ten dollars and not less than one mill upon each dollar of the apportionment of the face value of its issued capital stock apportioned to this state, which shall be determined by dividing the amount of the real and tangible personal property in this state by the entire amount of the real and tangible personal property as shown in the report, and multiplying the quotient by the face value of the issued capital stock. If such a corporation has stock without par value, then the base of the tax shall be on such a portion of its paid in capital as its real and tangible personal property in this state bears to its entire real and tangible personal property. Basis of the tax.-The tax is based on the "entire net income" upon which the corporation pays a tax to the United States, unless the payment so made will be less than the minimum under the state law. In that case the minimum tax must be paid. The federal statute has prescribed what shall constitute "net income," and the state of New York has adopted that standard. The "entire net income" is "presumably" the same. as that reported to the Treasury. The Tax Commission is not authorized to change such income reported to it, except (1) where there has been "fraud, evasion or error," and (2) where the net income reported to the United States has been changed by the Commissioner of Internal Revenue. 8 LAW. Section 209. ... every domestic corporation, and for the privilege of doing business in this state, every foreign corporation . . . . shall annually pay . . an annual franchise tax, to be computed by the tax commission upon the basis of its entire net income for its fiscal or the calendar year next preceding, as hereinafter provided, which entire net income is presumably the same as the entire net income upon which such corporation is required to pay a tax to the United States. "Entire net income" defined. LAW. Section 208. . . . 3. The term "entire net income" means the total net income before any deductions have been made for taxes paid or to be paid to the Government of the United States on either profits or net income or for any losses sustained by the corporation in other fiscal or calendar years whether deducted by the Government of the United States or not. This section of the law did not appear in the original act. but was added as one of the amendments in 1919. It would seem that the section is intended to exclude the extraordinary deductions provided in the 1918 federal law for inventory losses and for net losses occurring in any taxable year beginning November 1, 1918, and ending not later than December 31, 1919." "See page 1014. Section 219(d). 'See Chapter XXVII. As to all other losses the same deductions should be made in the state returns as in the federal returns. The New York law excludes all losses sustained in prior years and inferentially includes all losses sustained in the taxable year. Under the federal law, losses sustained in prior years can only be deducted by filing amended returns, except in the cases of inventory and net losses mentioned above. Federal income and excess profits taxes not deductible in determining "entire net income."-The Court of Appeals in a recent decision, dated July 15, 1919 (People ex rel. Barcalo v. Knapp et al.), held that federal income and excess profits taxes are not deductible in determining the "entire net income" as defined in the New York law. The court's reasoning is as follows: DECISION. . . . It should be borne in mind that we are to reach the correct comprehension of the net income which those statutes require to be returned or reported to the United States Treasury Department, and not of the amount those statutes require the tax to be paid upon. The federal statutes define the taxable net income as including gains, profits and incomes from manifold sources, subject only to such exemptions and deductions as they allow. (Laws of 1916, Chapter 463, sections 1 (a), 2; laws of 1917, Chapter 63, Title 12, section 1200.) They state the exemptions they allow (Laws of 1916, Chapter 463, sections 4, 7, II; laws of 1917, Chapter 63, Title 12, section 1200), and the deductions. (Laws of 1916, Chapter 463, sections 5, 12; laws of 1917, Chapter 63, sections 1201, 1203, 1208.) Neither the exemptions nor the deductions include the income taxes or the excess profits tax. "The tax shall be computed upon the net income, as thus ascertained." (Laws of 1916, Chapter 463, sections 8, 13; laws of 1917, Chapter 63, sections 1204, 1208.) The sections I have referred to have no relation to the excess profits tax. They relate to the income tax or the war income tax. Within them or within the other sections relating to those taxes it is not enacted that the net income to be returned is affected by or dependent in any way upon those taxes or the excess profits tax. Title II of Chapter 63 of the laws of 1917 provides for the excess profits tax. The discussion does not require consideration of it. The act of 1917 amended Title I of the act of 1916 by adding to part 3, relating to general administrative provisions, six new sections (Laws of 1917, Chapter 63, section 1211), of which section 29 is: "That in assessing income tax the net income embraced in the return shall also be credited with the amount of any excess profits tax imposed by act of Congress and assessed for the . same calendar or fiscal year upon the taxpayer, and, in the case of a member of a partnership, with his proportionate share of such excess profits tax imposed upon the partnership." This provision does not affect the definition of the words "net income" as established by the statute. It provides that in the case of the corporation, partnership or individual liable for the excess profits tax, the net income returned to the United States shall, in assessing the income tax upon that net income, be credited with the amount of the excess profits tax. . . . This case arose under the franchise tax law of 1917 and involved "entire net income" under the federal laws of 1916 and 1917. The principle of the case, however, is applicable to the new laws, both state and federal, and it can be regarded as finally disposing of the question. The 1919 state law, it will be remembered, defines "entire net income" as excluding federal income and profits taxes as a deduction.1o Computation of the tax.-The computation of the tax is simple in the case of a corporation transacting business only in the state, but in case a corporation does business within and without the state, the computation is somewhat difficult, unless the corporation consents to be taxed upon its entire net income.11 CORPORATIONS WHOSE ENTIRE BUSINESS IS TRANSACTED WITHIN THE STATE. LAW. Section 214. If the entire business of the corporation be transacted within the state, the tax imposed by this article shall be based upon the entire net income of such corporation for such fiscal or calendar year as defined in section two hundred and eight of this chapter subject, however, to any correction thereof for fraud, evasion or error, as ascertained by the state tax commission. . . . CORPORATIONS TRANSACTING BUSINESS WITHIN AND WITHOUT THE STATE OF NEW YORK.-The following section sets. forth a very involved procedure to be followed in apportioning 10 Section 208 (3). "See page 1025. the "entire net income" when business is done within and without the state. LAW. Section 214. . . . . If the entire business of such corporation be not transacted within the state, the tax imposed by this article shall be based upon a proportion of such entire net income, to be determined in accordance with the following rules: The proportion of the entire net income of the corporation upon which the tax under this article shall be based, shall be such portion of the entire net income as the aggregate of 1. The average monthly value of the real property and tangible personal property within the state. 2. The average monthly value of bills and accounts receivable for (a) personal property sold by the corporation from merchandise manufactured by it within this state; (b) personal property sold by the corporation from merchandise owned by it and located within the state at the time of the acceptance of the order, but not manufactured by it within this state; and (c) services performed within this state, excluding bills and accounts receivable arising from sales made from a stock of merchandise or other property located at a place of business maintained by the reporting corporation without this state. 3. The proportion of the average value of the stocks of other corporations owned by the corporation, allocated to the state as provided by this section, but not exceeding ten per centum of the real and tangible personal property segregated to this state under this article, bears to the aggregate of 4. The average monthly value of all the real property and personal property of the corporation, wherever located. 5. The average total value of bills and accounts receivable for (a) personal property sold by the corporation from merchandise manufactured by it within and without this state; (b) personal property sold by the corporation from merchandise owned by it at the time of acceptance of the order but not manufactured by it; and (c) services performed both within and without this state, based on orders received at offices maintained by the corporation, excluding bills and accounts receivable on orders filled from a stock of merchandise or other property maintained by the corporation. 6. The average total value of stocks of other corporations owned by the corporation, but not exceeding ten per centum of the aggregate real and tangible personal property set up in this report. Real property and tangible personal property shall be taken at its actual value where located. The value of share stock of another corporation owned by a corporation liable hereunder shall for purposes of allocation of assets be apportioned in and out of the state in accordance with the value of the physical property in and out of the state representing such share stock, |