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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.10

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, ...,

The foregoing section of the law (214) is the one which controls the computation of the tax. It would seem that accounts and notes receivable arising from sales made by offices in the state of New York and filled from stocks outside and manufactured outside the state should be included among items segregated as outside the state. In form 3 IT for 1919 such accounts and notes are required to be included to the aggregate of assets within the state. The law may have intended to require the computation called for in form 3 IT. If so the language of the law fails to carry out its intention. Section 211 describes the reports which must be made and provides that accounts and notes receivable arising from sales made within the state from stocks outside of, and manufactured outside of, the state should be included among items segregated as within the state. The sections therefore are conflicting, but section 214 would seem to control section 211.

The method of apportionment adopted to determine what part of the income of a corporation engaged in business within and without the state is to be taxed, is by reference to a prescribed formula. This formula attributes a definite proportion of the corporation's entire net income to the state of New York. The numerator of such fraction is made up of the items specified in subdivisions 1, 2 (a, b, c) and 3 of section 214; the denominator, of the items mentioned in subdivisions 4, 5 (a, b, c) and 6 of the same section. The resulting ratio is then applied against the "entire net income” and the amount thus apportioned is subject to the tax imposed. The chief difficulty in using the formula prescribed by the law is that the segregations required are often almost impossible to obtain.

Preparation of return.—The following schedule illustrates the procedure to be followed in preparing a return. If a corporation is taxable, or consents to be taxed, on its "entire net income,” it may omit the data appearing in the first column, “Total Notes and Accounts Receivable.”

A copy of form 3 IT appears at the end of this chapter.

Total
NOTES AND
ACCOUNTS
RECEIVABLE

TOTAL
TANGIBLE

DISTRIBUTION OF
TOTAL PERSONAL

TANGIBLE PERSONAL PROPERTY
REAL PROPERTY
PROPERTY? (Merchandise,

Equipment, | NEW YORK BUFFALO ROCHESTER

Etc.) I COUNTY COUNTY COUNTY

1919

January 31..
February 28...
March 31......
April 30....

............................
May 31.....

..............................
April 30.....
May 31. ....
June 30. .....
July 31...........

.............................
August 31. ........
Ñ September 30.......

October 31. ..........
November 30.......
December 31.....

Totals...

$ 15,000.00

20,000.00
14,000.00
16,000.00
28,000.00
32,000.00
45,000.00!
38,000.00
27,000.00
18,000.00
40,000.00
50,000.00
38,000.00
34,200.00

$ 25,000.00

15,000.00
20,000.00
20,000.00

20,000.00
· 20,000.00

20,000.00
20,000.00
20,000.00
20,000.00
20,000.00
20,000.00
30,000.00
30,000.00

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$ 55,000.00 $ 35,000.00 $ 10,000.00 $ 10,000.00 70,000.00

35,000.00 20,000.00 15,000.00
75,000.00

35,000.00 25,000.00 15,000.00
60,000.00 30,000.00 20,000.00 10,000.00
50,000.00 25,000.00 10,000.00 15,000.00
70,000.00 35,000.00 15,000.00 20,000.00
50,000.00 25,000.00 10,000.00 15,000.00
25,000.00 15,000.00 5,000.00 5,000.00
20,000.00 10,000.00 5,000.00 5,000.00
25,000.00 10,000.00 10,000.00 5,000.00
30,000.00 15,000.00 5,000.00 10,000.00
40,000.00 25,000.00 10,000.00 5,000.00
70,000.00 35,000.00 25,000.00 10,000.00

80,000.00 40,000.00 20,000.00 20,000.00
$720,000.00

$370,000.00 $190,000.00 $160,000.00 $ 60,000.00 (c)$ 30,833.33 (c)$ 15,833.33(e) $13,333-34

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(a) Averages, New York only..
(b) Total segregated assets within and

without the state..............

$75,100.00

$ 75,000.00

$130,000.00

The averages (a) and (b) are to be entered on face of form 3 IT.
The distribution of tangible personal property (c) is to be entered on the back of form 3 IT.

"The law calls for a further separation of the receivables into three classes (see page 1018). In many cases it is not practicable to follow out the above plan literally, i. e., to inake the segregation of receivables to the state of New York from the trial balance; in such cases it is necessary to estimate the classifcation of the receivables.

It is assumed that all of the real property in New York is located in the county of New York. Il located in other parts of the state of New York, it would be distributed to such other counties.

Taxation of corporations acquiring assets or franchises of other corporations.

LAW. Section 214-a. If any corporation taxable under this article shall acquire either directly, indirectly or by merger or consolidation the major portion of the assets or the franchise of another corporation or of corporations exercising any franchise or franchises or doing any business in this state during any year, it shall include in its own next annual return, in addition to its own entire net income, so much of the entire net income of the corporation or corporations whose assets or franchises it acquired as shall not have been used or included in measuring a franchise tax to this state, and shall be taxed upon such combined entire net incomes for the year to ensue and as hereinbefore provided. The provisions for a minimum tax shall be applied only when under such provisions a tax will result in excess of the amount which would be produced by a tax on entire net income as hereinbefore provided and then in lieu thereof.

This section shall be construed as having been in effect as of the date of the original enactment of article nine-a of the tax law, as added by chapter seven hundred and twenty-six of the laws of nineteen hundred and seventeen.

The 1917 law did not contain a similar provision. The 1917 law became effective June 4, 1917, and taxes were assessed for the year beginning November 1, 1917.

Blank forms furnished by the State Tax Commission on application.

Law. Section 213. .... Blank forms of the report shall be furnished by the tax commission, on application, but failure to secure such a blank shall not release any corporation from the obligation of making a report herein required. The commission may require a further or supplemental report under this article to contain further information and data necessary for the computation of the tax herein provided.

Time and place of filing returns.

Law. Section 211. Every corporation taxable under this article as well as foreign corporations having officers, agents or representatives within the state shall annually on or before July first, or within thirty days after the making of its report of entire net income to the United States treasury department for any fiscal or calendar year, transmit to the tax commission a report in the form prescribed by the tax commission. ....

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