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Under the 1913 law non-resident alien individuals and foreign corporations were taxed on their net income from all property owned and from every business, trade or profession carried on in the United States. Owing to the ambiguity of the term "property” there was considerable doubt as to the extent to which non-residents were taxable. The language of the act was construed by the Attorney-General of the United States to exempt non-resident aliens from tax on interest from securities of American corporations and on dividends from the stock of such corporations, on the ground that the property from which such income was derived was intangible and its situs, for the purpose of the income tax, was the domicile of the owner in the foreign country. The Treasury never fully recognized this conclusion of the Department of Justice, and when the Supreme Court of the United States upheld the constitutionality of the act in its decision in the case of Brushaber v. Union Pacific Railway Co., decided January 24, 1916, the Treasury ruled that income accruing to non-resident aliens in the form of interest from bonds and dividends on the stock of domestic corporations was subject to the income tax imposed by the 1913 law (T. D. 2313).
In the case of Emily R. DeGanay (a citizen and resident of France) v. Ephraim Lederer, Collector, (250 U. S. 376) to determine the taxability under the act of October 3, 1913, of income from stocks and bonds of United States corporations, and bonds and mortgages secured on property in Pennsylvania, the Supreme Court of the United States rendered a decision on June 9, 1919, in which it said:
*For former procedure in general, see end of this chapter.
DECISION. In the case under consideration the stocks and bonds were those of corporations organized under the laws of the United States, and the bonds and mortgages were secured upon property in Pennsylvania. The certificates of stock, the bonds and mortgages were in the Pennsylvania Company's offices in Philadelphia. Not only is this so, but the stocks, bonds and mortgages were held under a power of attorney which gave authority to the agent to sell, assign, or transfer any of them, and to invest and reinvest the proceeds of such sales as it might deem best in the management of the business and affairs of the principal. It is difficult to conceive how property could be more completely localized in the United States. There can be no question of the power of Congress to tax the income from such securities. Thus situated and held, and with the authority given to the local agent over them, we think the income derived is clearly from property within the United States within the meaning of Congress as expressed in the statute under consideration.
All discussion on the construction of the language of the act of 1913 was set at rest by the 1916 law, and the amendments of 1917 made no further change. The 1918 law explicitly taxes non-resident alien individuals and corporations organized under the laws of foreign countries on the entire net income from sources within the United States, including interest on bonds, notes or other interest-bearing obligations of residents, corporate or otherwise, dividends from resident corporations and including all amounts received (whether paid under a contract for the sale of goods or otherwise) representing profits on the manufacture and disposition of goods within the United States.
A citizen of a possession of the United States, who is not otherwise a citizen or a resident of the United Statesincluding only the states, the territories of Alaska and Hawaii, and the District of Columbia—is treated for the purpose of the 1918 law as if he were a non-resident alien individual.
The power of Congress to tax income accruing to aliens is not generally questioned, but the wisdom of so doing has been the subject of much discussion and argument before Congress and before the officers charged with the duty of administering the law. The question becomes acute if the non-resident alien is liable in this country for our war-excess profits taxes, as well as for our income taxes, and will be taxed again in his own country on the same income. In the case of one large taxpayer it was stated that combined United States and British taxes for 1917 aggregated 71 per cent of his entire income. This hardship has been alleviated somewhat by the new law, which permits non-residents to make a deduction for foreign taxes (except income, war profits and excess profits taxes and taxes assessed against local benefits of a kind tending to increase the value of the property assessed) upon property or business, to the extent that they are connected with the income arising from a source within the United States. As the taxes that are excepted, however, are the heaviest taxes imposed by foreign countries, and as tax rates have been increased everywhere, the aggregate taxes paid by non-residents deriving income from sources within the United States were heavier under the 1918 law than they had ever been before.
Test of Residence Residence as defined in 1915.—An early Treasury decision reads as follows:
Ruling. “Residence” as used in subdivision I, paragraph A of the act of October 3, 1913, . . . . is held to be: “That place where a man has his true, fixed and permanent home and principal establishment, and to which whenever he is absent, he has the intention of returning; and indicates permanency of occupation as distinct from lodging or boarding, or temporary occupation.”
For the purpose of the income tax, it is held that where for business purposes or otherwise, an alien is permanently located in the United States, has there his principal business establishment and is there permanently occupied or employed, even though his domicile may be without the United States, he will be held to be within the definition of "every person residing in the United States, though not a citizen thereof.....
Aliens coming to the United States with the intention of becoming residents thereof, within the meaning and intent of the income tax statute, may establish that fact and have the privilege of resident aliens under the statute by filing with withholding agents a certificate (form 1078) under oath, and which certificate shall be
filed by said withholding agents with collectors of internal revenue as justification for withholding on the basis of "residence" in the United States. (T. D. 2242, September 17, 1915.)
Meaning of “non-resident alien” in 1919.—The most recent regulations of the Treasury deal with the question of residence in the following language:
WHO IS A NON-RESIDENT ALIEN INDIVIDUAL?
REGULATION. “Nonresident alien individual” means an individual (a) whose residence is not within the United States and (b) who is not a citizen of the United States. Any alien living in the United States who is not a mere transient is a resident of the United States for purposes of the income tax. Whether he is a transient or not is determined by his intentions with regard to his stay. If he lives in the United States and has no definite intention as to his stay, he is a resident. The best evidence of his intention is afforded by the conduct, acts and declarations of the alien. The typical transient is one who stops for a short time in the course of a journey through the United States, sometimes performing labor, sometimes not, or one who enters the United States intending only to stop long enough to carry out some purpose, object or plan not involving an extended stay. A mere floating intention, indefinite as to time, to return to another country is not sufficient to constitute him a transient. (Art. 312.)
ALIEN SEAMAN–WHEN TO BE REGARDED AS RESIDENT.
REGULATION. In order to determine whether an alien seaman is a resident within the meaning of the income tax law, it is necessary to decide whether the presumption of nonresidence is overcome by facts showing that he has established a residence in the territorial United States, which consists of the States, the District of Columbia, and the territories of Hawaii and Alaska, and excludes other places. Residence may be established on a vessel regularly engaged in coastwise trade, but the mere fact that a sailor makes his home on a vessel flying the United States flag and engaged in foreign trade is not sufficient to establish residence in the United States, even though the vessel, while carrying on foreign trade, touches at American ports. An alien seaman may acquire an actual residence in the territorial United States, within the rules laid down in article 312 although the nature of his calling requires him to be absent from the place where his residence is established for a long period. An alien seaman may acquire such a residence at a sailor's boarding house or hotel, but such a claim should be carefully scrutinized in order to make sure that such residence is bona fide. The filing of form 1078 (revised), or taking out first citizenship papers is proof of residence in the United States from the time the form is filed or the papers taken out, unless rebutted by other evidence showing an intention to be a transient. The fact that a head tax has been paid on behalf of an alien seaman entering the United States is no evidence that he has acquired residence, because the head tax is payable unless the alien who is entering the country is merely in transit through the country. An alien may remain a nonresident although he is not in transit through the country. .... (T. D. 2869, signed by Commissioner Daniel C. Roper, and dated June 20, 1919, Art. 312a.)
WHEN THE WAGES OF A NON-RESIDENT ALIEN SEAMAN ARE DERIVED FROM SOURCES WITHIN THE UNITED STATES.
REGULATION. While resident alien seamen are taxable like citizens on their entire income from whatever sources derived, nonresident alien seamen are taxable only on income from sources within the United States. Ordinarily, wages received for services rendered inside the territorial United States are to be regarded as from sources within the United States. The wages of an alien seaman earned on a coastwise vessel are from sources within the United States, but wages earned by an alien seaman on a ship regularly engaged in foreign trade are not to be regarded as from sources within the United States, even though the ship flies the American flag, or although during a part of the time the ship touched at United States ports and remained there a reasonable time for the transaction of its business. The presence of a seaman aboard a ship which enters a port for such purposes of foreign trade is merely transitory and wages earned during that period by a nonresident alien seaman are not taxable. There is no withholding from the wages of alien seamen unless they are nonresidents within the rules laid down in articles 311 to 315. Even in the case of a nonresident alien seaman, the employer is not obliged to withhold from wages unless those wages are from sources within the United States as defined above. .... (T. D. 2869, amending Reg. 45 by inserting Art. 92a.)
PROOF OF RESIDENCE OF ALIEN.
REGULATION. An alien's statements as to his intention with regard to residence are not conclusive, but when unequivocal will determine the question of his intention, unless his conduct, acts or other surrounding circumstances contradict the statements. It sometimes occurs that an alien who genuinely intends his stay to be transient may put off his departure from time to time by reason of changed conditions, remaining a transient though living in the United States for a considerable time. The fact that an alien's family is abroad does not necessarily indicate that he is a transient rather than a resident. An alien who enters this country intending to make his home in a