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GOVERNMENT NEW YORK ing items and are fully discussed herein:

Depreciation, profits and losses in federal returns are calculated upon cost or value at March 1, 1913; in the state returns the calculations are based upon values at January I, 1919.

Interest paid is not fully deductible in state returns. The taxation of interest received depends on the source from which derived.

Special inventory and net losses are not
deductible in state returns.
Income from personal services*
Fees, as director, First National Bank,
N. Y. .............

200.00 200.00 Salary as U. S. Army officer ($4,000)... 500.00

Ruling. “. . . . The federal act includes in 'gross income' the compensation received by federal officers and employees, and so much of the salary .... received during the present war for active service by a person in the military or naval forces of the United States as exceeds $3,500.

"Under the federal statute** .... compensation paid its officers and employees by a state or political subdivision thereof is not taxable.

".... The state act expressly exempts compensation received from the United States by federal officers and employees and of persons in the military or naval forces of the United States. . . . . It does not exempt compensation of state and municipal officers and employees. ....” (A. B. C., Question 40.) Salary as director N. Y. Hospital. ......



*The comptroller has held that when services were rendered prior to January 1, 1919, and collected subsequently the amount collected is not taxable. See ruling dated December 17, 1919, holding that renewal commissions earned by an insurance agent prior to January 1, 1919, are not taxable income when collected in 1919 when the commissions were payable without further effort on the part of the agent.

**The federal law provided for such a tax, but the Treasury ruled that it has no authority to collect the tax. (See page 50.)


GOVERNMENT NEW YORK Law. Section 359. "The term “gross income': 2. Does not include the following items which shall be exempt from taxation under this article:

"g. 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 foi *wo or more of such purposes, if such income is used exclusively for carrying out one or more of such purposes; but nothing herein shall be construed to exempt the fees, stipends, personal earnings or other private income of such officer or trustee.” Profit from sale of land, buildings, stocks, etc.:

Stock acquired 1910—Market

value March 1, 1913. ...... $2,600.00
Sold in 1919 for............ 3,900.00 1,300.00

Under the state law, the date from which to measure gain or loss in such transactions is January 1, 1919, instead of March 1, 1913.

REGULATION. “For the purpose of ascertaining the gain or loss from the sale, gift, exchange or other disposition of property the basis is (a) its fair market price or value as of January 1, 1919, if acquired prior thereto, or (b) if acquired on or after that date, its cost or its approved inventory value. In both cases proper adjustment must be made for any depreciation or depletion. sustained. ...." (Art. 91.) Gifts GIFT TO WIFE OCTOBER 1, 1919

Stock cost $1,000 in 1910; fair market value at date of gift was $15,000; fair mar


GOVERNMENT NEW YORK ket value at March 1, 1913, was $5,000; fair market value January 1, 1919, was $10,000. Under the federal law there is no tax.

REGULATION. ".... Gifts, whether charitable contributions or otherwise, constitute a disposition of property which may result in a profit or loss to be measured by the difference between the cost (or the value on January 1, 1919, if acquired prior thereto) and the value at the date of the gift.” (Art. 91.)

Under the foregoing it would seem that there should be returned for taxation $5,000, that being the difference between value at January 1, 1919, and the value at the date of the gift. The state law, however, taxes only "gains, profits and income," and in the opinion of the author no taxable income arises from a gift and no tax can be imposed unless and until the law is amended to require the inventorying of appreciation in values. (For discussion of appreciation of property values, see page 334.).

The fair market value of this stock on January 1, 1919, was $3,500. The gain to be reported to the state is therefore. .........

400.00 Income from rents....

1,100.00 1,100.00 Income from interest

New York Electric Lighting Co. "ta
free"* ..................

100.00 100.00 Great Britain and Ireland. ......

110.00 State of New York ($100). ......

City of Detroit ...................... ....... 400.00 RULINGS. “.... The federal statute exempts interest upon the obligations of all states, territories or political subdivisions


*The obligor will pay $2 tax on account of this item of interest which is a credit against the individual's federal taxes. The state of New York does not require withholding at the source, therefore no credit can be taken in the New York return. The federal government requires that the $2 be reported as additional income, and the state of New York makes the same requirement. (Art. 21.) For discussion of this subject, see page 413


GOVERNMENT NEW YORK thereof, or the District of Columbia, while the state act exempts only interest on the obligations of the state of New York and the municipal corporations or political subdivisions thereof." (A. B. C., question 40.)

There would not be reported, however, any "interest on investments upon which the investment tax has been paid since June 1, 1917, under section 331 of the tax law, for the years for which such tax shall have been paid.” (A. B. C., question 39.)

Interest on mortgage note and bank
deposits ...........................

75.00 75.00
Taxable interest on obligations of United
States issued after September 1, 1917 1,420.00

........ Ruling. “The federal act exempts [interest on) the obligations of the United States or its possessions and bonds issued by the War Finance Corporation, but provides in relation to obligations of the United States issued after September 1, 1917, and in relation to bonds issued by the War Finance Corporation, that the interest shall be exempt only if and to the extent provided in the respective acts authorizing the issue thereof, as amended and supplemented. The state law exempts entirely the interest from those securities. ...." (A. B. C., question 40.) Cash dividends received ....

625.00 625.00 Dividends paid out of surplus accumulated prior to March 1, 1913, are not taxable by the federal government, but all dividends are taxable by the state of New York, except when paid out of capital, capital surplus or capital reserves. Dividends declared prior to January 1, 1919, are not taxable because deemed to be part of the capital of the taxpayer at that date.

It may be assumed that all dividends received by taxpayers on January 1, or January 2, 1919, were made payable to stockholders of record prior to January 1, 1919, and therefore are not taxable. Dividends re


GOVERNMENT NEW YORK ceived after January 2, 1919, may be taxable, depending on date of declaration.

Under the federal law dividends are free from the normal tax, but no similar credit is granted by the New York law. Even though federal taxes have been paid by the corporations, thus reducing the amount payable in dividends, the amount paid in taxes should not be reported as additional income.

REGULATION. .... Dividends are income for the year in which payable, regardless of when the earnings or profits out of which they were paid were accumulated, except that dividends declared payable to stockholders of record prior to January 1, 1919, are to be excluded from gross income even if received on or after January 1, 1919. Although interest on United States bonds and certain other obligations is not taxable when received by a corporation, upon amalgamation with other funds of the corporation such income loses its identity, and when distributed to stockholders in dividends is taxable to the same extent as other dividends." (Art. 61.) Stock dividends • REGULATION. A dividend paid in stock of the corporation is income to the amount of the fair market value of the stock received as a dividend. (Art. 63.)

See Chapter XXI, “Stock Dividends."

Total income from above sources.......


$20, 110.00

General deductions not included above
Interest paid or accrued

The New York law in reference to interest deductions allowed residents is not clear. The section provides :

Law. Section 360. “. . . . 2. In the case of a resident of the state such a proportion of the total interest paid or accrued during the taxable year on indebtedness, as the net

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