CHAPTER XXIII.

BRIEF ANALYSIS OF THE PERSONAL INCOME TAX.

The tax levied upon personal incomes introduced in this state in 1919 by Chapter 627 of the laws of that year, marks an innovation in New York State's fiscal policy.

In general, it may be said that the New York law has copied the Federal Income Tax Act, substituting "taxpayer other than a resident" for "non-resident alien" and "January 1, 1919," for "March 1, 1913." The remedial procedure and method of collection in the New York Corporation Tax Laws (Arts. 9 and 9-a) are substituted for the Federal procedure. Remedies and collections are treated in full under Part III.

Under this act all single persons residing in the state having incomes of $1,000 or more and married persons having incomes of $2,000 or more will pay the state on or before March 15th, next, a tax based on the following graduated scheme:

Rate of Tax.-1% of incomes up to and including $10,000. 2% of amount of net income in excess of $10,000 but not exceeding $50,000. 3% of the amount of net income in excess of $50,000.

Payment. This tax, like the Federal Tax, is self-assessed and payable at the time of the making of the return, which is coincident with that of making the federal income tax return, except that it is payable in one instalment. Provision is made for an exemption of $200 for each dependent.

Non-residents.-Non-residents (individuals) of the state are taxed at the same graduated rates upon the income from all property owned and from every business, trade, or profession carried on in the state, without the personal exemption.

First assessment for 1919.-The tax shall first be levied, collected and paid in the year 1920 upon and with respect to the tax

able income for the calendar year 1919, or for any taxable year ending during the year 1919.

Exemptions:

(a) The tax is imposed on single persons receiving more than $1,000 and on married persons earning more than $2,000. Provision is made for an exemption of $200 for each dependent.

(b) Proceeds of life insurance policies.

(c) Return premiums of insurance.

(d) The value of property acquired by gift, bequest, devise or descent (but not the income therefrom).

(e) Interest on government obligations, federal farm loan securities, war finance corporation bonds, interest on obligations of New York State, or of any municipal corporation or political subdivision thereof; income from securities on which the tax on investment has been paid under Section 331 of the New York Tax Law.

(f) Amounts received through accident or health insurance, or under workmen's compensation acts, compensation for personal injuries or sickness, plus damages received by suit or agreement on account of such injuries or sickness, or through war risk insurance or any law for the benefit or relief of injured or disabled members of the United States military or naval forces.

(g) Salaries received by federal employees including those in the military and naval forces.

(h) Income received by officers of a religious denomination or by

any institution 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.

Determination of net income.-The determination of net income under the law is arrived at by deducting from the gross income reported, the amount of the deduction allowed under the law.

The ascertainment of gain or loss through the exchange of property or through merger or consolidation or through reorganization, the computation of net income through inventory, the definition of gross income and the various deductions allowed for business expense, interest, taxes, losses, bad debts, depreciation, depletion, contribution and the items not deductible for personal expenses, permanent improvements, restoration of property, premiums for life insurance covering the life of officer or employee, are substantially the same as those under the federal law.

Deduction of non-residents.-Non-residents of the state are only allowed such proportion of deduction as the income arising from sources within the state bears to the total income. The proper apportionment and allocation of deductions with respect to sources of income within and without the state shall be determined under rules and regulations prescribed by the comptroller.

Returns.

Partnerships.-Partnerships must file a return stating the items of gross income, allowable deductions and the names and addresses of individual partners, with the distributive share of each, the partners being taxed in their individual capacity on their proportionate share in the business.

Estates and trusts.—Estates and trusts are taxed practically the same as under the provisions of the Federal Income Tax Law, except that a non-resident estate shall be deemed one where the estate belongs to a person not a resident of the state at the time of his death, and shall be taxed in the same manner as individual non-residents. The return of income by estates and trusts must be made by the fiduciary. Where income is received during periods of administration or in settlement of the estate, or accumulated for the benefit of unascertained persons or persons with a contingent interest, or for future distribution under the terms of the will or trust, the tax shall be assessed against the estate or trust instead of against the beneficiary.

In the case of income which is distributed to the beneficiary periodically and in case of income collected by a guardian of an

infant, to be held or distributed as the court may direct, and in the case of income of an estate during the period of administration or settlement, the tax shall not be paid by the fiduciary but there shall be included in computing the net income of each beneficiary, his distributive share whether distributed or not. In such cases the income of a beneficiary of such estate or trust not a resident, shall be taxable only to the extent, derived from sources within the state.

Information returns and withholding agents.-A withholding agent, under paragraph 10 of Subdivision 350, includes "All individuals, corporations, associations and partnerships, in whatever capacity acting, including lessees, or mortgagors of real or personal property, fiduciaries, employers, and all officers and employees of the state, or of any municipal corporation or political subdivision of the state, having the control, receipt, custody, disposal or payment, of interest, rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments or other fixed or determinable annual or periodical gains, profits and income taxable under this article, and shall make return of complete information concerning such rent, salaries, wages, etc., and shall deduct and withhold 2% from all "salaries, wages, commissions, annuities, emoluments, and other fixed or determinable annual or periodical gains, profits and income, of which he shall have control, receipt, custody, disposal or payment, if the amount paid or received or to be paid or received in any year equals or exceeds $1,000, unless there shall be filed with the withholding agent before the time to return any payment, a certificate prescribed by the comptroller, to the effect that the person entitled to such salary, wage, commission, etc., is a resident and setting forth his residence in the state.

A withholding agent is required to make a return on or before March 15th, and shall at the same time be compelled to pay the tax withheld to the comptroller.

Corporations and partnerships are made liable for the tax and indemnified against claims and demands by individuals or partnerships.

Income withheld shall be included in the return of the recipient of such income, and that the amount withheld shall be credited to the amount of the income tax in each case.

Administration of the law by the comptroller.-The State Comptroller shall administer the law dividing the state into convenient tax districts. No district to be less than a county.

Powers of comptroller: revision and readjustment.—The comptroller may in his own discretion, where an incorrect return is filed, revise the same on his own motion. He may make examinations of the books and records of the taxpayer and take testimony.

Revision and readjustment. Certiorari.-The taxpayer has the same rights of revision and to the review of the courts by certiorari as under Articles 9 and 9-a of the Tax Law.

Penalties. A person failing to make a return or making a false or fraudulent return is guilty of a misdemeanor and is liable to a fine of not exceeding $1,000 or imprisonment not exceeding one year, or both. Penalties are provided for delay in making returns.