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PART II

THE BUSINESS CORPORATIONS TAX

BEING THE FRANCHISE TAX ON CORPORATIONS BASED ON NET INCOME

UNDER ARTICLE 9-A OF THE TAX LAW.

CHAPTER XI.

AMENDMENTS OF 1919 TO ARTICLE 9-a.

The franchise tax on manufacturing and mercantile corporations passed in June, 1917, by the Legislature of the State of New York, and known as Chapter 726 of the laws of that year, imposed a tax of 3% based on their net income returned to the Treasury Department under the Federal Income Tax Act. This law was amended in 1918 principally to settle doubtful portions deemed unconstitutional, and by Chapter 628 of the Laws of 1919, it was again amended. The important changes in Chapter 628 are given below.

1. Business corporations taxed. It brought within its provisions, by changes in the title and body of the act, all business corporations with the exception of those expressly exempted under Section 210 of the act.

2. Entire net income taxed.—Under Paragraph 3 of Section 208, it clearly outlined that the entire net income of the corporation was to be taxed and defined it thus:

"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.”

3. Foreign corporations' return.—It added to the first paragraph of Section 211 the following sentence:

"Any corporation not organized under the laws of any state within the United States shall state the facts in relation to its entire net income as though organized under the laws of this state.”

The purpose of this addition was to apportion the tax on the basis of the entire income earned by a foreign corporation doing business outside of the United States in the proportion that the income earned by it in the state bore to the entire income. In its return to the Treasury Department such foreign corporation may only return and be taxed on the income earned by it within the United States.

4. Stock in other corporations to be allocated.—It added subdivision 5 to Section 211. This subdivision included among the bases of the apportionment of income earned within the state by a corporation having assets elsewhere, the value of stock in other corporations owned by it, as allocated by the process set forth in Section 214. It reads as follows:

“5. The average total value for the fiscal or calendar year of the stock of other corporations owned by the corporation, and the proportion of the average value of the stock of such other corporations within the state of New York, as allocated pursuant to section two hundred and fourteen of this chapter.”

5. Segregation required.—It added to the eighth paragraph of Section 211 a provision for the segregation of assets where there was no income, in the following words:

"Corporations having no net income shall, however, complete the segregation of assets in every case."

The purpose

of this amendment was to enable the Tax Commission properly to allocate or apportion the minimum tax under the method of computation provided in Section 214 of the act.

6. Merged and consolidated corporations.-By more appropriate words in Section 214-a, referring to merged and consolidated corporations, it sought to prevent evasions of the law. The amended section, showing in the brackets the words omitted, and the new words by italics, are given below:

Sec. 214-a. Taxation of [merged or consolidated] corporations aoquiring assets or franchises of other corporations. If any corporation taxable under this article shall (take over] acquire either directly, indirectly or by merger or consolidation the major portion of

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the assets or the franchise of another corporation or of corporations Exercising any franchise or franchises or doing any business in this state during [the] any year (ending with the thirty-first day of October, such corporation shall make a consolidated report for all the corporations so merged or consolidated as though the merged or consolidated corporation had existed and done business as an entity throughout the year for which the report is made and shall be taxed for the year to ensue upon the basis of such report and as hereinbefore provided in this article), 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 not 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.

7. Rate now 412%.—The rate of tax in Section 215 was increased from 3 to 41/2%.

8. Comptroller may refund under 1919 law. The last paragraph of Section 219-j as it heretofore existed was omitted and a provision was inserted for the refunding by the Comptroller out of the current revenues in his hands, of excess taxes paid by a corporation by reason of a credit given by the Tax Commission under this section. A more convenient administrative arrangement for charging or crediting such taxes was provided in the 1919 law, which is given in full at the end of Chapter XVII infra.

9. Fixtures defined. It amended Section 219-1 by more clearly defining personal property as applied to manufacturing corporations. Differences resulting in construing the original section as changing the definition of real estate, had led to much litigation in connection with the assessment of buildings by local assessors. The amended section with the omitted words shown in brackets and the new words by italics, is given below:

Sec. 219-1. Personal property defined. The term “personal prop. erty,” for the purposes of the exemption from assessment and taxa

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