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The Excess profits tax law; act approved March 3, 1917 online

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The Excess Profits
Tax Law

Act Approved March 3, 1917






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Guarantv Trust Company
of New York



The Excess Profits
Tax Law

Act approved March 3, 1917



Guaranty Trust Company
of New York

140 Broadway

Fifth Avenue Office
Fifth Avenue and 43d Street

London Office Paris Office

32 Lombard Street, E. C. Rue des Italiens 1 & 3

(Opens May, 1917)



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COPYRIGHT, 1917
BY GUARANTY TRUST COMPANY OF NEW YORK



Contents






PAGE


Foreword


5


Synopsis of Law


7


Full Text of Law


14



355987



Foreword

The tax on excess profits is in addition to all
taxes heretofore imposed, and is eight per cent-
um upon the amount of annual net income in
excess of the sum of $5,000 and eight per
centum of the actual capital invested.

For example, a domestic corporation having

$200,000 actual capital invested, and $40,000

annual net earnings, would calculate the amount

of its tax as follows :

Net annual income $40,000

Amount exempt:

Specific exemption $5,000

8% of $200,000 16,000

Total exemption $21,000

Balance subject to 8% tax $19,000

Amount of Tax $1,520

Foreign corporations and partnerships, as well
as resident corporations and partnerships, are
subject to the tax, except that the tax is assessed
against foreign corporations and partnerships
only on income received from sources within the
United States, and exemptions are allowed pro-
portionately.

Net income, as shown by corporations on
returns filed pursuant to the provisions of the

[5]



Income Tax Law, Act of September 8, 1916, is
used as the basis for the assessment of the tax
and returns filed for the year of 1917, by cor-
porations having a net income in excess of
$5,000, shall include a full statement of capital
invested. Partnerships having a net income of
$5,000, or over must file returns setting forth the
actual capital invested and the gross income for
the taxable year. For the purpose of computing
net income, partnerships are allowed the same
deductions allowed individuals under Sections
five and six of the Income Tax Law.

Corporations exempt from the Federal In-
come Tax and partnerships similarly engaged
are exempt from taxation under the Excess
Profits Tax Law. Partnerships whose income
is derived from agriculture or from personal
services are also exempt.

The first taxable year is the calendar year end-
ing December thirty-first, 1917, but corporations
and partnerships having a fiscal year other than
the taxable year provided by law may make
returns for their fiscal year in accordance with
the provisions of the Income Tax Law.

March 3, 1917

[6]



Synopsis of

The Excess Profits Tax Law

/. Definitions — (Sec. 200).

1. "Corporation" — the term "corporation"
includes joint stock companies or associ-
ations, and insurance companies.

2. "United States"— the term "United
States" means only the States, the Terri-
tories of Alaska and Hawaii, and the Dis-
trict of Columbia.

3. " Taxable Year" — the term "taxable year"
means twelve months ending December
thirty-first, except in the case of a corpora-
tion or partnership allowed to fix its own
fiscal year, in which case it means such
fiscal year.

4. "First Taxable Year"— the "first taxable
year" shall be the year ending December
thirty -first, nineteen hundred and seven-
teen.

[7]



11. Corporations and Partnerships subject to
Tax— (Sec. 201).

1. Domestic corporations and partnerships

are subject to a tax of 8 per centum on the
amount by which the net income exceeds
the sum of (a) $5,000 and (b) 8 per centum
of the actual capital invested.

Exception — Income derived from business
of life, health and accident insurance
combined in one policy on weekly pay-
ment plan is exempt.

2. Foreign corporations and partnerships
including those located in the Philippine
Islands and Porto Rico are subject to tax
as follows:

a. Where actual capital is invested and
used or employed in the business in
the United States, a tax of 8 per
centum upon the amount of net in-
come received from all sources with-
in the United States in excess of the
sum of (1) 8 per centum of the actual
capital invested and used or em-
[8]



ployed in the business in the United
States, and (2) that proportion of
$5,000, which the entire actual
capital invested and used or em-
ployed in the business in the United
States bears to the entire actual
capital invested.

b. Where no actual capital is used or
employed in the business in the
United States, a tax of 8 per centum
upon that portion of net income
received from sources within the
United States in excess of the sum
of (1) 8 per centum of that propor-
tion of the entire actual capital
invested and used or employed in
the business which the net income
from sources within the United
States bears to the entire net income,
and (2) that proportion of $5,000,
which the net income from sources
within the United States bears to
the entire net income.

[9]



///. Actual Capital Iin^ested Includes —

{Sec. 202).

1. Actual cash paid in,

2. Actual cash value, at the time of payment,
of assets other than cash paid in, and

3. Paid in or earned surplus and undivided
profits used or employed in the business.

4. Provided that money or property borrowed

shall not be included.

IV. Net Income— {Sec. 203).

1. Tax shall be computed on the basis of net
income shown by income tax return made
in pursuance of the Income Tax Law, Act
of Congress lapproved Sept. 8, 1916, and
shall be assessed and collected at the same
time and in the same manner.

2. A partnership shall have the same privi-
lege with respect to fixing its fiscal year as
a corporation under the Income Tax Law.

3. Where a corporation or partnership makes
return prior to March 1, 1918, covering its

[10]



own fiscal year, and includes therein any
income received during the calendar year
ending December 31, 1916, the tax shall be
that proportion of the tax based upon such
full fiscal year which the time from Janu-
ary 1, 1917, to the end of such fiscal year
bears to the full fiscal year.

V. Corporations and Partnerships Exempt —

{Sec. 204).

1. Corporations exempt from tax under Sec-

tion 11, Federal Income Tax Law.

2. Partnerships doing or carrying on the same

business as exempt corporations, and

3. Partnerships whose income is derived from
agriculture or from personal services are
exempt from the provisions of the Excess

Profits Tax Law.

VI. Returns— (Sec. 205).

1. Corporations — Every corporation having a
net income of $5,000, or more, for the tax-
able year shall include in its income tax

[11]



return a detailed statement of the actual
capital invested.
2. Partnerships — ^Every partnership having a
net income of $5,000 or more for the tax-
able year shall file a return setting forth
specifically the actual capital invested and
the gross income for the taxable year. For
the purpose of computing net income, part-
nerships shall be allowed like deductions as
are allowed to individuals under Sections
5 and 6 of the Income Tax Law, Act of
Congress approved September 8, 1916.

VIL Assessment, Remission, Collection and
Refund of Taxes — (Sec. 206).
All administrative, special and general
provisions of law, including the laws in re-
lation to the assessment, remission collec-
tion, and refund of internal revenue taxes
not inconsistent with the provisions of this
Law, and likewise all provisions of the In-
come TsLK Law relating to returns and pay-
ment of the tax imposed, including pro-
visions relating to penalties, are made ap-
plicable to taxes required by this law.
[12]



VIII. Regulations of the Commissioner of
Internal Revenue — (Sec. 207).

The Commissioner of Internal Revenue,
with the approval of the Secretary of the
Treasury, shall make all necessary regula-
tions for carrying out the provisions of the
Law, and may require any corporation or
partnership subject to the provisions of the
Law to furnish him with such facts, data
and information as are necessary to collect
the tax.



13]



Definitions

"Corpor-
ation"



"United
States"



"Taxable
Year"



"First

Taxable

Year"



Taxable
Income



The
Excess Profits Tax Law

Title II of an Act entitled "An Act to provide increased
revenue to defray the expenses of the increased appropri-
ations for the Army and Navy and the extensions of fortifi-
cations, and for other purposes," Approved March 3, 1917.

Sec. 200. That when used in this title —

The term "corporation" includes joint-stock
companies or associations, and insurance com-
panies;

The term *' United States" means only the
States, the Territories of Alaska and Hawaii, and
the District of Columbia; and

The term "taxable year" means the t-welve
months ending December thirty-first, except in
the case of a corporation or partnership allowed
to fix its own fiscal year, in which case it means
such fiscal year. The first taxable year shall be
the year ending December thirty-first, nineteen
hundred sLnd seventeen.

Sec. 201. That in addition to the taxes under
existing laws there shall be levied, assessed, col-
lected, and paid for each taxable year upon the
net income of every corporation and partnership
organized, authorized, or existing under the laws
of the United States, or of any State, Territory,
or District thereof, no matter how created or
organized, excepting income derived from the

[14]



business of life, health, and accident insurance Domestic
combined in one policy issued on the weekly Corporations
premium payment plan, a tax of eight per centum g^- g * ®'"
of the amount by which such net income exceeds
the sum of (a) $5,000 and (b) eight per centum of
the actual capital invested.

Every foreign corporation and partnership. Foreign
including corporations and partnerships of the and^lStner^
Philippine Islands and Porto Rico, shall pay for ships
each taxable year a like tax upon the amount by
which its net income received from all sources
within the United States exceeds the sum of (a)
eight per centum of the actual capital invested Actual
and used or employed in the business in the United ^^^^^ i^^"
States, and (b) that proportion of $5,000 which United
the entire actual capital invested and used or em-
ployed in the business in the United States bears
to the entire actual capital invested; and in case no
such capital is used or employed in the business
in the United States the tax shall be imposed upon Actual

that portion of such net income which is in excess Capital

- , - / \ . , i, , not Invested

of the sum of (a) eight per centum of that propor- in United

tion of the entire actual capital invested and used States

or employed in the business which the net income

from sources within the United States bears to

the entire net income, and (b) that proportion of

$5,000 which the net income from sources within

the United States bears to the entire net income.

[15]



•'Actual
Capital
Invested"
Defined



Computation
of Tax



Income Tax
Return as
Basis of
Assessment



Partnership
Fixing Fiscal
Year



Adjustment
of Tax where
Returned
Prior to
March 1,1918



Sec. 202. That for the purpose of this title,
actual capital invested means (1) actual cash paid
in, (2) the actual cash value, at the time of pay-
ment, of assets other than cash paid in, and (3)
paid in or earned surplus and undivided profits
used or employed in the business; but does not
include money or other property borrowed by the
corporation or partnership.

Sec. 203. That the tax herein imposed upon
corporations and partnerships shall be computed
upon the basis of the net income shown by their
income tax returns under Title I of the Act en-
titled "An Act to increase the revenue, and for
other purposes," approved September eighth,
nineteen hundred and sixteen, or under this title,
and shall be assessed and collected at the same
time and in the same manner as the income tax
due under Title I of such Act of September eighth,
nineteen hundred and sixteen: Provided, That
for the purpose of this title a partnership shall
have the same privilege with reference to fixing
its fiscal year as is accorded corporations under
section thirteen (a) of Title I of such Act of Sep-
tember eighth, nineteen hundred and sixteen:
And provided further. That where a corporation or
partnership makes return prior to March first,
nineteen hundred and eighteen, covering its own
fiscal year and includes therein any income re-

[16]



ceived during the calendar year ending December
thirty-first, nineteen hundred and sixteen, the tax
herein imposed shall be that proportion of the tax
based upon such full fiscal year which the time
from January first, nineteen hundred and seven-
teen, to the end of such fiscal year bears to the
full fiscal year.

Sec. 204. That corporations exempt from tax Corporations

under the provisions of section eleven of Title I andPartner-
p 1 A , ^ • 1 1 • snipsExempt

of the Act approved September eighth, nineteen

hundred and sixteen, and partnerships carrying
on or doing the same business shall be exempt
from the provisions of this title, and the tax im-
posed by this title shall not attach to incomes of
partnerships derived from agriculture or from
personal services.

Sec. 205. That every corporation having a net Statement of
income of $5,000 or more for the taxable year ^^^^^,
making a return under Title I of such Act of Sep- invested by

tember eighth, nineteen hundred and sixteen, shall Corporation
«, P ^ - * 1 ' 1 ^ ' 1 tobeincluded

tor the purposes oi this title include m such return in Return

a detailed statement of the actual capital invested.

Every partnership having a net income of $5,000 Return of
or more for the taxable year shall render a correct Partnership
return of the income of the partnership for the
taxable year, setting forth specifically the actual
capital invested and the gross income for such
year and the deductions hereinafter allowed.
Such returns shall be rendered at the same time

[17]



Deductions
allowed Part-
nership



Administra-
tive, Special
and General
Provisions
of Law made
Applicable
Hereto



Regulations



Production
of Inform-
ation and
Data



and in the same manner and form as is prescribed
for income-tax returns under Title I of such Act
of September eighth, nineteen hundred and six-
teen. In computing net income of a partnership
for the purposes of this title there shall be allowed
like deductions as are allowed to individuals in
sections five (a) and six (a) of such Act of Septem-
ber eighth, nineteen hundred and sixteen.

Sec. 206. That all administrative, special, and
general provisions of law, including the laws in
relation to the assessment, remission, collection,
and refund of internal-revenue taxes not hereto-
fore specifically repealed and not inconsistent with
the provisions of this title are hereby extended and
made applicable to all the provisions of this title
and to the tax herein imposed, and all provisions
of Title I of such Act of September eighth, nine-
teen hundred and sixteen, relating to returns and
payment of the tax therein imposed, including
penalties, are hereby made applicable to the tax
required by this title.

Sec. 207. That the Commissioner of Internal
Revenue, with the approval of the Secretary of the
Treasury, shall make all necessary regulations for
carrying out the provisions of this title, and may
require any corporation or partnership subject to
the provisions of this title to furnish him with such
facts, data, and information as in his judgment are
necessary to collect the tax provided for in this title.
[18]



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Online LibraryGuaranty Trust Company of New YorkThe Excess profits tax law; act approved March 3, 1917 → online text (page 1 of 1)