Repeal, Capital Stock & Profits

Repeal rounded the two-thirds mark without a break in its stride last week when Washington became the 24th State to approve the 21st Amendment. Voting by legislative districts, the State chose 95 Wet delegates, four Dry ones to its ratification convention in October. The popular vote was two-to-one.

Washington's result prompted Postmaster General Farley to repeat, with more emphasis than ever, his prediction that the 18th Amendment would be out of the Constitution by Jan. 1. Many a corporate taxpayer which was last week figuring out what it owed the Government and how much it would be saved by new levies on liquor was fervently hoping that "General" Farley was right.

Last June Congress inserted four kinds of taxes into the National Recovery Act to finance the $3,300,000,000 public works program. These levies were to raise $227,000,000 per year, were to go by the board when Repeal was effected. They were:

1) An increase in the gasoline tax from 1-c- to 1 1/2 per gal.

2) A 5% tax on all dividends, to be withheld by the paying corporation.

3) A 1/10 of 1% tax on the capital stock of corporations, with corporations at liberty to fix their own value.

4) A 5% tax on corporate profits in excess of 12 1/2% of the capital stock value.

The law was smartly drawn so that a corporation that set its capital value low for Tax No. 3 would find itself pinched by Tax No. 4 on excess profits. The gasoline and dividend taxes have been regularly collected since the law's passage. The first capital stock tax payment was due last week but the Treasury obligingly postponed the date to Sept. 29 because of a delay in distributing blank returns. Excess profits for 1933 are taxable when corporations make their regular income returns March 15, 1934.

When the 36th State deposits its ratification of the 21st Amendment with the Secretary of State, the National Recovery Act requires the President to proclaim the date of Repeal. Much depends on whether that date is before or after Jan.1. If it is before, the gasoline tax drops back to 1-c- per gal. and the dividend tax becomes void as of Jan.1. If it is after, these taxes continue to operate throughout the calendar year of 1934 despite the fact that liquor taxes will also be collected during this period.

The excess profits tax ceases to function for the taxable year following that in which Repeal occurs. Thus if, for example, the President proclaims Repeal Dec. 13. 1933 (the week after the ratification convention of the 36th State), corporations will pay on their 1933 excess profits on March 15, 1934 and no more thereafter. But if Repeal does not come until Jan. 5, 1934, corporations will have to pay excess profits taxes for 1934 on March 15, 1935. Most corporate taxpayers were ready last week to gamble on Repeal during 1933.

Much less simple is the elimination of the capital stock tax after Repeal. For this the magic date is the July 1 following the President's proclamation. From this tax a corporation will get relief only when it starts a new business year after that date. Thus if Repeal occurs in 1933 a corporation on a calendar year basis must pay a capital levy for 1934 because it will be half way through that year when the tax goes out.

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