VII. FEDERAL TAX ON CORPORATION, INCOME AND PROFITS § 4659. In general. The government of the United States has, by a series of acts, applicable to corporations, imposed taxes upon capital, stock and dividends. These acts provide for an income tax, a war-profits and excess-profits tax, a tax on capital stock, stamp taxes and a tax on the employment of child labor. In some aspects these statutes embody no novel features, in others, they reflect the exigencies arising from the necessity of meeting the conditions produced by the War of 1914-1919 and by the entry of the United States into it. In the main, the adoption of these acts is of such recent date, the latest act being that of Feb. 24, 1919, that there are but few decisions of the courts directly construing them, their construction and interpretation being largely confined to rulings of the Treasury Department.16 By the definition embodied in its provisions, the term 'person," in the Revenue Act of 1918, includes corporations, and the term "corporation" includes associations, joint stock companies and insurance companies.17 The Act of 1918 contains detailed and ex impose taxation depends upon the ownership of property, it is limited to that which is within the state. In a case like the present, where corporate power is exercised under two franchises of the same kind, granted by two adjacent states, and where the ownership is represented by a single issue of stock, recognized alike by both states, we think that, for jurisdictional purposes and determining values in imposing taxes, the stock in each state should be held to represent only the property within that state. This view is strengthened by the express provisions to that effect in our recent legislation in regard to the taxation of corporate franchises. The constitutionality of the Act of 1913 has been upheld. Brushaber v. Union Pac. R. Co., 240 U. S. 1, 60 L. Ed. 493, L. R. A. 1917 D 414, Ann. Cas. 1917 B 713. 17 See U. S. Revenue Act of Feb. 24, 1919. That all corporations of specified kinds were required to file returns under Act of 1909, even though their net profits were not sufficient to ren der them liable to tax, see United States V. 204 Acorn Roofing Co., Fed. 157; United States v. Military Const. Co., 204 Fed. 153. A test which has been applied to determine whether or not a corporation is "doing business," within the meaning of the Corporation Tax Act of 1909, is between a corporation which has reduced its activities to the own ing and holding of property and the distribution of its avails, and doing only the acts necessary to continue that status, and one which is still active and is maintaining its organization for the purpose of continued efforts in the pursuit of profit and gain, and such activities as are essen plicit provisions for the ascertaining of the income 18 and dividends. tial to those purposes. Von Baumbach v. Sargent Land Co., 242 U. S. 503, 61 L. Ed. 460; United States v. Emery, Bird, Thayer Realty Co., 237 U. S. 28, 59 L. Ed. 825; McCoach v. Minehill & S. H. R. Co., 228 U. S. 295, 57 L. Ed. 842; Zonne v. Minneapolis Syndicate, 220 U. S. 187, 55 L. Ed. 428; Flint v. Stone Tracy Co., 220 U. S. 107, 55 L. Ed. 389, Ann. Cas. 1912 B 1312. Under the Act of 1909, a building and loan association was exempt though it issued both prepaid and instalment stock, but not where it issued preferred stock. Pacific Building & Loan Ass'n v. Hartson, 201 Fed. 1011. As to the exemption under the Act of 1909 of building and loan associations issuing stock which is in part prepaid and in part paid in instalments, see Parkview Building & Loan Ass'n v. Herold, 203 Fed. 876. That a mutual fire insurance company having as its primary purpose the protection of the members' property and not the deriving of profits from interest on its surplus and reserve is exempt from the stamp tax on policies under 38 U. S. Stat. at L. 762, c. 331 (Act of Oct. 22, 1914), see Niles v. Central Manufacturers' Mut.. Ins. Co., 252 Fed. 564. Application of Act of 1913 to Massachusetts trusts, see Crocker v. Malley, 250 Fed. 817. As to application of tax under Act of 1909 to dissolved corporation, see United States v. General Inspection & Loading Co., 192 Fed. 223, 204 Fed. 657. to lessor's stockholders and bondholders. Anderson v. Morris & E. R. Co., 216 Fed. 83. As to taxation of holding companies and their subsidiaries, see Butterick & Co. v. United States, 240 Fed. 39; United States v. Nipissing Mines Co., 234 U. S. 765, 58 L. Ed. 1582, 206 Fed. 431. As to when a holding company is not liable for taxes on a subsidiary company, see Gulf Oil Corporation v. Lewellyn, 248 U. S. 71, 63 L. Ed. —; Peabody v. Eisner, 247 U. S. 347, 62 L. Ed. 1152; Southern Pac. Co. v. Lowe, 247 U. S. 330, 62 L. Ed. 1142. As to the liability of a foreign corporation to a tax, under the Act of 1913, on income from business transacted in the United States where it sent agents and contracted through salesmen and stored its products in the United States to meet demands, see Laurentide Co. v. Durey, 231 Fed. 223. Sale of plant by foreign corporation, title being retained until the final instalment is paid, is not doing business so as to render it taxable under the Act of 1909, even though the corporation retains an agent for service of process as required by the state law. Bryant & May v. Scott, 226 Fed. 875. 18 Net proceeds, in hands of receiver, of operation of road over and above authorized expenditures not taxable as net earnings, under Act of 1913. Equitable Trust Co. of New York v. Western Pac. Ry. Co., 236 Fed. 813. In determining net income, the interest could, under the Act of 1916, be deducted only to an amount not exceeding the paid-up capital stock outstanding at the close of the year. Altheimer & Rawlings Inv. Co. v. Allen, 246 Fed. 270; Middlesex Banking Co. v. Eaton, 233 Fed. 87. Lessor corporation is not released by provision in lease making surplus revenues payable directly to stockholders. Renssaelaer & S. R. Co. v. Irwin, 249 Fed. 726, certiorari denied 246 U. S. 671, 62 L. Ed. 931. Nor by the fact that rent is paid by lessee which are subject to tax.19 The radical differences, in many respects, between the earlier acts and those subsequently adopted render the decisions under the former of doubtful value as aids in construction of the latter, and it is advisable that until a permanent construction of the act has been arrived at, reference should be had to the text of the act and of the Treasury rulings thereupon.20 As to interest deductions under the Act of 1916, see Anderson v. Fortytwo Broadway Co., 239 U. S. 69, 60 L.. Ed. 152. 19 Interest and dividends received by nonresident aliens, whether individuals or corporations, were subject to tax under the Act of 1913. Brushaber v. Union Pac. Ry. Co., 240 U. S. 1, 60 L. Ed. 493, L. R. A. 1917 D 414, Ann. Cas. 1917 B 713. Dividends received by nonresident aliens from domestic corporations are taxable, where the stocks and bonds are kept in the United States. DeGanay v. Lederer, 239 Fed. 568. Net profits of a corporation which are divided between the two stockholders who own the whole of the corporate stock are taxable as dividends, even though termed compensation. Jacobs & Davies v. Anderson, 228 Fed. 505. While, under prior acts there was a question as to whether stock dividends were taxable (see Pea body v. Eisner, 247 U. S. 347, 62 L. Ed. 1152; Towne v. Eisner, 245 U. S. 418, 62 L. Ed. 372), the Act of 1918 expressly provides (§201) that such dividends shall be taxable. 20 See Holmes on Federal and Profits Taxes (2nd Ed.). Income § 4665. Combinations in general distinguished from consolidation or merger § 4666. § 4667. § 4668. In general. – Mere purchase and sale of assets. Ownership or purchase of stock of another corporation. - Leases. $4669. Holding companies. § 4670. General rule. II. POWER TO CONSOLIDATE OR MERGE § 4671. Power of legislature. § 4672. Mode of conferring authority. § 4673. Necessity for power to be conferred on each of constituent companies. § 4674. Ratification as equivalent to prior grant of power. 84675. Consent of public service commission. § 4676. Consideration and construction of statutes as permitting or forbidding consolidation-In general. § 4677. - Statutes applicable only to particular kinds of corporations. § 4678. Statutory prohibitions-In general. 4679. Limitation as to number of constituent companies. § 4680. Right to combine as limited to corporations of the same or a similar § 4681. nature. - Parallel or competing lines. § 4682. Imposing conditions on power to consolidate. § 4683. Effect of invalidity of statute authorizing consolidation. § 4684. Withdrawal or impairment of authority. § 4685. Consent of stockholders. $4686. Consent of creditors. § 4687. Power of de facto corporations to consolidate. 4688. General rules. III. PROCEDURE TO EFFECT CONSOLIDATION § 4689. Substantial compliance with statute. § 4690. Preparation and adoption of articles of consolidation or merger. § 4691. Contents of the articles or agreement. § 4692. Construction of articles or agreement. § 4693. Authentication of agreement. 8 4694. Filing of agreement. § 4695. Payment of incorporation fees. 4696. Election of officers. 4697. Curing defective proceedings. 4698. Enforcement of agreement. IV. EFFECT OF CONSOLIDATION OR MERGER AS TO CREATING NEW COR- 4699. General considerations. § 4700. Consolidation as creating new company-General rule. § 4701. § 4702. - As dependent upon intention of parties. - Duration of corporate existence. § 4703. Extinguishment of constituent corporations-In general. § 4704. § 4705. Where attempted consolidation is ineffectual. § 4706. - Continuance of constituent companies for particular purposes. § 4707. Time when new company comes into existence. § 4708. Merger of one company into another. § 4709. Transfer of property without consolidation or merger. V. RIGHTS, POWERS, FRANCHISES, PRIVILEGES AND PROPERTY OF CON- § 4710. As dependent upon nature of combination—In general. § 4711. - Where one corporation merely purchases the property of another. § 4712. - In case of consolidation. 4713. As dependent on laws in force at time of consolidation. 4714. Title to property. 4715. Particular powers and rights acquired. § 4716. Contracts and claims of consolidating corporations. § 4717. Subscriptions to stock. § 4718. Municipal aid bonds and subscriptions. § 4719. Power of new corporation to execute trusts conferred on constituent com panies. § 4720. Power of new or absorbing company to issue stock. 84721. Mortgages and bonds of constituent or consolidated companies. § 4722. Exemptions and immunities as passing to new company-In general. - Exemptions of officers and stockholders as distinguished from exemptions of corporations. § 4723. 4724. 4725. § 4726. § 4727. $ 4728. Effect of constitutional limitations and provisions. - Effect of reservation of power to alter or repeal charters. - Privilege or exemption enjoyed by only one corporation. - Rate exemptions. VI. DEBTS, LIABILITIES AND BURDENS § 4729. General considerations. 8 4730. Liens and obligations running with the property-In general. |