Stock dividends

Bibliographic data

Monograph

Identifikator:: 175754061X

URN:: urn:nbn:de:zbw-retromon-136496

Document type:: Monograph

Title:: Stock dividends

Place of publication:: Washington

Publisher:: U.S. Gov. Print. Off.

Year of publication:: 1927

Scope:: vii, 273 S.

Digitisation:: 2021

Collection:: Economics Books

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Document type:: Monograph

Structure type:: Chapter

Title:: [Appendix]

Collection:: Economics Books

24 STOCK DIVIDENDS The tax in question is an income tax and can not be sustained as anything else. Mr. George W. Wickersham and Mr. Charles Robinson Smith, by leave of court, filed a brief as amici curiae: The principle laid down by this court in two well-considered cases (Gibbons ». Mahon, 136 U. S. 549, and Towne ». Eisner, 245 U. S. 418), that stock dividends represent capital and do not constitute income is based on sound economic reasoning. Although Collector ». Hubbard (12 Wall. 1), is plainly distinguishable from the case at bar, it is inconsistent both with other and later rulings of this court and with sound economics. It tends to block fhe way to a consistent, har- monious, and logical system of income taxation and it should be expressly over- ruled. As upholding a tax on property except by apportionment under Article I, § 2, of the Constitution, it has been overruled by Pollock ». Farmers’ Loan & Trust Co. (157 U. 8S. 429; 158 U. S. 601). In so far as it assumes an equiva- lency between the property and the income of the corporation and the shares of stock in the names of the stockholders for taxation purposes, it has been implicitly overruled by a long series of authorities in this court. The suggestion that this court has in other cases cited Collector ». Hubbard or its principle with approval except upon altogether minor points is erroneous. ’ The stock dividend is in reality not a dividend at all. "It is a mere certified expression of an undivided surplus and its capitalization. Whatsoever gain there may be in either case to the stockholder is a capital gain. Capital gains (being mere increases in valuation) are not income until realized. The gains that come with stock dividends when stock is sold are realized capital gains—the same in nature and similarly taxable as those gains that are made with any stock that is sold at an advance. Inasmuch as undivided corporate earnings can not be taxed as income against the stockholder—so the stock certificates issued merely to represent these may not be so taxed until the gain be realized in some form by sale. Mr. Justice Pitney delivered the opinion of the court: This case presents the question whether, by virtue of the sixteenth amend- ment, Congress has the power to tax, as income of the stockholder and without apportionment, a stock dividend made lawfully and in good faith against profits accumulated by the corporation since March 1, 1913. It arises under the revenue act of September 8, 1916 (c. 463, 39 Stat. 756), et seq., which, in our opinion (notwithstanding a contention of the Government that will be noticed), plainly evinces the purpose of Congress to tax stock divi- dends as income.! The facts, in outline, are as follows: On January 1, 1916, the Standard Oil Co. of California, a corporation of that State, out of an authorized capital stock of $100,000,000, had shares of stock outstanding, par value $100 each, amounting in round figures to $50,000,000. In addition, it had surplus and undivided profits invested in plant, property, and business and required for the purposes of the corporation, amounting to about $45,000,000, of which about $20,000,000 had been earned prior to March 1, 1913, the balance thereafter. In January, 1916, in.order to readjust the capitalization, the board of directors decided to issue additional shares sufficient to constitute a stock dividend of 50 per cent of the outstanding stock, and to transfer from surplus account to capital stock account an amount equivalent to such issue. Appropriate resolutions were adopted, an amount equivalent fo the par value of the proposed new stock was transferred accordingly, and the new stock duly issued against it and divided among the stockholders. Defendant in error, being the owner of 2,200 shares of the old stock, received certificates for 1,100 additional shares, of which 18.07 per cent, or 198.77 shares, par value $19,877, were treated as representing surplus earned between March 1, 1913, and January 1, 1916. She was called upon to pay, and did pay under protest, a tax imposed under the revenue act of 1916, based upon a supposed 1TITLE I.—INCOME TAX PART 1.—ON INDIVIDUALS Sec. 2. (a) That, subject only to such exemptions and deduction as are hereinafter allowed, the net income of a taxable person shall include gains, profits, and income derived * * * also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profits, or gains or profits and income derived from any source whatever: Provided, That the term “dividends” as used in this title shall be held to mean any distribution made or ordered to be made by a corporation, * * * out of its earnings or profits accrued since March first, nineteen hundred and thirteen, and payable to its shareholders, whether in cash or in stock of the corporation, * * * which stock dividend shall be considered income, to the amount of its cash value.

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