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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Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: [Appendix]

Collection:: Economics Books

32 STOCK DIVIDENDS theless insists that the sixteenth amendment removed this obstacle, so that now the Hubbard case is authority for the power of Congress to levy a tax on the stockholder’s share in the accumulated profits of the corporation even before division by the declaration of a dividend of any kind. Manifestly this argument must be rejected, since the amendment applies to income only, and what is called the stockholder’s share in the accumulated profits of the company is capital, not income. As we have pointed out, a stockholder has no individual share in accumulated profits nor in any particular part of the assets of the cor- poration prior to dividend declared. Thus, from every point of view, we are brought irresistibly to the conclusion that neither under the sixteenth amendment nor otherwise has Congress power to tax without apportionment a true stock dividend made lawfully and in good faith, or the accumulated profits behind it, as income of the stockholder. The revenue act of 1916, in so far as it imposes a tax upon the stockholder because of such dividend, contravenes the provisions of Article I, §2, clause 3, and Article I, §9, clause 4, of the Constitution, and to this extent is invalid notwithstand- ing the sixteenth amendment. Judgment affirmed. Mr. Justice Holmes, dissenting, I think that Towne ». Eisner (245 U. S. 418), was right in its reasoning and result and that on sound principles the stock dividend was dot income. But it was clearly intimated in that case that the construction of the statute then before the court might be different from that of the Constitution (245 U, S. 425.) I think that the word ‘incomes’ in the sixteenth amendment should be read in “a sense most obvious to the common understanding at the time of its adoption.” (Bishop ». State, 149 Indiana, 223, 230; State ». Butler, 70 Florida, 102, 133.) For it was for public adoption that it was proposed. (McCulloch ». Maryland, 4 Wheat. 316, 407.) The known purpose of this amendment was to get rid of nice questions as to what might be direet taxes, and I can not doubt that most people not lawyers would suppose when they voted for it that they put a ques- tion like the present to rest. I am of opinion that the amendment justified the tax. See Tax Commissioner ». Putnam (227 Massachusetts, 522, 532, 533). Mr. Justice Day concurs in this opinion. Mr. Justice Brandeis, dissenting, delivered the following opinion, in which Mr, Justice Clarke concurred. Financiers, with the aid of lawyers, devised long ago two different methods by which a corporation can, without increasing its indebtedness, keep for eorporate purposes accumulated profits, and yet, in effect, distribute these profits among its stockholders. One method is a simple one. The capital stock is increased; the new stock is paid up with the accumulated profits; and the new shares of paid up stock are then distributed among the stockholders pro rata as a dividend. f the stockholder prefers ready money to increasing his holding of the stock in the company, he sells the new stock received as a dividend. The other method is slightly more complicated. Arrangements are made for an increase of stock to be offered to stockholders pro rata at par and, at the same time, for the payment of a cash dividend equal to the amount which the stockholder will be required to pay to the company, if he avails himself of the right to subscribe for his pro rata of the new stock. If the stockholder takes the new stock, as is expected, he may indorse the dividend check received to the corporation and thus pay for the new stock. In order to insure that all the new stock so offered will be taken, the price at which it is offered is fixed far below what it is believed will be its market value. If the stockholder prefers ready money to an increase of his hold- ings of stock, he may sell his right to take new stock pro rata, which is evidenced by an assignable instrument. In that event the purchaser of the rights repays to the corporation, as the subscription price of the new stock, an amount equal to that which it had paid as a cash dividend to the stockholder. Both of these methods of retaining accumulated profits while in effeet distrib- uting them as a dividend had been in common use in the United States for many years prior to the adoption of the sixteenth amendment. They were recognized equivalents. Whether a particular corporation employed one or the other method was determined sometimes by requirements of the law under which the eorpora- tion was organized; sometimes it was determined by preferences of the individual officials of the corporation; and sometimes by stock-market conditions. Whieh- ever method was employed the resultant distribution of the new stock was com- monly referred to as a stock dividend. How these two methods have been em-

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