Stock dividends

Bibliographic data

Monograph

Identifikator:: 880288361

URN:: urn:nbn:de:zbw-retromon-2459

Document type:: Monograph

Author:: Kromrey, Max

Title:: Baugenossenschaften und der Berliner Spar- und Bauverein

Place of publication:: Berlin

Publisher:: Verlag von R. L. Prager

Year of publication:: 1904

Scope:: 1 Online-Ressource (95 Seiten)

Digitisation:: 2017

Collection:: Economics Books

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22 STOCK DIVIDENDS each stockholder, is always a share of corporate earnings or gains. In other words, a cash dividend may or may not distribute gains, but a stock dividend can not, under any circumstances, distribute, assign, or transfer anything else. If the constitutional power exists to tax corporate earnings when they are passed to the stockholder by means of a cash dividend, no reason is perceived why the same power does not exist to tax the same earnings when they are passed to him, in an equally concrete form, by means of a stock dividend. Stock issued as a dividend is property in every sense that any other thing of value is property. The act of 1916 taxes gains derived from capital invested in corporate stocks; that is. shares of corporate gains or profits. It does not tax dividends per se but werely uses them to indicate the form in which such gains shall be taxed and to mark the time when the tax shall be collected. And, in the case of stock divi- lends, it uses the stock issued to measure the amount of the gains. The substance of the act of 1916 is that no corporate earnings are taxed as distributed gains which might not have been taxed as undivided profits when they accrued, and all such earnings which might have been taxed as undivided profits are taxed when distributed. Before a dividend, one certificate is the evidence of a stockholder’s ownership of a share of capital and also a share of profits. When he receives a, cash dividend the value of his certificate is reduced and the money received measures the gain which his investment has yielded. When he receives a stock dividend, the par value of his new certificate measures his gains. As the fruit or result of his investment, something of ‘value, which is distinct from his original capital and distinct from the corporation’s ownership of its assets, has come to him. The fact that a stockholder is no richer immediately after than immediately before a stock dividend is wholly unimportant. Neither is he made richer by a cash dividend. The important fact is that, assuming the profits have been earned since March 1, 1913, he has, in either case, become richer since that date through the earnings of his invested capital. Congress has seen fit to say that these earnings may accumulate free from tax until they are delivered to him either as cash or in stock. His gain comes, not from the declaration of a dividend of any kind, but from what his capital has earned. The only effect of the dividend is to fix the date upon which, under the law, his share of corporate earnings, previously accrued, becomes taxable. Mr. Charles E. Hughes, with whom Mr. George Welwood Murray was on the oriefs, for defendant in error: The tax in question is not laid with respect to the taxpayer’s interest in un- divided corporate profits as constituting income to the taxpayer, or upon the “stock dividend” as the form or dress in which a previous gain or income to the taxpayer appears. The tax is laid upon the “stock dividend” as constituting income in itself. Undivided corporate profits are not income to the stockholder. It is of the essence of income that it should be realized. Potentiality is not enough. Book entries or opinions of increase are not income. Income necessarily implies separation and realization. The increase of the forest is not income until it is cut. The increase in the value of lands due to the growth and prosperity of the community is not income until it is realized. Where investments are concerned, there is no income until there has been a separate, realized gain. When a cor- poration earn sprofits, it receives money over the amount of its expenditures. The money belongs to the corporation; the profits are the property of the cor- poration. If the corporation distributes its earnings in dividends, properly so-called—that is, in money, or in property in specie—the stockholder has realized a gain and that gain is income. The shareholder has simply his share, his interest, in the corporate enterprise. The corporation must, of course, pay its income tax upon its profits, but there is no income to the shareholder unless he receives it. His share interest is a “capital” interest. This distinction is not a form or technicality. It is a vital distinction inherent in corporate organization. The interest of the shareholder is a distinet interest. The profits of the corporation are not his profits. This distinction between the title of a corporation and the interest of its shareholders in the property of the corporation, including its earnings, has been authoritatively established by two lines of decisions of this court in cases involving the power of taxation: (1) Van Allen ». The Assessors (3 Wall. 573, 584); People ». Commissioners (4 Wall. 244); Bradley ov. People (4 Wall. 459); National Bank ». Commonwealth (9 Wall. 853, 358, 359); Owensboro National Bank ». Ownesboro (173 U. S. 664,

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