33G.2.4 M m Section 13106. Rates — levied, when. — There shall be levied, assessed, collected and paid annually upon the entire net income received in the calendar year nineteen hundred nineteen from all sources by every individual, a citizen or resident of this state, a tax of one and one-half per centum upon such income; and a like tax shall be levied, assessed, collected and paid annually upon the entire net income received in the year nineteen hun- dred nineteen from all sources within this state by every indi- vidual, a non-resident, including interest on bonds, notes or other interest-bearing obligations of residents, corporate or otherwise. The foregoing tax shall apply to the entire net in- come, except as hereinafter provided, received by every taxable person in the year nineteen hundred nineteen, and in each cal- endar year thereafter; provided , however , that the taxes collected under this chapter shall for the year 1922 and subsequent years be levied, assessed, collected and paid annually at the rate of one per cent: Provided further, that for that part of the cal- endar year 1921 which shall not have expired at the date this act shall take effect said taxes shall be levied, assessed and col- lected at the rate of one-half of one per cent. ( 3 ) 4 INCOME TAX REGULATIONS. Sec. 13107. Incomes — includes what — classes. — (a) That, subject only to such exemptions and deductions as are herein- after allowed, the net income of a taxable person shall include gains, profits, and income derived from salaries, wages or com- pensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, business, trade, com- merce, or sales, or dealings in property, whether real or personal, growing out of the ownership or the use of or interest in real or personal property, also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever. (b) Income received by estates of deceased persons during the period of administration or settlement, of the estate, shall be subject to the tax and taxed to their estates, and also such income of estates or any kind of property held in trust, including such income accumulated in trust for the benefit of unborn or ascertained persons, or persons with contingent interests and income held for future distribution under the terms of the will or trust shall be likewise taxed, the tax in each instance, except when the income is returned for the purpose of the tax by the beneficiary, to be assessed to the executor, administrator, or trustee, as the case may be: Provided , that where the income is to be distributed annually or regularly between existing heirs or legatees, or beneficiaries the rate of tax and method of com- puting the same shall be based in each case upon the amount of the individual share to be distributed. Such trustees, executors, administrators, and other fiduciaries are hereby indemnified against the claims or demands of every beneficiary for all pay- ments of taxes which they shall be required to make under the provisions of this act, and they shall have credit for the amount of such payments against the beneficiary or principal in any accounting which they make as such trustees or other fiduciaries. (c) For the purpose of ascertaining the gain derived from the sale or other disposition of property, real, personal, or mixed, acquired before July 1st, nineteen hundred seventeen, the fair market price or value of such property as of July 1st, nineteen hundred and seventeen, shall be the basis for determining the amount of such gain derived. Sec. 13108. Incomes defined for purposes of this act. — For the purpose of this tax, the taxable income of any individual shall include the share to which he would be entitled of the gains and profits, if divided or distributed, whether divided or distributed or not, of all corporations, joint-stock companies or associations, or insurance companies, however created or organized, formed or fraudulently availed of for the purpose of preventing the imposi- tion of such tax through the medium of permitting such gains and profits to accumulate instead of being divided or distributed; and the fact that any such corporation, joint-stock company, or association, or insurance company, is a mere holding com- pany, or that the gains and profits are permitted to accumulate INCOME TAX REGULATIONS. 5 beyond the reasonable needs of the business, shall be prima facie evidence of a fraudulent purpose to escape such tax; but the fact that the gains or profits are in any case permitted to accumulate and become surplus shall not be construed as evidence of a pur- pose to escape the said tax in such case unless the state auditor shall certify that in his opinion such accumulation is unreasonable for the purposes of the business. When requested by the assessor such corporation, joint-stock company or association, or insur- ance company shall forward to him a correct statement of such gains and profits and the names and addresses of the individuals or shareholders who would be entitled to the same if divided or distributed. Sec. 13109. Exemptions. — The following income shall be ex- empt from the provisions of this act: The proceeds of life insurance policies paid to the individual beneficiaries upon the death of the insured; the amount received by the insured, as a return of pre- mium or premiums paid by him under life insurance, endowment, or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon the surrender of the contract; the value of property acquired by gift, bequest, devise, or descent (but the income from such property shall be included as income); interest upon the obligations of a state or any political subdivision thereof or upon the obligations of the United States or its possessions; the compensation of public officers for public service shall not be computed as a part of the taxable income in such cases where the taxation thereof would be repugnant to the Constitution. Sec. 13110. Deductions allowed. — That in computing net income in the case of a citizen or resident of this state, for the purpose of the tax there shall be allowed as deductions: First. The necessary expenses actually paid in carrying on any business or trade, not including personal, living, or family expenses; Second. All interest paid within the year on his indebted- ness; Third. Taxes paid within the year imposed by the authority of the United States, or its territories, or possessions, or under authority of any state, county, school district, or municipality, or other ta'xing subdivision of any state, not including those assessed against local benefits; Fourth. Losses actually sustained during the year, incurred in his business or trade, or arising from fires, storms, shipwreck, or other casualty, and from theft, when such losses are not com- pensated for by insurance or otherwise: Provided . , that for the purpose of ascertaining the loss sustained from the sale or other disposition of property, real, personal, or mixed, acquired before July first, nineteen hundred and seventeen, the fair market price or value of such property as of July first, nineteen hundred and 6 INCOME TAX REGULATIONS. seventeen, shall be the basis for determining the amount of such loss sustained; Fifth. In transactions entered into for profit but not con- nected with his business or trade, the losses actually sustained therein during the year to an amount not exceeding the profits arising therefrom; Sixth. Debts due the taxpayer actually ascertained to be worthless and charged off within the year; Seventh. A reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the business or trade; Eighth, (a) In the case of oil and gas wells a reasonable allowance for actual reduction in flow and production to be ascertained not by the flush flow, but by the settled production or regular flow; (b) in the case of mines a reasonable allowance for depletion thereof, not to exceed the market value in the mine of the product thereof, which has been mined and sold during the year for which the return and computation are made, such reasonable allowance to be made in the case of both (a) and (b) under rules and regulations to be prescribed by the auditor of the state: Provided, that when the allowances authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to July first, nineteen hundred and seven- teen, the fair market value as of that date, no further allowance shall be made. No deductions shall be allowed for any amount paid out for new buildings, permanent improvements, or better- ments, made to increase the value of any property or estate, and no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made. Ninth. For the purpose of this tax, the income embraced in a personal return shall be credited with the amount received as dividends upon the stock or from the net earnings of any cor- poration, joint-stock company, or association, trustee, or insur- ance company, which is taxable upon its net income as hereinafter provided; a like credit shall be allowed as to the amount of income, the tax upon which has been paid or withheld for payment at the source of income under the provisions of this title. Tenth. Contributions or gifts made within the taxable year to corporations, associations and societies organized and operated exclusively for religious, charitable, scientific or edu- cational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the ben- efit of any private stockholder or individual, to an amount not in excess of fifteen per centum of the taxpayer’s net income as computed without the benefit of this paragraph. Eleventh. All sums, paid within the taxable year, by a resident of this state, as taxes assessed and levied by any other state as income taxes on property of nonresidents shall be de- ducted from the amount of the income tax required by this act; INCOME TAX REGULATIONS. 7 Provided , such credit shall be limited to the amount such taxes would have been, if they had been assessed and levied at the rate of such taxation prescribed by this act. Sec. 13111. Exemptions — deductions, etc., of married per- sons. — That for the purpose of this tax there shall be allowed as an exemption in the nature of a deduction from the amount of the net income of each said person, ascertained as provided herein, the sum of $1,000, plus $1,000 additional if the person making the return be the head of the family, or a married man with a wife living with him, or plus the sum of $1,000 additional if the person making the return be a married woman with a husband living with her; but in no event shall this additional exemption of $1,000 be deducted by both a husband and a wife; provided that only one deduction of $2,000 shall be made from the aggregate income of both husband and wife when living together: Provided fur- ther, that if the person making the return is the head of a family there shall be an additional exemption of $200.00 for each child dependent upon such person, if under eighteen years of age, or if incapable of self-support because mentally or physically defective, but this provision shall operate only in the case of one parent in the same family: Provided , further, that guardians or trustees shall be allowed to make this personal exemption as to income derived from the property of which such guardian or trustee has charge in favor of each ward or cestui que trust: Provided, further, that in no event shall a ward or cestui que trust be allowed a greater personal exemption than $1,000.00, or, if married, $2,000.00 as provided in this paragraph, from the amount of net income received from all sources. There shall also be allowed an exemption from the amount of the net income of estates of de- ceased persons during the period of administration or settlement, and of trust or other estates the income of which is not distributed annually or regularly under the provisions of paragraph (b), section 13107, the sum of $1,000, including such deductions as are allowed under section 13110. A non-resident individual may re- ceive the benefit of the exemption provided for in this section only by filing or causing to be filed with the assessor a true and accurate return of his total income, received from all sources, corporate or otherwise, in this state, in the manner prescribed by this act; and in case of his failure to file such return the collector shall collect the tax on such income, and all property belonging to such non-resident individual shall be liable to distraint for the tax. Sec. 13112. Corporations, joint stock companies, insur- ance companies, etc. — That there shall be levied, assessed, col- lected and paid annually upon the total net income received in the calendar year nineteen hundred nineteen, and in each year thereafter, from all sources by every corporation, joint stock company or association, except express companies which now pay an annual tax on their gross receipts in this state, and in- surance companies which pay an annual tax on their gross pre- mium receipts in this state, organized in this state, no matter 8 INCOME TAX REGULATIONS. how created or organized, but not including partnerships, a tax of one and one-half per cent, upon such income; and a like tax shall be levied, assessed, collected and paid annually upon the total net income received in the calendar year nineteen hundred nineteen, and in each year thereafter, from all sources within this state by every corporation, joint stock company or associa- tion organized or existing under the laws of another state, coun- try or territory, except express companies which now pay an annual tax on their gross receipts in this state, and insurance companies which pay an annual tax on their gross premium re- ceipts in this state, and except that in case a nonresident cor- poration, joint stock company or association be engaged in both interstate and intrastate business within this state, then such tax shall be only upon the total net income derived from the intrastate business within this state, including interest on bonds, notes or other interest-bearing obligations of residents, cor- porate or otherwise, and including the income derived from dividends on capital stock or from net earnings of resident cor- porations, joint stock companies or associations whose net in- come is taxable under this article: Provided , that the term “dividends,” as used in this article, shall be held to mean any distribution made or ordered to be made by a corporation, joint stock company or association out of its earnings or profits ac- crued since January first, nineteen hundred and nineteen, and payable to its shareholders, whether in cash or in stock of the corporation, joint stock company or association, which stock dividend shall be considered income, to the amount of its cash value. The foregoing tax rate shall apply to the total net in- come received by every taxable corporation, joint stock com- pany or association in the calendar year nineteen hundred and nineteen, and each year thereafter, except that if it has fixed its own fiscal year under the provisions of existing law, the fore- going rate shall apply to the proportion of the total net income returned for the fiscal year ending prior to December thirty- first, nineteen hundred nineteen, which the period between Jan- uary first, nineteen hundred nineteen, and the end of such fiscal year bears to the whole of such fiscal year, and the rate fixed shall apply to the remaining portion of the total net income returned for such fiscal year. For the purpose of ascertaining the gain derived or loss sustained from the sale or other disposi- tion by a corporation, joint stock company or association of property, real, personal or mixed, acquired before January first, nineteen hundred and nineteen, the - fair market price or value of such property as of January first, nineteen hundred and nineteen, shall be the basis for determining the amount of such gain derived or loss sustained: Provided , however , that the taxes collected under this chapter shall for the years 1922 and subsequent years be levied, assessed, collected and paid annually at the rate of one per cent.: Provided further, that for that part of the calendar year 1921 which shall not have expired INCOME TAX REGULATIONS. 9 at the date this act shall take effect said taxes shall be levied, assessed and collected at the rate of one-half of one per cent. Sec. 13113. Incomes exempt, etc. — (a) That there shall not be taxed under this act any income received by any — First. Labor, agricultural, or horticultural organization; Second. Mutual savings bank not having a capital stock represented by shares; Third. Fraternal beneficiary society, order or association, operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and providing for the payment of life, sick, accident, or other benefits to the members of such society, order, or associa- tion or their dependents; Fourth. Domestic building and loan associations, and co- operative banks without capital stock organized and operated for mutual purposes and without profit; Fifth. Cemetery company owned and operated exclusively for the benefit of its members; Sixth. Corporation or association organized and operated exclusively for religious, charitable, scientific, or educational purposes, no part of the net income of which inures to the benefit of any private stockholder or individual; Seventh. Business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or in- dividual; Eighth. Civic league or organization not organized for profit but operated exclusively for the promotion of social wel- fare; Ninth. Club organized and operated exclusively for pleas- ure, recreation, and other non-profitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member; Tenth. Farmers’ or other mutual hail, cyclone, or fire insurance company, mutual ditch or irrigation company, mutual or co-operative telephone company or like organization of a purely local character, the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses; Eleventh. Farmers’, fruit growers’, or like association, organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of produce furnished by them; Twelfth. Corporation or association organized for the ex- clusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization which itself is exempt from the tax imposed by this title; or 10 INCOME TAX REGULATIONS. Thirteenth. Federal land banks and national farm-loan associations, as provided in section 26 of the act of Congress approved July seventeenth, nineteen hundred and sixteen, en- titled “An act to provide capital for agricultural development, to create standard forms of investment based upon farm mort- gage, to equalize rates of interest upon farm loans, to furnish a market for United States bonds, to create government de- positaries and financial agents for the United States, and for other purposes;” Fourteenth. Joint-stock land banks as to income derived from bonds or debentures or other joint-stock land banks or any federal land bank belonging to such joint-stock land bank. (b) There shall not be taxed under this act any income derived from any public utility performing functions of national government or those incident to the state or any political sub- division thereof, or from the exercise of any essential govern- mental function accruing to any state, territory or the District of Columbia, provided , that whenever any state, territory, or the District of Columbia, or any political subdivision of a state or territory, has, prior to the passage of this act, entered in good faith into a contract with any person or corporation, the object and purpose of which is to acquire, construct, operate, or main- tain a public utility, no tax shall be levied under the provisions of this act upon the income derived from the operation of such public utility, so far as the payment thereof will impose a loss or burden upon such state, territory, or the District of Columbia, or a political subdivision of this state; but this provision is not intended to confer upon such person or corporation any financial gain or exemption or to relieve such person or corporation from the payment of a tax as provided for in this act upon the part or portion of the said income to which such person or corporation shall be entitled under such contract. Sec. 13114. Income of corporations, joint-stock companies, associations and insurance companies ascertained — how. — (a) In the case of a corporation, joint-stock company or association, or insurance company, organized in the state, such net income shall be ascertained by deducting from the gross amount of its income received within the year from all sources — First. All the ordinary and necessary expenses paid within the year in the maintenance and operation of its business and properties, including rentals or other payments required to be made as a condition to the continued use or possession of property to which the corporation has not taken or is not taking title, or in which it has no equity. Second. All losses actually sustained and charged off within the year and not compensated by insurance or otherwise, includ- ing a reasonable allowance for the exhaustion, wear and tear of property arising out of its use of employment in the business or trade; (a) in the case of oil and gas wells a reasonable allowance for actual reduction in flow and production, to be ascertained INCOME TAX REGULATIONS. 11 not by the flush flow but by the settled production or regular flow; (b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market value in the mine of the produce thereof which has been mined and sold during the year for which the return and computation are made, such reasonable allowance to be made in the case of both (a) and (b) under rules and regu- lations to be prescribed by the state auditor: Provided , that when the allowance authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to July first, nineteen hundred and seventeen, the fair market value as of that date, no further allowance shall be made; and (c) in the case of insurance companies, the net addition, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity contracts: Provided , that no deduction shall be allowed for any amount paid out for new buildings, permanent improvements, or betterments made to increase the value of any property or estate, and no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made: Provided further, that mutual fire and mutual employers’ liability and mutual workmen’s compensation and mutual casualty insur- ance companies requiring their members to make premium de- posits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders, but shall return as taxable income all income received by them from all other sources plus such portions of the premium deposits as are retained by the companies for purposes other than the payment of losses and expenses and reinsurance reserves: Provided further, that mutual marine insurance com- panies shall include in their return of gross income premiums collected and received by them less amounts paid for reinsurance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of premiums pre- viously paid by them and interest paid upon such amounts between the ascertainment thereof and the payment thereof, and life insurance companies shall not include as income in any year such portion of any actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abatement of premium of such individual policyholder, within such year. Third. The amount of interest paid within the year on its indebtedness to an amount of such indebtedness not in excess of the sum of (a) the entire amount of the paid-up capital stock outstanding at the close of the year, or, if no capital stock, the entire amount of capital employed in the business at the close of the year, and (b) one-half of its interest-bearing indebtedness then outstanding; provided , that for the purpose of this act pre- ferred capital stock shall not be considered interest-bearing in- debtedness, and interest or dividends paid upon this stock shall 12 INCOME TAX REGULATIONS. not be deductible from gross income; provided, further , that in cases wherein shares of capital stock are issued without par or nominal value, the amount of paid-up capital stock, within the meaning of this section, as represented by such shares, will be the amount of cash, or its equivalent, paid or transferred to the corporation, as a consideration for such shares; provided further , that in the case of indebtedness wholly secured by property collateral, tangible or intangible, the subject of sale or hypothe- cation in the ordinary business of such corporation, joint-stock company or association as a dealer only in the property consti- tuting such collateral, or in loaning the funds thereby procured, the total interest paid by such corporation, company, or associa- tion within the year on any such indebtedness may be deducted as a part of its expenses of doing business, but interest on such indebtedness shall only be deductible on an amount of such indebtedness not in excess of the actual value of such property collateral; provided further , that in the case of bonds or other indebtedness, which have been issued with a guaranty that the interest payable thereon shall be free from taxation, no deduc- tion for the payment of the tax therein imposed, or any other tax paid pursuant to such guaranty, shall be allowed; and in the case of a bank, banking association, loan or trust company, interest paid within the year on deposits or on moneys, received for investment and secured by interest-bearing certificates of indebtedness issued by such bank, banking association, loan or trust company. Fourth. Taxes paid within the year imposed by an au- thority of the United States, or its territories or possessions, or any foreign country, or under the authority of any state, county, school district, or municipality, or other taxing subdivision of any state, not including those assessed against local benefits. (b) In the case of a corporation, joint-stock company, or association, organized, authorized, or existing under the laws of any other state, such net income shall be ascertained by deduct- ing from the gross amount of its income received within the year from all sources within the state — First. All the ordinary and necessary expenses actually paid within the year out of earnings in the maintenance and operation of its business and property within the state, including rentals or other payments required to be made as a condition to the continued use or possession of property to which the cor- poration has not taken or is not taking title, or in which it has no equity. Second. All losses actually sustained within the year in business or trade conducted by it within the state and not com- pensated by insurance or otherwise, including a reasonable allow- ance for the exhaustion, wear and tear of property arising out of its use or employment in the business or trade; (a) and in the case of oil and gas wells a reasonable allowance for actual reduc- tion in flow and production to be ascertained not by the flush INCOME TAX REGULATIONS. 13 flow, but by the settled production or regular flow; (b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof which has been mined and sold during the year for which the return and computation are made, such reasonable allowance to be made in the case of both (a) and (b) under rules and regula- tions to be prescribed by the state auditor: Provided , that when the allowance authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to July first, nineteen hundred and seventeen, the fair market value as of that date, no further allowance shall be made; and (c) in the case of insurance companies the net addition, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity contracts; provided , that no deduction shall be allowed for any amount paid out for new buildings, permanent improvements, or betterments, made to increase the value of any property or estate, and no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made: Provided further , that mutual fire and mutual employers’ liability and mu- tual workmen’s compensation and mutual casualty insurance companies requiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders, but shall return as taxable income all income received by them from all other sources plus such portions of the premium deposits as are retained by the companies for purposes other than the payment of losses and expenses and reinsurance reserves: Pro- vided , further, that mutual marine insurance companies shall include in their return of gross income gross premiums collected and received by them less amounts paid for reinsurance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of premiums pre- viously paid by them and interest paid upon such amounts between the ascertainment thereof and the payment thereof, and life insurance companies shall not include as income in any year such portion of any actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abatement of premium of such individual policyholder, within such year. . Third. The amount of interest paid within the year on its indebtedness to an amount of such indebtedness not in excess of the proportion of the sum of (a) the entire amount of the paid- up capital stock outstanding at the close of the year, or, if no capital stock, the entire amount of the capital employed in the business at the close of the year, and (b) one-half of its interest- bearing indebtedness then outstanding, which the gross amount of its income for the year from business transacted and capital invested within the state bears to the gross amount of its income 3 14 INCOME TAX REGULATIONS. derived from all sources within and without the state: Provided , that in the case of bonds or other indebtedness which have been issued with a guaranty that the interest payable thereon shall be free from taxation, no deduction for the payment of the tax herein imposed or any other tax paid pursuant to such guaranty shall be allowed; and in case of a bank, banking association, loan or trust company, or branch thereof, interest paid within the year on deposits by or on moneys received for investment from either citizens or residents of the state, and secured by interest-bearing certificates of indebtedness issued by such bank, banking asso- ciation, loan or trust company, or branch thereof. Fourth. Taxes paid within the year imposed by the au- thority of the United States or its territories, or possessions, or under the authority of any state, county, school district, or municipality, or other taxing subdivision, of any state, paid within the state, not including those assessed against local benefits. (c) In the case of assessment insurance companies, whether domestic or foreign, the actual deposit of sums with state or territorial officers, pursuant to law, as additions to guarantee or reserve funds shall be treated as being payments required by law to reserve funds. Sec. 13115. State divided into districts — how. — For the pur- poses of this act the state shall be divided into one hundred and fifteen assessment districts, whose boundaries shall coincide and in every way correspond with the one hundred and fourteen counties and the city of St. Louis in this state. The assessors and collectors of the several counties and the city of St. Louis shall be the assessors and collectors of the income tax of the dis- tricts in which they live. Sec. 13116. Incomes assessed — how. — Every person who has a taxable income, shall on the first day of January of each year, or as soon thereafter as practicable, apply in person or by mail, to the assessor of the district in which such person resides, for a proper blank on which to make a return, which said return shall be filed with the assessor on or before the first of March next following. The assessor shall be furnished all necessary printing, stationery, postage and office equipment, and he and his deputies shall be entitled to receive their actual necessary expenses incurred in the performance of their duties, all such expenditures shall be audited and paid out of the state or county treasury in the same manner as other similar expenses are audited and paid. Sec. 13117. Assessors to keep separate book, etc. — There shall be furnished to the assessors a separate book for income taxes known as the “income assessment book” which shall contain a list of the names of all persons having a taxable income, alpha- betically arranged, with proper priority of vowels, and such book may contain a number of columns after the manner of “personal INCOME TAX REGULATIONS. 15 assessment books,” in so far as they are applicable and such other columns as are useful and convenient in practice. Sec. 13118. Assessor to require report — when. — Whenever in the judgment of the assessor any person in his district shall be subject to an income tax under the provisions of this act, he shall require such person to make report at such time and in such manner and form as he may prescribe, specifying particularly among other items the amount of income received from services, unsecured notes, mortgages, bonds, stocks and rent, the amount of income received by his wife and child under eighteen years of age residing together with him as members of the family and such other information as he shall deem necessary to enforce the provisions of this act. Sec. 13119. Assessment to be complete and result certified, when. — The county or township assessor shall complete the assessment of incomes on or before the first day of March of each year, and shall thereupon forthwith certify the result to the county clerk or city auditor, who shall compute the taxes thereon, and said clerk shall enter such income taxes upon a tax book provided for that purpose, and deliver the same to the county collector on or before the first day of May thereafter, and the taxes shall be collected and paid on or before the first day of June thereafter to the county collector and by him remitted monthly to the state treasurer. Sec. 13120. Returns — to whom made — how made — when. — The place at which the tax herein provided for shall be assessed, levied and collected shall be determined as follows: First. Persons residing within the state shall make returns to the assessor of the district in which they reside. Second. Persons residing without the state and deriving income from sources within the state or within its jurisdiction, shall make return to the assessor of the district where their chief office is located and if they have no office within the state, they shall make application to the state auditor, whose duty it shall be to designate the district in which they shall make income tax returns. Sec. 13121. Assessor to give bond. — Every assessor before entering upon the duties of his office shall give bond and security to the state to the satisfaction of the county court, or the clerk in vacation, or the common council of the city of St. Louis, with three or more solvent sureties, householders of the county or city, in a sum not less than the annual emolument of his office, the amount to be fixed by the court or clerk or city auditor, as the case may require, conditioned for the faithful performance of the duties of his office, which bond shall be deposited in the office of the clerk of the county court, or city auditor. Sec. 13122. Failure of assessor — penalty. — Every assessor who shall fail to perform any duty enjoined upon him by law, in the time prescribed, shall be removed from office by the 16 INCOME TAX REGULATIONS. county court or the common council of the city of St. Louis, who shall appoint another instead. Such new assessor shall take a like oath and give a like bond as required of the first and the county court or common council of the city of St. Louis shall order suit brought upon the bond of such delinquent assessor, against him and his sureties, for such amount as shall be sufficient to reimburse such county or city for completing and reassessing such county or city. Sec. 13123. State auditor may question assessment — when. — Within one year after the completion of the income tax assess- ment, for any year, the state auditor may, if he believes that the assessment of any assessor has been fraudulently, collusively or erroneously made, make application to the circuit judge of the judicial circuit in which such assessor’s district is located. The judge to whom such application is made may thereupon appoint a competent person, who is a non-resident of the district of such assessor, to reassess the income tax of such district. Such person shall possess the powers, be subject to the duties and receive the same compensation as the regular assessor. The report of such person shall be filed with the judge by whom he was appointed. If the state auditor upon the examination of such report, believe that criminal proceedings should be had, he shall place the matter before the governor who may direct the attorney-general, or one of his assistants, to aid the prosecuting or circuit attorney in enforcing the provisions of this act. Sec. 13124. Compensation of assessors and collectors. — As- sessors and collectors shall be compensated in like manner and in like amounts as for the assessments of other taxes; provided , that in counties in which the assessors and collectors are paid a fixed salary, that in addition to the salary paid, they shall be permitted to charge for work performed in the assessing and col- lecting of the income tax, as provided by this act, the same fees as are charged by assessors and collectors whose salary is not fixed by law, and which fees are charged by said assessors and collectors for services rendered in assessing and collecting the income tax shall be paid by the state. Sec. 13125. State auditor to furnish forms, etc. — It shall be the duty of the state auditor to make out and forward to the clerk or auditor of each county and the auditor of the city of St. Louis, from time to time, for the use of county and city officers, suitable forms for the return of income taxes. He shall give instructions for carrying this chapter into effect and all such instructions shall be strictly complied with by the officers in the performance of their duties, as required by this chapter. He shall give his opinion and advice on all questions of doubt as to the true intent and meaning of the provisions of this chapter. Sec. 13126. Powers and duties of boards of equalization, etc. The board of equalization and the board of appeals, or any in- dividual or body exercising similar powers and duties, of any INCOME TAX REGULATIONS. 17 civil or political subdivision of this state, shall have the same powers and duties with respect to the income tax, as they now have with respect to the tax on personal property, in so far as the law is applicable, with the additional power to estimate income. Sec. 13127. Tax delinquent, when. — For the purpose of this act income taxes shall become delinquent on the 2nd day of June following the day when the tax book is required by law to be de- livered to the collector, and said taxpayers appearing in such tax book shall have the same penalty assessed against them as in the cases of other taxes, and suit shall be brought and the taxes collected in the same manner as personal delinquent taxes are now collected. Sec. 13128. False returns— penalty.— In case any return made by any person is made with false or fraudulent intent, or in case of a refusal or neglect to make a return as required by law, or an additional amount is discovered, such income shall be subject to twice the original rate. Sec. 13129. Assessor may allow further time — when. — In case of neglect occasioned by the sickness or absence of an officer of any corporation, joint-stock company or association required to make said return, or for other sufficient reason, the assessor may allow such further time for making and delivering such return as he may deem necessary, not to exceed thirty days. Sec. 13130. False returns by corporations, etc. — penalty. — If any of the corporations, joint-stock companies or associations aforesaid shall fail or refuse to make return at the time herein- before specified in each year, or shall render a false or fraudulent return, such corporation, joint-stock company or association shall be liable to a penalty of not less than one hundred dollars and not to exceed five thousand dollars at the discretion of the court. Sec. 13131. False returns with intent to evade or defraud — penalty. — Any officer of a corporation, joint-stock company or association required by law to make, render, sign or verify any return who makes any false or fraudulent return or statement, with intent to defeat or evade the assessment required by this act to be made, shall upon conviction be fined not to exceed five hundred dollars or be imprisoned not to exceed one year, or both, at the discretion of the court, with the cost of prosecution. Sec. 13132. False returns — individuals — penalty. — Any in- dividual who fails or refuses to make a return at the time here- inbefore specified in each year or shall render a false or fraudulent return, shall upon conviction be fined not to exceed five hundred dollars, or be imprisoned not to exceed one year, or both, at the discretion of the court, together with the costs of prosecution. 18 INCOME TAX REGULATIONS. Sec. 13133. Powers of assessors. — In the performance of such duty, the assessors shall possess all powers now or hereafter granted by law to assessors in the assessment of personal prop- erty and also the power to estimate incomes. Sec. 13134. Governor to request information concerning federal incomes. — It shall be the duty of the governor to request such information concerning the payment of federal income taxes by citizens of this state as the federal authorities may be willing to divulge. Sec. 13135. Officers not to divulge, etc. — penalty. — It shall be unlawful for any person, persons or officer to divulge, give out or impart to any other person, or persons, any information relative to, or the contents of any income filed under this act, or to permit any other person, or persons not connected with his office to see, inspect or examine the same; and it shall be unlawful for any person or officer to use any income filed under this in any manner whatever in connection with, or for the purpose of assessing of property tax or determining the amount of assess- ment of any person or corporation or to use the same in any way in making up an assessment roll. It shall be unlawful for any board of equalization, or any member thereof, or any officer, to in any way permit the inspection of any such return or to use the same in any way in making assessment other than the assessment of the tax provided for in this act and any person violating the provisions of this section shall be deemed guilty of a felony and upon conviction thereof shall be fined a sum of not less than one hundred dollars ($100) and not more than one thousand dollars ($1,000) or imprisonment in the peniten- tiary for a term of not less than two years and not more than five years, or both such fine and imprisonment as the court may deem proper; and any officer convicted for the violation of this section, the judgment of conviction shall be construed and held to be a forfeiture of the office held by such convicted per- son. Sec. 13136. Returns to be destroyed— when. — It shall be the duty of the collector, assessor or any other officer of this state, having in his custody income tax returns, to destroy the same within six months after such income tax becomes due, provided that no income tax return shall be destroyed before the tax has been paid. REGULATIONS. Regulations concerning the tax imposed by the Revised Statutes, 1919, as amended August 1, 1921, on net income of Individuals, Corporations, Joint-stock Companies, Associations, and In- surance Companies. Office of the State Auditor. Jefferson City , Mo., November 2, 1921. PART 1. Individual Income Returns and Collections. Article 1. Section 13106 of the above-named act imposes a tax of one and one-half per centum on net incomes arising or accruing from all sources during the preceding calendar year to — (a) Every citizen of the State of Missouri, whether residing at home or abroad; and ( b ) Every person residing in the State of Mis- souri, though not a citizen thereof; and (c) From all property owned and from every business, trade, or profession carried on in the State of Missouri, by a person residing elsewhere. Art. 2. The NET INCOME shall consist of the total gains, profits, and income derived from all sources (designated as gross income) less deductions numbered first to eleventh, inclusive, specifically enu- merated in Sec. 13110 of the act. In computing the taxable income for the pur- poses of the tax there shall be deducted from the net income as above ascertained: (a) The amount included in the gross income received as dividends upon the stock or from the net earnings of any corporation, joint-stock company, association, or insurance company which is taxable upon its net income; ( b ) The specific exemption of $1,000 or $2,000, as the case may be. Art. 3. Gross income includes all gains, profits, and income derived from — Persons tax- able. Net income defined. N ormal tax ; upon what com- puted. Gross in- come. What it includes. ( 19 ) 20 INCOME TAX REGULATIONS. Income e x- empt from tax- ation. Deductions allowed. (a) Salaries, wages, or compensation for per- sonal service of whatever kind and in whatever form paid. (■ b ) Professions, vocations, business (including income from copartnerships), trade, commerce, or sales or dealings in property, growing out of the ownership or use of, or interest in, real or personal property. (c) Interest, rent, dividends, securities, or transaction of any lawful business carried on for gain or profit. ( d ) Gains or profits and income derived from any source whatever, including the income from, but not the value of, property acquired by gift, bequest, devise or descent. The foregoing is held to include all income, gains, and profits arising or accruing from all sources whatever in the calendar year for which the return is made, except as hereinafter specifically stated. Art. 4. The following items should not be in- cluded as gross income: (a) Value of property acquired by gift, be- quest, devise, or descent during the year. ( b ) Proceeds of life insurance policies paid upon the death of the person insured to beneficiaries, or payments made by or credited to the insured, on life insurance, endowment, or annuity contracts, upon the return thereof to the insured at the maturity of the term mentioned in the contract, but this shall not be construed to mean that interest pay- ments to beneficiaries from insurance companies shall not be included as income. (c) The compensation of all officers and em- ployees of the State or any political subdivision thereof, including public-school teachers, etc., should be included. Art. 5. Deductions and exemptions allowed in computing taxable income for the purposes of the tax . 1. The amount of necessary expenses actually paid for carrying on business, but not including business expenses of partnerships and not including personal, living, or family expenses. 2. All interest paid within the year on personal indebtedness of the taxpayer incurred in the con- duct of business. INCOME TAX REGULATIONS. 21 3. All National, State, county, school, and municipal taxes paid within the year (not including those assessed against local benefits). 4. Losses actually sustained during the year incurred in trade or arising from fires, storms, or shipwreck and not compensated for by insurance or otherwise. 5. Debts due to the taxpayer which have been actually ascertained to be worthless and charged off within the year. 6. Amount representing a reasonable allow- ance for the exhaustion, wear, and tear of property arising out of its use or employment in the business, not to exceed, in the case of mines, reasonable per cent of the gross value at the mine of the output for the year for which the computation is made, but not including the expense of resioring property or making good the exhaustion thereof, for which an allowance is or has been made, nor for any amount paid for new buildings, permanent improvements, or betterments, made to increase the value of any property or estate. The term “gross value at the mine,” as used in paragraph 2 of section 9 of the act of April 12, 1917, prescribing a limit to the amount which may be deducted in the return of individuals and corporations as depreciation in the case of mines, is held to mean the bona fide market value of ore, coal, crude oil, and gas at the mine or well, where such value is established by actual sales at the mine or well; and in case the market value of the product of the mine or well is established at some other place than at the mine or well, or on the basis of the bullion or metallic value of the ore, then the gross value at the mine is held to be the value of the ore, coal, oil, or gas sold, or of the metal produced, less transportation, reduction, and smelting charges. 7. The amount included in gross income re- ceived as dividends upon the stock, or upon the net earnings, of any corporation, joint-stock company, association, or insurance company which is taxable upon its net income. None of the above items of deduction shall include money or other items of value disposed of by gift, donation, or endowment. Personal exemption of $1,000 or $2,000, as the case may be, is to be deducted from the net income except in the cases of nonresident aliens. (See arts. 7, 9, and 10.) Art. 6. The act provides that the said normal tax shall be computed on the remainder of said net income accruing during each preceding calendar year. “Gross value at the mine” defined. Gifts or do- nations made during the year not to be de- ducted. Exemptions allowed. Tax c o m - puted on the calendar year. 22 INCOME TAX REGULATIONS. Specific e x- emption allow- ed to single per- son or married persons living apart. Specific e x- emption allow- ed with respect to aggregate in- come of hus- band and wife. If husband and wife have separate estates one return may- be made show- ing income of each. Wife’s return of separate es- tate to be at- tached to hus- band’s return or husband’s income may be included in wife’s return. Return re- quired if either husband or wife has an income of $1,000 or over. Return re- quired if aggre- gate income of husband and wife is in excess of $2,000, al- though neither may have an income of $1,- 000 or over. Art. 7. Every single person and every married person not living with husband or wife in the sense below defined, who has a net income exceeding $1,000 per annum, is liable to pay the normal tax under this law, but in making return for such tax such person may claim an exemption of $1,000 from his or her total net income. Art. 8. Husband and wife living together are entitled to an exemption of $2,000 only from the aggregate net income of both, which may be de- ducted in making the return of such income for taxation. However, when the husband and wife are separated and living permanently apart from each other each shall be entitled to an exemption of $1,000. If the husband and wife not living apart have separate estate, the income from both may be made on one return, but the amount of income of each, and the full name and address of both, must be shown in such return. The husband, as the head and legal representa- tive of the household and general custodian of its income, should make and render the return of the aggregate income of himself and wife, and for the purpose of levying the income tax it is assumed that he can ascertain the total amount of said income. If a wife has a separate estate managed by herself as her own separate property and receives an income of $1,000 or over, she may make return of her own income, and if the husband has other net income, making the aggregate of both incomes more than $2,000, the wife’s return should be at- tached to the return of her husband, or his income should be included in her return, in order that a deduction of $2,000 may be made from the aggregate of both incomes. The tax in such case, however, will be imposed only upon so much of the aggregate income of both as shall exceed $2,000. If either husband or wife separately has an in- come equal to or in excess of $1,000, a return of annual net income is required under the law, and such return must include the income of both, and in such case the return must be made even though the combined income of both be less than $2,000. If the aggregate net income of both exceeds $2,000, an annual return of their combined incomes must be made in the manner stated, although neither one separately may have an income of $1,000 per annum. They are jointly and separately liable for such return and for the payment of the tax. INCOME TAX REGULATIONS. 23 The single or married status of the person claim- ing the specific exemption shall be determined as of the time of claiming such exemption if such claim be made within the year for which return is made, otherwise the status at the close of the year. Art. 9. His or her prorata share of the net profits derived from a partnership business, whether or not divided and paid out, shall be included in the personal return of each partner. Art. 10. Partnerships, as such, are not subject to the income tax, and are only required to make return when requested to do so by the State Auditor of Missouri or the assessor for the county or town- ship in which said partnership has its principal place of business; and when a return is required it shall give a complete and correct statement of the gross income of the said partnership and also a complete statement of the actual expenses of conducting the business of said partnership, and the net profits and the name and address of each member of said part- nership, and their respective interest in the net profit thus reported. Art. 11. The net annual profits of a partner- ship when divided and paid to the members thereof shall be included by each individual partner receiving same in his annual return of net income, and the tax shall be paid thereon as required by law. When the annual profits of a partnership are not distributed and paid to the members thereof the respective interest of each member in said profits shall be ascertained, and the individuals entitled thereto shall include the said amount in their annual return as a part of their gross income, the same as if said profits had been distributed and paid to them. Art. 12. Undivided annual net profits of part- nerships thus returned by the individual members thereof, and tax paid thereon, shall not, when said profits are actually distributed and paid to such members, be again included in their annual return as a part of their gross income. Returns. Art. 13. Each person of lawful age whose net income is if married $2,000 or over, if single $1,000 or over shall, on or before the 1st day of March each year file an accurate return of income under oath or affirmation. When status is to be deter- mined. Interest in partnership profit, how re- ported. Partnerships, as such, not liable to tax, but statement may be re- quired. Partnership profits to be in- cluded in re- turns made by individual part- ners. Individual partnership profits. When re- turns of annual net income of S3, 000 or over are to be made. 24 INCOME TAX REGULATIONS. Where filed. Form of re- turn. When re- turn will be made by guard- ian or duly au- thorized agent. Executor o r administrator to make return in case of death. Notice of failure to file return to be served on guardian or agent. E v i de nee may be filed showing nonlia- bility t o make return. Returns to' be prepared b y assessor in cer- tain cases. If the person making the return of income has his place of business in the county or township in which he resides, the return shall be filed with the assessor of that county or township. If his principal place of business is elsewhere, the return shall be filed in the county in which that business is located. In the case of an individual residing in another state or a foreign country return shall be made to the assessor for the county where his principal business is carried on within the State of Missouri. Art. 14. The required return will be made on Form 11 in accordance with the instructions printed thereon, and will specifically set forth — 1. All income received from each specific source and the total thereof. 2. All the separate items of deduction claimed under Sec. 13110 of this law. 3. The amount of specific exemption claimed under Sec. 13111. Art. 15. When by reason of minority, insanity, absence, sickness, or other disability, the individual is unable to make his own return, the same shall be made by his guardian or duly authorized agent. In the case of the death of a person whose net income for the part of the year during which he lived was $1,000 or over, return of net income shall be made by the executor or administrator of the estate of the deceased, and in computing the taxable income of such estate there shall be allowed the specific exemption provided by law. Art. 16. When the required return has not been made by a person acting as guardian, agent of a nonresident alien, or by one acting in any other capacity in which the law makes it a duty for him to represent the individual, notice of failure to make such return will be served upon such guardian or agent. The person upon whom such notice is served may, however, when the facts warrant, file evidence with the assessor showing that the individual for whom he acts did not receive an income subject to tax during the year, or that the said guardian or agent had filed the return with some other assessor. Art. 17. If any person liable to pay an income tax for himself or others shall fail to make and deliver the return required by law, but shall consent to disclose the particulars of any business or occupa- tion liable to pay such tax, it shall be the duty of the assessor or deputy assessor to make such list or INCOME TAX REGULATIONS. 25 return, which being distinctly read and consented to, signed, and verified by oath or affirmation by the person liable to make such return, the same may be received as the list or return of such person. Art. 18. In case any person liable to make re- turn shall neglect or refuse to make or render a list or return, or shall render a willfully false or fraudulent return, it shall be the duty of the assessor, after due notice has been given, to make such list, according to the best information he can obtain by the exam- ination of such person, or any other evidence. When duly certified by the assessor, the said list thus prepared shall be the return of said person and the tax so ascertained to be due, shall be double the original rate. Art. 19. The annual return must be verified by oath or affirmation of the person making the same. Assessors are directed by law to require every return to be so verified by the person rendering it. The affidavit may be made before the assessor for the county or township or before any officer authorized by law to administer oaths. Art. 20. When the return is not filed within the required time by reason of sickness or absence of the individual, an extension of time, not exceeding 30 days from March 1, within which to file such return may be granted by the assessor, provided a written application therefor is made by the individual within the period for which such extension is desired. Art. 21. All assessments shall be made by the assessor, and all persons shall be notified of the amount for which they are respectively liable on or be- fore the 1st day of June of each successive year, and said assessments shall be paid on or before the 1st day of June, except in cases of refusal or neglect to make such return and in cases of false or fraudu- lent returns, in which cases the assessor shall, upon the discovery thereof, at any time within three years after said return is due, make a return upon in- formation obtained, as provided by the law, and the assessment made by the assessor thereon shall be paid by such person or persons immediately upon notification of the amount of such assessment. Art. 22. If any person, corporation, joint-stock company, association, or insurance company liable to make returns or pay tax shall refuse or neglect to make returns at the time or times specified in each year, such person shall be liable to a penalty of not less than $100 nor more than $5,000. Refusal or neglect to make return. Penalty for failure to make return o r for making false re- turn. Returns to be verified by oath or affirma- tion. Extension of time to file re- turn may be granted. Assessments; notification of ; when to be paid. Penalties for failure to make returns. 26 INCOME TAX REGULATIONS. Penalties for making false or fraudulent re- turns. Organiza- tions subject to tax. Rate explain- ed? calendar year 1921. Fiscal year rate. Rate on in- comes of year 1922. Any person or any officer of any corporation required by law to make, render, sign, or verify any return who makes any false or fraudulent return or statement with intent to defeat or evade the assessment required by law to be made shall be guilty of a misdemeanor, and shall be fined not exceeding $500.00 or be imprisoned not exceeding one year, or both, at the discretion of the court, with the costs of prosecution. Art. 23. Nothing in the law or these regula- • tions shall be construed to release a taxable person from liability for income tax, nor shall any contract entered into after the act of April 12, 1917, took effect be valid in regard to any State income tax imposed upon a person liable to such payment. PART 2. Relating to the income tax imposed by Revised Statutes 1919 as amended August 1, 1921, on Corporations, Joint-stock Companies or Asso- ciations, and Insurance Companies. Art. 24. Under the provisions of section 13112 of the income tax law, every corporation, joint-stock company or association, and every insurance com- pany organized in the State of Missouri, no matter how created or organized, except those specifically exempted, shall be subject to pay annually an in- come tax upon the entire net income arising or ac- cruing from all sources during the preceding cal- endar or fiscal year, as the case may be. The rate of tax for the calendar year 1921 is computed as follows: For the first ten months it is at the rate of one and one-half per cent. For the last two months it is at the rate of one-half of one per cent. This calculation makes the rate for the entire year one and one-third per cent. Corporations making returns on the basis of a fiscal year will be required to compute their tax at the rate of one and one-half per cent up to Novem- ber 1st, 1921, and if the fiscal year ends November 30th, at the rate of one-half of one per cent for- the one month. Commencing with the year 1922 and subse- quent years, the rate on incomes shall be at the rate of one per cent. Individuals and corporations are to bear this instruction in mind when making their returns in 1923. INCOME TAX REGULATIONS. 27 Art. 25. A similar tax shall be levied, assessed against, and paid annually by corporations, joint- stock companies or associations, and insurance companies organized, authorized, or existing under the laws of any foreign country upon the amount of net income accruing from business transacted and capital invested within the State of Missouri during such year. Art. 26. “Corporation” or “corporations,” as used in these regulations, shall be construed to in- clude all corporations, joint-stock companies or associations, and all insurance companies coming within the terms of the law, and such organizations will hereinafter be referred to as “corporations.” Art. 27. It is immaterial how such corpora- tions are created or organized. The terms “joint- stock companies” or “associations” shall include associates, real estate trusts, or by whatever name known, which carry on or do business in an organized capacity, whether organized under and pursuant to State laws, trust agreements, declarations of trusts, or otherwise, the net income of which, if any, is distributed, or distributable, among the members or share owners on the basis of the capital stock which each holds, or, where there is no capital stock, on the basis of the proportionate share of capital which each has invested in the business or property of the organization, all of which joint-stock companies or associations shall, in their organized capacity, be subject to the tax imposed by this act. Art. 28. Every corporation not specifically enumerated as exempt shall make the return of annual net income required by law whether or not it may have any income liable to tax, or whether or not it shall be subordinate to or controlled by another corporation. Mutual telephone companies, mutual insurance companies, and like organizations, although local in character, and whose income consists largely from assessments, dues, and fees paid by members, do not come within the class of corporations specifically enumerated as exempt. Their status under the law is not dependent upon whether they are or are not organized for profit. Not coming within the statutory exemption, all organizations of this character will be required to make returns of annual net income, and pay any income tax thereby shown to be due. For this purpose the surplus of receipts of the year over Foreign cor- porations sub- ject to the tax. Corporations defined. Associations, real estate trusts, etc., sub- ject to tax. Corporations required to make returns. Mutual tele- phone and mu- tual insurance companies not exempt. 28 INCOME TAX REGULATIONS. Interest de- duction by cor- porations oper- ating leased or purchased lines. Lessee cor- porations not to include capital stock or indebt- edness of lessor corporations. Foreign cor- porations hav- ing branch of- fices in the State of Missouri to designate prin- cipal office. Corporations organized dur ing year to make returns. Corporations going into liqui- dation. expenses will constitute the net income upon which the tax will be assessed. A railroad or other corporation which has leased its properties in consideration of a rental equivalent to a certain rate of dividends on its outstanding capital stock and the interest on the bonded indebt- edness, and such rental is paid by the lessee directly to the stock and bondholders, should, nevertheless, make a return of annual net income showing the rental so paid as having been received by the cor- poration. Art. 29. A railroad company operating leased or purchased lines shall include all receipts derived therefrom, and, if bonded indebtedness of such lines has been assumed, such operating company may deduct the interest paid thereon to an amount not exceeding one-half of the sum of its interest- bearing indebtedness and its paid-up capital stock outstanding at the close of the year. Art. 30. Corporations operating leased lines should not include the capital stock of the lessor corporations in their own statement of capital stock outstanding at the close of the year. The indebted- ness of such lessor corporations should not be in- cluded in the statement of the indebtedness of the lessee unless the lessee has assumed the same. Each leased or subsidiary company will make its own separate return, accounting for therein all income which it may have received by way of dividends, rentals, interest, or from any other source. Art. 31. A foreign corporation having several branch offices in the State of Missouri should desig- nate one of such branches as its principal office and should also designate the proper officers to make the required return. Art. 32. A corporation organized during the year should render a sworn return on the prescribed form, covering that portion of the year (calendar or fiscal) during which it was engaged in business or had an income accruing to it. Art. 33. Corporations going into liquidation during any tax period may, at the time of such liquidation, prepare a “final return” covering the income received or accrued to them during the fractional part of the year during which they were engaged in business, and immediately file the same with the assessor of the county or township in which the corporations have their principal places of busi- ness. INCOME TAX REGULATIONS. 29 Art. 34. Limited partnerships are held to be corporations within the meaning of this act and these regulations, and in their organized capacity are sub- ject to the income tax as corporations. Art. 35. The act specifically enumerates and exempts from its provisions and requirements labor, agricultural, or horticultural organizations, mutual savings banks not having a capital stock represented by shares, fraternal beneficiary societies, orders, or associations operating under the lodge system, or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and providing for the payment of life, sick, accident, and other benefits to the members of such societies, orders, or associations, and dependents of such members, domestic building and loan associations, cemetery companies organized and operated exclusively for the mutual benefit of their members, any and all corporations or associations organized and operated exclusively for religious, charitable, scientific, or educational purposes, no part of whose net income inures to the benefit of any private stockholder or individual, business leagues, chambers of commerce, or boards of trade not organized for profit, no part of the net income of which inures to the benefit of the private stockholder or individual, and civic leagues or similar organizations not organized for profit, but operated exclusively for the promotion of social welfare. Domestic building and loan associations are among those enumerated as exempt from the re- quirements of the law. A domestic building and loan association is held to be one organized under and pursuant to the laws of the State of Missouri, or under the laws applicable to Alaska or the Dis- trict of Columbia. Mutuality in operation and in the distribution of profits and benefits is essential to exemption. Therefore, in order to come within the exempted class such associations must not only be “Domestic,” as defined, but they must be organ- ized and operated exclusively for the mutual benefit of the members; that is, all the profits and benefits provided for in the articles of association and by- laws must be ratably distributed among all members regardless of the kind of stock held, according to the amount of money they have on deposit. An association issuing different classes of stock upon which different rates of interest or dividends are guaranteed or paid, does not come within the exempted class. Limited part- nerships. Corporations exempt from tax. Domestic building and loan associa- tions defined. Mutuality es- sential. 30 INCOME TAX REGULATIONS. Corporations must establish their right t o exemption. Society or as- sociation sub- ject to exemp- tion defined. Cemetery companies or- ganized for mu- tual benefit of their members exempt. Corporations whose status as to exemption is in doubt must make return. Co-operative dairies not issuing stock and allowing patrons d i v i - dends, exempt. When income from public utilities is not taxable. Art. 36. All corporations and all beneficiary societies enumerated above shall by affidavit, or otherwise, at the request of the assessor or State Auditor, establish their right to the exemption pro- vided, in which case it will not be sufficient to merely declare that they are exempt, but they must show the character and purpose of the organization, the manner of distributing the net income, if any, or that none of the net income inures to the benefit of any private stockholder or individual. In the absence of such a showing, such organizations may, at any time, be required to make returns of annual net income or disclose their books of account to a revenue officer for examination in order that the status of the company may be determined. Art. 37. A society or association “operating under the lodge system” is considered to be one organized under a charter, with properly appointed or elected officers, with an adopted ritual or ceremonial, holding meetings at stated intervals, and supported by fees, dues, or assessments. Art. 38. Cemetery companies organized and operated exclusively for the mutual benefit or their members are exempt. The provisions of the law clearly indicate that companies which operate ceme- teries for profit are liable to the tax. The status of cemetery associations under the law will, there- fore, depend upon the character and purpose of the organization and what disposition is made of the income. Art. 39. Any corporation, concerning whose status under the law there is any doubt, or which does not clearly come within one or another of the classes of those specifically enumerated as exempt, should file a return (in blank if desired) and attach thereto a statement setting out fully the nature and purpose of the organization, the source of its income, and what disposition is made of it, and particularly of any surplus. Art. 40. Co-operative dairies not issuing stock and allowing patrons dividends based on butter fat in milk furnished are not liable. In such case the “dividends” are the purchase price of the raw ma- terial furnished. Art. 41. The income derived from any public utility or from the exercise of any essential govern- mental function, which income accrues to any State, Territory, the District of Columbia, or any political subdivision of a State, Territory, or the District of INCOME TAX REGULATIONS. 31 Columbia shall not be subject to the tax imposed by this act. In cases wherein any State, Territory, or the District of Columbia, or any political sub- division of a State, or Territory, shall have, prior to the passage of this act, contracted in good faith with any person or corporation to acquire, construct, operate, or maintain a public utility, no income tax pursuant to this act shall be levied upon the income derived from the operation of such public utility, so far as the assessment and payment of such tax will impose a loss or burden upon such State, Terri- tory, District of Columbia, or political subdivision. But the person or corporation is not relieved from the payment of the tax upon that portion of the in- come accruing to him, or it, under such contract. Art. 42. Ordinary copartnerships are not, as such, subject to the tax imposed by this act, but the individual members of any such partnership are liable for income tax only in their individual capacity on their respective shares of the earnings of such partnership, whether such earnings be distributed or not. Art. 43. Full amount of stock, as represented by the par value of the shares issued, is to be re- garded as the paid-up capital stock, except when such stock is assessable on account of deferred pay- ments, or payable in installments, in which case the amount actually paid on such shares will constitute the actual paid-up capital stock of the corporation. Art. 44. The following definitions and rules are given for determining the gross income of various classes of corporations: Gross income of banks and other financial insti- tutions consists of the total revenue derived from the operation of the business, including income, gains, or profits from all other sources, as shown by the entries on the books of account, within the calendar or fiscal year for which the return is made. Art. 45. Gross income of insurance companies consists of the total revenue derived from the opera- tion of the business, including income, gains, or profits from all other sources, as shown by the entries on the books of account within the calendar or fiscal year for which the return is made, except as modified by the express exemptions of the article which apply to mutual fire, mutual marine, and life insurance companies. Art. 46. Mutual fire insurance companies, which require their members to make premium Persons or corporations not exempt. Partnerships not taxable as corporations. What consti- tutes paid - up capital stock. Gross in- come, how de- termined. Gross income of banks and other financial institutions. Gross income of insurance companies. Gross income of mutual fire insurance com- panies. 32 INCOME TAX REGULATIONS. Mutual ma- rine insurance companies. Deferred div- idends deduct- ible, when. Gross income of insurance companies, t o include what. Consideration for supplemen- tary contracts. deposits to provide for losses and expenses, shall not return as gross income any portion of the pre- mium deposits returned to their policyholders, but shall return as taxable income all income received by them from all other sources plus such portions of the premium deposits as are retained by the com- panies for purposes other than the payment of losses and expenses and reinsurance reserves. Art. 47. Mutual marine insurance companies may include in their deductions from gross income amounts repaid to policyholders on account of pre- miums previously paid by them and interest paid upon such amounts between the ascertainment thereof and the payment thereof, such amounts and interest having been included in gross income. Art. 48. Life insurance companies are author- ized to omit from gross income such portion of any actual premium received from any individual policy- holder as shall have been paid back or credited to the policyholder or treated as an abatement of his premium. In so far as “deferred dividends” payable at a stated period represent “a portion of any actual premium received,” such deferred dividends may be included in the amounts to be omitted from gross income for the year in which they were actually paid back, credited to the policyholder, or applied as an abatement of premium. In the case of divi- dends credited or apportioned annually to the policy- holder, only the aggregate amount so actually cred- ited or apportioned during the premium-paying period, and not any accretions thereto, can be ex- cluded from gross income. In the case of whole- life or five-year distribution policies, deferred divi- dends may be excluded from gross income to the extent that they are paid back, or credited to the insured, or used as an abatement of his annual premiums. Art. 49. Gross income of insurance companies, as defined above, will include net premium income as reported to the State insurance department, except the foregoing items specifically exempted in the act, and, in the case of life insurance companies, surrender values applied in any manner, consideration for sup- plementary contracts involving and not involving life contingencies, and all other income, gains, or profit as shown by the books of account. Art. 50. Applied surrender values and consid- eration for supplementary contracts not involving life contingencies included in income will, of course. INCOME TAX REGULATIONS. 33 be deducted as payments under policy contracts, but for convenience in verifying the returns, these items should appear in the return in both gross income and deductions. Art. 51. All insurance companies should include and attach to their returns a supplementary state- ment showing, for life companies, the aggregate of items “of such portion of any actual premium re- ceived from any individual policyholder as shall have been paid back or credited to such individual policy- holder, or treated as an abatement of premium of such individual policyholder within such year;” in the case of mutual fire insurance companies a state- ment showing “any portion of the premium deposits returned to their policyholders;” and in the case of mutual marine companies “amounts repaid to policyholders on account of premiums previously paid by them, and interest paid upon such amounts between the ascertainment thereof and the payment thereof,” which are, or may be, omitted from gross income. Art. 52. Gross income of manufacturing com- panies shall consist of the total sales of manufactured goods during the year covered by the return, in- creased or decreased by the gain or loss as shown by the inventories of finished and unfinished prod- ucts, raw material, etc., at the beginning and end of the year. To this amount should be added the income, gains, or profits from all other sources as shown by the books of account. Art. 53. Gross income of mercantile companies shall include the total merchandise sales during the year, increased or decreased by the gain or loss as shown by the inventories of merchandise at the beginning and end of the year for which the return is made; to this amount should be added the income, gains, or profits derived from all other sources as shown by the books of account. Art. 54. Gross income of miscellaneous cor- porations consists of the total revenue derived from the operation and management of the business and property of the corporation making the return, together with all amounts of income, including the income, gains, or profits from all other sources as shown by the books of account. Art. 55. It will be noted from these definitions that the gross income embraces not only the operat- ing revenues, but also income, gains or profits from Supplemen- tary statement to accompany returns. Gross income of manufactur- ing companies. Gross income o f mercantile corporations. Gross income o f miscellane- ous companies. Definition of gross ncome. 34 INCOME TAX REGULATIONS. Income de- rived from sale of capital as- sets. Ascertaining net income from the sale of capital as- sets. Profit or loss arising from the sale of such as- sets. Changes i n book value of assets. Result of an- nual adjust- ment of values to be shown in return. all other sources, such as rentals, royalties, interest, and dividends from stock owned in other corpora- tions, and appreciation in values of assets, if taken up on the books of account as gain; also profits made from the sale of assets, investments, etc. Art. 56. For the purpose of determining the income resulting from the sale of capital assets and the amount to be accounted for as income under this act, there shall be included any and all profit resulting from such sale and which may be appor- tioned to the period during which the corporation tax law (April 12, 1917) was in force and effect, which was not returned as income during that period. Art. 57. In ascertaining net income derived from the sale of capital assets, if such assets were acquired subsequent to January 1, 1918, the difference between the selling price and the buying price shall constitute an item to be added to or subtracted from gross income according to whether the selling price was greater or less than the buying price. If the capital assets were acquired prior to January 1, 1918, the amount of profit or loss representing the difference between the market value as of January 1, 1918, and price for which they were sold shall be added to, or deducted from, the gross income for the year in which the sale was made. Art. 58. For the purpose of determining the profit or loss arising from the sale of such assets, there shall be added to the price actually realized from the sale any amount which has heretofore been set aside and deducted from gross income by way of depreciation since January 1, 1918, which has not been paid out in making good such depreciation on the property sold. Art. 59. In the case of changes in book values of capital assets resulting from a reappraisal of property, the consequent gains or losses shall be computed for the return in the manner prescribed above in the case of the sale of capital assets. In cases wherein there is an annual adjustment of book values of securities, real estate and like assets, and the increases and decreases in values, thus indicated, are taken up on the books and re- flected in the profit and loss account, such readjusted values will be taken into account in making the return of annual net income and no prorating will be required. If such adjustment had been made annually prior to January 1, 1918, the book value of the assets at that date will be taken as the basis INCOME TAX REGULATIONS. 35 for determining gain or loss resulting from subse- quent sale, maturity, or adjustment. The adjust- ment referred to will comprehend assets which have increased in value as well as those which have de- creased. Art. 60. Where a corporation is engaged in carrying on more than one class of business, gross income derived from the different classes of business shall be ascertained according to the definitions above, and which are applicable thereto. Art. 61. The net income shall be ascertained by deducting from the gross amount of the income of such corporation received within the year from all sources: First. All the ordinary and necessary expenses paid within the year in the maintenance and opera- tion of its business and properties, including rentals or other payments required to be made as a condition to the continued use or possession of property. Second. All losses actually sustained within the year and not compensated by insurance or otherwise, including a reasonable allowance for depreciation by use, wear and tear of property, if any, and in the case of mines, a reasonable allowance for depletion of ores and all natural deposits, of the gross value at the mine of the output for the year for which the computation is made; and in the case of insur- ance companies, the net addition, if any, required by law to be made within the year to reserve funds, and the sums other than dividends paid within the year on policy and annuity contracts, except as provided in the cases of mutual fire, mutual marine, and life insurance companies. Third. The amount of interest accrued and paid within the year on its indebtedness to an amount of such indebtedness not exceeding one-half of the sum of its interest-bearing indebtedness and its paid-up capital stock outstanding at the close of the year, or if no capital stock, on the amount of its indebtedness not exceeding the amount of capital employed in the business at the close of the year: Provided , that in case of indebtedness wholly secured by collateral the subject of sale in ordinary business of such corporation, joint-stock company, or associa- tion, the total interest secured and paid by such company, corporation, or association within the year on any such indebtedness may be deducted as a part of its expense of doing business: Provided further , that in the case of bonds or other indebtedness, which have been issued with a guaranty that the Where cor- porations are engaged in more than one class o f busi- ness. Net income, how ascer- tained. Ordinary and necessary e x - penses. Loss sus- tained within the year. Depreciation. Interest ac- crued and paid within the year. Interest on indebtedness secured by col- lateral. Tax paid on guaranteed bonds not de- ductible. 36 INCOME TAX REGULATIONS. Taxes paid within the year. General ex- penses, Cost of build- ings on leased grounds. Commissions to salesmen paid in stock. Additions and betterments. Compensa- tion based on stockholding not deductible. Gifts, pen- sions, or gratui- ties not deduct- ible. Donations which are de- ductible. interest payable thereon shall be free from taxation, no deduction for the payment of the tax herein imposed shall be allowed; and in the case of a bank, banking association, loan, or trust company, interest paid within the year on deposits or on moneys received for investment and secured by interest- bearing certificates of indebtedness issued by such bank, banking association, loan, or trust company. Fourth. All sums paid within the year for taxes imposed under the authority of the United States, or any state or territory thereof, or imposed by the government of any foreign country. Art. 62. Expenses of operation and mainte- nance shall include all expenditures for material, labor, fuel, and other items entering into the cost of the goods sold or inventoried at the end of the year, and all other expenses incurred in the operation of the business except such as are required by the act to be segregated in the return. Art. 63. The cost of erecting permanent build- ings on ground leased by a company is a proper deduction as a rental charge, provided such build- ings are left on the ground at the expiration of the lease as a part of the rental payment. In such case the cost will be prorated according to the number of years constituting the term of the lease and the annual deduction will be made accordingly. Art. 64. Commissions allowed salesmen, paid in stock, may be deducted as expense if so charged on books at the actual value of such stock. Art. 65. Amounts expended in additions and betterments which constitute an increase in capital investment are not a proper deduction. Art. 66. Amounts paid as compensation or additional compensation to officers or employees, which amounts are based upon the stockholdings of such officers or employees, are held to be dividends, and although paid in lieu of salaries or wages, are not allowable deductions from gross income, for the reason that dividends are not deductible. Art. 67. Amounts paid for pensions to retired employees, or to their families, or others dependent upon them, or on account of injuries received by employees, are proper deductions as “ordinary and necessary expenses;” gifts or gratuities to employees in the service of a corporation are not properly deductible in ascertaining net income. Art. 68. Donations made for purposes con- nected with the operation of the property when INCOME TAX REGULATIONS. 37 limited to charitable institutions, hospitals, or edu- cational institutions, conducted for the benefit of its employees, or their dependents, shall be a proper deduction for ordinary and necessary expenses. Art. 69. Funds set aside by a corporation for insuring its own property are not a proper deduc- tion, but any loss actually sustained and charged to such fund may be deducted. Art. 70. In ascertaining expenses proper to be included in the deductions to be made under the item of “Expenses,” corporations carrying materials and supplies on hand for use should include in such expenses the charges for materials and supplies only to the amount that the same are actually disbursed and used in operation and maintenance during the year for which the return is made. Art. 71. The deduction for losses must be losses actually sustained during the year and not compen- sated by insurance or otherwise. It must be based upon the difference between the cost value and sal- vage value of property or assets, including in the latter value such amount, if any, as has, in the current or previous years, been set aside and deducted from gross income by way of depreciation, as elsewhere defined, and has not been paid out in making good such depreciation. Art. 72. Bad debts, if so charged off the com- pany’s books, during the year, are proper deduc- tions. But such debts, if subsequently collected, must be treated as income. Art. 73. Reserves to take care of anticipated or probable losses are not a proper deduction from gross income. Art. 74. Loss due to voluntary removal of buildings, etc., incident to improvements is either a proper charge to the cost of new additions or to depreciation already provided, as the facts may indicate, but in no case is it a proper deduction in determining net income, except as it may be re- flected in the reasonable amount allowable as a deduction for depreciation of the new building. Any loss claimed because of the voluntary removal of a building is presumed to have been covered by previous depreciation charges; otherwise the amount of such loss will constitute a part of the cost of the new building. Art. 75. All losses claimed arising from sale of capital assets should be arrived at in the manner Reserves for insurance. Materials and supplies. Losses sus- tained during the year. Bad debts charged off. Reserves not deductible. Loss due to removal of buildings. Losses from sale of capital assets. 38 INCOME TAX REGULATIONS. Depreciation defined. Depreciation, how deter- mined. Depreciation deductible, how treated. Incidental re- pairs. Depreciation reserve. Diversion of depreciation re- serve. prescribed in section 13114, defining gains arising from sale of capital assets. Art. 76. The deduction for depreciation should be the estimated amount of the loss, accrued during the year to which the return relates, in the value of the property in respect of which such deduction is claimed, that arises from exhaustion, wear and tear, or obsolescence out of the uses to which the property is put, and which loss has not been made good by payments for ordinary maintenance and repairs de- ducted under the heading of expenses of maintenance and operation. This estimate should be formed upon the assumed life of the property, its cost and its use. Expenses paid in any one year in making good exhaustion, wear and tear, or obsolescence in respect of which any deduction for depreciation is claimed, must not be included in the deduction for expense of maintenance and operation of the prop- erty, but must be made out of accumulated allow- ances, deducted for depreciation in current and pre- vious years. Art. 77. The depreciation allowance, to be de- ductible, must be, as nearly as possible, the measure of the loss due to wear and tear, exhaustion, and obsolescence, and should be so entered on the books as to constitute a liability against the assets of the company, and must be reflected in the annual balance sheet of the company. The annual allowance de- ductible on this account should be such an amount as that the aggregate of the annual allowances de- ducted during the life of the property, with respect to which it is claimed, will not, when the property is worn out, exhausted, or obsolete, exceed its original cost. Art. 78. Incidental repairs which neither add to the value of the property nor appreciably prolong its life, but keep it in an operating condition, may be deducted as expenses. Art. 79. Depreciation set up on the books and deducted from gross income can not be used for any purpose other than making good the loss sus- tained by reason of the wear and tear, exhaustion, or obsolescence of the property with respect to which it was claimed. If it develops that an amount has been reserved or deducted in excess of the loss by depreciation, the excess shall be restored to income and so accounted for. Art. 80. If any portion of the depreciation set up is diverted to any purpose other than making INCOME TAX REGULATIONS. 39 good the loss sustained by reason of depreciation, the income account for the year in which such diversion takes place must be correspondingly in- creased. Art. 81. Depreciation in book values of capital assets shall be treated in the return in the manner prescribed in the case of loss from the sale of capital assets (Art. 75), but amounts arbitrarily charged off will not be allowed as deductions except so far as they represent an actual shrinkage in values which may be determined to have taken place during the year for which the return is made. Art. 82. Where a corporation holds bonds which were purchased at a rate above par and said cor- poration shall proportionately reduce the value of those bonds on its books each year so that the book value shall be the redemption value of the bonds when such bonds become due and payable, the return of annual net income of the corporation holding such bonds may show the depreciation on account of amortization of such bonds. The requirement is, however, that the amount carried to the amortiza- tion account each year shall be equitably propor- tioned with respect to the difference between the purchase price and the maturing value and the num- ber of years to elapse until the bonds become due and payable. With respect to bond issues where such bonds are disposed of for a price less than par and are redeemable at par, it is also held that because of the fact that such bonds must be redeemed at their face value, the loss sustained by reason of their sale for less than their face value may be pro- rated by the issuing corporation in acordancce with the life of the bond. Art. 83. “Good will” represents the value at- tached to a business over and above the value of the physical property, and is such an entirely in- tangible asset that no claim for depreciation in connection therewith can be allowed. Art. 84. An allowance for depreciation of patents will be made on the following basis: The deduction claimed for exhaustion of the capital assets as represented by patents to be made in the return of annual net income of a corporation for any given year shall be one-seventeenth of the actual cost of such patents reduced to a cash basis. Where the patent has been secured from the Govern- ment by a corporation itself, its cost would be repre- sented by the various Government fees, cost of Shrinkage in book value. Amortization of bonds. Loss to be prorated. Good will. Depreciation on patents. How deter- mined. 40 INCOME TAX REGULATIONS. Deduction in case of obsoles- cence of pat- ents. Depreciation of timber land. Deductions to cease, when. Depreciation of natural de- posits. drawings, experimental models, attorneys’ fees, etc. Where the patent has been purchased by the cor- poration for a cash consideration, the amount would represent the cost. Where the corporation has pur- chased a patent and made payment therefor in stocks or other securities, the actual cash value of such stocks or other securities at the time of the purchase will represent the cost of the patent to the corporation. Art. 85. With respect to the depreciation of patents, one-seventeenth of the cost is allowable as a proper deduction each year until the cost of the patent has been returned to the corporation. Where the value of a patent has disappeared through ob- solescence or any other cause and the fact has been established that the patent is valueless, the unre- turned cash investment remaining in the patent may be claimed as a total loss and be deducted from gross income in the return of annual net income for the year during which the facts as to obsolescence or loss shall be established, such unreturned cash value to be fixed in accordance with the proportion that the number of years which the patent still has to run bears to the full patent period of 17 years. Art. 86. Corporations owning tracts of timber lands and removing therefrom and selling, or other- wise disposing of the timber will be permitted to deduct from their gross income on account of de- preciation or depletion an amount representing the original cost of such timber, plus any carrying charges that may have been capitalized or not de- ducted from income. The purpose of the deprecia- tion or depletion deduction is to secure to the cor- poration, when the timber has been exhausted, an aggregate amount which, plus the salvage value of the land, will equal the capital actually invested in such timber and land. Art. 87. When an amount sufficient to return this capital has been secured through annual de- preciation deductions no further deduction on this account shall be allowed. For the purpose of in- creasing the deduction on this account no arbitrary increase in values shall be made, unless such increase in value shall be returned as income for the year in which the increase in value was taken up on the books. Art. 88. The depreciation of coal, iron, oil, gas, and all other natural deposits must be based upon the actual cost of the properties containing INCOME TAX REGULATIONS. 41 such deposits. In no case shall the annual deduction on this account exceed a reasonable amount of the gross value at the mine (well, etc.) of the output for the year for which the computation is made. Art. 89. The term “gross value at the mine,” as used in paragraphs of section 13114 of the act prescribing a limit to the amount which may be deducted in the return of individuals and corporations as depreciation in the case of mines, is held to mean the market value of ore, coal, crude oil, and gas at the mine or well, where such value is established by actual sales at the mine or well; and in case the market value of the product of the mine or well is established at some place other than at the mine or well, or on the basis of the bullion or metallic value of the ore, then the gross value at the mine is held to be the value of the ore, coal, oil, or gas sold, or of the metal produced, less transportation, reduction, and smelting charges. In case the reserves shall be in excess of the estimates, no further deduction on account of deple- tion shall be made where the capital investment has been returned to the corporation. Art. 90. In addition to the deduction to meas- ure the loss due to depletion, the corporation will be allowed the usual depreciation of its machinery, equipment, etc., such depreciation to be determined on the basis of the cost and estimated life of the property with respect to which the depreciation is claimed. Art. 91. Corporations leasing oil or gas terri- tory shall base their depletion deduction upon the cost of the lease, and not upon the estimated value, in place of the oil or gas. Art. 92. Corporations operating mines (includ- ing oil or gas wells) upon a royalty basis only can not claim depreciation because of the exhaustion of the deposits. Art. 93. Unearned increment will not be con- sidered in fixing the value on which depreciation shall be based. Art. 94. (a) Under item 5 (a) of the return form, the insurance company may take credit for all losses actually sustained during the year and not compensated by insurance or otherwise, including losses resulting from the sale or maturity of securities or other assets, as well as decreases by adjustment of book values of securities, in so far as such decreases represent actual declines in values which have taken Definition of "gross value" at the mine. Deduction to cease, when. Depreciation of plant, etc. Corporations leasing oil or gas. Corporations operating mines. Unearned in- crement. Deduction of losses, depre- ciation, pay- ments on policy contracts by in- surance c o m - panies. 42 INCOME TAX REGULATIONS. Losses by- shrinkage in value of prop- erty. Policy con- tracts paid. Losses in- curred and un- paid not de- ductible. Additions to reserves re- quired by law, how deter- mined. Assessment company re- serves. place during the year for which the return is made; also losses from agency balances, or other accounts, charged off as worthless; losses by defalcation; pre- mium notes voided by lapse, when such notes shall have been included in gross income. This item will not, however, include payments on policy contracts. (b) In this item may be deducted actual losses sustained within the year by reason of the deprecia- tion of property, which shall have been so entered on the books of the company as to constitute a liability against its assets. An arbitrary deprecia- tion deduction claimed in the return, but not evi- denced by book entry, can not be allowed. (c) In this item credit will be taken for all death, disability, or other policy claims, including fire, accident, and liability losses, matured endow- ments, annuities, payments on installment policies, surrender values, and all claims actually paid under the terms of policy contracts. Salvage need not be included in gross income if deducted in ascertaining the net amount paid for losses under policy contracts. Reserves covering liabilities for losses incurred, re- ported, resisted, adjusted or unadjusted but not paid, can not be deducted from gross income under this or any other item of the return. ( d ) The reserve funds of insurance companies to be considered in computing the deductible net addition to reserve funds are held to include only the reinsurance reserve and the reserve for supple- mentary contracts required by law in the case of life insurance companies, the unearned premium reserves required by law in the case of fire, marine, accident, liability, and other insurance companies, and only such other reserves as are specifically required by the statutes of a State within which the company making the return is doing business. The reserves used in computing the net addition must not include the reserve on any policies the premiums on which have not been accounted for in gross income. For the purpose of this deduction, the net addition is the excess of the reserve at the end of the year over that at the beginning of the year and may be based upon the highest authorized reserve required by any State in which the company making the return does business. In the case of assessment insurance companies, the actual deposits of sums with the State or Terri- torial officers pursuant to law, as additions to guar- anty or reserve funds, shall be treated as payments required by law to reserve funds. INCOME TAX REGULATIONS. 43 Art. 95. The amount of interest accrued and paid within the year by a corporation on an amount of bonded or other indebtedness not in excess of one-half of the sum of the interest-bearing indebted- ness and the paid-up capital stock outstanding at the close of the year, or, if no capital stock, on the amount of interest-bearing indebtedness not exceed- ing the amount of capital employed in the business at the close of the year, constitutes an allowable deduction; that is, the maximum principal, upon which interest for the purpose of this deduction can be computed, must not exceed, in the one case, one-half of the sum of the interest-bearing indebted- ness and the capital stock outstanding at the close of the year, or, in the other case, must not exceed the amount of capital employed in the business at the close of the year. The interest to be deductible must have been computed on the proper principal at the contract rate and must have been actually paid within the year. Interest paid pursuant to contract on an in- debtedness secured by mortgage on real estate occupied and used by a corporation, in which real estate the corporation has no equity or to which it is not taking title is an allowable deduction from gross income as a rental charge, payment of which is required to be made as a condition to the con- tinued use and possession of the property. If, however, the corporation has an equity in or is purchasing for its own use the real estate upon which such mortgage is a prior lien, the indebtedness will be held to be indebtedness of the corporation within the meaning of the law and the interest paid on such mortgage will be deductible only to the extent that it, with interest on other obligations of the corporation, is within the limit fixed by the act. Art. 96. In the case of banks and banking associations, loan or trust companies, interest paid within the year on deposits, or on moneys received for investment and secured by interest-bearing certificates of indebtedness issued by such bank, banking association, loan or trust company, may be allowably deducted from the gross income of such corporations. Art. 97. Interest paid on indebtedness, wholly secured by collateral, the subject of sale in ordinary business of such corporations, is also deductible to the full amount of such interest paid. This con- templates that the entire interest received on the What consti- tutes allowable interest deduc- tion. Interest paid a s rental de- ductible. Interest o n mortgage on real estate in which corpora- tion has equity not deductible. Banks and banking associ- ations. Interest paid on indebted- ness. 44 INCOME TAX REGULATIONS. Different rates of inter- est. Taxes deduct- ible. Taxes not de- ductible. Tax on cap- ital stock o f banks. Import duties. Reserves for taxes. Foreign cor- porations sub- ject to tax. collateral securing such indebtedness shall be in- cluded in the gross income returned. Art. 98. Interest on bonded or other indebted- ness bearing different rates of interest may be de- ducted from gross income during the year, provided the aggregate amount of such indebtedness on which the interest is paid does not exceed the limit pre- scribed by law, and in case the indebtedness is in excess of the amount on which interest may be legally deducted the indebtedness bearing the highest rate may be first considered in computing the interest deduction, and the balance, if any, will be computed upon the indebtedness bearing the next lower rate actually paid, and so on until interest on the maxi- mum principal allowed has been computed. Art. 99. All sums paid within the year for taxes imposed under the authority of the United States or of any State or Territory thereof, or im- posed by the government of any foreign country, are deductible from gross income. Art. 100. Taxes paid for local benefits are not deductible. Taxes paid by a corporation pursuant to a contract guaranteeing that the interest payable on its bonds or other indebtedness shall be free from taxation are not deductible. Art. 101. Banks paying taxes assessed against their stockholders because of their ownership of the shares of stock issued by such banks can not deduct the amount of taxes so paid in making their return for the income tax imposed by this act unless specially authorized to do so by the laws of the State in which they do business. The shares of stock are the property of the stockholders, and such holders are primarily liable for the tax. Art. 102. Import duties or taxes are not de- ductible under the item of taxes paid during the year, but should be included in arriving at the cost of goods under item No. 4 (expenses). Art. 103. Reserves for taxes can not be allowed, as the law specifically provides that only such sums as are paid within the year for taxes shall be deducted. Art. 104. Foreign corporations shall be subject to the normal tax of one and one-half per cent com- puted upon the net income received by or accruing to such corporations from business transacted and capi- tal invested in this State. For the purpose of a tax the net income of such foreign organizations shall be ascertained by deducting from the gross income arising, received, or accruing from business done and INCOME TAX REGULATIONS. 45 capital invested in this State the deductions enu- merated in the act, which deductions shall be limited to expenditures or charges actually incurred in the maintenance and operation of the business trans- acted and capital invested in the State of Missouri or, as to certain charges, such proportion of the aggregate charges as the gross income from business done and capital invested in the State of Missouri bears to the aggregate income within and without the State of Missouri. In other words, the deduc- tions from the gross income of a foreign corporation doing business in this State should, as nearly as possible, represent the actual expenses and author- ized charges incident to the business done and capital invested in this State and must not comprehend, either directly or indirectly, any expenditures or charges incurred in the transaction of business or the investment of capital without the State of Mis- souri. Art. 105. It is immaterial whether the deduc- tions except for taxes and losses are evidenced by actual disbursements in cash, or whether evidenced in such other way as to be properly acknowledged by the corporate officers and so entered on the books of the corporation as to constitute a liability against the assets of the corporation making the return. Deductions for taxes, however, should be the aggregate of the amounts actually paid, as shown on the cash book of the corporation. Deduc- tions for losses should be confined to losses actually sustained and charged off during the year and not compensated by insurance or otherwise. Except as the same may be modified by the provisions of the act, limiting certain deductions and authorizing others, the net income as returned for the purpose of the tax should be the same as that shown by the books or the annual balance sheet. Art. 106. The tax imposed upon the income of corporations, whether domestic or foreign, shall be computed upon the net income, ascertained in the manner hereinbefore indicated. Art. 107. In order that certain classes of cor- porations may arrive at their correct income, it is necessary that an inventory, or its equivalent, of materials, supplies, and merchandise on hand for use or sale at the close of each calendar year shall be made in order to determine the gross income or to determine the expense of operation. A physical inventory is at all times preferred, but where a physical inventory is impossible and Deductions confined to ex- penses of busi- ness done i n the State of Missouri. How deduc- tions shall be evidenced. Tax o n net income of cor- porations for the year 1917. Inventories. Physical in- ventory. 46 Form of re- turn. Penalties im- posed by act. Fraudulent returns. Fiscal year, how estab- lished. INCOME TAX REGULATIONS. an equivalent inventory is equally accurate, the latter will be acceptable. An equivalent inventory is an inventory of materials, supplies, and merchandise on hand taken from the books of the corporation. Art. 108. Under the authority conferred by this act, forms of return have been prescribed, in which the various items specified in the law are to be stated. Blank forms of this return will be for- warded to assessors and should be furnished to every corporation, not expressly exempted, on or before January 1 of each year. Failure on the part of any corporation, joint-stock company, association, or insurance company liable to this tax to receive a prescribed blank form will not excuse it from making the return required by law, or relieve it from any penalties for failure to make the return in the prescribed time. Corporations not supplied with the proper forms for making the return should make application therefor to the assessor in whose county is located its principal place of business in ample time to have its return prepared, veri- fied, and filed with the assessor on or before the last due date as hereinafter defined. Each corporation should carefully prepare its return so as to fully and clearly set forth the data therein called for. Imperfect or incorrect returns will not be ac- cepted as meeting the requirements of the law. Art. 109. For refusal or neglect to make a return within the prescribed time, or for a false or fraudulent return, the corporation so offend- ing shall be liable to a specific penalty not exceeding $5,000. Any person divulging unlawfully any in- formation whatever disclosed by a return shall be punished by a fine not exceeding $1,000, or by im- prisonment not exceeding five years, or both. Any person or any officer of any corporation required by law to make, render, sign or verify any return, who makes any false or fraudulent return or statement with intent to defeat or evade the assessment of income tax, shall be guilty of a mis- demeanor and shall be fined not exceeding $2,500 or be imprisoned not exceeding one year, or both, at the discretion of the court, with the costs of pros- ecution. Art. 110. The State income-tax law authorizes corporations, joint-stock companies, etc., under cer- tain conditions to make their returns on the basis of an established “fiscal year” or consecutive 12- INCOME TAX REGULATIONS. 47 months period, which may be other than the calendar year. Pursuant to this provision the following instruc- tions are issued for the guidance of assessors and other interested parties: Any corporation, joint-stock company, or asso- ciation, or any insurance company subject to the tax imposed by this act may, at its option, have the tax payable by it computed upon the basis of the net income arising or accruing from all sources during its fiscal year, provided that it shall designate the last day of the month selected as the month in which its fiscal year shall close as the day of the closing of its fiscal year, and shall give notice, in writing, to the assessor of the county in which its princi- pal place of business is located, of the day it has thus designated as the closing of such fiscal year. Art. 111. The Attorney-General of Missouri has ruled that corporations making returns on the basis of a fiscal year, shall make them at the same time and in the same manner as calendar year cor- porations — that is between January 1st and March 1st of each year. Fiscal year corporations shall no- tify their respective assessors in writing of the fact that they are fiscal year corporations, and the desig- nated date their business year closes. Art. 112. Assessors of counties receiving notices of the selection and designation of the “fiscal years,” as above indicated, will make record of the same, recording (a) the name of the corporation or like organization, ( b ) the date when notice was given, (c) the day designated for the closing of the fiscal year. Art. 113. In all cases where a fiscal year is not established as above prescribed returns must be made on the basis of the calendar year. Returns must be verified under oath or affirmation by its president or other principal officer, and its treasurer or assistant treasurer; that is to say, by two different persons acting in the official capacity indicated. Art. 114. If it shall appear in any case that returns have been made to the assessor on the basis of a fiscal year not designated as above indicated, the corporations making such returns will be advised that such returns can not be accepted, but must be made to cover the business of the calendar year. Art. 115. Returns made under this act and pursuant to these instructions must be made on the new forms prescribed by the State Auditor. May desig- nate day for closing of fiscal year and must give a t least 30 days’ notice to assessor of the day so des- ignated. Fiscal year; time of making return. Notice to as- sessors. Assessors must make a record o f the designation o f the “fiscal year.” Where fiscal year is not properly estab- lished, returns must be made for calendar year. Returns made on basis of fis- cal year not so designated can not be ac- cepted. Returns for 1921 must be made on new forms. 48 INCOME TAX REGULATIONS. Extension not to exceed 30 days. Returns prop- erly mailed i n time to reach assessor not subject to pen- alty under cer- tain conditions. Last due date defined. When due date falls o n Sunday or legal holiday. Assessment and payment of taxes. Notice of as- sessment. Art. 116. An extension of time within which a return may be filed can in no case exceed 30 days from the date on which the return is due and can be granted only upon written application to the assessor, and in case of sickness or absence of an officer whose signature to the return is required, such application to be made prior to the date on which the return is due. Art. 117. If a return is made and placed in the United States mails, properly addressed, and postage paid, in ample time, in due course of mails, to reach the office of the assessor or deputy assessor on or before the last due date, no penalty will be held to attach should the return not be actually received by such officer until subsequent to that date. Art. 118. “Last due date,” as hereinbefore used, is construed to mean the last day upon which a return is required to be filed in accordance with the provisions of the law, or the last day of the period not exceeding 30 days covered by an extension of time granted by the assessor. Art. 119. When the due date as above defined falls on Sunday or on a legal holiday, the last due date will be held to be the day next following such Sunday or legal holiday and the return should be made to the assessor not later than such following day, or, if placed in the mails, it should be posted in ample time to reach the assessor’s office, under ordinary handling of the mails, on or before the date on which the return is thus made due in the office of the assessor. Art. 120. All assessments against corporations, etc., making returns are required to be made and the several corporations, joint-stock com- panies, etc., notified of the amount for which they are liable on or before the first day of June of each successive year, and said assessments shall be paid on or before the first day of June of such year. In case of refusal or neglect by a corporation, etc., to make a return, and in case of false or fraudulent return, the State Auditor, upon the discovery thereof within three years after such returns are due, shall make a return upon information obtained in the manner provided in the act, and the assessment made on the basis of such return shall be paid immediately upon notice and demand given by the collector. Art. 121. When the assessments shall have been made, the returns shall be filed in the office of the INCOME TAX REGULATIONS. 49 County Clerk and shall constitute public records, subject to inspection upon the order of the State Auditor. Copies of returns on file in the County Clerk’s office are not permitted to be sent to any person, except to the corporation itself or to its duly authorized attorney. Art. 122. At the request of the Attorney-Gen- eral, or by direction of the State Auditor, certified copies of returns may be made and delivered to the prosecuting attorneys of the counties in the State for their use as evidence in the prosecution or defense of suits in which the collection or legality of the tax assessed on the basis of such returns is involved, or in any suit to which the State of Missouri and the corporation, etc., making the return are parties and in which suit such certified copies would constitute material evidence. Art. 123. The disclosure by any assessor, deputy assessor, agent, clerk, or other officer or employee of the State of Missouri to any person of any information whatever contained in or set forth by any return of annual net income made pursuant to this act is, by the act, made a misdemeanor, and is punishable by a fine not exceeding $1,000, or by imprisonment not exceeding two years, or both, at the discretion of the court, and if the offender is an officer or employee of the State of Missouri he shall be dismissed and be incapable thereafter of holding any office under the State of Missouri. Art. 124. No particular system of bookkeeping or accounting will be required by the department. However, the business transacted by corporations must be so recorded that each and every item set forth in the return of annual net income may be readily verified by an examination of the books of account. Art. 125. The books of a corporation are as- sumed to reflect the facts as to its earnings, income, etc. Hence they will be taken as the best guide in determining the net income upon which the tax imposed by this act is calculated. Except as the same may be modified by the provisions of the law, wherein certain deductions are limited, the net income disclosed by the books and verified by the annual balance sheet, or the annual report to stock- holders, should be the same as that returned for taxation. Returns are public records, subject to in- spection upon order of the State Auditor. C ertif ied copies o f re- turns. Penalty for giving informa- tion in regard to returns. Bookkeeping. Books of ac- count best guide to in- come. 50 INCOME TAX REGULATIONS. Omitted taxes may be assessed. Corporations subject to nor- mal tax. Examination of books. Profit and oss statement. Art. 126. In cases wherein corporations have neglected or refused to make returns, and in cases wherein returns made are found, upon investigation or otherwise, to be false or fraudulent, the State Auditor may, upon discovery thereof, at any time within three years after said return is due, make return upon the information obtained in the manner provided in the act, and the tax so discovered to be due, together with the additional tax prescribed, shall be assessed, and the amount thereof shall be paid immediately upon notice and demand. Art. 127. Corporations coming within the terms of this law are subject to the normal tax only; that is, a tax computed on their entire net income re- gardless of the amount of such net income. Art. 128. For the purpose of verifying any return, made pursuant to this act, the State Auditor may, by any duly authorized agent or deputy, cause the books of such corporation to be examined, and if such examination discloses that the corporation is liable to tax in addition to that previously assessed, or assessable, the same shall be assessed and shall be payable immediately upon notice and demand. For the purpose of such examination, the books of corporations shall be open to the examining officer, or shall be produced for this purpose upon sum- mons issued by any properly authorized officer. Art. 129. All corporations are absolutely re- quired to paste or attach to their income tax returns, their profit and loss statement, showing their net gain or loss as per their books, for the period cov- ed by their return. INCOME TAX REGULATIONS. 51 PART 3. Assessment and Collection. Art. 130. All amounts of income listed by assessors will be entered on the “income assessment book,” Form 1, in the case of individual, and on Form 2 in the case of corporations. Art. 131. The names of corporations subject to tax will be listed on Form 2, according to their designated class, and in alphabetical order as to each class. Names of individuals subject to tax will be listed on Form 1, alphabetically, without reference to class. Art. 132. The assessor of any county or town- ship may require any person in his county or town- ship, who shall be subject to an income tax, to make report to him at such time and in such manner and form as he may prescribe. Art. 133. The assessor of each county or town- ship, in this State, shall complete the assessment of incomes, on or before the first day of March of each year, and shall immediately after the said assess- ment of incomes is completed and the assessment book of same is made and delivered to the County Clerk, all Income returns shall be filed at the office of the Collector of the Revenue and shall be de- stroyed by said Collector within six months after said income tax becomes due, provided that no income tax return shall be destroyed before the tax has been paid. Art. 134. Assessors before entering upon the duties herein required of them, shall execute a bond to the satisfaction of the County Court, or the Clerk thereof in vacation, or the Council of the City of St. Louis, with three or more solvent sureties; such bond to be filed in office of the County Clerk or City Auditor. Art. 135. Any assessor who shall fail or refuse to perform any duty in the time prescribed by law, may be removed and another appointed in his place. Art. 136. In case of neglect occasioned by sickness or absence of an officer of a corporation, joint-stock company or association, the assessor may allow such further time as he may deem necessary not to exceed thirty days. Art. 137. Assessors are empowered to estimate incomes. Amount of - income to be reported on as- sessment lists. Names to be listed in alpha- betical order. Assessor may require persons to report. Assessor t o complete and certify assess- ment. Assessor t o execute bond. Assessor may be removed, when. Assessor may allow fur- ther time t o file lists, when. A s s e s s o r’s power to esti- mate. 52 INCOME TAX REGULATIONS. Compensa- tion o f assess- ors. Powers of boards of equal- ization. County clerk to extend tax. County clerk o r auditor t o certify assess- ment. County clerk o r auditor t o certify abstract of taxes. County clerk to report collec- tion. Compensa- tion of county clerk o r au- ditor. Collectors’ duties. Collectors to report and remit tax. Art. 138. Assessors are allowed the same com- pensation for their services as is allowed under the general revenue laws of the State. Art. 139. The County Boards of Equalization and appeals have the same powers and duties with respect to the income tax as they have with respect to the assessment of personal property, with the additional power to estimate incomes. Art. 140. The County Clerk, or City Auditor, shall extend the tax against each person or corpora- tion on the “income assessment book” returned by the assessors at the rate prescribed by law. Art. 141. The County Clerk, or City Auditor, shall immediately, after the “income assessment book” and the assessment lists have been filed in his office, certify under the seal of his office, to the State Tax Commission, the aggregate amount of in- come assessed against individuals, corporations, joint-stock companies, insurance companies, mutual insurance companies and railroad companies injiis county or the City of St. Louis. Art. 142. The County Clerk and the Auditor of the City of St. Louis shall upon completion of the extension of the taxes levied under this act, upon the “income assessment book” certify under the seals of their respective offices, to the State Auditor, an aggregate abstract of the valuation of the several classes of income, and the total tax extended on such “income assessment book” against each of said classes, together with the receipt of the Collector of the Revenue of his county or city, attached thereto. Art. 143. The County Clerk shall report all taxes collected by the collector under this act at the same time and in the same manner, as he is required by the revenue laws of the State, to report collec- tions of other taxes. Art. 144. The County Clerk and the City Auditor are allowed the same compensation for services performed under this act as is allowed for like services under the revenue laws of the State, such fees to be wholly paid by the State. Art. 145. The collector of each county and the City of St. Louis shall collect the taxes imposed by this act in the same manner as personal taxes are collected, subject to the penalties imposed by this act, and the revenue laws of the State. Art. 146. Collectors of the revenue shall report, to the County Clerk, and make remittances to the State Treasurer of all taxes collected under this act INCOME TAX REGULATINNS 53 in the same manner and at the same time as is re- quired under the revenue laws of the State as^to real and personal taxes. Act. 147. Collectors are allowed the same com- pensation for collecting taxes under this act as are allowed for collecting real and personal taxes under the revenue laws of the State. GEORGE E. HAGKMANN, State Auditor of Missouri. Collectors’ compensation. V UNIVERSITY OF ILLINOIS-URBANA ' L 3 0112 078203251