3. The Real Estate Tax. The above cited federal statute also permits the state, county, and municipality wherein a national bank is located to tax the real property of the national bank to the same extent according to its value as other real property is taxed. In the state of New York the bank's real property is subject to local taxation and no deduction is allowed from the tax on the value of the shares of stock on account of these taxes on real estate. The i per cent tax on shares of stock is so far below the general property tax rate that this double taxation is deemed to work no great injustice. This tax is payable semiannually.
4. The Federal Capital Stock (Excise) Tax. By the law of 1918, domestic corporations are subject to a tax of Si for each full 81,000 of the average fair value of the capital stock for the year preceding the taxable year in excess of the exemption of $5,000. By reason of the low rate and the exemption, the total tax is not excessive. The average fair value is determined from the book or fair value of the assets, the market value of the shares, and the value of the capital stock based on capitalized earnings. Since the value of the stock depends on earnings the tax amounts to a duplication of the income tax. The capital stock tax is an al lowable deduction from the gross income in determining the net income subject to the income and excess profits taxes. The tax is due in advance, and the tax returns due in July cover the average value of the capital stock from July i to June 3o of the preceding fiscal year.
5. The Income Tax. Under the Act of February 24, 1919, effective as of January r, 1919, the normal rate applying to the taxable income of a citizen or resident of the United States is 8 per cent (4 per cent on the first $4,000), and applying to the tax able income of corporations is to per cent. All individual in comes in excess of $5,000 are subject to surtaxes, which range from 1 to 65 per cent, the highest rate applying to the portions of the incomes exceeding $1,000,000. The maximum total rate applicable to 1920 incomes is 73 per cent. Corporations are subject to the flat normal tax of 10 per cent but not to surtaxes.
The tax is imposed on the net income of the corporation. The gross income includes earnings from business, profits from sales of property, interest, rents, royalties, dividends, and so forth, less deductions for business expenses, losses, interest, taxes, depreciation, and so forth. In order to arrive at the net income
of a bank from the full amount of gross income, which consists of the total revenues derived from the operation and manage ment of the bank's business together with all amounts of income from other sources, the following deductions are made: (a) The total amount of all ordinary and necessary expenses paid within the year in the maintenance and operation of the business and properties of the bank, exclusive of interest payments.
(b) The total amount of losses sustained during the year not compensated by insurance or otherwise.
(c) The total amount of interest paid on deposits.
(d) The total amount of interest received upon obligations of a state or political subdivision thereof, and upon obliga tions of the United States or its possessions, which are exempt from taxation.
(e) The total amount of taxes paid during the year imposed by authority of the United States or any state or territory thereof.
6. Excess Profits Tax. The excess profits tax law provides for taxes upon the net income of corporations, partnerships, and individuals, in excess of certain prescribed deductions, realized from trades, business, professions, and occupations. It is a graduated tax, the first bracket of which provides a rate of 20 per cent of the amount of the net income in excess of the excess profits credit and not in excess of 20 per cent of the invested capital; and the second bracket provides a rate of 40 per cent of the amount of the net income in excess of 20 per cent of the invested capital. The excess profits credit consists of a specific exemption of $3,000 plus an amount equal to 8 per cent of the invested capital for the taxable year. If the full amount of the excess profits credit is not allowed under the first bracket by reason of the fact that such credit is in excess of 20 per cent of the invested capital, the part not so allowed is to be deducted from the amount in the second bracket. The tax may not in any case be more than 20 per cent of the amount of net income in excess of $3,000 and not in excess of $20,000, plus 4o per cent of the amount of the net income in excess of $20,000.