not exceed that amount. No such deduction, however, is authorized in the estate of a nonresident decedent. Under the act in effect at the present time, the tax imposed upon the transfer of the net estate is graduated, running from one per cent. of the first $50,000 to forty per cent. of the amount in excess of $10,000,000.

IV. Sales Tax Division

Under the general heading of Sales Taxes have been included taxes imposed under certain provisions of the Revenue Acts of 1917, 1918, 1921, and 1924, such as taxes on the sale of beverages and beverage constituents, on charges for transportation and insurance, on charges for admissions and dues, tax on automobile parts and accessories and other manufactured products, on jewelry, and more particularly, under the Revenue Act of 1918, on certain articles of wearing apparel, where the prices were in excess of certain minimum amounts mentioned. This kind of tax was first imposed under the act of 1917, an act to provide war taxes and other revenues. Under this act it proved a fruitful source of revenue, there being collected annually about $400,000,000 in taxes. Therefore, under the Revenue Act of 1918, the scope of the sales tax was increased, resulting in an annual tax of approximately $750,000,000 being collected under this latter act. Consistent with the policy of tax reduction, the acts of 1921 and 1924 reduced the tax, not only with respect to commodities themselves, but also with respect to rates. Particularly is this true with respect to the 1924 act, and an example of the effect of the change may be observed in the case of tax on admissions, which for the month of October, 1923, was approximately $7,000,000, but for the corresponding month in 1924 it was only about $2,000,000. This was brought about by a provision for exempting charges for 50 cents or less, the effect of which was to practically relieve from taxation the charges on admissions to moving picture theatres.

The tax was imposed by Congress, with a view to placing the burden, sometimes directly upon the manufacturer, as in the case of tax on automobiles; at other times, upon the dealer, as in the case of jewelry; and then, again, on the consumer, as in the case of tax under the Revenue Act of 1918 on the sale of certain high-priced wearing apparel. Notwithstanding the fact that the tax had been thus imposed, it is quite obvious that the consumer in the end must bear the burden. If it is not placed directly upon him, it will reach him in the price he pays. Despite the fact, however, that the tax was imposed in these three different ways, both the manufacturer and the dealer have charged their customer with the tax in addition to the price of the goods, so that it is often collected from the customer in the end, exactly as if it had been imposed directly upon him.

As a result of passing on this tax, some difficulties and embarrassment have come to the bureau. For example, in accordance with international custom, the United States government does not tax ambassadors of foreign governments. Furthermore, the United States government does not tax state governments. When a manufacturer of an automobile sells a car, and bills the tax in addition to the selling price, and this item of tax is passed on to an ambassador or other diplomatic representative of a foreign government in this country, or is passed

9 Act June 2, 1924, tit. 6, §§ 600-605 (43 Stat. 322).

on to a state government or municipality, it then appears that the United States. government is violating international custom, or the principles by which the government does not tax states. As a matter of fact, however, the government has simply taxed the manufacturer, but the United States is blamed, even to the extent of threats, sometimes coming from states, that they are going to tax the United States government by way of retaliation.

(a) Meaning of Automobile "Parts."—It might appear that "parts" mean anything that goes into an automobile. If so construed, it would require the taxing of paint, nails, screws, leather, hair, etc., thus imposing the tax on a manufacturer of nails, whether those nails went to an automobile factory or to a shoe factory. On the other hand, the bureau cannot construe the law so liberally towards the manufacturer as to apply it only to those things which have absolutely no other use than in an automobile. It is often difficult to determine whether an article is an "automobile part or accessory," or of such general use as to constitute a commercial commodity. For example, an ordinary oil can, in view of the fact that oil cans have a very general use in connection with other machines, is not considered an automobile accessory within the meaning of the law, although practically every automobile is equipped with one. Sometimes it becomes necessary to study advertising literature, patent applications, etc., to determine the classification of an article. This tends to make the manufacturer careful in advertising his product, because, if he attempts to deceive the public by saying an article is an automobile part or accessory, he may "deceive" the government into putting a tax on his article under the provision of the law which taxes automobile parts and accessories. He may argue that merely calling a thing something does not make it so, but the bureau may reach a different conclusion; i. e., may say that, if you call a thing something that is taxable, it must perforce enjoy all the privileges and prerogatives of taxable things, even the privilege of being taxed. The 1924 act does not tax automobiles as such, but taxes chassis, bodies, and parts and accessories. Also under this act truck chassis selling for less than $1,000 are exempt, while passenger car chassis are taxed, regardless of the price. It thus becomes necessary, where the chassis sells for less than $1,000, to differentiate between a truck chassis and a passenger chassis. There are many truck chassis so nearly identical with passenger chassis that it becomes necessary, in order to draw a distinction, to obtain and consider detailed technical information relative to construction, so much so that at times it almost appears that it takes the toot of the horn to decide whether it is a truck chassis, entitled to exemption, or a passenger chassis, subject to tax. Body manufacturers sell bodies in various states of completion. Although one scarcely would use an automobile with an unpainted and upholstered body as a passenger vehicle, body manufacturers sell bodies so incompleted to automobile manufacturers. The question arises, is this a part of a body, subject to a 22 per cent. rate of tax, or a complete body, subject to a 5 per cent. rate of tax? If it is to be classed as a body, then the question arises as to whether further improvements or refinements would be further manufacture, and consequently subject the second manufacturer also to tax on his sale. At any rate, it is necessary for the bureau to determine, in the processes of evolution of the raw material into a finished body, at what stage it becomes a finished body, the sale of which is subject to

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tax. It becomes necessary to determine whether the charge for painting "Potatoes" on the body of a groceryman's truck, when done by the manufacturer of the body, is a part of the price and subject to tax. Most assuredly, the purchaser of the body could buy it without the "Potatoes," take it to a painter, and escape paying tax for such work. Manufacturers have come to realize this, and therefore, on border-line questions, they should seek legal advice.

(b) When Does Title Pass? In interpreting contracts passing title to commodities from seller to buyer, the question arises whether the contract is a sale or a lease.

Different rules apply with respect to the time the tax is due in the case of leases and sales on the installment plan, with title reserved in the seller until the last payment is made. A man may sell his product f. o. b. factory, or f. o. b. destination (place of business of the buyer). Naturally, as a sale under the latter terms involves delivery expense, it will necessitate a higher price, and consequently a higher tax. The bureau determines the question of tax according to the terms and conditions of sale. Notwithstanding this fact, manufacturers who may sell for a higher price when they deliver their product sometimes insist that they should pay taxes on the basis of a lower price, because they might have sold at a lower price f. o. b. factory. In connection with the sale of certain products, the bureau at one time ruled that, if a manufacturer sold at the factory, and then made an additional, separate, and specified charge for delivering the product to his customer, under certain circumstances this charge would not be subject to tax, and tax could be based on the designated factory price. In order to reduce his tax liability under this ruling, one manufacturer, who had been selling his product at a unit price of 80 cents began to charge 25 cents for his product and 55 cents for delivering it, although the delivery on an average would probably not exceed 10 cents per unit.

Sometimes dealers, in selling an article on the installment plan, will pretend to rent it, with the stipulation that, after so much rent is paid, a trivial sum, such as 10 cents, may be paid as the purchase price of the article. As in the end title passes, the bureau holds that the whole transaction is a sale, with the tax based on the entire amount collected. Further effort was then made to defeat the tax by not insisting that the last 10 cents be paid, with the consequence that no title passed. As a matter of fact, every effort was made to discourage the purchaser in paying the last 10 cents. When the law was changed to include both sales and leases, further argument along this particular line was averted.

(c) Beverages-Cost of Containers Not Deductible as Expense.-Under one of the Revenue Acts there was a tax on the sale of beverages in closed containers. Of course, the bottles, bottling, delivering, and selling the beverages cost more than the beverage itself since water, gas, and red coloring matter cost very little. If it were possible to deduct this principal expense from the selling price, the tax could be greatly reduced. To accomplish this, one ingenious manufacturer rented his plant to one of the stockholders, who then became a "manufacturer" and liable for tax. The original manufacturing company, which retained title in the bottles, would wash and label them and sell the product to the trade. All this stockholder had to do was simply to make the contents and put it in the bottles. He could thus sell for less than half of what

the original manufacturer had been selling for, thereby reducing his tax accordingly, while the original manufacturer realized the same price as formerly, never losing his identity with the trade. Another manufacturer, finding out, long after the law had been repealed, that this had been done, requested a refund of more than half his tax, on the ground that he also could have thus organized, and have sold his product for a smaller price. He might, with equal propriety, have requested a refund of all his tax on the ground that he could have given his product away, thus avoiding any tax liability at all. It is not what a man might do, but what he does, that determines his tax liability.

(d) Meaning of "Article"-Does Not Include a "Set."-Some other difficulties in interpreting the law may be cited in connection with the present tax on jewelry, articles ornamented, mounted, or fitted with precious metals or imitations thereof, etc. An exemption is provided for articles selling for $30 or less. Many articles are sold in groups or sets, for example, a complete set of table silver, the price of which would far exceed $30, although the price of a single article, as one teaspoon, would be less than $30. It is held that "article," within the meaning of the statute, is not the set, but the individual spoon, fork, knife, etc., that goes to make up the set.

(e) Admissions Tax-Theaters, etc.-Under the Revenue Act of 1924 there is a provision that an admission for 50 cents or less is not subject to the tax.10 It is contended by some representatives of the taxpayers that the general admission and charge for reserved seat should be separated, each one being regarded as a distinct price for admission, and, as each is less than 50 cents, no tax at all should be paid. Where under the prior laws the general admission would be 45 cents, and the price of a reserved seat 25 cents, if it were regarded that these were separate admissions, the tax on the first price would be 5 cents, and on the second price 3 cents, thus making a total tax of 8 cents, though the total admission was only 70 cents. It was contended by representatives of certain taxpayers that the lump sum of 70 cents should be regarded as the price of admission, with a tax of only 7 cents instead of 8 cents. The bureau acquiesced in this contention and made a ruling accordingly.

The bureau feels that it must be consistent, and since it granted their original contention that it was one lump sum charged for admission, thus giving them the advantage, that the same ruling should be followed under the present law. In connection with the admissions tax, very large returns often come to the bureau, from prize fights, world baseball series, etc. In the case of a prize fight, where the receipts are $1,000,000, the government should receive taxes in the amount of at least $100,000.

(f) What is a Club? Dues to social, athletic, and sporting clubs or organizations are taxable. It at times becomes very difficult to determine the nature of a club; that is, whether it comes within the provisions of the act, when it has, in addition to its social or athletic features, other characteristics which may or may not constitute its primary and principal purpose. A purely social club might contend that it was an educational institution, merely because it at times promulgates teachings of some particular cult or philosophy.

10 Act June 2, 1924, tit. 5, §§ 500-503 (43 Stat. 320).

(g) Time Limit for Delinquent Taxes.-The government has a period of four years within which it may assess delinquent taxes, and five years within which it may sue for taxes, if suit becomes necessary.

V. Tobacco and Miscellaneous Division

(a) When Stamps Required.—With respect to the taxes payable by stamps upon articles manufactured, such as tobacco, snuff, cigars and cigarettes, playing cards, etc., one should observe carefully whether the package, either as purchased in its entirety or from which the article is sold, bears the proper internal revenue stamp; also if, when the package is emptied, the stamp is destroyed as required by law. It should also be seen that the tax stamps are affixed to proxies, powers of attorney, conveyances, and other instruments and documents requiring affixture of documentary stamps.12 When the failure to affix such stamps comes to one's attention, he should notify the Commissioner or Collector of Internal Revenue for the district. The Revenue Act of 1924, the latest to be placed upon statute books, repealed only the taxes on promissory

notes.

(b) Redeeming Documentary Stamps.-A faithful observance of the laws imposing stamp and special taxes would result both in economy and efficiency to the government. Persons having unused documentary stamps which they may wish to redeem may apply to the Collector of Internal Revenue for their district, or to the Commissioner at Washington for the necessary form upon which to file claim.

The law places a limitation of four years from the date of purchase from the government in which claims for redemption of stamps may be filed. Claimants should show in their claims the date the stamps were so purchased, or should state they were purchased from the government within four years prior to date of filing the claim.

3. Organization

The organization of the Miscellaneous Tax Unit is shown on Chart 8.

11 Act June 2, 1924, tit. 4, § 400 (43 Stat. 316).

12 Act June 2, 1924, tit. 8, §§ 800-807 (43 Stat. 331).

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