Opinion · Supreme Court of the United States

Grant, Collector v. Hartford and New Haven Railroad Company

Grant, Collector v. Hartford & New Haven R.R. Co., 93 U.S. 225 (Supreme Court of the United States 1876)

Type
Opinion
Court
Supreme Court of the United States
Jurisdiction
Federal
Date
1876-11-27
Topic
general

Ms. Justice Bradley delivered the opinion of the court. The company having returned the entire balance of their gross earnings over and above current expenses, in the shape of dividends and surplus, for the period in question, and paid the regular tax thereon, we do not see why this was not a full compliance with the law. The object of the law was to impose a tax on net income, or profits, only; and that cannot be regarded as net income, or profits, which is required and expended to keep the property up in its usual condition proper for operation. Such expenditure. is properly classed with repairs, which are a part of the current expenses.

Citator

UpLaw has not yet analyzed Grant, Collector v. Hartford and New Haven Railroad Company. The absence of a flag is not a finding that it is good law.

Cited by
13 opinions

Headnotes

  1. Tax Law — Income The object of a tax on the net income or profits of a corporation is to reach only net income; earnings that are required and expended to keep the corporate property in its usual condition proper for operation are not net income or profits, and such expenditures are properly classed with repairs as part of current expenses, so that a company that returns its entire surplus over current expenses as dividends and surplus and pays the regular tax thereon has fully complied with the law.
  2. Tax Law — Income Where a railroad company builds additional or improved facilities—such as a second track or a more valuable structure—out of its earnings, and the works thereby acquire an additional value and increased capacity for producing future profits, the expenditure is a betterment or permanent improvement and may fairly be characterized as profits used in construction, which Congress intended to tax.
  3. Tax Law — Assessments — Scope of Assessment In assessing a tax on profits used for construction, it is error to assess the entire expenditure bestowed upon a new structure without any allowance for the structure it replaced; the taxable amount is confined to the increase in value attributable to the improvement, and the mere fact that earnings were expended on a new structure does not establish that they are profits—whether they are depends on other factors to be taken into account besides the fact of expenditure.
Ms. Justice Bradley

delivered the opinion of the court.

The company having returned the entire balance of their gross earnings over and above current expenses, in the shape of dividends and surplus, for the period in question, and paid the regular tax thereon, we do not see why this was not a full compliance with the law. The object of the law was to impose a tax on net income, or profits, only; and that cannot be regarded as net income, or profits, which is required and expended to keep the property up in its usual condition proper for operation. Such expenditure. is properly classed with repairs, which are a part of the current expenses. If a railroad company should make a second track when they had but a single track before, this would be a betterment or permanent improvement, and, if paid out of the earnings, would be fairly characterized as “ profits used in construction.” The works of the company would have an additional value to what they had before, with an increased capacity for producing future profits. This kind of expenditure is what Congress meant to reach, when, in the one hundred and twenty-second section- referred to, it imposed a tax not only on the dividends of every railroad, canal, *228 and turnpike company, but also on “ all profits of such company carried to the account of any fund, or used for construction.” The counsel for the government insists that this bridge was a betterment, because it was much more valuable than the old wooden bridge. But the assessor did not include the excess merely: he assessed the whole expenditure bestowed upon the new bridge, without making any allowance for the old one. His idea seems to have been, that all earnings used in new constructions are made taxable by the act, without reference to betterments, or to their being substituted for other constructions. Indeed, his assessment is not for ‘•'•profits used in construction,” but for “ earnings used in constructing new Windsor Bridge, $55,712.60.” In this view he was decidedly wrong. Earnings expended on a new structure may or may not be profits. Whether they are or not depends on other, things to be taken into the account besides the mere fact of such expenditure. Had the assessment been merely for the increased valué of the new bridge over the old one when in good repair, the' case might have admitted of very different consideration.

Judgment affirmed.