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John D. Fleming:

After all, I should like to ask the gentleman if courts are going to perplex themselves with such scholastic questions. The Supreme Court of the United States has decided that a canary bird is not a live animal, not "a live animal" in the contemplation of the revenue act, which was under consideration at the time.

Courts will not, I say, perplex themselves with purely academical questions like this. The question of where does a horse's tail begin and where does it end is something that they will not concern themselves with. Courts must declare that this is or is not a horse's tail. When they come to this question of revenue they will say, in my opinion, they have the simple question to decide as to whether these proceeds of these mining operations are income in the common acceptation of the term. If they are not, I do not understand what income is.

Thomas J. O'Donnell:

I do not believe it is possible for any human mind that is not on the bench (laughter) to dissent from the logic of Mr. Hodges' position. The judges who decided these questions never owned a mine (laughter) and they had no mine when deciding it.

It seems to me that the true analogy is this: A man who buys a mine buys ore. He buys it for the purpose of selling it again, converting it into money, and there is no difference in logic in the position of a man who buys ore in a mine from the position of a man who buys ore at a smelter. Both have the very same object, to-wit, the making of a profit, the earning of income.

To my mind it would be exactly as just to tax my late lamented friend Mr. Guggenheim on the amount of ore that he buys in his smelter and converts into money. If you call what he gets for the bullion which he sells income, you should call what I get for the ore which I have bought in the ground and dug out to sell, income. I realize a profit above the labor. The same

rule applies to both. A man goes into the business of mining ore, that is to say, he buys a mine, he buys the ore in the ground. Lots of us have bought mines that did not have any ore in the ground. (Laughter.)

E. C. Stimson:

That ought not to go into the record! (Laughter.)

Thomas J. O'Donnell:

They were in other states! (Laughter.) A case of that kind in Colorado would be as purely hypothetical as your inquiry about a lawyer's income.

If this man instead of buying ore, as Judge Hallet might have said, in rock in place, had bought it stacked up or on the dump why should he be charged any more upon the theory that the price of the whole thing was income than if he bought cordwood piled up, and then sold it? No such rule as to income would be applied to cordwood.

Why is there any difference in principle between the man who buys ore in the ground for the purpose of selling it and converting it into money and making a profit upon it, to-wit, an income, out of the business, than there is from the man who buys grain in an elevator, pays a hundred thousand dollars for an elevator full of grain and sells it again at $110,000? Now, there is an income in that business of $10,000, it might be fair to say, but there is not an income of $110,000. Or let us go a little farther back, and perhaps we will have an analogy which is a little closer to the mining proposition.

Suppose he buys a field of wheat in the stalk, before it is cut. Of course, according to any rule of logic it would not be any different if it were in the shock or the stalk or the elevator, but we take now the wheat, the waving golden grain, whose beauties we admire as we ride from Denver down here, and which is such

a-this report is going abroad!--such a proof of the success of dry farming in Colorado. (Laughter.) He employs labor to cut the grain, to thresh it, to take it to market, to sell it, and from it he receives money, and is the money which he receives income? Not at all. The profit may be considered as income, what he makes out of the business which he has conducted may be considered income, but, as suggested by Mr. Hodges, the conversion of his capital from one form into another can not be considered income. And so I think this is a case where the Supreme Court of the United States has shown that it is liable to the same errors that we so often see in our own Supreme Court and in our Court of Appeals! (Laughter.) We might almost think this was a decision of our Court of Appeals. (Laughter.) Some of those men are here, and I have had it in for them!

However, I think the practical thing to do is to appoint a committee to wait upon the Supreme Court of the United States, and to get them to adopt Mr. Hodges' view.

President Dubbs:

Is there any member who desires to interrogate the last witness? (Laughter.) Or shall we resume the original investigation?

Ernest Morris:

There is one further thought that occurs to me in the light of this discussion. There are some communities in the United States, perhaps not in Colorado, but in other places, where mining operations have been conducted and where the mines have been worked out and have been depleted, and where there is considerable real estate used for mercantile or residence purposes, but by reason of the mines having been worked out and having been depleted, the real estate has ceased to be of any value. It can not be sold, it can not be rented, it will not net any sufficient revenue to pay the taxes and other fixed charges against it. Now,


the owners of that real estate have during the years of active mining operations of their community derived a considerable revenue from these properties by way of rent. That revenue has universally been regarded as an income from that property, yet in the course of the mining operations the capital has been lost as to the investment that was originally made in that particular kind of real estate. Now, if the logic of Mr. Hodges' paper is correct then the income, or rather the capital, of that real estate has been secured by way of income, or is converted capital, and is not profit or income in the sense in which the term is used in the income tax law, and therefore it should never have been regarded as income, and likewise in mining communities that are producing, the revenue derived from real estate of that character should not be regarded as income, but should be regarded as converted capital, because it is only a question of time when the mines are completely worked out and the property will be of no value.

I think there is one statement in the paper to which we might take exception, and it is this, that no amount of judicial decision will establish the fact that converted capital is income. Mr. Hodges may be of that opinion, but I anticipate that if some of his clients engage in mining operations and have a controversy which goes to the Supreme Court of the United States and it is there decided that the proceeds derived from those mining operations are income and are therefore subject to the Sixteenth Amendment and subject to the income tax, that judicial decision will nevertheless. establish the fact that what he calls converted capital is income and is taxable, and if the Supreme Court of the United States. should so hold I think that we will all have to cheerfully abide by that decision.

Henry McAllister Jr.:

I do not want Mr. O'Donnell to think that I am cross-examining him. I have too much regard for myself to put myself in (Laughter.)

that role.

Thomas J. O'Donnell:

I accept your apology!

Henry McAllister Jr.:

But one suggestion of his leads me to state that while my interests have always been upon the side which Mr. Hodges has so very ably presented today, there has been a difficulty for my mind to reconcile that position exactly, and Mr. O'Donnell's sug. gestion of wheat in an elevator may be used by me for the purpose of illustrating the doubt which has been in my mind.

A man buys wheat in an elevator for $100,000; he manufactures that through various processes into flour; he sells that flour. Might he not be in as good a position as the mine owner to say that that flour, in its improved, manufactured, state, is his capital? He could not do that, however, for the purpose of determining his income. He would be entitled to deduct the amount of his actual money invested, $100,000, in that wheat, and he would be allowed also to deduct the cost to which he was put in manufacturing the wheat into flour. But he could not say that the value of what he secures from the manufactured article is altogether his capital.

Upon the same principle how can we disregard the actual cost of mining property to the owner? Has not that some relation to the matter of capital? Can I buy a mine today for $100,000— instead of wheat-and instead of manufacturing the wheat into flour, manufacture the earth into gold and silver, and then say that the entire value of that finished product, less the cost of mining, shall be treated as capital? Should not the original cost of the raw material, the mine, to me, be taken into consideration for the purpose of determining the real capital invested in the property?

As I say, my interests have always been upon the other side, and I thought that Mr. Hodges should have sustained his contention in the Stratton Independence case, and yet, as I said in the

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