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beginning, it does seem to me that we can not lay aside entirely the matter of the original cost of the property, when we come to consider almost any sort of business, whether it is that of the miller or of the manufacturer.

Edward S. Worrell Jr.:

It seems to me Mr. McAllister has lost the distinction between value and cost. The ore in the ground is worth just as much, whether the man pays $1,000 for it, or $1,000,000. What difference would it make if instead of paying $100,000 for the wheat, it were given to him? Would that be income or would it not? So that I think if we get the distinction between the cost and the value, the ore in the ground is worth just as much before it is taken out intrinsically, as it is after it is taken out.

John H. Fry:

If I may say a word, it seems to me this is another case where lawyers are following the thought of other people instead of going ahead of it. It will be remembered that in England originally increase in value was not income. Parliament finally came to the conclusion that the increased increment, as they call it, should be taxed.

Like Mr. McAllister, my sympathies are with Mr. Hodges' position, and I should have liked to have seen it successful. But it has always seemed to me that if the logic of Mr. Hodges is carried to its extreme, a man who buys personal property of any kind for a certain price and sells it at an increased price has the same change of capital from money to property and from property to money, whereas, all business is based upon the fact that this increased value at which he sells personal property is income, and always has been so considered, and it seems to me that the mining companies and the courts will ultimately take the view which Mr. McAllister has stated, that the capital is the thing invested in the mine, and then after deducting that capital, taking

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out the cost of the produced ore, the value over and above that will be considered as income.

I have not looked up the law on this very much, but I have happened to discuss the question with several mining men, and they say that that is what the courts will ultimately decide, and what they believe is right, because what they have put into the mine is the capital invested, together with what they spend in developing the mine, and when they have received that back they have received their capital back, and any increase over and above that which is taken out of the mine is income.

It seems to me it is the same rule that is applied to any trading concern. Any man who buys property, especially personal property, buys it to sell at a profit, at an increased value. That increased value is his income, less the cost of selling it, of course, and I think the same rule will come to apply to real estate in time, though it is not at present. We have looked upon real estate as capital itself when really it is not. The money that we put into real estate is capital. A man goes out and buys a farm-puts so much money into the farm-and if it increases in value that increase in value is income to him. We may not so consider it now, but we will come to the time when we do consider it so, just the same as in England they say increase in the value of property is an increment which would be taxed, an income which should be taxed, and it seems to me that is logical, and the thing which ultimately we must come to.

President Dubbs:

Is there any further discussion of the address which we have been considering, or is there to be any discussion of the interesting paper presented by Judge Searcy?

William V. Hodges :

I suppose I may have the right of closing.

It has been very gratifying to me, indeed, that the views sug

gested by me have aroused some discussion and apparently some interest.

The thoughts which have been suggested are thoughts which will occur in the course of study of the question-and it is a very difficult thing to consider the question without a headache.

We can argue in many directions and often find ourselves back where we began, with no satisfactory progress.

Speaking now of what Judge Fleming had to say, he contends this is all theoretical, it is not practical. Now, it Now, it may be so, but in my view, it is not theoretical. I think it is extremely practical. I think it becomes so in connection with the Sixteenth Amendment. It might have been theoretical with regard to the excise tax, where the question of income was merely a question of measure of the tax, and not a question of the right to lay the tax. But this is the situation now. My friend buys a house and I buy a mine. He begins the dismantling of his house, and he sells the windows to one man, the stone to another, the bricks to another, the plumbing to another; and I begin the mining of my mine. When we have finished he has $50,000, which represents the proceeds of the sale of the parts of his house. I have $50,000 which represents the proceeds of the sale of my mine. I have eliminated any question of cost, because of the Darlington case, which says that increment is not income. That is the decision of the Supreme Court of the United States. Now, the income tax collector comes to my friend, and he says, "Where did you get your $50,000?" "Why, it is merely converted capital; it is the proceeds of these different parts of my house which I sold." "Very well," he says, "That is not income, it is not taxable." But he comes to me and says, "Where did you get your $50,000?" "I got it from the sale of ore out of my mine." "Well," he says, "That is income, and you will pay such and such a percentage of it." Perhaps it is $500, perhaps it is $5,000, whatever it may be.

At any rate there is a substantial and not a theoretical dif

ference between my friend and myself, if that tax has to be paid by me and he does not have to pay the tax.

Ernest Morris:

But you still have the mine after you take out the ore, and your friend does not have the house.

William V. Hodges:

Well, let us say that I took all the cre

Thomas J. O'Donnell:

You have the hole. (Laughter.)

William V. Hodges:

With regard to the suggestion of Mr. Morris, that I was guilty, perhaps, of lese majeste, in saying that whatever the judicial decisions were the sale of ores would still be converted capital. I take it that as much as we respect our courts we do not expect them, nor do they expect, to make white black. They do sometimes say that white shall be treated as black, and when they so say we acquiesce respectfully and loyally.

What the Supreme Court said in the Stratton case was not that the proceeds of mining operations were actually income, but that they were income within the meaning of that act; that when they used the word income to measure the tax that was laid upon the doing of business in a corporate capacity, they used it in a free and liberal sense, and that the word income there meant just this sort of thing.

I do not yield to my friend in respect for the authority of that decision, but I do say that it does not make the proceeds of mining operations actually income or actually anything else but converted capital.

Mr. McAllister suggested something which has troubled me very much. Let me state this case. The Hudson Bay Company,

years ago, bought a large tract of land in the Hudson Bay country. They held it for a great many years. They then began to sell it off, and the income tax collector in England and I have explained to you that the income tax there is not an income tax in all respects, it is a property tax in some respects-but the income tax collector there said, "You are getting an income from the sale of your land; you must pay a tax on it." But the English courts in that case held, "No, as applied to this particular business this is strictly an income tax and not a property tax, and the company which is selling its lands which it held as its capital should pay no income tax on that because it is not income, it is conversion of capital."

Suppose I were in the business, as many men are in this vicinity, of buying and selling mines. I buy a mine and sell it, buy another and sell it; that is my business, and in that way I make an income. That is quite a different question.

Now, take Mr. McAllister's suggestion. His suggestion is more to the point that we must consider costs in considering the capital that is involved, and he uses the instance of the miller who buys his wheat and manufactures it and sells it, and in arriving at his profits, or income, you deduct the cost of his wheat. Is not that a different case? There we have a business of manufacturing flour, and the manufacturer makes an income by the application of his skill and capital. It may be that he sells part of his capital and buys more and converts it. But you find there the business of manufacturing flour, and you find the income. There is an actual income there and so, as I stated in the paper, this is what Justice Pitney had in mind at the time of the argument in the Stratton case.

He said, "Is not there a gain in the mining of that ore?" He said, "Is not there a middle ground?" It will be remembered there was another question there, whether the value of the ore should be deducted as depreciation under the act. He said, "Is not there some middle ground; in our state we have a great many

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