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The Revenue Act of 1932
and Its
Bearing on the Music Trade
By R. W. MacNAUGHTON, C. P. A.
of Hill, Bieth & Company
Accountants and Auditors, New York, N. Y.
R. W. MacNAUGHTON
S the members of the music trade
as a whole have in all probability
familiarized themselves with the
contents of the new Revenue Act,
especially the provisions that directly affect
them, I will merely review some of the more
drastic provisions, as an argument in favor
of a general Sales Tax.
As a prelude let me state that in my
opinion the Revenue Act of 1932 is the
most unsatisfactory one we've ever had in
this country because it probably won't pro-
duce the necessary income to the Govern-
ment, which is the reason for its existence,
and because it contains so many excise taxes
which because of their nature are difficult to
administer and a nuisance to the taxpayer.
Under the Excise Tax provisions of the
present law only a few industries are taxed
and these at a much higher rate than the
defeated Sales Tax would have inflicted.
Consequently, an attempt has been made by
Congress to make collection agencies out of
the few industries taxed to the benefit of
those not taxed. Then again, the industries
taxed have been discriminated against eco-
nomically as their recovery from the financial
crisis which has had us in its throes for
the past three years has certainly been re-
tarded through decreased sales and profits.
The music industry is one of those dis-
criminated against. For example, under the
defeated Sales Tax, radios, radio parts and
accessories, phonograph records, etc., would
have been taxed at the rate of 2J4 P er
cent on the manufacturers' sales price,
whereas under the present Revenue Act they
are taxed 5 per cent.
As a practical proposition, if the buying
public knew that every time it bought an
article it was paying a low rate of tax on
that article, the tax would soon be forgotten
and would merge itself into the cost of the
article. It isn't the general things that dis-
turb the people, it is the exceptions.
A
The average wage earner, who was to be
the sufferer under the Sales Tax, according
to its opponents, has the following change
in income tax rates to face:
The increase of normal tax rates from
11/2 per cent on the first $4,000 in excess
of credits, 3 per cent on the next $4,000
and 5 per cent on the balance, with
surtax starting at $10,000, to 4 per cent
on the first $4,000 in excess of credits
and 8 per cent on the balance with sur-
tax starting at $6,000. In addition, the
surtax rate graduates to 55 per cent
under the new act, whereas 20 per cent
was the maximum under the Revenue
Act of 1928.
Credits for personal exemption have
been changed from $1,500 for a single
person and $3,500 for a married person
or head of a family, to $1,000 and
$2,500, respectively.
The corporation rate is 13% per cent
under the Revenue Act of 1932, instead of
the former 12 per cent, with a rate of 14V 2
per cent for consolidated returns. Under the
present act there is no exemption for cor-
porations whose income is $25,000 or less.
Under the Revenue Act of 1928 there was
a $3,000 exemption for such corporations.
A provision of the new act which affects
both individuals and corporations is the
limitation of losses from sales of securities
held for two years or less as deductions to
the extent of gains only, with the proviso
that losses disallowed in one year may be
carried over as offsets against profits from
such sales in the next succeeding year, sub-
ject to certain limitations, one of which is
that the taxpayer must have an income in
the year of the disallowed loss at least equal
to the amount thereof. Any excess of
disallowed loss over taxable income cannot
be carried over. For example, let us as-
sume that the A Piano Co. has a net income
from operations for 1932 of $5,000, excluding
security transactions. It has gains from sales
of securities of $1,000 and losses of $8,000.
It could carry over to 1933 as a deduction
against gains from the sales of securities
in that year only $5,000. The first year
affected by this new provision is 1932 and
the first year in which a carry-over can
be used is 1933.
A further interesting change is the limita-
tion in the carry-over of business net losses
to one year instead of two. For instance,
if a taxpayer had a net loss for 1930 and
1931 and a net income for 1932, he could
carry over as a deduction from the 1932
income only the 1931 loss, whereas under the
Revenue Act of 1928 the losses for the two
prior years were deductible.
It is impossible to enumerate all the
changes in the law in this space and it prob-
ably wouldn't be of interest or service to
the members of the music trade to do so.
However, the provisions set forth above
should prove of some interest to the trade
as a whole for it is undoubtedly affected by
them and they give some idea of the ex-
tent to which Congress had to go in its
attempt to raise the income necessary to
balance the Budget.
Now for the Excise Tax provisions of
the new Revenue Act. There is a 5 per cent
tax on telegraph messages, 10 cents on cable
and radio messages and a sliding scale on
telephone calls starting with 10 cents on
50-cent to $1 calls, 15 cents on $1 to $2
calls and 20 cents on calls in excess of $2.
If you rent a safe deposit box you are taxed
10 per cent on the rental fee; on all checks
drawn you pay 2 cents each.
In connection with the last tax let me
point out that the Treasury Department has
ruled that the bank must be under obliga-
tion to the drawer, either directly or im-
pliedly, to pay for the instrument, and must
have authority to charge the account of
the drawer before the tax is effective, and
that therefore moneys can be withdrawn from
either a checking or savings account without
incurring the tax, provided only a receipt
is personally tendered by the depositor. Also,
it is possible to arrange with the bank to
draw drafts on one's self which could be
covered by the individual, the bank not being
(Please turn to page 17)
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THE
MUSIC
TRADE
REVIEW,
August-September,
1932