Legislative Summary: Taxes


Corporate and Excise Extension of 1961 
H.R. 7446 — Public Law 87-72, approved June 30, 1961 
This measure continues to July 1, 1962, the present 52 percentcorporate income tax rate which would otherwise revert to 47 percent, and the present rates of excise tax on distilled spirits, beer, wine, cigarettes, passenger cars, automobile parts and accessories, general telephone service, and transportation of persons.

Clay and Shale — Tax Treatment 
H.R. 7057 — Public Law 87-312, approved September 26, 1961 
Permits miners of clay and shale to include as a depletion allowance the process of manufacturing brick and tile. For purposes of computing the percentage depletion deduction is to be 50 percent of the gross income from the finished product but not in excess of $12.50 for each ton of this clay or shale used in the finished product. The type of products for which the shale or specified types of clay must be used are building and paving brick, drainage and roofing tile, sewer pipe, flowerpots, or similar products.

This provision is in the form of an election which taxpayers may make for all open years beginning before January 1, 1961. 

Identifying Numbers — Tax Returns 
H.R. 8876 — Public Law 87-397, approved October 5, 1961 
To improve enforcement and collection of internal revenue taxes, this measure facilities the expanded use of automatic data processing equipment by IRS and by enabling the Service to match information returns now filed with tax returns.

Requires individuals who file tax returns to record their account numbers on their tax returns. Individuals filing information returns (such as dividends or interest) are required to request the account numbers of those about whom the information is being filed and include the numbers on the information returns.

IRS intends to use social security numbers as the account numbers in order to minimize the number of persons having to be assigned new numbers. 

Membership Organization Taxes 
H.R. 929 — Public Law 87-109, approved July 26, 1961 
This bill provides that prepaid membership dues income of membership organization may, at the election of the taxpayer for tax purposes, be spread over the period during which there is a liability on the part of the organizations to provide the service.

The membership organizations to which the provision applies are limited to those, such as automobile clubs, which have no capital stock and make no distributions of net earnings to members. A special rule is provided which spreads over a 5 year period the revenue loss which would otherwise occur in each of the first 3 years of transition to the new method for reporting this prepaid income. The provision is effective for taxable years beginning with calendar 1961. 

State Tax Stamps 
H.R. 1777 — Public Law 87-371, approved October 4, 1961 
To prohibit transporting counterfeit State tax stamps in interstate and foreign commerce, this bill broadens the definition of "tax stamp" in the criminal code to include any tax stamp, tax token, tax matter imprint, or any other form of evidence of an obligation running to a State, or evidence of a discharge thereof. 

Unemployment Tax Credits 
H.R. 2585 — Public Law 87-321, approved September 26, 1961  
This bill is designed to prevent the imposition of a double tax in the case of the Federal and State unemployment taxes which arise because of a technical deficiency in the Federal tax laws. At present, due to State laws, cases can arise where the usual credit for State unemployment taxes is not available where a trade or business changes hands within the first 20 weeks of a calendar year. This bill corrects the faulty operation of the Federal laws by making the usual credit available in these cases. 

This measure applies prospectively only but will apply to all business corporations, both corporate and non-corporate. 


Consumer Finance Companies 
H.R. 8824 — Public Law 87-768, approved October 9, 1962 
Exempted certain consumer finance companies from the personal holding company tax. 

Disaster Areas — Tax Treatment 
H.R. 641 — Public Law 87-426, approved March 31, 1962 
This measure allowed taxpayers in any disaster area, declared as such by the President of the United States, to charge off their casualty losses on the preceding year's tax return when the disaster happens after January 1 and before the time prescribed by law for filing their income tax returns. This bill is directed toward the coastal areas hit by high winds and floods during the spring of 1962. 

Railroads — Tax Relief 
H.R. 12526 — Public Law 87-710, approved September 27, 1962 
Permitted any regulated transportation company to spread its net operating loss over 7 succeeding years in computing its taxable income. This is 2 years longer than the normal carry-forward provision for other businesses.

This new 7 year carry-forward can be used by regulated airlines, buslines, shipping lines, and truckers as well as railroads. 

Revenue Act of 1962 
H.R. 10650 — Public Law 87-834, approved September 16, 1962 
Enacted a major revision and reform of our Federal tax system.

Major provisions: 
Investment credit.—  Provides for a 7 percent tax credit for business investments in depreciable machinery and equipment. Limits such credit to $25,000 plus 25 percent of the tax liability above such amount. Permits any unused investment credit to be carried forward and used in any of the 5 succeeding years or carried backward and used to offset tax liability during the preceding 3 year period, but no carry-back could apply before December 31, 1962.

Expense allowances.—  Allows expenses incurred with respect to appearances before or communications with legislative bodies or individual members of such bodies and expenses incurred in connection with informing employees or stockholders of legislative matters, as a trade or business expense for tax purposes.

Entertainment deductions.—  Allows a deduction for entertainment-type expenses which directly preceded or followed a substantial and bona fide business discussion, including business meetings at a convention, if the taxpayer establishes that such items were associated with the active conduct of his trade or business.

Mutual savings institutions.—  Provides new rules for calculating the deduction allowable for additions to bad debt reserves. Limits such reserves to 12 percent of the total deposits and the amount that may be transferred to such reserves to 60 percent of the taxable income (50 percent in cases of stock savings and loan associations) or a sum not to exceed 3 percent of the loans on real property.

Specified that in no case may a thrift institution have reserves greater than those permitted under existing law, 12 percent of deposits.

Distributions by foreign trusts.—  Provides for taxing American beneficiaries of foreign trusts created by U.S. grantors in substantially the same manner as if the income had been distributed to the beneficiary as it was earned.

Mutual insurance companies.—  Provides for taxing both investment and underwriting income of mutual fire and casualty insurance companies at the ordinary corporate income tax rates. Provides an exemption for very small companies whose total receipts do not exceed $150,000 and exempts companies whose total receipts are between $150,000 and $500,000 from the tax on underwriting gains.

Earned income from sources outside the United States.—  Limits the amount of annual income an American citizen living in a foreign country could exclude from U.S. taxation to $35,000 or $20,000 per year for each of the first 3 years.

Controlled foreign corporations.—  Subjects the earnings of non-manufacturing foreign subsidiaries of American corporations to immediate taxation unless the subsidiary is located in an underdeveloped country and the earnings are reinvested in the underdeveloped country.

Gains from sale of depreciable property.—  Provides for the taxation of gains from the sale of depreciable property as ordinary income instead of at the capital gains rate.

Tax treatment of cooperatives.—  Provides for the taxation of earnings of cooperatives (except Rural Electrification Act coops) either as income for the cooperative or as dividends to the patrons.

Foreign real property.—  Provides for the inclusion of foreign real property in the gross estate of decedents who are citizens or residents of the United States.

Reporting of interest and dividends.—  Requires the reporting of dividends and interest payments of $10 or more during a year to the Internal Revenue Service. Sets civil penalties for noncompliance.

Expenditures by farmers for clearing lands.—  Allows a tax deduction of up to $5,000 for expenses incurred in clearing land for use in farming. 

Tax Rate Extension Act of 1962 
H.R. 11879 — Public Law 87-508, approved June 28, 1962 
Extended for 1 year from July 1, 1962, the 30 percent normal tax on corporate income, also the excise tax rates on liquor, tobacco, automobiles, parts, and accessories. Those rates were scheduled for reduction on July 1, 1962, under the Tax Rate Extension Act of 1961.

Effective November 15, 1962, the transportation tax on air travel is reduced from 10 percent to 5 percent, and the transportation tax on the domestic portion of international air travel is repealed. On the same date the transportation tax on other forms of travel is repealed. Effective January 1, 1963, repealed the 10 percent communications tax on general telephone service, leased private telephones and teletypes, community television antennas, and closed circuits. 


Accrued Vacation Pay Deductible 
H.R. 6246 — Public Law 88-153, approved October 17, 1963 
Extends to January 1, 1965, period during which accrued vacation pay may be deducted as a business expense for income tax purposes even though liability to specific individual has not been established. 

Child Care Expenses 
H.R. 2085 — Public Law 88-4, approved April 2, 1963 
Permits wives, deserted by their husbands, to deduct up to $600 a year for the care of a dependent son or daughter, stepson or stepdaughter under age 12, and also for dependents who are physically or mentally incapable of caring for themselves if the care is to enable the individual involved to be gainfully employed.

To be eligible, the woman must have been deserted by her husband, must not know his whereabouts at any time during the taxable year, and must have applied to a court to compel him to pay support.

Under existing law, this provision is available to widows. 

Redeemable Ground Rents  
H.R. 1597 — Public Law 88-9, approved April 10, 1963  
This bill affects the tax treatment in the State of Maryland of both the buyer of a home subject to a redeemable ground rent and the person selling this real property subject to the redeemable ground rent.

For the home buyer the ground rent paid is treated as a mortgage interest payment and is deductible by him for tax purposes.

The seller of the real property subject to the redeemable ground rent is treated as if he had sold the property subject to a mortgage in a face amount equal to the redemption price of the redeemable ground rent. As a result, the redeemable ground rent is taken into account in determining his sale price for the property and is reflected in any gain, or loss, recognized to him.

The deduction of ground rent, as the equivalent of a mortgage interest payment, is available for 1962 and subsequent years. In the case if the seller of the property, however, the new treatment (in this bill) in general applies only in the case of transactions occurring after the date of enactment. 

Tax Rate Extension Act of 1963 
H.R. 6755 — Public Law 88-52, approved June 29, 1963 
Continues for 1 year to July 1, 1964, the present corporate tax rate of 52 percent and the present rate of excise tax on distilled spirits, beer, wine, cigarettes, passenger cars, automobile parts and accessories, general telephone service, and the transportation of persons by air.

Without this extension the following excise taxes would have been reduced or repealed on July 1, 1963— 
1. Distilled spirits, reduced from $10.50 to $9 per proof gallon;
2. Beer, reduced from $9 to $8 per barrel; 
3. Wines, which are subject to various tax rates which would be reduced by approximately 11 percent 
4. Cigarettes, reduced from 8 to 7 cents a pack; 
5. Passenger cars, reduced from 10 to 7 percent of the manufacturers' price;
6. Auto parts and accessories, reduced from 8 to 5 percent of the manufacturers' price; 
7. General telephone service, reduced from 10 percent of the amount paid to zero; 
8. Transportation of persons by air, reduced from 5 percent of the amount paid to zero. 

Unemployment Tax  
H.R. 4655 — Public Law 88-31, approved May 29, 1963  
As enacted into law, this bill reduces the extra Federal unemployment tax attributable to the Temporary Extended Unemployment Compensation Act of 1961 from 0.4 to 0.25 percent with respect to wages paid in 1963. This will make the combined net Federal unemployment tax for 1963 wages 0.65 percent (apart from any reduced credit provisions that might apply in particular States).

Substitutes for the $350 million limitation on grants to the States to cover the administrative costs of unemployment compensation and the employment service, a flexible ceiling of 95 percent of the estimated receipts under the regular 0.4 percent net Federal unemployment tax. Applied to fiscal year 1964, this ceiling will be about $460 million.

Extends from 5 to 10 years the period during which States may obligate, for administrative purposes, certain funds transferred from excess Federal tax collections.

Increases the ceiling on amounts which may be granted to States for administrative expenses for fiscal year ending June 30, 1963, from $400 million to $407,148,000. 

Unemployment Tax Rates 
H.R. 8821 — Public Law 88-173, approved November 7, 1963 
Eases Federal unemployment insurance taxes established to repay the Government for extra compensation payments made to unemployed workers between 1957 and 1960 by freezing the rates for from 4 to 5 years and stretching out the payments over a longer period of time.

The 16 States faced with tax increases were Alabama, Alaska, Arkansas, California, Delaware, Indiana, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, Pennsylvania, Rhode Island, and West Virginia.

The Temporary Unemployment Compensation Act of 1958 allowed States to extend the length of time during which unemployment checks could be paid to unemployed workers and, to finance these extra benefits, Congress authorized Federal loans to States that used the act. Each State was to reimburse the Federal Government before January 1, 1963 and, if it did not, the Government was to levy an additional tax of 0.15 percent of the State's taxable wage base on employers each year until the amount was repaid.

The above 16 States have not repaid and thus, under existing law, the employers were required to pay an extra 0.15 percent tax on 1963 wages, 0.30 percent on 1964 wages, 0.45 on 1965 wages, and 0.60 percent on 1966 wages. This bill does not change the higher tax rate for 1963 and 1964, but it does freeze the rate at 0.30 percent for 1965, 1966, 1967, and 1968.

Alaska, Michigan, and Pennsylvania used another source of unemployment compensation funds to make payments to jobless workers in that they received advances from the Federal unemployment trust fund account under title XII of the Social Security Act. Existing law provided for repayment of advances made before September 13, 1960, in a manner similar to that provided under the Temporary Unemployment Compensation Act. It set an extra tax on employers of 0.15 percent beginning with wages paid in 1961 and increasing 0.15 each year through 1970 wages. This bill freezes the tax at 0.15 percent for 196367, after which the tax will increase by 0.15 percent each year until the advance is repaid.

This bill also allowed the States to avoid having the extra Federal taxes levied on their employers for both the TUC and title XII advances by permitting the extra tax for any year not to go into effect if a State, prior to November 10 of a given year, paid to the Treasury a specific installment on the advances.