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LaBelle Iron Works v. United States, 256 U.S. 377 (1921)

LaBelle Iron Works v. United States

No. 463

Argued January 6, 7, 1921

Decided May 16, 1921

256 U.S. 377


1. The Act of October 3, 1917, C. 63, Tit. II, 40 Stat. 300, 302, in providing for a deduction of a percentage of "invested capital" before computation of the "excess profits" tax upon the income of a domestic corporation, does not mean to include in its definition of invested capital (§ 207) any marking up of the valuation of assets upon the corporate books to correspond with increase of market value or any paper transaction by which new shares are issued in exchange for old ones in the same corporation, but which is not, in substance and effect, a new acquisition of capital property by it. Pp. 256 U. S. 386, 256 U. S. 389.

2. A corporation, having acquired ore lands for $190,000, proved, by extensive explorations and developments, that their actual cash value was over $10,105,400; thereupon, in 1912, it increased their book valuation by adding $10,000,000, as surplus, and, based thereon, declared a stock dividend for $9,915,400, which was carried out by surrender and cancellation of all the common stock, of like aggregate par value, and the issuance of one share each of preferred and new common stock for each share of the stock surrendered. The increased value of the ore lands persisted when an excess profits tax was laid under the Act of 1917, supra. Held: that such increase of value was not included in "invested capital " under § 207(a)(3), as "paid in or earned surplus and undivided profits" (though an amount equal to the cost of the exploration and development might be), pp. 386, 390; nor under id. (2) as "the actual cash value of tangible property paid in other than cash, for the stock or shares" of the corporation. Pp. 256 U. S. 386, 256 U. S. 390.

3. The Fifth Amendment having no "equal protection " clause, the

Page 256 U. S. 378

duties, imposts, and excises is the territorial uniformity required by Art. I, § 8. P. 391.

4. There were reasons, both theoretical and practical, including that of convenience in administration, for basing "invested capital" upon actual costs, to the exclusion of higher estimated values, and resulting inequalities to corporations differently situated do not make out an arbitrary discrimination, amounting to confiscation and violating the due process clause of the Fifth Amendment. P. 256 U. S. 392.

55 Ct.Clms. 462, affirmed.

Appeal from a judgment of the Court of Claims disallowing a claim for a refund of money alleged to have been unlawfully exacted as an excess profits tax. The facts are stated in the opinion, post 256 U. S. 383.

Page 256 U. S. 383

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