Chap. 463.—An ACT to amend and re-enact section 10 of an act entitled an
act to raise revenue for the support of the government and public free
schools, and to pay the interest on the public debt, and to provide a special
tax for pensions, as authorized by section 189 of the Constitution, ap-
proved April 16, 1903, and acts amendatory thereof. {H B 274]

Approved March 27, 1922.

1. Be it enacted by the general assembly of Virginia, That sec-
tion ten of an act entitled an act to raise revenue for the support of
the government and public free schools, and to pay the interest on
the public debt, and to provide a special tax for pensions, as author-
ized by section one hundred and eighty-nine of the Constitution.
approved April sixteenth, one thousand nine hundred and three, as
heretofore amended, be amended and re-enacted so as to read as
follows:

Section 10. The classification under schedule D providing for the
taxation of income shall be as follows, to-wit:

1. The aggregate amount of income of each person and corpora-
tion residing or doing business in this State, whether received or
due but not received within the year next preceding the first of
January in each year, subject to the deductions and exemptions
hereinafter recited.

The terms “person” and “corporation” as used in this act are
hereby defined as follows:

(a) The term “person” shall mean and include any individual,
firm or copartnership.

(b) The term “corporation” shall mean and include every incor-
porated company, every joint stock company, and every association
having capital stock represented by shares or certificates of stock,
organized for profit. .

2. The term “income” as used in this act shall include:

(a) All rents, including ground rents and rents charge, salaries,
wages, fees or compensation of whatever kind from professions, vo-
cations or other services.

(b) All interest upon notes, bonds or other evidences of debt
of every description, including those of other States or other coun-
tries (except bonds of this State and bonds of the United States),
of any corporation, company, partnership, firm or individual, all
dividends derived from stock or other evidences of ownership or
interest in property, but not including dividends paid in stock; all
royalties derived from mines, patents, copyrights, or the possession
or use of franchise or legalized priviliges of any kind; and all annui-
ties from invested funds or trusts; provided, that the proceeds of
life insurance policies paid upon the death of the person insured or
payments made by or credited to the insured on life insurance,
endowment or annuity contracts, upon the return thereof to the
insured at the maturity of the term mentioned in the contract or
upon surrender of contract, shall not be included as income.

(c) All profits derived from the transaction of business or from
the sale of real or personal estate. No matter whether the property
sold was acquired during the taxable year or any year prior thereto;
provided, however, that if the property sold was acquired prior to
March first, nineteen hundred and thirteen, the profit realized shall be
computed by subtracting its fair market value on March first, nineteen
hundred and thirteen, from the amount realized from the sale. In
any event the taxes and insurance paid together with six per centum
per annum on the cost price of the property from the date of purchase
until sold, and the amount actually expended in repairs and perma-
nent improvements upon the property sold, less any income from
said property, shall be deducted in computing the profit derived
from the sale thereof.

(d) The amount realized from all farming, stock raising and
agricultural operations. , ,

(e) All other gains and profits derived from any source what-
ever.

3. There shall be exempt from taxation under this schedule in-
come as follows: .

(a) To an individual income up to and including the sum of one
thousand dollars.

(b) To husband and wife living together income up to and
including the sum of two thousand dollars.

(c) For each additional person who is actually supported by and
entirely dependent upon the taxpayer for support, the sum of four
hundred dollars.

(d) In computing said exemptions and the amounts of taxes
payable by persons residing together as members of a family, the
income of the wife and the income of each child under twenty-one
years of age shall be added to that of the husband or father, or if he
be not living, to that of the head of the family, and assessed to him.
The taxes levied thereon shall be payable by such husband or head of
the family, but if not paid by him may be enforced against any
person whose income is included in the assessment.

(e) Salaries, wages and other compensation received from the
United States by officials or employees thereof.

(f{) Pensions received from the United States or from the State
of Virginia. ,

(g) Income received by the United States, the State of Virginia
or any political sub-division thereof. _

(h) The value of property acquired by gift within the year not
exceeding the sum of one thousand dollars.

(1) All inheritances, devises and bequests received during the
year which are subject to the inheritance tax laws of this State and
have actually been assessed under such laws, but income received
from such inheritances, devises and bequests shall be assessed under
the provisions of this schedule.

(j) Any amounts received through accident or health insurance
or under workman’s compensation acts as campensation for personal
injuries or sickness, and the amount of any damage received whether
by suit or agreement on account of such injuries or sickness.

4. Persons and corporations in reporting income for purposes
of taxation shall be allowed the following deductions :

(a) Payments made within the year for salaries of officers, wages
of employees and a reasonable allowance for service of copartners
or members of a firm actually rendered in producing such income,
but no deductions shall be made for any amount paid for personal
services unles there be reported the name and address and amount
paid each such officer, employee or co-partner residing within the
State to whom the sum of one thousand dollars or more shall have
been paid during the assessment year.

(b) The necessary expenses actually paid within the year in
carrying on the profession, occupation or business from which the
income is derived, not including personal or family expenses.

(c) A reasonable annual allowance for depreciation by use, wear,
tear and obsolescence of the property from which the income 1s
derived, on the basis of its cost in cash or the equivalent of cash;
but no deduction shall be made for any amount of expenses of
restoring property or making good the exhaustion thereof for which
an allowance is or has been made; and no deductions shall be allowed
for any amount paid for books, tools, instruments, machinery, appli-
ances, furniture or fixtures, buildings, permanent improvements or
betterments, or other taxable property purchased, whether used in
connection with the business or not.

(d) Losses sustained during the income year and not compen-
sated for by insurance or otherwise if incurred in trade or business, or
if incurred in any transaction entered into for profit though not
connected with the trade or business; and also losses sustained during
the income year of property not connected with the trade or business,
if arising from fire, storm, shipwreck, or other casualty, or from
theft, and not compensated for by insurance or otherwise.

(e) Debts due taxpayer actually ascertained to be worthless and
actually charged off within the income year, if the amount has previ-
ously been reported for taxation as gross income, provided said debts
are listed showing amounts, when due, and names of debtors.

_ (f) Sums paid by the taxpayer within the year for all taxes
imposed by this State or any sub-division thereof; but not including
assessments for local improvements or income or inheritance taxes.

(g) Dividends or profits received from stock or an interest in
any corporation or copartnership the income of which shall have been
assessed under the provisions of this act, provided that when only
part of the income of any corporation or copartnership shall have
been assessed under this act only a corresponding part of the divi-
dends or profits received therefrom shall be deducted.

(h) All interest paid within the year on existing indebtedness,
except on indebtedness incurred or continued to purchase or carry
obligations or securities the interest from which is exempt from tax-
ation under this act.

(i) The actual amount paid during the year for repairs to and
maintenance of buildings the rent of which is reported as income, and
all fire, tornado and casualty insurance premiums on property in this
State due and paid during the year, provided that no deductions shall
be made for expenses chargeable to residence property occupied by
its owner, nor for the depreciation thereof, and the annual value of
estimated rental thereof shall not be included in the income subject
to taxation.
5. Persons and corporations doing a part of their business within
the State and a part without the State, and having offices or other
regular places of business both within and without the State, shall
be taxed only upon such income as is derived from business trans-
acted and property located within the State, which may be determined
by an allocation and separate accounting for such income when the
books of such person or corporation show income realized from such
transactions and property located within the State; otherwise such
income shall be apportioned and determined as follows: The gross
business in dollars, of the person or corporation in the State, includ-
ing the business of production measured by cost of production and
the business of distribution or sales measured by the value of gross
sales less the cost of production for the year ending December thirty-
first, shall be added to the book value of the gross assets on the first
day of January of the year for which return is being made, employed
in the business within this State (with no deductions on account of
any encumbrance thereon). The sum so obtained shall be the numer-
ator of a fraction of which the denominator shall consist of the
total gross business, as above defined, of the person or corporation
both within and without the State, added to the total book value
of the gross assets on the day last aforesaid, wherever employed
in business (with no deductions on account of any encumbrance
thereon). The proportion of the entire net income of such person or
corporation which is represented by the fraction so obtained shall
be the net income of such ‘person or corporation returnable for tax-
ation in this State.

6. Corporations which are affiliated within the meaning of this
paragraph, may, under regulations to be prescribed by the auditor
of public accounts, make a consolidated return of income for the
purpose of this section, and the taxes thereunder shall be computed
and determined upon the basis of such return. In any case in which
a tax is assessed upon the basis of a consolidated return, the total
tax shall be computed in the first instance as a unit and shall then be
assessed upon the respective affiliated corporations in such propor-
tions as may be agreed upon among them, or, in the absence of any
such agreement, then on the basis of the income properly assignable
to each. For the purpose of this section two or more corporations
shall be deemed to be affiliated if one corporation owns directly or
controls through closely affiliated interests, or by nominee or nomi-
nees, substantially all the stock of the other or others, or if sub-
stantially all of the stock of two or more corporations is owned or
controlled by the same interests. .

7. Guardians, trustees, executors, administrators, committees,
agents, receivers, curators, conservators, and all persons or corpora-
tions acting in any fiduciary capacity, hereinafter called fiduciaries,
shall make and render a verified list or return of the amount of
income of every person for whom they act, subject to this tax,
coming into their custody or control and management, and be subject
to all of the provisions of this section which apply to individuals ;
provided that no deduction or exemption shall be allowed which has
been otherwise claimed by or for any person for whom they act.
When the return of income has been made by a fiduciary according
to the provisions of this section and the tax on same has been paid
or withheld, such income shall not be again taxed under this schedule
when it is distributed or paid to the beneficiaries.

8. The auditor of public accounts shall prepare and furnish to
the commissioner of revenue necessary forms of interrogatories for
the assessment of the income tax, senarate and distinct from other
forms of interrogatories. And the commissioner of the revenue shall
require the taxpayer to answer such questions and to furnish such
information touching his income as is required in the said inter-
rogatories.

9. In entering the income tax returns of each year, the commis-
sioner of the revenue shall not use for such entry the property book,
or any other public record book, but shall use a special book, which
shall be furnished by the auditor of public accounts, and such book
and the return blanks containing the statements of incomes shall
be kept safely by the commissioner under lock and key except when
in their personal possession, and shall not be inspected by any person
not officially entitled to inspect them, and the commissioner shall
not give to any person, except some other officer authorized by law,
or by special order of a court of competent jurisdiction to receive
the same, any information regarding such returns.

10. The treasurers of the several counties and cities of the State,
and the auditor of public accounts shall keep under lock and key all
lists of individuals paying tax upon incomes and shall not permit
the same to be inspected, except by tax officers of this State; pro-
vided, that in the event the United States government, or any other
State, allows this State’s officials to examine its income tax returns,
then this State shall allow an inspection of its income tax returns by
proper officials of the United States government, or such other State,
whose official duties require them to make such inspection; nor shall
they give any information to any person other than those hereinbe-
fore enumerated except in obedience to a decree or order of a court
of competent jurisdiction.

11. The provisions of this act shall apply to the assessment and
collection of income taxes for the year nineteen hundred and twenty-
two upon income received or due but not received during the year
nineteen hundred and twenty-one, and to the assessment and col-
lection of income taxes for subsequent years.