Internal Revenue Service
Revenue Ruling
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smRev. Rul. 55-48
1955-1 C.B. 281
Sec. 164
Sec. 165
IRS Headnote
The bonus required by the State of Pennsylvania to be paid, in accordance with the provisions of the Pennsylvania law prior to its repeal on July 25, 1953, on capital employed or to be employed in that State by an organization not created or chartered under the laws of Pennsylvania and which was capitalized on the books of the organization, does not constitute as allowable deduction from gross income for Federal income tax purposes during such time as the organization remains in existence and the capital stock, or the equivalent thereof, remains outstanding.
Full Text
Rev. Rul. 55-48
Advice has been requested whether the bonus required by the State of Pennsylvania to be paid on capital employed in that State by an organization not created or chartered under the laws of Pennsylvania, and which was capitalized on the books of the organization, becomes deductible for Federal income tax purposes in 1953, the year in which the law providing for such payment was repealed, or in some later year.
I.T. 3210, C.B. 1938-2, 141, holds that the bonus required to be paid to the State of Pennsylvania, as provided for by section 1, Act of May 8, 1901, as amended, and found in Title 72, section 1851 of Purdon's Pennsylvania Statutes, Annotated, on capital employed or to be employed in that State by corporations, limited partnerships, or joint stock associations, not created or chartered under the laws of the State of Pennsylvania, was not a tax but a capital expenditure which was not deductible for Federal income tax purposes.
The Act of May 8, 1901, as amended, in respect of the bonus payment, was repealed by Public Law 149 by the Pennsylvania Legislature on July 25, 1953. See Purdon's Pennsylvania Statutes, Annotated, Title 72, Cumulative Annual Pocket-Part, page 26. The repealing provisions were not made retroactive, and, generally, became effective as of January 1, 1953. Public Law 149 contains the provision that every foreign corporation, as that term is defined in the Act, in respect of which a certificate has been issued to do business in the State of Pennsylvania, at the effective date, shall pay an excise tax upon the amount of any increase of capital actually employed wholly within that state; and, as to such corporations admitted to do business in that state after the effective date, the tax is payable upon the capital actually employed wholly within the state and upon any increase thereof.
Foreign corporations as defined by Public Law No. 149, supra , includes limited partnerships or joint stock associations chartered or created by or under the laws of any other state or of the United States or of any foreign country, which has been issued a certificate of authority by the State of Pennsylvania to do business within the State and which either has its principal or chief place of business located within the State, or has any part of its capital actually employed therein. It does not, however, include foreign insurance companies and foreign nonprofit corporations.
Inasmuch as the Act of May 8, 1901, supra , under which a bonus payment was required of an organization not created or chartered under the laws of Pennsylvania, was not invalidated and the amount of such payment is not refundable, the classification thereof as a capital expenditure would remain undisturbed.
Accordingly, it is held that the bonus, which was required to be paid to the State of Pennsylvania under its laws on capital employed or to be employed in that State by an organization not created or chartered under the laws of Pennsylvania, which payment properly was capitalized on the books of the organization, and the statute under which imposed not having been invalidated, even though repealed but without retroactive effect, is not recognizable as being worthless or deductible, for Federal income tax purposes, during such time as the organization continues in existence and its capital stock, or the equivalent thereof, remains outstanding