FOREST INDUSTRIES AND INCOME TAX 333 



same kind of a crop whether it be reproduced from natural sources or 

 artificially planted. Mines, oil and gas are natural deposits, usually 

 within the ground. They are subject to discovery and by the very 

 nature of their location, uncertain. Were it not for the fact that we 

 found on coming to this country what appeared to be almost inexhaust- 

 ible supplies of timber, the similarity between these different classes of 

 natural resources would not be as marked. 



The Federal income tax laws provide in the case of these wasting 

 industries that as the capital assets are used up in the course of opera- 

 tion a depletion charge may be claimed as return of capital. This de- 

 pletion is not reported as income and no tax is paid on it. The early 

 revenue laws in this country and the regulations of the bureau insisted 

 that this return of capital be made on the basis of the actual cost of 

 the assets, regardless of the time of purchase. This position was con- 

 tested in the Supreme Court, and was finally settled by the epoch- 

 making Doyle-Mitchell decision. It was decided proper that for 

 timber a capital returnable through depletion should be based on values 

 rather than cost. This decision was made because otherwise what pur- 

 port to be income taxes would be made to apply to property. The actual 

 value of the property owned by a taxpayer at the time the income tax 

 laws were put in efifect was declared to be property and not income. 



This factor having been decided and recognized by law, the Bureau 

 of Internal Revenue was faced by an immense valuation problem. Not 

 only were great quantities of timber in the United States in private 

 ownership when the income tax laws were promulgated but immense 

 bodies of ore, gas and oil as well. Since Congress had chosen March 

 1, 1913, as the real starting point for income taxation in the United 

 States, this became the really critical date from a valuation point of 

 view. 



The development of the work from this on is a lesson well worthy 

 of careful thought. The Bureau was faced by an immense problem 

 with industries which were not even of a similar mind among them- 

 selves. A solution was necessary and too great delay could not, in 

 fairness to the country at large, be permitted. It was possible for 

 the Bureau to proceed arbitrarily, establishing values and assessing 

 taxes in the light of its best knowledge and belief, leaving the final 

 settlement to the slow process of the courts in each case. Instead of 

 which its policy of seeking industrial advice was followed. Acting 

 the Bureau formed about a year ago a section which was concerned 

 upon the suggestion of the industries, in an openly co-operative spirit, 



