Contrary to the letter, “ An Opinion on Dividends’ Taxation ” ( JofA , Aug.03, page 13), an “honest study of the facts” does in fact prove double taxation of dividends. The real question is whether it is fair to tax corporate earnings and profits multiple times —once at the corporate level and again at the individual level upon distribution. The arguments presented in the letter do not alter reality.
In the universe of taxation, there are many subsets—for example, federal corporate income tax, state corporate income tax, federal individual income tax and state individual income tax. Likewise, corporate taxable income is a subset of corporate earnings and profits. By short definition, dividends generally are cash distributions of previously taxed earnings and profits. Therefore, to tax dividends at any level is to tax previously taxed income.
Regarding stockholders, to assert “they simply own a piece of paper that entitles them to a share of net assets on dissolution and to dividends if corporate management declares any” is simply to ignore the whole truth. Stockholders own a current, undivided interest in the net assets of the corporation. They also have, but are not limited to, the rights to vote for and replace the board of directors (management), to approve the auditors and to vote on other issues reserved solely to their discretion.
Frank L. King, CPA