*1549 1. The value of certain applications for patents paid into the petitioner for stock determined for invested capital purposes.
2. The amount at which intangible property acquired for stock may be included in the petitioner's invested capital determined.
3. The action of the respondent in reducing petitioner's invested capital on account of additional taxes for prior years sustained.
4. The value of certain patents determined for the purpose of computing the annual deduction to which the petitioner is entitled for exhaustion.
5. The respondent's action in reducing the deduction taken by the petitioner for depreciation for 1924 sustained for lack of evidence.
6. Held, that expenditures made by the petitioner in connection with the changing of its capital stock from that having a par value to that having no par value are not, except as to taxes paid, deductible in determining net income.
*995 These proceedings, which were consolidated for hearing, are for the redetermination of deficiencies in income and profits taxes as follows: *1550
| Docket No. | Year | Deficiency |
| 24223 | 1920 | $2,759.27 |
| 34964 | 1923 | 1,661.45 |
| 34964 | 1924 | 674.32 |
*996 Matters put in controversy by the petitions as amended and not abandoned at the hearing are as follows: (1) The amount at which certain applications for patents acquired by the petitioner at the time of organization are to be included in invested capital for 1920; (2) the respondent's action in reducing the invested capital reported for 1920 by the amount of $61,973.37 representing additional taxes for prior years; (3) the respondent's failure to allow a deduction for the exhaustion of patents owned by the petitioner in determining net income for 1920, 1923 and 1924; (4) the respondent's refusal to determine the profits tax for 1920 under the provisions of section 328 of the Revenue Act of 1918; (5) the respondent's action in reducing by $3,201.57 the amount deducted by the petitioner as depreciation for 1924; (6) the respondent's refusal to allow as a deduction for 1923 the amount of $14,978.30 representing expenditures incurred by the petitioner in changing its capital stock from that having a par value to that having no par value; (7) the respondent's*1551 refusal to allow as a deduction for 1924 the amount of $2,193 representing expenditures incurred by the petitioner in connection with an increase in the number of shares of its capital stock from 100,000 to 125,000. By prior order of the Board the hearing in Docket No. 24223 was limited to the issues other than special assessment.
At the hearing the respondent filed an amendment to his answer in Docket No. 24223, wherein he asks that the deficiency for 1920 be increased for the reason that in determining the deficiency he included certain patents owned by the petitioner in its invested capital at $34,802.08, whereas he should have included them at a value not in excess of $20,000.
FINDINGS OF FACT.
The petitioner is an Illinois corporation, with its principal office at Chicago. It was incorporated on May 17, 1913, and took over the business and assets of a partnership formed in 1904 by C. W. Borg and Marshall Beck and operated under the name of Borg & Beck.
For several years the partnership was engaged in the designing and constructing of special woodworking machinery and special machinery for use in different kinds of manufacture. George W. Borg, son of C. W. Borg, *1552 the principal partner, had entered the employ of the partnership at an early age as an apprentice. Some time prior to 1909 he concluded that the energies of the partnership could be more profitably employed in devising some standard article of manufacture having wide utility, thereby deriving a continuous *997 benefit from the ideas developed, rather than devoting the energies of the partnership to a succession of specially constructed machines. Accordingly, some time prior to 1909 the partnership began to investigate for some such article of manufacture.
The Velie Motor Company, which was engaged in the manufacture of motor cars, had a plant near the plant of the partnership. The partnership solicited and obtained from that company a contract for the manufacture of parts for a clutch in accordance with specifications furnished by the company. In the course of manufacturing clutch parts under this contract the Borgs and Beck conceived the idea of designing a motor vehicle clutch which could be manufactured automatically and entirely by machinery and which could be readily adjusted for frictional wear on the clutch parts, thereby eliminating the expense of individual expert*1553 machine work on each unit and also the expense of mechanics in dismantling the clutch parts as well as other portions of the car in order to make proper adjustment for the frictional wear on the interior of the clutch. About 1909 the Borgs and Beck began work on the designing of such a clutch. In 1910 they began introducing such a clutch in the automotive industry in an experimental way. They continued working on the problem and finally in the early part of 1913 concluded that they had perfected the device and had designed the first successfully operable single plate clutch. Accordingly four applications were made for United States letters patent covering the invention known as the "Borg & Beck Clutch." One of the applications was filed on March 14, 1913, and the other three on March 24, 1913.
Upon organization of the petitioner it issued its entire authorized capital stock of $80,000, consisting of 800 shares of a par value of $100 each in payment of all of the partnership assets, tangible and intangible, including good will, patents and the four applications for patents heretofore referred to. Stock issued for the partnership assets was issued to the members of the partnership, *1554 C. W. Borg and Beck, in the same proportion as their interests in the partnership, namely, three-fourths to Borg and one-fourth to Beck. Of the $80,000 par value of stock issued, $45,197.92 was for the tangible assets of the partnership, which were taken over by the petitioner and entered upon its books at the same amount at which they were carried on the books of the partnership. The remainder, or $34,802.08, was for good will, patents and the applications for patents heretofore referred to. The applications for patents were not immediately carried on the partnership books. While the applications for patents were not given a specific value at the time of the incorporation of the petitioner, they were later placed on the petitioner's books at the cost to the partnership of making such applications. *998 The amount of $34,802.08 did not represent a purchase valuation of the intangible assets, but represented the difference between the transferred value of the tangible assets and the total par value of the capital stock.
Patents on the applications were issued to the petitioner, pursuant to assignments, on June 9, 1914, June 16, 1914, March 16, 1915, and March 23, 1915.
*1555 On January 1, 1914, the petitioner executed a license contract with The Thomas B. Jeffery Company, later known as the Nash Motors Company, whereby the Jeffery Company acquired from the petitioner the right to manufacture the Borg & Beck clutch and install it in automobiles manufactured by the company. The contract provided for a royalty of 50 cents for each clutch so manufactured and installed. Prior to the execution of the contract the Jeffery Company had tested the Borg & Beck clutch in certain motor trucks it was manufacturing for the United States Army. The clutch then being used by the Jeffery Company was so unsatisfactory that its trucks did not meet the tests required of them. Upon installing the Borg & Beck clutch in the trucks the company found it to be so satisfactory that the clutch was adopted for use in the trucks. The clutch gave such satisfaction in the motor trucks that the company decided to adopt it for use on its passenger cars. This culminated in the license contract between the petitioner and the company.
A license contract similar to the one entered into with the Jeffery Company was entered into with the Haynes Automobile Company on July 1, 1915. It*1556 also provided for a royalty of 50 cents per clutch for each clutch manufactured and installed by the licensee in the automobiles manufactured by it.
Prior to the execution of the contracts with the Jeffery Company and the Haynes Company the petitioner had a number of smaller accounts to whom it supplied the Borg & Beck clutch.
This single-plate clutch was an invention in an industry that had become established at the time of the petitioner's incorporation. The question as to the automobile being an accepted means of conveyance had passed and it was evident that it was to continue, with great possibilities of increasing in use and numbers.
In 1914 the petitioner had 22 customers who were using its clutch. By 1919 the number had increased to 112 and included such companies as Allis Chalmers Company, Auburn Automobile Company, Chandler Motor Car Company, J. I. Case Threshing Machine Company, Federal Motor Truck Company, Haynes Automobile Company, International Motor Company, Jordan Motor Company, Kissel Motor Car Company, Lexington Motor Car Company, Moline Plow Company, Moon Motor Car Company, Nash Motors Company, Paige-Detroit *999 Motor Car Company, Premier Motor*1557 Corporation, Sanford Motor Truck Company, Velie Motor Corporation, and Willys-Overland Company.
At the time of the petitioner's incorporation in 1913 the clutches being manufactured generally were multiple-disc clutches and the cone clutches. Most of the clutches were manufactured in connection with and as a part of the transmission, the manufacturers of the transmission having to make a clutch to go with the transmission. These manufacturers were having difficulties with their transmissions stripping gears because of the multiple-disc and cone clutches they were using. As a result of the development of the Borg & Beck clutch practically all of the clutch manufacturers discontinued, or substantially discontinued, the manufacture of their own clutch. They sold their transmission without a clutch and referred their customers to the petitioner for its clutch.
The volume of business done in later years was expected at the time of the incorporation of the petitioner. The amount of business transacted however was probably less than what it would have been otherwise, due to the fact that the Borgs and Beck preferred to finance the growth of the business out of its earnings rather*1558 than procure outside capital and thereby part with full ownership. The growth of the petitioner's business was also retarded during the World War because of the war regulation classifying clutches for passenger cars as a nonessential.
The petitioner's sales, selling expense, advertising expense, total selling and advertising expenses and the percentage that the total selling and advertising expenses were of sales for the years 1914 through 1924 were as follows:
| Year | Sales | Selling expense | Advertising expense | Total | Per cent of sales |
| 1914 | $50,045.36 | Unknown. | Unknown. | Unknown. | Unknown. |
| 1915 | 167,979.33 | Unknown. | $100.00 | $100.00 | 0.0006 |
| 1916 | 533,861.07 | $2,215.25 | 2,021.80 | 4,237.05 | .0079 |
| 1917 | 799,897.83 | 2,309.23 | 2,024.47 | 4,333.70 | .0054 |
| 1918 | 1,328,556.50 | 3,848.97 | 2,523.92 | 6,372.89 | .0048 |
| 1919 | 2,841,988.98 | 16,845.48 | 4,783.22 | 21,628.70 | .0076 |
| 1920 | 3,239,090.86 | 20,307.06 | 3,492.19 | 23,799.25 | .0073 |
| 1921 | 985,396.82 | 12,154.99 | 5,677.59 | 17,832.58 | .0181 |
| 1922 | 1,595,254.66 | 23,914.49 | 7,581.43 | 31,495.92 | .0197 |
| 1923 | 1,920,362.33 | 20,733.58 | 6,714.31 | 27,447.89 | .0143 |
| 1924 | 1,573,286.03 | 22,991.08 | 6,817.14 | 29,808.22 | .0189 |
*1559 With the exception of the year 1914, when sales included the proceeds from some woodworking machinery, the sales were of clutches and parts of clutches manufactured by the petitioner under the patents issued to it.
*1000 The number of clutches sold by the petitioner and the net profit per clutch for the years 1914 through 1924 were as follows:
| Year | Clutches sold | Net profit per clutch |
| 1914 | Unknown. | Unknown. |
| 1915 | 8,000 | $5.08 |
| 1916 | 30,510 | 6.29 |
| 1917 | 75,210 | 1.73 |
| 1918 | 106,656 | 2.75 |
| 1919 | 243,329 | 2.35 |
| 1920 | 196,024 | $2.92 |
| 1921 | 126,768 | .84 |
| 1922 | 213,349 | 2.47 |
| 1923 | 342,102 | 1.25 |
| 1924 | 288,347 | .72 |
Net tangible assets, net profits before deducting Federal taxes, and net profits after deducting Federal taxes, for the years 1914 through 1924 were as follows:
| Year | Net tangibles | Net profit before tax | Net profit after tax |
| 1914 | $48,183.70 | $1,535.40 | $1,552.33 |
| 1915 | 46,575.08 | 40,683.44 | 40,245.70 |
| 1916 | 84,420.78 | 191,790.79 | 187,988.36 |
| 1917 | 202,900.16 | 129,970.83 | 99,813.76 |
| 1918 | 307,785.88 | 292,990.19 | 172,990.19 |
| 1919 | 1,309,418.97 | 572,310.42 | 371,322.42 |
| 1920 | 2,203,536.22 | 572,868.26 | 470,868.26 |
| 1921 | 2,554,837.32 | 106,105.49 | 98,076.23 |
| 1922 | 1,332,264.15 | 526,235.66 | 461,235.66 |
| 1923 | 1,843,139.78 | 428,673.16 | 374,180.11 |
| 1924 | 1,792,513.49 | 206,788.18 | 180,320.16 |
*1560 The petitioner's patents on the Borg & Beck clutch have never been questioned, nor has anyone attempted to infringe on them.
The actual cash value of the four applications for patents at the time paid into the petitioner in May, 1913, for its stock was $700,000.
The par value of the petitioner's outstanding capital stock remained at $80,000 until March 30, 1918, when it was increased to $600,000.
In 1923 the petitioner changed its capitalization from a total outstanding capital stock of $1,000,000 divided into 200,000 shares of a par value of $5 per share, to 100,000 shares of no par value but of a declared value of $10 per share. There was no refinancing or addition to the petitioner's capital. The stockholders remained the same.
In connection with the changing of its capital stock from par value to no par value the petitioner made the following expenditures in 1923:
| 1. Fee to Secretary of State of Illinois on change in capital stock | $4,250.00 |
| 2. United States Revenue stamps on original issue of 100,000 shares of no par value stock | 1,000.00 |
| 3. United States Revenue stamps to cover miscellaneous stock transfers | 12.00 |
| 4. State filing fees for Illinois Securities Department | 300.00 |
| 5. Attorneys' fees | 6,617.10 |
| 6. Printing stock certificates | 1,625.00 |
| 7. Stock exchange listing fee | $1,000.00 |
| 8. State filing fees | 21.00 |
| 9. State certification fees | 57.50 |
| 10. Printing and miscellaneous | 95.70 |
| 14,978.30 |
*1561 *1001 The entire amount of $14,978.30 was taken by the petitioner as a deduction in its 1923 return, but was disallowed by the respondent in determining the deficiency here involved for that year.
The amount of $4,250 representing the fee paid to the Secretary of the State of Illinois on the change in capital stock was computed as follows: Under the Illinois statutes providing for fees for change in capitalization, stock having no par value was considered as having a par value of $100 per share, upon which assumed valuation a fee of one-twentieth of 1 per cent was charged. The 100,000 shares of no par value were accordingly considered as having a par value of $10,000,000, the fee on which was one-twentiety of 1 per cent, or $5,000. Against this amount there was allowed a credit of $750 representing the incorporation fee on the original capitalization, leaving $4,250 the amount paid by the petitioner in 1923.
Item 6, "Printing stock certificates $1,625," was for a large supply of stock certificates, four of which were used in reissuing stock in the petitioner after it had been changed from par value to no par value. The others were held for use in subsequent transfers*1562 of stock as made from time to time.
In 1924 the petitioner increased its authorized capital stock from 100,000 shares having no par value to 125,000 shares having no par value. The increase of 25,000 shares was treated as having a par value of $100 per share for the purpose of the fee to be paid on the increase. The fee on such assumed valuation (one-twentieth of 1 per cent on $2,500,000) was $1,250.
In connection with the increase of its authorized capital stock the petitioner expended the following amounts in 1924:
| 1. Fee to Secretary of State of Illinois on increase in capital stock | $1,250 |
| 2. Filing fee for charter amendment | 20 |
| 3. Stock exchange listing | 300 |
| 4. Printing stock warrants | 260 |
| 5. Bronzing stock certificates | 240 |
| 6. Signing certificates | 108 |
| 7. Unbinding certificates | 15 |
| 2,193 |
The foregoing amount of $2,193 was taken by the petitioner as a deduction in its 1924 return. In determining the deficiency for 1924 the respondent disallowed the deduction.
*1002 OPINION.
TRAMMELL: The petitioner contends that the actual cash value of the four applications for patents acquired by it from the partnership at the time of organization*1563 in May, 1913, was at least $1,000,000. Considering all of the evidence submitted on this point we are of the opinion that the actual cash value of the applications was $700,000 and have so found as a fact. In arriving at this valuation we have given consideration to the testimony of witnesses, the facts known or reasonably anticipated at the basic date, and the close approximation of actual earnings to those anticipated. We have not considered actual earnings further than as to test the reliability of the testimony as to known factors and those previously anticipated. The witnesses however apparently overlooked the fact that anticipated earnings should be reduced to present worth at the basic date.
The petitioner contends that it is entitled to include in its invested capital for 1920 the actual cash value of the applications for patents at the time of acquisition in May, 1913. The respondent contends that the total allowance for intangibles in determining invested capital for 1920 is limited to $20,000, in accordance with the provisions of section 326(a)(4) of the Revenue Act of 1918.
Section 326 of the Revenue Act of 1918 provides in part as follows:
(a) That as used*1564 in this title the term "invested capital" for any year means (except as provided in subdivision (b) and (c) of this section):
(3) Paid-in or earned surplus and undivided profits; not including surplus and undivided profits earned during the year;
(4) Intangible property bona fide paid in for stock or shares prior to March 3, 1917, in an amount not exceeding (a) the actual cash value of such property at the time paid in (b) the par value of the stock or shares issued therefor, or (c) in the aggregate 25 per centum of the par value of the total stock or shares of the corporation outstanding on March 3, 1917, whichever is lowest.
At the time of organization in May, 1913, the petitioner issued its entire authorized capital stock of $80,000 par value for the assets of the partnership, of which $45,197.92 par value was for tangible assets, and the remainder, $34,802.08, was for the intangible assets, consisting of good will, patents, and the four applications for patents here involved. No attempt has been made by either of the parties to show what part of the stock issued for intangibles is applicable to good will, or to patents, or to the applications for patents, nor was any attempt*1565 made to establish the value of any of the intangibles except the applications for patents. The evidence indicates that the good will acquired from the partnership was valuable to the petitioner. It also indicates that the patents acquired were on woodworking machinery, probably of some value, but no value is shown. The evidence also shows that the applications for patents were of a substantial value, which we have found to be $700,000.
*1003 Paragraph (4) of subdivision (a) of section 326 of the Revenue Act of 1918 is a limitation on the amount at which intangible property paid in for stock may be included in invested capital. The provisions of the paragraph limit the inclusion of such property to the smallest of three amounts, namely, the actual cash value of the property at the time paid in for stock, the par value of the stock issued for the property and 25 per cent of the par value of the total stock outstanding on March 3, 1917. In the instant case we have found the four applications for patents had an actual cash value of $700,000, no attempt having been made to show the value of the other intangibles. Stock of the par value of $34,802.08 was issued for intangibles, *1566 including the four applications. Since the petitioner's original outstanding capital stock of $80,000 par value remained at that amount until March 30, 1918, 25 per cent of the par value of its outstanding capital stock on March 3, 1917, was $20,000. Since $20,000 is the smallest of the three amounts, it is the largest amount at which the intangibles acquired by the petitioner at the time of organization may be included in invested capital. Even if the entire capital stock of a par value of $80,000 had been issued specifically for the patent application, the 25 per cent limitation would limit invested capital to $20,000 with respect thereto. Neither can any excess value of the applications for patents be included as paid-in surplus, since intangible property may not be included in invested capital as paid-in surplus. See St. Louis Screw Co.,2 B.T.A. 649">2 B.T.A. 649; Herald-Despatch Co.,4 B.T.A. 1096">4 B.T.A. 1096; D.N. & E. Walter & Co. et al.,10 B.T.A. 620">10 B.T.A. 620; E. T. Wright & Co.,23 B.T.A. 351">23 B.T.A. 351.
In recomputing the deficiency for 1920 the intangibles acquired by the petitioner at the time of organization should be included in the petitioner's*1567 invested capital at the amount of $20,000.
The petitioner did not submit any evidence with respect to its allegation that the respondent erred in reducing invested capital for 1920 by the amount of $61,973.37 representing additional taxes for prior years. Nor was any reference made thereto in its brief. As the allegation was denied by the respondent, his action is accordingly sustained as to this issue.
The petitioner contends that the respondent erred in failing to allow a deduction against gross income for 1920, 1923 and 1924 on account of the exhaustion of the patents issued to it on the applications for patents acquired from the partnership. While the applications for patents were pending they were not the proper subject of exhaustion, since they had no definite period of useful life. The dates upon which the patents were issued on the applications marked the transformation of what were theretofore nonexhaustible assets into assets subject to exhaustion extending over the 17-year period covered by such patents. Hershey Manufacturing Co.,14 B.T.A. 867">14 B.T.A. 867. *1004 The petitioner having issued its capital stock for the applications for patents and the*1568 patents thereafter having been issued on such applications, the cost of the patents to the petitioner was the value of the stock issued therefor. The record does not indicate that any sales of the petitioner's stock were made on or about the time the stock was issued for the applications for patent. The applications for patents having had a value of $700,000 at the time they were paid in for stock, we are of the opinion that under the circumstances the stock issued therefor had a value of the same amount. Consequently the cost of the patents to the petitioner was $700,000. For each of the years 1920, 1923 and 1924 the petitioner is entitled to a deduction against gross income of an aliquot portion of $700,000 based on the life of the patents.
In the petition in Docket No. 34964 the petitioner alleges that the respondent erred in determining that for 1924 the depreciation taken by it was excessive in the amount of $3,201.57. The record is silent as to the nature of the property on which this deduction for depreciation was taken. However, the deficiency notice indicates that it was probably tangible property. The respondent, however, denied that he erred as the petitioner alleged, *1569 and, no evidence having been submitted on this issue, the action of the respondent is sustained.
The petitioner contends that the amount of $14,978.30 expended in 1923 in connection with the change of its capital stock from that having a par value to that having no par value and the amount of $12,193 expended in 1924 in connection with the increase of its capital stock from 100,000 shares of no par value to 125,000 shares of no par value constituted operating expenses properly deductible in the respective years. The respondent contends that the amounts constituted capital expenditures and therefore are not deductible as expenses. Since expenditures incurred in acquiring additional permanent capital and in connection with the change of its capital structure are capital expenditures, we think the contention of the petitioner as to the above amounts constituting deductible expenses must be denied. See Emerson Electric Manufacturing Co.,3 B.T.A. 932">3 B.T.A. 932; Peaslee-Gaulbert Co.,14 B.T.A. 769">14 B.T.A. 769.
The petitioner contends that if the total amounts of $14,978.30 expended in 1923 and $2,193 expended in 1924 are not, as a class, allowable deductions, certain*1570 of the items composing these amounts otherwise should be allowed. It contends that the amount of $4,250 paid in 1923 to the Secretary of State of the State of Illinois on the change in capital stock and the amount of $1,250 paid to the same official in 1924 on the increase in capital stock, while being termed fees, were in fact taxes, and as such constitute allowable deductions for the respective years. The respondent urges that such amounts were not taxes, but fees charged for services rendered by the State.
*1005 Article V, section 23, of the Illinois constitution provides that the officers composing the executive department of the government of that State and including the secretary of state, shall receive for their services a salary to be established by law, which shall not be increased or diminished during their official terms; that they shall not receive to their own use any fees, cost, perquisites of office, or other compensation. This section further provides that all fees payable by law for any services performed by any officer provided for in this article of the constitution shall be paid in advance into the State treasury.
Chapter 53, paragraph 1, Callaghan's*1571 Illinois Statutes Annotated, fixes the annual salaries of certain State officials, including the secretary of state, Paragraph 2 of the same chapter provides in part as follows:
That all fees that now are, or that may be hereafter provided by law to be paid to either of said officers above named, shall be paid in advance into the State treasury, as revenue. The treasurer shall keep a separate account of the amount received from each office, and his receipt shall be retained by the officer rendering the services. In all cases where such officers shall be entitled to fees, they shall render, under oath, to the Governor, a semi-annual report of the amount, and from what sources received:
Chapter 32, paragraph 96, provides in part as follows:
The Secretary of State shall charge and collect an initial fee of one-twentieth of one per centum upon the amount of the capital stock which the corporation is authorized to have, but in no case shall such fee be less than twenty dollars, and a like fee upon any subsequent increase and in addition thereto the same fee as that required for filing other certificates of amendment. In the event that the corporation has capital stock of no par*1572 value, its shares, for the purpose of fixing the fee, shall be considered to be of the par value of one hundred dollars per share.
The Supreme Court of Illinois has recognized that what the statutes of the state designate a fee may in fact be a tax. In Cook County v. Fairbank et al.,222 Ill. 578">222 Ill. 578; 78 N.E. 895">78 N.E. 895, the court had before it the question as to whether a certain graduated amount designated by the statute as a "docket fee" payable to the clerk of a probate court was in fact a fee. In holding that the amount was not a fee, but a tax, the court said:
Section 12 of article 10 of the Constitution of 1870 provides: "The General Assembly shall, by general law, uniform in its operation, provide for and regulate the fees of said officers [state, county, and township] and their successors, so as to reduce the same to a reasonable compensation for services actually rendered." While the amount demanded of the appellees by said clerk as a condition precedent to the delivery to them of their letters testamentary is designated in the statute "a docket fee," it is apparent that the amount exacted by the clerk was in no way measured by the amount or*1573 value of the services performed by him, but the charge against the estate depended entirely *1006 upon the size or amount of the estate. If an estate does not exceed in value $2,000, no docket fee is to be taxed. It it is more than that amount, and does not exceed in value $5,000, a docket fee of $5 is to be taxed, or, if the estate is of the size of the Fairbank estate, a fee of $1,250 is to be taxed, although the docketing of the estate, in each case, in the office of the clerk of the probate court would require the same amount of labor by the clerk, and no more. The provision of the Constitution above referred to, required the General Assembly, by general law, uniform in its operation, to regulate the fees of county officers in such manner that the fees charged and collected by them shall be "a reasonable compensation for services actually rendered," Clearly, the framers of that provision of the Constitution intended that the fees of probate courts in counties of the third class should be based upon the amount, quality, and character of the services performed by the clerks of said courts, and not arbitrarily fixed on the basis of the value or amount of the estates which*1574 might pass through those courts, and we think it evident the amount designated in said statute as a docket fee was not intended by the framers of said statute to represent the value of services actually rendered by the probate clerk in each estate in docketing the estate, but that said statute was intended by its framers to furnish a means whereby the public revenues of counties of the third class in the state would be increased, by collecting through the probate court a charge upon the designated estates. The amount sought to be retained by the probate clerk, was, therefore, properly speaking, not a fee, but was a burden or charge imposed upon said estate to raise money for public purposes, regardless of the value of the services actually rendered the estate, which is in conflict with the constitutional provision hereinbefore set forth, and which would bring said burden or charge within the well-recognized definition of a tax, which may, in a general sense, be defined to be a burden or charge imposed by the legislative power of the state upon persons or property for public uses. *1575 Dalrymple v. City of Milwaukee,53 Wis. 178">53 Wis. 178, 10 N.W. 141">10 N.W. 141;
* * *
It is urged by appellant that this court, in the case of People v. Hinrichsen,161 Ill. 223">161 Ill. 223, 43 N.E. 973">43 N.E. 973, is committed to the view that the statute fixing the fees of the Secretary of State for incorporating corporations, which are graduated according to the amount of the capital stock of the corporation, is a valid exercise of legislative power. We are of the opinion there is a well-marked line of distinction between the Hinrichsen Case and the case at bar. It is the same line of demarcation pointed out in the inheritance tax cases heretofore referred to. An inheritance tax was sustained on the ground that it was not a tax upon property, but upon the right of succession, and that the state had the right to prescribe rules of descent and conditions upon which the property should be inherited. So with the right of the state to establish fees in cases of persons desiring to organize corporations. A corporation is a creation of the Legislature. Persons are not obliged to incorporate against their will. If, however, they do incorporate, they must accept the burdens imposed*1576 upon them by general law. Such, however, is not the case with the statute authorizing the collection of the docket fee mentioned in the statute now under consideration. That, as was said by Judge Cassoday in State v. Mann, supra, "is nothing less than a charge imposed by the Legislature as a condition precedent to allowing the county court to proceed with the administration of this estate."
The question presented to the court in the Hinrichsen case referred to in the preceding quotation was whether a corporation was required *1007 to pay certain amounts designated by the statute as "fees" in order to increase its capital stock. In holding that the corporation was subject to the payment of the amounts involved, the court held that the purpose of the act imposing the amounts was to derive revenue.
In Holeproof Hosiery Co.,11 B.T.A. 547">11 B.T.A. 547, a case relied upon by the petitioner, we considered the question of whether an amount paid by a Wisconsin corporation under the laws of that state in connection with an increase of its capital stock was a fee or a tax. With respect to the distinction between a fee and a tax we said:
*1577 Thus strictly speaking, the word "fees" signifies compensation for particular acts or services rendered by proper officers in the line of their duties to be paid by the persons obtaining the benefit of the services or at whose instance they were performed. See State ex rel. Board of Commissioners v. Carey (Ind.) 84 N.E. 761">84 N.E. 761, 762.
Various circumstances may lead to the conclusion that a certain charge made by a State is a tax. For example, the purpose for which the charge was made may be determinative. Ward v. Maryland,12 Wall. 418">12 Wall. 418; Glasgow v. Rowse,43 Mo. 479">43 Mo. 479; and Airway Electric Appliance Corporationv. Archer, supra. See also Harvey v. Commonwealth of Virginia,20 Fed. 411. The weight of authority holds that where the charge is made primarily for the purpose of revenue, if is a tax. A license is issued under the police power, but the exaction of a license fee with a view to revenue would be the exercise of the power of taxation, See *1578 State v. Bengsch,170 Mo. 81">170 Mo. 81; 70 S.W. 710">70 S.W. 710.
In concluding that the payment there involved constituted a tax and as such an allowable deduction, although designated a fee by the statutes of the State of Wisconsin, we said:
We have already said in interpreting section 234(a)(3) of the Revenue Act of 1918, which is similar to the same section of the Revenue Act of 1921, here involved, that we think Congress used the word "taxes" in this subdivision in a broad sense. Caldwell Milling Co.,3 B.T.A. 1232">3 B.T.A. 1232. Taxes are deductible without regard to their relation to capital or income transactions. United States v. Woodward,256 U.S. 632">256 U.S. 632. In the case just cited, the court in holding that a Federal estate tax might be deducted under section 214(a)(3) of the Revenue Act of 1918, said that if the correct construction should be a matter of doubt, it would follow the rule laid down in Gould v. Gould,245 U.S. 151">245 U.S. 151, and construe the Act most strongly against the Government and in favor of the citizen.
Each party might have presented additional evidence which would have given a better picture of the case*1579 than we now have. The respondent offered no evidence but relied upon the wording of the Wisconsin statute. However, the evidence which is before us indicates that the exaction from the petitioner was in substantial excess of any special benefits accruing to it; that it bore little, if any relation to the cost of any service rendered by the State, or to reasonable compensation for any trouble or expense on the part of the State on account of the increase in the petitioner's authorized capital stock; that the receipts of the office of the secretary of state from this and similar charges greatly exceeded the portion of the expenses of administration attributable to the performance of any service by the State in connection with the charges; *1008 that the receipts were used for general State purposes and considerable revenue was derived in this way; and, in short, that there was a taking under the guise of taxation. See Norwood v. Baker,172 U.S. 269">172 U.S. 269. Under such circumstances we hold that the amount paid was a tax within the meaning of section 234(a)(3) of the Revenue Act of 1921, and deductible thereunder.
In our opinion the amounts paid to the Secretary*1580 of State of Illinois as fees were in fact taxes, and, being such, are deductible as taxes paid.
The petitioner contends that it should be allowed as deductions for 1923 the amounts of $1,000 and $12 expended in that year for United States revenue stamps on the issue of 100,000 shares of no par value stock to replace its par value stock outstanding and to cover miscellaneous stock transfers, respectively.
The Revenue Act of 1921 provides in part as follows:
TITLE XI. - STAMP TAXES.
SEC. 1100. That on and after January 1, 1922, there shall be levied, collected, and paid, for and in respect of the several bonds, debentures, or certificates of stock and of indebtedness, and other documents, instruments, matters, and things mentioned and described in Schedule A of this title, or for or in respect of the vellum, parchment, or paper upon which such instruments, matters, or things, or any of them, are written or printed, by any person who makes, signs, issues, sells, removes, consigns, or ships the same, or for whose use or benefit the same are made, signed, issued, sold, removed, consigned, or shipped, the several taxes specified in such schedule. The taxes imposed by this section*1581 shall, in the case of any article upon which a corresponding stamp tax is now imposed by law, be in lieu of such tax.
* * *
SCHEDULE A. - STAMP TAXES.
* * *
2. Capital stock, issued: On each original issue, whether on organization or reorganization, of certificates of stock, or of profits, or of interest in property or accumulations, by any corporation, on each $100 of face value of fraction thereof, 5 cents: Provided, That where a certificate is issued without face value, the tax shall be 5 cents per share, unless the actual value is in excess of $100 per share, in which case the tax shall be 5 cents on each $100 of actual value or fraction thereof, or unless the actual value is less than $100 per share, in which case the tax shall be 1 cent on each $20 of actual value or fraction thereof.
The stamps representing the tax imposed by this subdivision shall be attached to the stock books and not to the certificates issued.
3. Capital stock, sales or transfers: On all sales, or agreements to sell, or memoranda of sales or deliveries of, or transfers of legal title to shares or certificates of stock or of profits or of interest in property or accumulations in any*1582 corporation, or to rights to subscribe for or to receive such shares or certificates, whether made upon or shown by the books of the corporation, or *1009 by any assignment in blank, or by any delivery, or by any paper or agreement or memorandum or other evidence of transfer or sale, whether entitling the holder in any manner to the benefit of such stock, interest, or rights, or not, on each $100 of face value or fraction thereof, 2 cents, and where such shares are without par or face value, the tax shall be 2 cents on the transfer or sale or agreement to sell on each share * * *.
There is no controversy between parties as to the amount of $1,000 having been paid by the petitioner for revenue stamps which it used in connection with the issue of the 100,000 shares of no par value stock, nor does the respondent advance any argument as to why the amount should not be allowed as a deduction. In view of the decision in Cuba Railroad Co. v. United States,60 Ct.Cls. 272, and the cases there cited, it may well be that the petitioner's exchange of no par value stock for its outstanding par value stock was not subject to the tax imposed by the above quoted provisions*1583 of the Revenue Act of 1921. Inasmuch as the petitioner paid the amount in controversy apparently in good faith and in the belief that the amount was due and payable under the Act, and as no contention is advanced that it was ever refunded to the petitioner or ever will be refunded, we do not deem it necessary to decide whether the petitioner was in fact liable for the tax. Since the four-year period within which a refund of the amount could be claimed has expired, we are of the opinion that the petitioner is entitled to a deduction of the amount as taxes paid.
The amount of $12 expended by the petitioner for revenue stamps for miscellaneous stock transfers apparently was expended in connection with the sale or transfer of stock by petitioner's stockholders. At any rate the record does not show that the stamps were used in connection with sales or transfers by the petitioner. Under the above quoted provisions of the 1921 Act, such stockholders were liable for the payment of the tax and not the petitioner. Since the liability for the payment of the tax was that of the stockholders, the tax is not deductible by the petitioner. *1584 A. Eisenberg,11 B.T.A. 574">11 B.T.A. 574.
The petitioner contends that the amount of $1,625 expended in 1923 for the printing of stock certificates should be allowed as a deduction for that year. We think that this expenditure was in the nature of " organization expenses" and should not be deducted as ordinary and necessary expenses.
The proceeding in Docket No. 24223 will be restored to the calendar for hearing under Rule 62(b). In Docket No. 34964 judgment will be entered under Rule 50.