11

The New York Central and Hudson River Railroad

The amount of taxes on railroad property accrued during the year was $6,356,545.91,
equal to 518 per cent of the gross revenue from railroad and auxiliary operations and
was $462,550.00 larger than the accruals in 1912. A saving of approximately $38,000.00
in the amount of taxes payable on capital stock to the State of New York was effected by
the cancellation of the capital stock of the roads merged and consolidated. A decrease
of $187,170.34 in the taxes on real estate and of §7,373.58 in the taxes for special franchises
occurred. The year's accounts, however, include a charge of $835,512.00, being the
amount of county tax for recording the new mortgage executed after the close of the year
under review. The Federal Government excise tax on the income of corporations assessed
against this company and its leased lines on the net income of the year 1912 amounted
to $147,366.72, an excess of $19,120.88 over the amount paid on the income of 1911
charged to the accounts of the year 1912. Although the principle, on which this com¬
pany brought test cases, that corporations whose property was leased for a fixed annual
rental to an operating corporation were not carrj'ing on business and were not subject to
the imposition of the income tax, was aflirmed by the judgment of the Supreme Court on
appeal by the Federal Government from the rulings of the lower courts, the Government
officers have insisted that the taxes assessed against leased lines must be paid and they
have, accordingly, been paid, under protest, and suits have been brought for the recovery
of all the taxes so paid since the institution of the excise tax in 1909.

In deductions from gross corporate income there appears a decrease of $1,536,335.66
in the rentals of leased lines, but this is partly offset by an increase of $898,859.34 in the
charge for interest on bonds duo to the assumption as funded obligations of this company
of the bonds of merged and consolidated companies and a decrease of $465,905.71 in the
income derived by this company from interest and dividends on securities of those ab¬
sorbed companies which were cancelled on the consummation of the mergers and con¬
solidation, and which amounted to the sum of $655,881.13 in 1912 against the sum of
$189,975.42 for the period of 1913 before the cancellation took place. The rental of the
Boston & Albany Railroad increased $76,362.59 for the year due to a charge for interest
from July 14th on an issue of $2,015,000 improvement bonds amounting to $46,736.81;
the charge for a full year's interest amounting to $45,000.00 on $1,000,000 of improve¬
ment bonds of 1912 against $22,500.00 for six months in that year; and the charge of
$9,067.50 for the increased rate of interest on an issue of refunding bonds at 5 per cent
replacing a similar amount of bonds of 1893 which bore interest at the rate of 4 per cent
per annum. There was a decrease of $2,125.65 in the rental of the Providence Webster
& Springfield Railroad, included in the lease of the Boston & Albany Railroad, and
slight increases, for corporate expenses, in the rentals of the Pittsfield & North Adams
Railroad and the Ware River Railroad.

Interest on funded obligations of this company increased $1,604,461.98 due to the fol¬
lowing causes: interest on this company's pro rata liability in connection with equipment
trust certificates of 1913; interest on this company's liability in connection with Boston &
Albany equipment trust of 1912 for a full year as against three months in 1912; interest on
an additional issue of 832,000 of gold debentures of 1912; and interest on securities as¬
sumed as part of the merger and consolidation agreements, the latter class being offset
by an approximately similar reduction in the amount paid for rental of leased lines.