WM. PRESTON. LANE, JR., GOVERNOR 491

of the Acts of 1949, relating to the rate of tax on invest-
ment and other income of individuals. ,

Section 230 (e) of Article 81 of the Code imposes an in-
come tax on taxable net income in the following amounts:

"* * * Such tax shall be at the rate of five percent (5%)
on the amount of the taxable net income up to but not ex-
ceeding the amount of the investment income and at the rate
of two percent (2%) on the balance, if any, of the taxable
net income."

The phrase "net income" is defined by Section 227 to mean
gross income less deductions and "taxable net income" is de-
fined to mean net income less personal exemptions.

It will be noted that Section 230 (e) imposes a tax at the
rate of five percent (5%) on the amount of the "taxable net
income" without regard to whether it is derived from gross
investment income or gross ordinary income. The amount of
"taxable net income" subject to tax at the rate of five percent
(5%) is.limited to an amount not greater than gross invest-
ment income. The practical effect of these provisions is that
deductions and personal exemptions of a taxpayer apply only
to the taxpayer's ordinary income and not to his investment
income unless the sum of deductions and personal exemptions
is. greater than ordinary income. In the latter event, to the
extent that the sum is greater than ordinary income it may
be offset against investment income.

Senate Bill No. 104 would impose the tax "at the rate of
two percent (2%) on the first $500 of taxable net investment
income and at the rate of five percent (5%) on the balance
of the taxable net investment income and at the rate of two
percent (2%) on the balance, if any, of the taxable net in-
come."

Nowhere in Article 81 is the phrase "taxable net invest-
ment income" defined. Obviously, Senate Bill No. 104 con-
templates that some, if not all, of a taxpayer's deductions
and personal exemptions are to be offset against gross invest-
ment income in determining the rate of tax because it speaks
of a tax on "net investment income". Obviously, Senate Bill
No. 104 also contemplates that some, if not all, of a tax-
payer's deductions and personal exemptions are to be offset
against gross ordinary income in determining the rate of tax
because it speaks of a tax on "net income". But Senate Bill
No. 104 fails to specify how deductions and personal exemp-
tions are to be apportioned between that portion which is to
be offset against gross investment income and that portion
which is to be offset against gross ordinary income. And, no-
where in any of the other provisions of Article 81, is the for-
mula for such apportionment set out. In this respect, Senate