I believe I have put in as strenuous a cemetery day as you ladies and gentlemen have. I started out this morning at 9:00 o'clock by attending a funeral and it was very interesting to me, because this one happened to be a Catholic funeral and I had never attended a Catholic funeral before in my life. It led me into a Catholic cemetery and I was extremely interested there because the Catholic cemeteries that I have seen differ somewhat from the Protestant and the Jewish cemeteries.
This afternoon when I got back to my office I found that sometime during the night one of the water mains in the streets of the city of Chicago had burst and flooded the telephone wires that run underground, had broken them and my office was without telephone service all day. I was thankful for that, because it enabled me to get down and do some work. So I took up a cemetery tax case and tonight I am winding up the day by speaking to you gentlemen on cemetery matters.
Mr. Cassidy had one thought in his mind which, as he expressed it, cleared up one in my mind. In taking a number of tax cases to Washington the conferees with whom I met on matters laughingly spoke to me and told me that, "We hear that every time a cemetery brings a case in to us." I had mentioned a case out west where the letterhead said, "The Cemetery Beautiful." And I know now where they got the idea. Every cemetery which takes a tax case to Washington endeavors to tell the government that theirs is a special case because theirs is the most beautiful cemetery in the country.
It is true that your tax matters have forced upon you the idea that your accounting is perhaps not what it should be. I cannot go into detail tonight and tell you what your accounting should be. I am going to try to leave a simple idea with you and if you wish, you can take that idea home, consult your own bookkeeping department or your own public accountants in your own home town and they perhaps can fix your accounting so that it will be, perhaps, what it should be.
The paper is entitled "Cemetery Accounting" and I have been requested by several to digress enough from the accounting to touch on the tax matters, but that is unnecessary, because I have classified the accounting into four classes. This is merely an arbitrary classification. The first is the Legal Accounting; the second, the Good Will Accounting; the third, the Financial Accounting; and fourth, Tax Accounting.
Now, the first two I will touch on very lightly.
Legal Accounting. By that I mean the accounting which is necessary to record the sales of land, lots and graves, the. sales of your perpetual care in contracts and the other contractual relations with the buying public. Of course, your deeds, the form of your deed, the wording of the deed, and the wording of your contracts should be passed upon by your attorneys. After they have been passed upon, then those papers should be passed on to your public accountant or your own accounting staff so that they will be tied up with the office records in a way so as to minimize your work.
I am sometimes surprised in going into a cemetery association's office and finding some of the things which they do. For instance, I was in one office where they do not number their deeds and do not even record them in the deed resister. Now, how anyone can go on for years and this cemetery has been going on for twenty years, issuing deeds without recording them in a book or even giving them numbers, I don't know. You don't believe it, but it is true.
Those legal records, whether they are merely contracts to perform service like perpetual care, or the deeds, should be recorded in some form, so as to be accessible at all times. A good many cemeteries record their deeds in numerical order; they give their deeds a number and it is in consecutive order. For very large cemeteries, that is perhaps all right. With the smaller ones perhaps if you recorded your deeds by sections, if you gave your sections of land numbers, some of them give them names, if you give your sections numbers, I would suggest that the number of the section containing the lot which you are deeding should be the first number on the left of the deed. If you were selling land in Section 15, then you might issue Deed No. 15,122, so that if anyone called you up on your phone and gave the number, you could tell immediately what section of land it was in. Those are various detailed matters which I don't care to touch on, you don't need it. But the legal accounting should be tied up with the general accounting.
I have in mind tonight two classes of cemeteries. There are various ways of classing cemeteries. You might class them into the unethical and the ethical, because I know as well as you do that you have that kind. Or the King Johns and the Robin Hoods. Or, as we say in plain King's English, the Gentlemen and the Pirates. But that is not the thing I have in mind. I have in mind tonight the classes of those in the business for profit and those which are classified as non-profit corporations. What I say to you I think wilt be applicable to both classes, except perhaps the taxation part.
The second accounting, the Good Will Accounting. The good will accounting consists of the various memoranda records which you carry for performing services. In some cemeteries it consists of taking an order for flowers or decorating a grave or filling or sodding over the telephone on the back of an envelope or the first thing that is handy and this is handed to you superintendents with orders to carry out. Such accounting goes to make mistakes. It is forgotten, it is misplaced. And so I would say to you that the records for carrying out of services should be recorded in such a manner that they are tied up with the books. If an order is taken to perform services, it should be taken in such a manner that the superintendent gets the order, the office gets the order and then there should be some sort of a follow-up, triplicate, if you please, to see that it has been carried out, because neglect to carry out these service orders creates, as we call them in our own language, "kickers." You know in your own cemeteries that you have what you call chronic kickers, people who kick every year whether there is anything wrong or not. I know that you have them because I have been told time and time again that you do.
The good will accounting as I have called it is these small charge slips or order slips which go through which, if taken care of properly in your accounting system, will enable you to either perform the work or it will enable the superintendent to catch it when it has not been performed promptly and by catching it yourselves, you correct your error before the buying public is able to catch it and become the chronic kickers. This good will accounting department prevents kickers, and if you have chronic ones, it has a tendency to cure them, because when they become chronic kickers and you have these little memorandum slips to prove that you have performed the services, then you change a chronic kicker to a booster.
Now, the financial accounting. This deals with the records which go to make up your profit and loss statement. As a preface to this division of the accounting, I would like to say that I believe all cemetery accounting should be based upon business methods like we have in any other line of business. When I go into an office, a strange office, sometimes, the managers or the officials attempt to explain to me that their business is entirely different from any other business on the face of the earth. They realize that I know absolutely nothing about their business, but they are going to call me in and ask me a few simple questions which might lead them to the right solution. Everybody feels that their individual business is unlike any other and the cemetery companies I have found are exactly the same as the other business organizations.
Now, then, you must recognize these three things if you expect to have a profit and loss statement tell you what it should tell you. The first is that no original service should be rendered free of charge. lf you do something wrong and have to correct it, you might not charge the second time for it, but no original service should be rendered free of charge, for the simple reason that we are not supposed to get something for nothing on this earth and the second reason is that those who do accidentally get something for nothing never appreciate it. Therefore, that is the first thing.
The next one is important also One class of service should not pay for another class. I don't believe it is sound business policy for you folks to render some service below cost and make it up on your greenhouse or some other department. Each class of service which you render should be made to pay for its cost.
And third, which is really allied to the second, no person should pay for services rendered for another person. In other words, you mustn't change a little for one class of service taken by one class of people and charge more on some other class of service which others take.
Now, then, in your financial accounting all cemeteries can divide their profit and loss statement into three divisions. First is the sales of land. The second division is the sales of merchandise other than land, as flowers, wood and cement boxes, foundations, filling and sodding and crypts. There are many others but those will illustrate what I mean.
The third division is that of service charges such as the opening and closing of graves, re-interments, mowing and watering, cremations, chapel, chapel rentals, decorating graves, the rental of lowering devices and vault rentals. I have classified them into the sales of land as the first division, sales of other kinds of merchandise as the second, and third, the sales of services.
Your accounting does not have to be an elaborate cost system. Your accounting should be as simple as possible, keeping your bookkeeping expense at the minimum. We have to recognize the fact that bookkeeping is a necessity in any line of business. You do not operate a cemetery for the sake of giving some bookkeepers a job. You merely have to employ them because you operate the cemetery and you want to keep track of your accounts. It should be simple, no elaborate costing, but the results of each day should be so tabulated that you can make a fairly good estimate of where your costs are, keep an account of such costs and at the end of the month or at the end of the year, at the end of your season, you have a fairly accurate idea of what your costs are.
"The troubles which a good many cemeteries have had with the department at Washington have been because they could not give the department those figures which it wanted. If the cemetery associations which had tax troubles could have made clean-cut statements, which were directly reflected from their books, their troubles would have been eighty per cent less than they were. But because the books did not reflect properly the conditions as you stated they were, you had to dig in and dig out and analyze and borrow figures from one place and put them in another and criss-cross them until no one knew where they were at, and so you had your troubles.
Now, then, real accounting, financial or otherwise, consists of daily recording the facts which you wish to know at the end of the year, and in the modern methods of bookkeeping we record those facts each day, so that at the end of the year it takes nothing but an adding machine to tell you your results. If you have labor, and most of you do, and you keep an account on your ledger called "Labor" and divide it no further, at the end of the year you are in a terrible mess as to know how much labor was in the greenhouse, how much labor was watering lawns, how much cutting the grass, how much was used in your cement box department, how much was used in the chapel. You haven't any conception of it. But if you keep a fairly accurate idea of that each day, so that your ordinary clerks can record it, at the end of the year you would know it. But you have to keep it.
Your bookkeeping records are historical facts. They reflect things which have happened. Remember that Bookkeeping is not prophecy and I call your attention to it for this reason. I had occasion to install a very simple system of recording labor just about a year ago in a cemetery association that kept no records. They didn't even keep that deed register that I spoke of. And so we had a simple sheet whereby every day the thirty or forty men who were employed in that cemetery, a record was kept of their work, so we knew where they were working.
Now, I suspected that that record was not going to be kept properly and so I visited that cemetery one day and asked for these labor sheets. The bookkeeper asked me which one I wanted and I said I wanted yesterday's, because I wanted to find out if the superintendent had marked down the labor of the day before, how many men were working at this and how many men were working at that.
He said, "Why do you want that?" I said, "That is the latest one."
He said, "Mr. Stolp, it is not; I can give you this morning the labor sheet for today.”
I asked him how so.
"Well," he said, "this morning the superintendent wrote down the names of all the men and where they were going to work today and how many hours they were going to work at those things." So I had the labor sheet at ten o'clock in the morning showing what the men were doing at five o'clock that night. (Laughter). That is where bookkeeping records are prophesying instead of telling historical facts.
Now, as to the taxation part of it. We are getting pretty well crystallized in our ideas with the government on taxation. Gradually the Internal Revenue Department is learning something about cemeteries. I would say two years ago they knew about minus nothing, but they are learning something about cemeteries and at the present time they seem to be very friendly. Maybe it is because they know something about it. This knowledge of the other fellow's viewpoint seems to be softening them and helping them.
At the present time it seems that the government has accepted as a well established fact that the real income of a cemetery is not all taxable, that there is some income which is exempt. In regard to the sales of land, if you have bought land for three cents a foot way back in the early days, in the eighties and seventies and sixties and you are now selling it for two or three or four dollars a square foot, of course your original cost of two or three cents, plus these improvements you have put on it, equaling, we will say, twenty-five or thirty cents, deducted from your two dollar sales value, gives you your real profit. But that real profit is not all taxable. It is real profit all right enough, but it is not taxable income for the simple reason that the government has accepted that the value of that land on March 1, 1913, is for taxing purposes, its cost value. So if you had land which cost you, plus its improvements, forty cents in 1890 and that land was worth in 1913 $1.50 a square foot and you are selling it today for $2.00 a square foot, all the government is entitled to or interested in is the fifty cent profit, the difference between what it was worth on March 1, 1913 and what you are selling it for now.
What it was worth on March 1, 1913, may be determined in two ways. It may be determined by an appraisal or it may be determined by what it was selling for in 1913. If you have an appraisal made, if you have it made now, it is a retroactive appraisal and subject to very sharp criticism by the government. They are regular doubting Thomases on appraisals made at this date as of 1913. But nevertheless it can be made.
But the easiest way to overcome the matter is by establishing the selling prices of adjacent lots. If you can show for 1911 and 1912 the selling prices in a certain section of a cemetery, the average selling price per square foot will govern that section and that will be, for taxable purposes, your cost of that land. If your selling price is not very much greater now than it was at that time, then you haven't very much taxable profit and against that taxable, profit which you do have, you can deduct all your administrative and selling expenses, so that you should not have very much taxable profit left, very little, in fact.
It is fairly well fixed with the government now that if you sell perpetual care with your land, the value of the perpetual care must be deducted from the total sales price as of March 1, 1913. We are a little bit hazy on the matter as yet. The government claims that the perpetual care is a long term contract to perform services and that it is no part of the selling price of the land, which is a fairly good argument for them. Such being the case, you cannot add to the selling price the perpetual care price; you must deduct it and get the net selling price of the land in establishing your March 1, 1913, values.
However, the greatest difficulty came with the government because they insisted that the money that you receive for perpetual care was taxable income to you and I don't know when I have seen so many sane men rave when the government told them that.
Now, I can readily see---I am an outsider, I am not so vitally interested in the cemetery as you are, because you own one and I don't, but I can see how the government can tell you that perpetual care can be taxed, because everyone of you have a different kind of perpetual care contract. If your perpetual care contract is, in its intent, one whereby the money is not given to you outright but is turned over to you as a sort of trust fund, either actual or constructive, the Revenue Department has now accepted it as a trust fund, the income of which you receive only, and they have said that that is not taxable when you get it. In other words, if a man in buying a lot pays you eighty or one hundred dollars for the perpetual care, if your contract with him says that you are to receive one hundred dollar's and for which you agree to take care of his lot perpetually, then you are receiving the money and it is a long term contract and you report the receipt of that money as profit when you receive it and you deduct the charges when you give the care. But if your contract says that you will hold that in trust, or the contract infers that you hold it in trust and you can prove to the government that you really cannot possess that money and use it as you please, but that you must keep it in the fund, then they are willing to look upon it as a trust fund and the amount of money, the one hundred dollars, is not taxable income. Of course, the interest from that investment is taxable to you when you receive it, because you spend it and you deduct the expense as an expense of your business.
There are many variations of this proposition. I have merely tried to outline to you the general idea conveyed by it. The matter is still being fought out with the government. I have noticed that there are at least two cemetery associations which have carried their tax. case to the United States Board of Tax Appeals; one of them out West I noticed in the reports not more than a week ago is appealing the very thing which the government now concedes, so I feel sure that you needn't worry about it, but they are appealing it because perhaps a year or so back the government turned them down on the proposition and they didn't wish to pay the money, so they are appealing their endowment fund proposition. But the government has already accepted that viewpoint and I hope the United States Tax Board agrees with you.
Now, it is a warm evening and you don't care to listen to any more of my ramblings, so I will conclude with this thought, which I want to convey to you. Try to arrange your accounting so that you are able to tell at the end of the year if you are losing money on any particular service which you are rendering. If you keep your accumulating in such shape that you are able to tell whether or not you are losing money on any particular operation, then your books are in such shape that you will have no trouble in making out your tax returns to the government and of proving the same when they are audited.
If you are a cemetery operating for profit and you think you have your accounting arranged in a fairly good order, just for once call in some local public accountant; and you don't have to ask him to audit the books ask the auditor to look your books over and to criticize your methods, ask him if he can find anything wrong with them. He will not have to know very much about cemetery accounting to be able to tell you whether you have your financial, your tax accounting, your good will and your ether accounting all tied up properly. The legal, the good will, the financial and the accounting should be properly tied up together, so that you can operate efficiently, not as an idealist, but as a practical business man.
From the publication:
AACS - Proceedings of the 39th Annual Convention
August 24, 25, 26 and 27, 1925