EXCHANGE 31 Shall We Classify Property for Taxation The Public rely upon the County Auditor for information on taxation mat- ters. To meet this demand on the pend- ing amendment to the constitution for the classification of property, the Auditor has prepared and submits the within data, setting forth its advantages and disadvantages. JOHN A. ZANGERLK COUNTY AUDITOR "Untaxed Wealth of Cleveland" "Rules and Principles of Land Assessments" By John Jl. Zangerle, County Auditor What they say: FRANKLIN COUNTY, OHIO Office of the Auditor Columbus, April 18, 1918. John A. Zangerle, Cleveland, Ohio. My Dear Mr. Zangerle: I am not directly associated at present with the real estate reappraise- ment in this county but I am a Deputy Auditor in the Taxing Department and am trying to familiarize myself with the kind of an appraisement made by Auditor Zangerle in 1917. I have made a caroful study of this exceptional pamphlet, published by the Taxing Department of Cuyahoga County, and find It the most thorough book upon the subject it ha* been my pleasure to peruse. * * Sincerelj' yours, ROBERT J. BEATTY. DETROIT REAL ESTATE BOARD Board Rooms, 348 Penobscot Bldg. March 25, 1918. Mr. John A. Zangerle, County Auditor, Cleveland, Ohio. Dear Sir: We ha.ve just been privileged to see a copy of your issue of "Rules and Principles with Land and Building Values controlling 1917 Community As- sessments, Cleveland." We find in this publication a mass of very valuable information and should, indeed, be very glad to add a couple copies of this to our Board Library. If we are not out of place in doing so, may we be privileged to invite you to furnish us two copies for that purpose. Assuring you that we shall be glad to reciprocate at any time, we ar<\ Yours very truly, DETROIT REAL ESTATE BOARD, H. T. CLOUGH, HTC*B Executive Secretary. MINNEAPOLIS REAL ESTATE BOARD 835 Palace Building March 20, Stanley L. McMichael, Secy., Cleveland Real Estate Board, 717 Williamson Bldg., Dear Sir: I am bothering you a good deal lately but Cleveland is such a live, pro- gressive city and Ohio is such an active state that we are constantly compelled to ask you for information about the things that are being done in your community. Your County Auditor, John A. Zangerle, has issued a land value map called "Rules and Principles with Land and Building Values Controlling the 1917 Assessments of Cuyahoga County." We have seen a copy of this and consider it such a fine piece of work that we would, if possible, like to obtain five copies of it, one for each member of our Valuation Committee. Perhaps you can assist us in obtaining these copies. We shall, of course, insist on paying whatever charges may be necessary. Very truly yours, MINNEAPOLIS REAL ESTATE BOARD, N*M U. U. NELSON, Secreta >>-. Shall We Classify ~ Property for Taxation The Public rely upon the County Auditor for information on taxation mat- ters. To meet this demand on the pend- ing amendment to the constitution for the classification of property, the Auditor has prepared and submits the within data, setting forth its advantages and disadvantages. JOHN A. ZANGERLE COUNTY AUDITOR "Shall we Classify Property for Taxation" By John A. Zangerle, County Auditor. The State of Ohio, from the adoption of its first Constitution has relied on the General Property Tax for raising the great bulk of state and local revenue until about four years ago when it practically surrendered this as a means of securing state revenue, excepting the 3/100 of 1% or 3c on a $100 assessment for highway purposes. The state now relies mainly upon liquor assessments and corporation excise and franchise taxes for its revenues, while local jurisdictions rely almost entirely on the general property tax, excepting in so-called wet counties, embracing for the most part our large cities, where 70% of the liquor assessments help to defray local expenses. This general or so-called "uniform" property tax is based on the theory that every kind of property regardless of character or condition, shall be taxed in proportion to value and by uniform method or rate. This theory presupposes that all property can bear identical burdens and also that all kinds of property are equally easy for the assessor to find and correctly value. That this is impossible, even with the very best and most efficient ad- ministration in the United States in Cuyahoga County is evident, as shown by the Auditor's "Untaxed Wealth of Cleveland," recently published. (Sent on receipt of 3c postage). Of the necessity for a reasonable discrimination in the rates of taxation, and therefore for the classification of such property, Prof. Bullock of Harvard University, speaks in the following language : "Diversification of rates of taxation agrees with the ordinary business principle of adjusting charges and prices to what the traffic will bear. No railroad charges as much for carrying logs as for carrying furniture; but the discrimination in favor of logs, by enabling that traffic to move, contributes to the revenue of the road and decreases the charges upon furniture and other traffic of 3 382630 SHALL WE CLASSIFY PROPERTY FOR TAXATION higher grade. ****** Reasonable discrimination be- tween the objects of taxation is the principle upon which our customs tariff and internal taxes upon commodities are now adjusted. We tax beer at one rate, spirits at another, and tobacco at another, and no sensible man would propose to tax all three commodities at a uniform rate. Our tariff taxes cut diamonds at the rate of 10 per cent, and levies upon sugar a duty equivalent to 60 per cent ad valorem. This discrimination is both just and ex- pedient, since a duty of 60 per cent upon diamonds would lead to so much smuggling as to produce little revenue ; while the duty of 10 per cent yielded in 1905, $2,500,000. This illustration not only makes clear the necessity of adjusting taxation to 'what the traffic will bear/ but points to the reason therefor. The duty of 10 per cent can be collected from any dealer in diamonds because the gov- ernment succeeds in collecting it from practically all dealers. If the duty were raised to 60 per cent, and a few dishonest dealers were tempted to evade payment of it, the honest dealers who would have no objection to paying duties uniformly collected upon all persons engaged in their trade would have no choice but to resort to smug- gling or go out of business. Evasion of taxation, when it becomes general, is not due to dishonesty on the part of the average taxpayer, but to sheer inability of the honest man to pay his taxes when other persons succeed in evading theirs." PROPOSED CLASSIFICATION AMENDMENT Following the line of recent action of several states, it is now proposed to amend the Constitution so that property of different kinds may be taxed at different rates. The following amendment to the Constitution of Ohio will be submitted to the voters of Ohio at the November, 1918, election : The General Assembly shall provide for the raising of revenue for all state and local purposes in such manner as it shall deem proper. The subjects of taxation for state 4 BY JOHN A. ZA^GERLE, COUNTY AUDITOR and local purposes shall be classified and the rates of~taxa- tion shall be uniform on all subjects of the same class and shall be just to the subjects taxed. The Auditor of Cuyahoga County, having but recently laid down a program favoring, among other things, the classification of property as a temporary and partial reform to secure certain definite results, and being so frequently asked his opinion on the pending amendment, considers that a printed exposition of his attitude will save a great deal of explanation by the deputies in the Assessing Department. While the amendment may not allow the particular reforms which he has advocated, such as a mortgage recording tax or a horse-power automobile registration tax, and while it will per- mit the legislature to impose a tax on deposits in bank, and an in- vestment tax on stocks and bonds, which he does not favor, never- theless, the amendment will give the legislature such additional broad powers as will allow of some elasticity in the treatment of the various kinds of property, and will produce some degree of uniform burden. Above all it will throw the subject into the forum of earnest discussion, thereby creating and forming an intelligent public opinion which eventually will distinguish as to the in- cidence of taxation and will thereupon crystalize into appropriate legislation. The Constitution of Ohio in requiring the assessment of all property at its full value at a uniform rate has prevented all, experimentation in this field. Notwithstanding the changed in- dustrial and commercial conditions in Ohio, no change has been possible. Many persons hesitate to vest in the legislature dis- cretionary powers in this most important function of citizenship. And yet without it, no relief of any kind is possible, although the general property tax is almost universally condemned as im- possible of uniformity. CONSTITUTIONAL POWERS IN VARIOUS STATES Not all states have been as short-sighted in the granting of power to the legislature nor as fearful of the possible abuse of such power as has Ohio. The progressive states in taxation have 5 SHALL WE CLASSIFY PROPERTY FOR TAXATION reposed complete and practically unlimited power upon their legislatures. New York. "The legislature shall not pass a private or local bill in any of the following cases * * * granting to any person, firm or corporation any exemption from taxation on real or personal property." Further, "Every law which imposes, continues or revives a tax shall dis- tinctly state the tax and the object to which it is to be applied and it shall not be sufficient to refer to any other law to fix such tax or object." It will be noticed that there is no restriction whatsoever. Pennsylvania. "All taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax and shall be levied and collected under general laws." Michigan. "The legislature shall provide by law a uniform rate of taxation except on property paying spe- cific taxes, and taxes shall be levied on such property as shall be prescribed by law." "The legislature may by law impose specific taxes which shall be uniform upon the class upon which they operate." Minnesota. "The power of taxation shall never be surrendered, suspended or contracted away. Taxes shall be uniform upon the same class of subjects and shall be levied and collected for public purposes." Wisconsin. "The rule of taxation shall be uniform and taxes shall be levied upon such property as the legis- lature shall prescribe. Taxes may also be assessed on incomes and occupations, which taxes may be graded and progressive and reasonable exemptions may be provided." In addition to the above, the following states now permit classification of property by the legislature, viz., Arizona, Colo- rado, Connecticut, Delaware, Georgia, Iowa, Kentucky, Maryland, New Mexico, North Dakota, Oklahoma, Rhode Island, Vermont and Virginia. 6 BY JOHN A. ZANGERLE, COUNTY AUDITOR CLASSIFIED SYSTEM IS MORE EQUITABLE The most severe indictment against the general property tax is that it makes fish of one and fowl of another. It taxes the man with a conscience and permits the conscienceless to escape as the Auditor clearly shows in his recent pamphlet "Untaxed Wealth of Cleveland.'" It taxes our visible forms of property while the intangibles largely escape. And as has been stated, even if an attempt were made to scale intangible values to correspond to real property values, it still would be inequitable to tax these values in precisely the same way, because the value of real estate is figured and sold, ex-taxes, so to speak, while taxes must be paid out of the income of intangible property. In the one case they are excluded while in the other they are included. The mobility of intangible wealth should also be considered, the danger of driving it away to states with more favorable laws, unless it is taxed in conformity with economic principles and on a basis similar to adjacent and more progressive states. In the words of the Mayor's Advisory Commission on ad- ministration of the tax law of the City of New York submitted to the Mayor December 20th, 1917: "As for the attempt to tax all personalty at the real estate rate, its hopelessness is demonstrated every day and everywhere. Its severity condemns it to failure. A tax that would absorb, on the average, from thirty to fifty per cent of income is too close to confiscation not to be evaded by all honest and some dishonest means. Securing immunity from per- sonal taxation is almost a science and wealthy corporations and individuals find it profitable to secure expert legal advice on the subject." It is sufficient to state that economists and students of taxation and administration, with very few exceptions, all agree that the general property tax is not uniformly enforcible against all forms of property. Wherever it is honestly attempted, it makes sneaks and perjurers of thousands of people and creates disrespect for laws generally and their administration. Taxation laws must be respected and the public must assist in their proper administration. This may only be expected when the taxation laws enjoy universal sanction. Equity in the im- position of the burden and the power to uniformly administer is 7 SHALL WE CLASSIFY PROPERTY FOR TAXATION therefore far more important than any and all other considerations of far more weight even than the amount of revenue that may be obtained thereby, especially when such possible loss of revenue may be recouped through another and better form of taxation, viz., a graduated, progressive income tax, and a graduated, pro- gressive inheritance tax, both of which now being allowable under the present constitution. The classification amendment will permit the legislature to treat the various kinds of property with varying burdens. Min- nesota, for example, assesses iron ore, mined and unmined and land containing ore at 50% of true full value; household goods and personal effects at 25%; live stock, merchants' stock, manu- facturers' material, tools, implements and unplatted real estate (farms) at 33 1/3% ; all other real estate (city lots) and other personal property at 40%. Reducing this to a full assessment basis would mean that iron ore, mined or unmined and lands containing iron ore, would be assessed at 100% ; household goods and personal effects at 50% ; live stock, merchants' stock, manu- facturers' material, tools, implements and farms at 66 2/3%, and city lots and personal property at 80%. It needs no vivid im- agination to forecast considerable discussion and change of this basis as time goes on. In North Dakota where the classified amendment has been in force three years, an act was passed two years ago, dividing the assessable property, not subject to gross earnings taxes or other- wise exempt from the general property tax, into three classes. Class one includes all town land and city lots, railroads, express and telegraph property and bank stock which are to be assessed at 30% of full value. Class two, which includes patents, royalties, telephones, etc., is to be assessed at 20%. Class three, which in- cludes, among other property, stocks, bonds, moneys and credits, not assessed under the flat-rate law, is to be assessed at 5% of the full value. It will be noted that class one is assessed at a value six times as high as class three. Taxation will remain a lively subject of discussion and make intelligent students of the subject in this state. BY JOHN A. ZANGERLE, COUNTY AUDITOR UNFORTUNATE PHRASEOLOGY There is some doubt as to whether the "rate of taxation" phraseology of the amendment will permit a registration or re- cording tax, payable once and for all. Such taxes have been up- held in Michigan, because the constitution permits "specific" taxes outside of classified property taxes. There is some doubt as to whether the changed constitution will not require the continuation of discovery of property, its valuation, assessment, levy and col- lection as at present. If the phrase is understood in the sense as now used, it will require a valuation and a levy in each case as at present. This would certainly be calamitous. If the Auditors of each county are to discover all intangible property under the amendment as in the past, a low rate will, of course, produce more property, but surely not sufficient to compensate for the loss due to reduced rates. The phraseology, requiring that "all rates shall be just," is also unfortunate. I very much fear this will throw much de- sirable legislation into the courts for determination as to the fair- ness and justice of rates proposed. Balancing the advantages and disadvantages of the proposed amendment, the writer favors the amendment as a slight step in the path taken by other states and in evolution of necessary re- form. The Auditor's ideas of needed reforms are more clearly set forth in his "Untaxed Wealth of Cleveland" as follows : THE AUDITOR'S PROGRAM "So long as the general property tax is the mainstay of our taxation system, a classification of the various forms of property is desirable. We favor an amendment to the constitution, classifying property as land, improve- ments, tangible personal property, intangible personal property and such other additional classes as the legisla- ture may from time to time determine so that different rates or different bases may be provided for each of said classes to the end : (a) That automobiles shall pay but one registration tax based upon the horse-power instead of a nominal 9 SHALL WE CLASSIFY PROPERTY FOR TAXATION license and a general property tax which latter is almost impossible of administration. (b) Mortgages shall pay a registration tax of 50c per $100. (c) Credits, being the excess money due over the money that may be owed, shall pay a tax at but nominal rates. (d) Improvements on land shall gradually be depre- ciated in assessment until they are assessed at 50% of their value, similarly as is now provided in the City of Pittsburgh and in Canadian cities generally. (e) The taxation of stocks of corporations of other states is unpatriotic, provincial and inequitable. Reci- procity laws with other states should be passed whereby the stock of corporations of other states, shall not be taxed in Ohio, if such corporation be located in a state having reciprocal laws. Almost any form of taxation is preferable to the pres- ent inequitable personal property tax. We urge the graded income tax, in lieu of said general property tax or in supplement thereto, as the best present means of pro- viding 'immediate relief until a more suitable method may receive constitutional and legal sanction. This is the path Wisconsin has chosen. If it is adopted as a sup- plement, then any personal property tax paid shall be deducted from the income tax if it exceed it." It will be noticed that the Auditor urged "the graded income tax, in lieu of or in supplement thereto, as the best present means of providing relief," until a more suitable method may receive constitutional and legal sanction. He is still of the same opinion. THE PROS AND CONS OF THE CLASSIFIED PROPERTY TAX The State of Pennsylvania has probably had more experience with the classified property tax than any other state in the Union. Its 4-mill tax on mortgages, money owing by solvent debtors (credits), money out at interest, shares of stock in all corpora- 10 BY JOHN A. ZANGERLE, COUNTY AUDITOR tions except such as are subject to taxes on shares of stock or business in the state (foreign stocks), the loans of counties, cities and minor political subdivisions, (public bonds) or loans of busi- ness corporations doing business in Pennsylvania, formerly enured to the benefit of the state but since 1913 it goes entirely to the county. It is regarded as the most successful classified property tax in Pennsylvania, and produced in 1913 a listing of $1,402,- 000,000 or about 20c per capita. The Committee on Taxation Study for the City of Pittsburgh reported in November, 1916, the following advantages and disadvantages of the classified property tax: For It: 1. It is vastly superior to the old general property tax still in existence in many states though rapidly dis- appearing everywhere. 2. Where the tax is collected at the source, as in the case of corporate loans, it works well. 3. It succeeds in reaching mortgages, judgment and personal property held in trust. 4. It brings a large amount of intangible personalty upon the assessment rolls. 5. The tax is not burdensome upon investments yielding four, five or a higher per cent. 6. It taxes the owner as a person where he resides. Against It: 1. It is inequitable per se in that the tax rate is uni- form upon all intangibles and so recognizes no difference between the investment yielding 2% and one yielding 6%. 2. It is inequitable and unfair in that it reaches per- sonal property held in trust which in many instances is the sole source of income of widows and orphans, while the security holdings of thousands of the middle class go untaxed. 3. It leaves untouched in the aggregate a vast amount of ''moneyed investments" taxable under the law, because there is no source of information except the honesty of the individual in assessing himself, which by universal 11 SHALL WE CLASSIFY PROPERTY FOR TAXATION experience stands condemned as untrustworthy. Failure to reach this class of taxables necessarily throws the bur- den of raising revenue upon other classes, especially real estate which can not escape the taxing officials. 4. The failure to assess and collect this tax leaves thousands of persons with comfortable incomes without any fiscal "stake" or interest in government, city, county or state. Referring to the 4-mill tax on intangibles in Pennsylvania, the taxation committee have to say, "The law requires every per- son to make a tax return under oath of all taxable moneys and credits." Upon the refusal or failure of any person to make the required return, the assessors are authorized to make an assess- ment from the best information they can obtain. It is well under- stood that this arbitrary assessment feature is not generally or rigidly enforced and that millions of dollars of intangible prop- erty and thousands of persons subject to this tax go untaxed year after year. In fact, it is scarcely an exaggeration to say that the vast majority of professional and business men even in our larger cities never make a return of their intangibles. Not a small pro- portion of these men, if questioned, would express surprise at the existence of such a law. Next to Pennsylvania, New York is generally referred to as the state where the classified property tax is in most successful operation and yet very recently in the year 1916 the large and very able committee appointed by the Mayor of New York City to devise ways and means for securing additional sources of rev- enue for the City of New York was more unanimous in opposing the extension of the principle of the classified personal property tax than upon any other measure and reported by an 18 to 4 vote to the Mayor as follows : NEW YORK'S OPINION "Without repeating all the considerations which have been previously urged, your committee content themselves by summing up the objections to a low rate tax on per- sonalty, as follows : 1. It will require for its successful operation a list- ing system which has always been repugnant to the cit- 12 BY JOHN A. ZANGERLE, COUNTY AUDITOR izens of New York. The listing system as appliecLin other states to the property tax, has always resulted ulti- mately, with the publicity that has by law everywhere attended it, in an increase of perjury rather than of revenue. The schedules required to be fi-lled out for the exist- ing federal income tax cannot be considered as a counter argument. Secret returns of income are in their practical operation very different from the public listing of per- sonal property, including assets of all kinds and thus necessarily disclosing business secrets. 2. The low rate on personal property would only slightly diminish the temptation to evasion. A rate of four or five mills represents a 10% income tax on 4% or 5% bonds, and an additional income tax of 10% is not likely to remove temptations to evasion, especially in a state like New York where, under the law, residence for the purpose of taxation can be so easily changed. 3. Even a low rate of taxation on personal property would jeopardize the interests of New York City. If levied upon securities it will be an intolerable burden upon all of these interests that deal in securities and whose profits are in very slight relation to the amount of securities they may hold for sale. In the case of merchandise, a low-rate tax will be a tax on assets and on stock in trade which will bear with peculiar hardship upon merchants, as in the large whole- sale centers stock in trade has no net direct relation to profits. 4. A low-rate tax on personalty is confronted by the problem of debts. If no allowance is made for indebted- ness, the tax is clearly unjust. If allowance is made for indebtedness, inducement is given to the creation of fic- titious debts, which will again result in inequality. 5. No system of taxation, whether low rate or high rate, can be profitably levied upon property as such with the exception of a local tax on real estate. The whole tendency of modern times is to estimate tax-paying ability 13 SHALL WE CLASSIFY PROPERTY FOR TAXATION in general in terms of profit or income, not in terms of property. 6. A low tax rate will entirely fail to reach those who are in possession of large incomes from salaries or pro- fessional exertions. 7. A low-rate tax will not begin to yield the revenue that is required. In the few states where the low-rate tax has been employed, the increase in revenue has been only moderate and far from what would be needed in New York. In some of these states, like Iowa, there has even been an actual and considerable diminution of the revenue. We believe therefore, that in the existing situation of New York, a classified personal property tax would be a step backward and not a step forward. It would scarcely, if at all, help us in the fiscal emergency and it is based upon an erroneous principle of public finance." It should be noted that there is no sentiment for the repeal of the 'present classified tax on "mortgages" and "investments." The committee refuses to extend the classification principle. The very latest and very exhaustive report of the Mayor's Advisory Committee in the administration of the tax law for the City of New York submitted December 20th, 1917, takes the same general view: "Personal estate, if taxed directly, should, undoubt- edly, be subject to low, classified rates; but experience elsewhere scarcely warrants the belief that this device would by itself fully meet the case. The Commission therefore regards a general income tax as adapted to pro- vide increased revenue with the greatest degree of jus- tice ****** An income tax imposed and admin- istered by the federal government would be the most economical and effective plan, assuming a reasonable ap- portionment of the proceeds. But devising any acceptable or just method of distribution would be a task of the first magnitude. It goes without saying that many would dis- cern in a plan of this kind a danger to an essential element of the sovereignty of the state, the right to tax. Yet, if national, state and local expenditures maintain their pres- 14 BY JOHN A. ZANGERLE, COUNTY AUDITOR ent rates of growth, some mutual adjustment of sources of revenue cannot be avoided. ****** jf public opinion will not support a general income tax, the classi- fication of personal property for taxation at fractional rates should be sought." Professor Fred Rogers Fairchild in the 1917 Bulletin of the National Tax Association, in the same tenor says : "Another topic to which special attention was di- rected by the Chamber of Commerce investigators was the state 4-mill tax on bonds, notes and other choses in action. This is a method of reaching intangible personalty which has been regarded with considerable favor in many states. There is a tendency on the part of many to regard this as a solution of the problem of the taxation of intangibles. Connecticut was a pioneer in the establishment of this system, but up to the present time its results have never been investigated. The report of the Chamber of Com- merce study gives ample evidence to warrant the conclu- sion that, while a considerable amount of property is reached, a great deal, probably the great majority, entirely escapes. The absurd discrepancies between the amounts listed by the towns in connection with their population, are the evidence showing the inefficiency of the tax * * * * * * the evidence presented leaves little room to doubt that successful taxation of intangibles requires some- thing more than a volutary tax at a moderate rate in lieu of local assessment." PRODUCTIVENESS OF THE CLASSIFIED PROPERTY TAX Will the proposed amendment and probable legislation there- under increase the reveriue? The Auditor is frequently quoted as having expressed himself in the affirmative. He has never ex- pressed such opinion. On the contrary it will probably produce less. He has advocated the classified property tax at a nominal rate mainly for the purpose of securing uniformity of taxation and administration, especially as against mortgages and auto- 15 SHALL WE CLASSIFY PROPERTY FOR TAXATION mobiles. Money, he has urged, should be considered as a credit. The taxation of stocks of foreign corporations he believes to be unpatriotic, provincial and inequitable. With such a program, the so-called intangible tax would produce less revenue, the Auditor relying upon an income and direct inheritance tax not only to recoup such loss but to enormously increase the taxable revenue. Forgetting the Auditor's program, however, what may be expected as to the profitableness of the proposed amendment with a tentative flat tax rate of l/10th of a per cent for money, 2/10ths of a per cent for credits including mortgages and likewise a 2/10th of a per cent on stocks and bonds rates frequently suggested and fair comparatively to other states now employing the classified property tax. To clarify the confusion and misapprehension in this matter, let us examine more particularly what these intangi- bles now produce and what they may be expected to produce at a low rate. MONIES The total amount of money returned last year in the County of Cuyahoga for taxation was $33,372,070, which produced revenue in the sum of approximately $500,000.00, or over 50c per capita. It will be necessary to produce at l/10th of 1% a duplicate of $500,000,000 to secure the same amount of revenue. Will it be possible to raise such a duplicate or such an amount of revenue under the proposed tentative rates? The total bank deposits at the present date amount to approximately $503,000,000. Approxi- mately $100,000,000 of the total deposits are due to banks, bankers and trust companies ; $25,000,000 being war loan deposits which cannot be taxed and the balance is represented by postal savings, state and municipal deposits and other U. S. loan deposits. A recent survey of deposits in Cleveland banks reveals the fact that 27% of the total deposits are owned by non-residents and cannot be taxed which makes the total amount of bank deposits taxable ap- proximately $303,000,000. When it is borne in mind that probably one-half of all the deposits in the City of Cleveland are interest bearing, the other half being commercial and non-interest bearing, which are seldom taxed in other industrial states, it will be seen 16 BY JOHN A. ZANGERLE, COUNTY AUDITOR that it will not even be possible to secure a duplicate TTf -$300,- 000,000 and that $200,000,000 might be nearer the mark which therefore would produce $200,000 in revenue as against $500,000 levied last year. To secure even such an amount, it would be necessary to change the administration and collect the tax at the source through the banks and not through individual listings. Will the banks consent to the imposition of this additional burden of clerk hire and contention without a struggle? Even property-classifying states vary greatly in their assess- ment of deposits. Connecticut, for example, exempts savings de- posits, while Maryland and Pennsylvania assess savings but exempt commercial accounts. Massachusetts gets only the income from deposits, etc. CREDITS Will credits with a recording tax of 20c per annum on each $100 of value produce more revenue than credits including mort- gages now produce?- There was listed last year $46,978,990* of such intangible property which produced approximately $700,000 in revenue, approximately 70c per capita. It will be necessary on the suggested rate of 2/10ths ot \% to secure $350,000,000 to the assessing duplicate. While it may be true that the amount of mortgages now of record represents more than $350,000,000 in value a low rate tax against a non-resident, meaning especially insurance companies, will be just as invalid probably at a low rate as at the present full rate. AVhen it is borne in mind that probably two-thirds of the mortgages recorded in this county are mort- gages inuring to insurance companies, non-residents and trust companies, which are either exempt .as belonging to non-residents or as otherwise taxed, it must be apparent that this source of revenue would probably be decreased one-half. The City of New York is generally referred to as an example of the successful administration of the mortgage tax. For the year 1916, the revenue derived for the City of New York was $950,000 from this source. This is equivalent to a tax rate of iy 2 % on $60,000,000. On a per capita basis, New York Gity is deriving .approximately 20c per annum while Cuyahoga County (Cleveland) 17 SHALL WE CLASSIFY PROPERTY FOR TAXATION derives about 70c per capita. While, therefore, the City of New York secures twice as much gross revenue as Cleveland does from this source, the City of New York having eight times as much population, would indicate that on a per capita basis, it was re- ceiving on its specific tax one-fourth as much as Cleveland does from credits generally under the general property tax. In this connection, it should be stated, that the proceeds of this mortgage tax are divided equally between the state and county, where it is received, so that the state treasury is enriched by the like amount. The State of Minnesota collected under its mortgage record- ing tax for the fiscal year ending July 31st, 1915, $292,181.05 and for the fiscal year ending July 31st, 1916, $346,678.02 or about 6% more than this county. The 1917 fiscal year is not yet available. Reduced to a per capita basis, this amounts to about 17c. Pennsylvania in the year 1913 at a 40c rate secured an aggre- gate listing of $1,402,000,000, approximately one-half of which represented the tax on mortgages. The return from mortgages is therefore equivalent to about 36c per capita. It should be borne in mind that Pennsylvania has a low rate tax on intangibles (mort- ga'ges) rather than a recording tax which latter is by far the more preferable. Pittsburgh had an aggregate listing of $231,092,030 for the year 1916 as representing the aggregate amount of money at interest, including mortgages, bonds, notes, stocks, etc., on which the state secured a revenue of $924,368 at a 4-mill tax. This represented a per capita of over $1.00. But, it should be remem- bered that this is the revenue for all intangibles, not merely for credits. Cuyahoga County collects over this amount per capita from moneys and credits alone. (See table). The State of Michigan collected from mortgages and bonds (secured by mortgages, or public bonds) for Mortgages Bonds Total Per Cap. 1917 $1,289,475.00 $67,898.82 $1,357,373.82 .50 1918 671,105.80 68,377.82 739,483.62 .26 One-half of this amount goes to the state and one-half to the counties in which the mortgages were recorded, or the tax on the bonds was paid. The war conditions presumably are responsible for the difference in the receipts for the two years. 18 BY JOHN A. ZANGERLE, COUNTY AUDITOR STOCKS AND BONDS In practically every state, the shares of stock of a resident corporation are not taxed, but the stocks of a foreign corporation and the bonds of public utilities and of municipalities and other public corporations are sought for taxation.- There was listed in this county $53,527,130 of such property, which produced approxi- mately $800,000 in revenue or about 80c per capita. It will be necessary at the suggested rate of 2/10ths of 1% to get a duplicate of $400,000,000. It is very doubtful whether such amount of stocks and bonds is held in this county and unless a registration tax similar to that of New York is adopted, it is doubtful whether the $53,000,000 now secured would be more than doubled, thus pro- ducing a decided decrease in this branch. In New York they have what is known as the "Investment tax" against this class of intangible property. There was collected under this tax for the fiscal year ending June 30th, 1918, $1,399,- 381.21 in revenue or 15c per capita. No part hereof goes to local taxing districts. This payment in fact secures the exemption of this property from local taxation. The City of Baltimore secured for the 1915 year under a 3-mill or 30c rate on $100 of assessment a listing of $210,000,000 of all forms of intangible property which may be equivalent to SOc per capita, assuming the city to have 800,000 population. In Maryland, it should be stated, however, only bonds and certificates of indebtedness issued by corporations and stocks of foreign corporations are within the purview of the law. Ordinary mortgages, book accounts of merchants and savings accounts are not included within the classification as they are in manv other states. AUTOMOBILES Assuming that the new amendment to the Constitution will permit a horse-power registration tax against automobiles, will it prove more productive than the present registration tax by the state and the general property tax by the county? The present registration tax of approximately 40,000 cars in this county pro- vides to the state approximately $196,000 from this county. The 19,500 cars listed show a value of $6,816,000 which provides a 19 SHALL WE CLASSIFY PROPERTY FOR TAXATION revenue under the general property tax law of $105,993. The total revenue derived under both forms of taxation provides approxi- mately $302,000. The horse-power tax law passed by the legislature several years ago which provided an initial rate of $5 for automobiles with a 20-horse power, running up to $16 for cars with 61-horse power, would have provided a revenue of $332,315. From the foregoing, it will be evident that the proposed horse-power tax would pay about the same amount of revenue, perhaps $30,000 more than the present general property tax and registration tax. As to what amount would inure to local authorities would depend upon the apportionment of this revenue to be fixed by the legisla- ture. It might be possible that the state would insist on the major share thereof, as in some of the other states. Indeed, in a con- sideration of the productiveness of proposed intangible taxes, the possibility of a local loss through an increased apportionment of the revenue to be derived from such new classified property tax has been given no attention. It makes little difference perhaps in that the legislature undoubtedly would agree to a re-appor- tionment of old sources of revenue if new ones were secured to it. The total revenue is the desideratum. THE CUYAHOGA COUNTY PERSONAL PROPERTY DUPLICATE It is evident from the foregoing chapters that the revenue to be derived from intangibles and from automobiles under a classi- fied property tax will be much less than at present realized there- from. It may be asked why such a different situation exists here as compared with other cities and states where the almost uniform experience, viz., an increase of revenue resulted in the adoption of the classified property tax. The Auditor can explain it only by urging that the general property tax laws have been more vigorously administered in Ohio, especially as against corpora- tions than anywhere else in the populous states. The administrative requirement that corporations furnish the department with a "balance sheet" has certainly been a ten strike, and has practically doubled the return. Without this bal- 20 BY JOHN A. ZANGERLE, COUNTY AUDITOR ance sheet, there could be no uniformity and the assessment of corporations would degenerate into the same farce that generally characterizes the work elsewhere in the United States. Both this county and the State of Ohio are now assessing an unusually large amount of personal property as compared with other states and cities, as is evident from the proportion of per- sonal property to realty set forth in the following table : % of Total Personal Property %of Total Total 95.81 $342,963,540 4.19 $8,204,862,430 71.31 227,066,472 25.14 940,450,171 99.86 2,034,635 0.14 1,533,791,867 67.74 175,030,145 26.83 652,261,285 79.65 303,117,620 20.35 1,489,608,820 70.00 135,624,810 30.00 452,255,100 87.72 62,652,079 12.28 510,429,316 68.50 238,278,975 31.50 756,831,185 REAL AND PERSONAL PROPERTY ASSESSMENTS COMPARED Real Estate New York $7,861,898,890 Chicago 670,652,219 Philadelphia . . . 1,531,757,232 St. Louis 441,853,410 Boston . ... 1,186,491,200 Detroit 316,630,290 San Francisco. . . . 447,777, 2'37 Cleveland 518,552,210 The above figures are taken from the Report of the Depart- ment of Commerce, Bureau of the Census for the year 1912. It should be borne in mind in connection herewith that several of these cities have other sources of income, some from public fran- chise contributions, from liquor licenses, from rentals of public property, from registration and income taxes. It will be noted that the percentage of personal property se- cured in Cleveland was 31*/2%, a larger proportion than was en- joyed by any other city. In a general way, it may be stated that the proportion of personal property to real estate in the State of Ohio generally is about 33 1/3% which is therefore heavier than elsewhere of the quoted cities. Let us inquire as to the productiveness of the general property lax against intangibles in other counties of the state. 21 SHALL WE CLASSIFY PROPERTY FOR TAXATION PRODUCTIVENESS OF INTANGIBLES OHIO COUNTIES PER CAPITA Aver age Rate 1.33 1.50 1.10 1.00 1.20 1.35 1.10 1.50 1.30 1.40 State of Ohio County Seat Est. Pop. g 4 767 000 !. & B. Credits Money $ .37 $ .57 $ .50 .80 .70 .50 .25 .40 .34 1.33 .74 .53 .19 1.54 1.07 .38 .78 .57 .05 .39 .45 .47 .59 .45 .44 .53 .41 .30 .29 .29 Total $1.44 2.00 .99 2.60 2.80 1.73 .89 1.51 1.38 .88 Cuyahoga County . Lorain County . .Cleveland . Elvria .1,000,000 . 82,920 .. 23,330 . 24,130 . 120,120 14,670 . 477,380 . 240,12'0 . 205.450 Lake County . . Painesville Medina County Summit County . . . Geaugra County . . Medina . .. . . . Akron . . . . . Chardon Hamilton County . Franklin County . . Lucas County . . . Cincinnati . . .Columbus . . . Toledo . In arriving at the above table, data from the 1916 duplicates (the latest available in printed form) was taken except in Cuya- hoga where the 1917 data is of course at hand. The population is taken from the 1913 Census Report except in Cuyahoga County where a 1,000,000 is taken which will be acknowledged to be rather high (possibly 75,000) and therefore cause relatively too low a per capita result. The average tax rates in the various counties were of course estimated, except those in Lake and Medina Counties, where an average rate was secured by multiplying the various taxing districts' duplicate by the respective rates and then dividing the aggregate revenue by the aggregate value. The rate taken in Cuyahoga County is $1.50. The actual rate in Cleveland and Lakewood last year was $1.555 per $100 of as- sessment. These two cities represented approximately 90% of all personal property in the county. Hence, a tentative rate of $1.50 is probably a very close average rate. If this rate of $1.50 is excessive it is neutralized by the excessive population factor used. The high per capita of credits and money of Medina may be explained in that it is the home of one of the leading insurance companies of the United States. The high per capita of stocks and bonds of Lake County may be explained in that this county contains many wealthy people in Painesville, Mentor, Willoughby and Wickliffe, who really, in business enterprises and otherwise, should be classed as of Cleveland. Many transportation companies, of Cleveland list their property in Lake County. The figures show that while Cuyahoga County receives more revenue per 22 BY JOHN A. ZANGERLE, COUNTY AUDITOR capita from intangible than the state at large, that 'a number of counties immediately adjoining it receive a larger per capita, viz., Lake, Medina and Summit Counties. The latter is undoubtedly due to the very wealthy and prosperous rubber companies operat- ing there. The table is also interesting as refuting the idea of many people in strictly rural counties that only agricultural counties assess their intangibles. While some of the agricultural counties, e. g., Lake and Me- dina, tax intangibles apparently as heavily and more per capita as the industrial counties, they make a very poor showing in the property of merchants and manufacturers, which should be shown, lest they feel that they are unjustly imposed upon by the local assessing authorities. Merchandise and Tools of Merchants and Manufacturers Dollars Per Capita County County Seat Est. Pop. ] Mdse. Mfg. Tools Total 1.33 State of Ohio . . . 4 767 000 .47 .97 .97 2.41 1.50 Cuyahoga County . .. . Cleveland . .1,000,000 .62 1.21 .60 2.43 1.10 Lorain County . . . . Elyria . ... 82,920 .26 1.50 .04 1.80 1.00 Lake County . . Painesville 23,330 .25 .34 .20 .79 1.20 Medina County . . Medina .... 24,130 .28 .43' .03 .74 1.35 Summit County . . . . . Akron . 12'0,120 .48 4.48 .19 5.15 1.10 Geauga County . . . . .'. Chardon . .. 14.670 .17 .08 .04 .29 1.50 Hamilton County . .. . Cincinnati . . 477,380 .66 1.56 .03 2.25 1.30 Franklin County , . . . Columbus . . 240,120 .67 .85 .04 1.56 1.40 Lucas County . . . . . . . Toledo .... . 205,450 .87. 1.13 .04 2.04 INTANGIBLE RATES Are the rates used to show the probable productiveness of the classified property tax too low? One-tenth of 1% has been taken as a tentative rate for deposits and a rate of two-tenths of \% has been taken for other intangibles. A study of rates in other states will be interesting, showing the probable rate that may be adopted by the legislature under the proposed constitu- tional amendment. 23 SHALL WE CLASSIFY PROPERTY FOR TAXATION THE TAX ON INTANGIBLES IN OTHER STATES (Stocks, Bonds, Mortgages, Debentures, Choses in Action) Computed on an Annual Basis Cleveland Rate Connecticut Optional statute equivalent to 4 mills or .4 % 1.555% Iowa 5 " " .5 % Maryland 3 mills local, and say the maximum of 1,5 mills state 4.5 " " .45 % Minnesota Securities 3 " " .3 % Mortgages 0.3 " " .03 % Michigan Mortgage securities (based on a 25 year bond) say 0.2 " " .02 % Mortgages (based on a 3 year mortgage) say.. 1.66 " " .166% New York Securities (based on a 25 year bond) say 0.2 " " .02 % Mortgages (based on a 3 year mortgage) say.. 1.66 " " .166% Pennsylvania 4 " " .4 % Rhode Island 4 " " .4 % Wisconsin (Capitalizing the income tax on a 5% basis) . . .5 to 3 mills or .50 to .30 The above table was prepared by W. Hastings Lyon, Counsel of Committees, Investment Bankers' Association of America, four years ago. While some of the taxes are paid once for all as a recording registration tax, others are paid annually. New York, for example, imposes a 50c per $100 of value as a recording tax and 50c per $100 of value on secured debts on real estate outside of the state. Minnesota imposes a once for all tax on securities and a recording tax on mortgages. Michigan has adopted a once for all registration and recording tax. Connecticut has provided, in lieu of the general property tax on intangibles, a once for all payment of 4 mills on intangibles. Massachusetts several years ago adopted a registration tax of 3 mills on intangibles to be paid once for all, which has since given way to an income tax on in- tangibles. It will be noted from the above that the registration and re- cording tax are entirely different from the low rate full value classification method of taxing intangibles. The registration and recording tax is a simple inexpensive method of securing a fair amount of revenue from this source of property with absolute 24 BY JOHN A. ZANGERLE, COUNTY AUDITOR uniformity, while the low rate full value method retains all the present, practically impossible conditions of valuation and admin- istration. The Auditor feels that only in so far as the method of administration and valuation is changed to a once for all collection will the low rate produce substantial revenue. STATE COMPARISONS DIFFICULT The results of the flat tax in other states are difficult to ap- praise. The imposition of this tax is so varied in the different states that it makes the results incomparable. In the first place, the administration in some states is centralized and in others localized. In the next place, not all kinds of intangible property are subject to the flat tax in any of the states aforementioned which now have classified intangible property for taxation at rates from two to five mills, or, in other words, from one-fifth to one- half per cent. Prof. Chas. J. Bullock of Harvard University commenting on the flat tax, says : "Stocks of domestic corporations are everywhere ex- empt. Savings deposits are often, if not always exempt. Mortgages on domestic real estate are exempt in Minne- sota and Maryland. Stocks of foreign corporations are exempt in Minnesota. Intangibles yielding no income are exempt in Maryland and there has been some question whether bank deposits are taxable under the Pennsylvania law. It should suffice that those conversant with the tax in Pennsylvania, Rhode Island, Minnesota and Maryland testify that the financial results are good and that the revenue from this source tends steadily towards increase." (As to whether or not the financial results are good in the various states would depend largely on how poor the conditions of administration were before the imposition of the flat tax). A very important consideration in the success or failure of a flat tax must be the treatment of the right to offset on account of indebtedness.. In some of the states, as Rhode Island and Iowa, debts of any description can be offset against taxable credits with the result that we find unlimited debt deduction (debts for 25 SHALL WE CLASSIFY PROPERTY FOR TAXATION land or tangible property) from a limited class of property (in- tangible). Minnesota goes to the other extreme and permits no offset of debts. In the first case, revenue from the flat tax suffers, and in the second place, considerable hardship may occur to the taxpayer. Prof. Bullock again commenting on this, says : "Both difficulties might be obviated by deducting the appropriate amount of debts which has been followed in the Massachusetts income tax. Taxpayers might be safely permitted to deduct from the value of their taxable in- tangible property such a proportion of their debts as the amount of their taxable intangibles bears to their total property." Oscar Laser of Maryland likewise indicated in a discussion of the classified property tax before the National Tax Association in 1915 how misleading and incomparable are the figures of the low rate tax. He says the classified low rate tax on intangibles in Connecticut includes choses in action (credits) and not shares- of corporations. On the other hand, in Minnesota it includes book accounts and in Maryland it does not include book accounts. The book accounts of merchants are not taxed in Maryland. In Maryland it does. not include mortgages while on the other hand in Pennsylvania it does include mortgages. Maryland does not tax mortgages and in fact does not tax any non-productive se- curities or credits. 1917 INTANGIBLE TAX LEGISLATION Feverish change characterizes the taxation of intangible property in almost every state, especially where the constitution is elastic and permits change in laws. Mr. C. C. Williamson. Municipal Reference Librarian of New York City, indicates some of the many changes in the taxation of intangible property adopted during the last year : "Tennessee has imposed a state tax on mortgages and deeds of trust and some instruments on real and personal property in lieu of all other taxes. The rate is 15c on each $100 of such indebtedness which must be paid before the instrument is recorded." 26 BY JOHN A. ZANGERLE, COUNTY AUDITOR "In Connecticut, mortgage bonds of a corporation se- cured by a lien upon its property in the state are ex- empted to the extent to which the property is assessed locally. If the total amount of such bonds exceeds the assessed value of property in the state, such a percentage of the value of each bond is exempt as the total of assessed value bears to the total amount of bonds outstanding.'" "One of the new Kentucky laws imposes a tax of 20c on each $100 or fraction thereof of indebtedness secured by a mortgage on property in the state if the indebted- ness does not mature within five years." "Minnesota has adopted an amendment imposing a tax of 15c on each $100 of real estate mortgages in the state maturing within five years and 25c on each $100 of such mortgages or parts of mortgage debts not maturing within five years." "The New York 'secured debt' tax law has been super- ceded by a tax on investments constituted along similar lines and also designed to reach securities which have usually escaped the personal property tax. Under the new law, the owner of an 'investment' may secure its ex- emption from the personal property tax for one or more years, not exceeding five, by paying to the State Comp- troller a tax of 20c on each $100 face value for each year of exemption desired. If not exempted under the law, the owner must pay a personal tax without deduction of just debts owing by him. A new penalty has been added in which investments of decedents not exempted under the old 'secured debts' law or under the present law must pay an additional inheritance tax of 5% unless it can be proven that the personal property tax on them has been paid. 'Investments' include bonds of railroad companies, public utility corporations and individual corporations whose properties are located outside of the state, deben- tures and bonds of other states and municipalities in other states and of foreign governments. "'Secured debt' tax laws in force from September 1, 1911, to April 1st, 1915, permit bonds and certain other 27 SHALL WE CLASSIFY PROPERTY FOR TAXATION obligations to be permanently exempted from the per- sonal property taxes on payment of one-half of 1% of face value; and from May 1st, 1915, to October 31, 1915. from April 21, 1916, to December 31st, 1916, permitted exemptions from personal property taxes for five years on payment of a tax of ^4 of 1%. The new law expressly continues the exemption obtained under these laws." "Missouri has passed an act under which 'secured debts' are considered as 'separate and distinct' class of property, for taxation. This includes state and municipal bonds, bonds and notes secured by collateral as well as bonds not payable in one year secured by collateral or deed of trust wholly or in part on- real estate. Some deeds taken to the County Recorder are exempt from all other taxes, state and local, by the payment of 5c for each $100 face value when the date of maturity is less than one year from the date of payment of the tax; lOc on each $100 when maturity is from one to two years; 15c when two to three years ; 20c when three to four years, and 25c if more than four years. Renewals are taxable at the rates pro- vided for the original security." "An interesting feature of the law is a provision per- mitting each county of the state to levy a like tax on secured debts owned by residents of the county, the total of which may not exceed the total levy for state purposes. Each city and town may also levy a secured debt tax on its residents up to the amount levied by the state." "The Michigan secured debt tax has been extended to include bonds of other counties or states." "North Carolina has provided a law which exempts from taxation notes and mortgages given for the purchase of a home, not exceeding $3,000 and running not less than five years nor more than twenty years if the interest does not exceed 5.5%." "A Vermont act permits a mortgagee or assignee of a real estate mortgage to pay the tax and add it to the deed or obligation secured by the mortgage." "By a constitutional amendment proposed in Montana -28 BY JOHN A. ZANGERLE, COUNTY AUDITOR (1917) mortgages on record of real or personal property within the state are to be exempted." "Oklahoma has levied a flat tax rate on bonds, notes of any duration over eight months and choses in action. Such intangibles, if taken or sent to the County Treasurer and listed, will pay a tax of 2% on their face value for five years, or at the same rate for a longer or shorter period." "A Minnesota act amends the definition of the term 'credits' so as to include shares of stocks in foreign cor- porations, the property of which is not assessed in the state. Such property which heretofore has been subject to the regular property tax at 40% of its value will now be listed and assessed as money and credits and taxed at the uniform rate of 3 mills on $1 in lieu of all other taxation." "A North Dakota act, modeled on the Minnesota . statute, levies a rate of 3 mills in lieu of all other taxes, on moneys and credits including stocks and bonds with no deduction for liabilities." "One of the new Kentucky laws levies on deposits a tax of one-tenth of 1% annually in lieu of all other taxes." INCOME TAX LEGISLATION OF 1917 A general income tax was enacted in Missouri last year. The law, which applies to corporations as well as individuals is an adaptation of the Federal income tax law to which it conforms generally. One-half of one per cent, is levied on incomes from all sources in excess of $3,000 for single and $4,000 for married persons. In Delaware an income tax of 1% was levied on the net in- comes of natural persons whose gross income is $1,000 or more. Corporations are now under the income tax in Delaware. Perhaps the most important act of the year is the New York tax of 3% on incomes of manufacturing and mercantile corpora- 29 SHALL WE CLASSIFY PROPERTY FOR TAXATION tions. As is the case in several other states, the administration of this income tax is simplified by making- use of the Federal income tax return. The new tax supplants the personal property tax, capital stock tax and the annual franchise tax as applied to these classes of corporations. (Manufacturing corporations have not been subject to the annual franchise tax). One-third of the revenue is returned to the counties in which the corporations have real or personal property or their principal office in the state. Among other states that have recently adopted the income tax, either general or special, are the states of Connecticut, Okla- homa and Wisconsin. WISCONSIN INCOME TAX The Wisconsin income tax merits special consideration as being the first state to adopt and successfully carry out a general income tax, notwithstanding the adoption during the last session of the legislature of a dozen or more amendments thereto. The Auditor is strongly wedded to its principles and urges its pro- visions for Ohio's dilemma. The progressive rates adopted by this state are as follows : CORPORATION RATES Taxable Income Rate Per Cent 1st $1,000 2 2nd $1,000 2y 2 3rd $1,000 3 4th $1,000 3% 5th $1,000 4 6th $1,000 5 7th $1,000 6 8th $1,000 6 9th $1,000 6 10th $1,000 6 15th $1,000 6 20th $1,000 6 Total Income Tax Taxed $2'0.00 $ 1,000 25.00 2,000 30.00 3,000 35.00 4,000 40.00 5,000 50.00 6,000 60.00 7,000 60.00 8,000 60.00 9,000 60.00 10,000 60.00 15,000 60.00 2'0,000 30 True Rate on Total Whole Am't Tax in Even Thousands 5 20.00 45.00 75.00 110.00 150.00 200.00 260.00 320.00 380.00 440.00 740.00 1,040.00 2. 2.25 2.5 2.75 3. 3.3333 3.7143 4. 4.2222 4.4 4.9333 5.2 BY JOHN A. ZANGERLE, COUNTY AUDITOR INDIVIDUAL RATES Taxable Income Rate Per Cent Tax Total Income Taxed $10.00 $ 1,000 $ 10.00 12.50 2,000 22.50 15.00 3,000 % 37.50 17.50 4,000 55.00 20.00 5,000 75.00 25.00 6,000 100.00 30.00 7,000 130.00 S5.00 8,000 165.00 40.00 9,000 205.00 45.00 10,000 250.00 50.00 11,000 300.00 55.00 12,000 355.00 60.00 13,000 415.00 60.00 15,000 535.00 60.00 20,000 835.00 1st $1,000 1 2nd $1,000 1^4 3rd $1,000 . ..' 1% 4th $1,000 1% 5th $1,000 2 6th $1,000 2% 7th $1,000 3 8th $1,000 3-% 9th $1,000 4 10th $1,000 4% llth $1,000 5 12th $1,000 5Mr 13th $1,000 6 15th $1,000 6 20th $1,000 6 It will be noted that the tax of 1% as to individuals, 2% as to corporations, commences with an income of $1,000, increasing to 6%. Reducing this income to a capital value, after allowing an exemption of $1,200 for husband and wife without children, would mean that a person would have to receive 5% on $20,000 of prop- erty in order to pay any income tax whatsoever, and in such case the tax indeed would be $10, or l/20th of 1% which is equivalent to 5c on $100 of value. It has been figured out that the Wisconsin income tax does not reach 3% until the taxable income or income above the allowed deductions exceeds $7,000. A 3% income tax would amount to only 1^ mills on the principal or capital value, which is equivalent to 15c on $100 of principal. The Wisconsin tax reaches 3 mills on the capital value only when the taxable income is in excess of $12,000. Next to a tax on natural resources and monopolies, no tax is so popular, fair, discriminative and just as an income tax. People who earn a profit are willing to pay a tax thereon but those own- ing non-income bearing property are usually slackers, objectors to the law and its administration. The income tax recognizes the difference in the interest rate of mortgages, deposits, and stocks. It permits offset of indebtedness and losses. It may be drafted on national lines thereby reducing the number of tax systems. In such case, the interpretation as to the national income tax laws are available to state authorities, which is an exceedingly valuable 31 SHALL WE CLASSIFY PROPERTY FOR TAXATION asset to tax administrators. It would save corporations and in- dividuals from making both a federal income tax return and a general property listing. It would of necessity be administered by the state authorities, thus making it more uniform of admin- istration. If it is made a parent tax, permitting deductions of any personal property tax paid, it would be a matter of indiffer- ence as to how* the general property tax were administered by local officials. It can be adopted under our present constitution which pro- vides : ''Laws may be passed providing for the taxation of incomes and such taxation may either be uniform or graduated and may be applied to such incomes as may be designated by law ; but a part of each annual income not exceeding $3,000 may be exempt from such taxation." Far and above and beyond all the aforesaid advantages, it permits of appropriate exemptions to the needy and pressure on the affluent. To appreciate the necessity herefor it is necessary to have some sense of proportion to have some idea as to the present distribution of national incomes. 429,401 persons or families paid an income tax for 1916. This is equivalent to one person in 250. The Bankers' Trust Company of New York esti- mates that there are 19,402,000 families with incomes under $1,300, there being 26,875,000 families in the United States. In other words, 72% of the families have an income of less than $1,300. The Rockefeller income is probably equal to that of 60,000 families and is furthermore equivalent to the surplus or saving of more than 600,000 families, the balance of their wages going to land, labor, capital and taxes as embodied in the price of bare necessities. A tax of 1% against a $1,000 deposit in bank of such a family is a tax on necessaries. Not so a tax of 1% on deposit of $100,000. Such a uniform tax fails to recognize that in the one case a man spends his entire income for labor, interest, rent and indirect taxes, while in the other it goes slightly for necessaries, and largely for pleasure and service by the former, or for surplus. The writer is not in full accord with the idea of both a cor- poration and an individual tax. While the corporation tax sim- plifies somewhat the administration, it does not permit of an 32 BY JOHN A. ZANGERLE, COUNTY AUDITOR elasticity of rate, imposed according- to ability to pay. "Thousands of smaller stockholders rely on a small dividend to pay the necessities of life to defray the cost of living. A few stock- holders on the other hand, may not require such an income for such purposes and use it for surplus or reserve for reinvestment. A uniform rate of taxation on corporate income thus works an injustice. If the income tax applied only to individuals it would reach all profits and income of corporations and permit of proper dis- crimination in rates. DEMOCRACY Uncle Sam, in the income progressive tax rates with $2,000 exemptions to married men has molded more democracy in one year's taxation legislation, than aristocratic and monarchic Europe ever did in its centuries of income and other tax experiences. States with a uniform, inelastic, low or high rate tax system should mark Uncle Sam's deviation from former class-moulding systems. This class-moulding uniform system is democratic in name, but plutocratic and aristocratic in results. It provides for uniformity of rate against every dollar of value without distinction. It will tax the $100 savings account as it will the $100,000 account at the same rate. But the dollar of a man of family, out of work, or receiving $1,000 per annum, is a different dollar than the last dollar of income of a man enjoying $20,000 or more annually. In the former case, the dollar is part of the operating expense of a man's family and in the latter case it becomes surplus to be re- invested. If the $1,000 income man bore no share of his country's burden, the story might be different. But he does. Every dollar spent is impregnated with national, state and local taxes, licenses, public utility charges, private rentals and pinches. The United States government recently raised freight and passenger rates $750,000,000 which is paid by the "man who pays no tax." Tobacco, cigaretts, liquor, internal revenue, etc., involving probably about $600,000,000 of revenue last year were paid mostly by people who "pay no taxes." The steel, oil, iron, coal and copper companies sell over $1,000.000,000 of property annually to other people who 33 SHALL WE CLASSIFY PROPERTY FOR TAXATION charge prices which includes taxes and rentals these prices are paid by "people who pay no taxes." Indeed, the largest levy in history, past, present and probably future of the world, the eight- billion dollar Liberty levy of 1918, about to be enacted, will pro- vide in round numbers $2,000,000,000 revenue from liquor, tobacco and amusement taxes, to be paid largely by "people who pay no taxes," while the $6,000,000,000 will be raised from people who could not earn a bare living except by the use of the labor of the "people who pay no tax" who could not live in comfort without the daily service of the "people who pay no taxes/' and who will pay the $6,000,000,000 only because they can get it from and through "the people who pay no tax." WHY THE INCOME TAX The Auditor in his pamphlet "Why a Corporate Excess Tax" expressed the opinion that 40 corporations of this city have a market value based on earnings, $100,000,000 greater than the physical and taxable value of their property. Indeed nothing is so perplexing to the average taxpayer as the astonishing differ- ence between the amount of capitalization, surplus and undivided profits on the one hand and the assessed value of the physical property of our wealthy corporations on the other. The differ- ence is generally credited to "good will" which is not taxable in Ohio and which is merely the barometer indicating the over-plus capitalization of net earnings of the company, after allowing a profit on the tangible property. Coal companies have recently made from 100 to 1000% on the assessed value of their property. The various oil companies have a physical valuation in the relationship of one to five of their earning capacity. The steel companies have recently earned in many cases over 100% of the assessed value of their physical property. Our war conditions are upsetting all former values. Stocks and bonds in some cases earning 40 and 50% have slumped mil- lions of dollars in value due undoubtedly to the credit system being largely controlled and enlisted in the universal service of winning the titanic struggle of freedom. Millions of dollars of value heretofore taxed as the property of certain corporations 34 BY JOHN A. ZANGERLE, COUNTY AUDITOR are now set up as the property of the government charged only with the labor and interest and other over-head expenses. Credit, formerly taxable, is now in untold millions, enlisted in government service, non-taxable by our state authorities. Over $263,000,000 of Liberty Bonds and Treasury certificates have thus far been sold in this city which approximately equals the total amount of personal property listed last year for taxation excluding public utilities and banks. Indeed, it is becoming increasingly apparent that speculative retail land values, especially of Euclid Ave., Prospect and Su- perior Streets, in fact all thoroughfares in the city, more or less, will require re-appraisal in 1919, with large consequent loss and shrinkage in the duplicate at a time when governmental costs and labor require an unusual increase. The withholding of funds by banks and elimination of non-essential lines of production and dis- tribution are dissipating these surplus unproducing speculative values, even as the greater remuneration in war-time industries attracts the credit market, thereby in turn depressing the real estate market. Earnings on the other hand, are expanding by leaps and bounds. 30 to 50% is not unusual. Yet under the law they are not taxable by our state. Ohio must recognize the changing conditions and conform her taxing method to the present abnormal state of business affairs. The Committee on Taxation Study appointed by the City of Pittsburgh recently, aided in its deliberation by a most intensive student of taxation, Prof. J. T. Holsworth, were strong for the income tax as a panacea for Pittsburgh's impoverished con- dition and recommended the following features as desirable for the State of Pennsylvania and more particularly for the City of Pittsburgh : 1. The adoption of an income tax with the principle of gradu- ation or progression. 2. The placing of the exemption limit low enough (say $1,200 for an unmarried man) to include all incomes above the level of subsistance. 3. The adoption of the principle of "information at source" rather than "collection at source" so far as feasible. 35 SHALL WE CLASSIFY PROPERTY FOR TAXATION 4. The inclusion at the outset of individuals only and not corporations. Experience with the system as applied to persons may lead later to its application to corporations. 5. The adoption of the practice of permitting the person ; paying a personal property tax to apply that payment on his in- come tax, until such time as the income tax can supplant the per- sonal property tax altogether. 6. The distribution of the proceeds of the tax as follows: (a) retention by the state of a sufficient percentage (possibly about 5 to 10 per cent) to cover the expense of administering this and other state tax laws : (b) distribution of the balance to the counties in proportion to their taxable valuations the counties retaining, (say) one-third of such balance, and distributing the remainder to the cities, boroughs and townships within their boundaries in proportion to their respective taxable valuation." The foregoing coming from the pioneer classified property tax state is interesting. The history of taxation legislation in the various states seems to indicate a slow but sure evolution from the general property to the classified property system, followed by the progressively graded income and inheritance taxes and finally by home rule. Ohio, having practically abandoned the state levy, could undoubtedly be induced to surrender the slight levy now inuring to it. The taxation question in such cases will become largely a local question, permitting change and adaptation to local needs. Indeed, the Auditor has of late allowed local authorities to assess their local property on the theory that the tax rate inured so largely to local bodies and very little, one-fourth, one-fifth or even one-sixth to the state and countv. INCOME TAX NOT FINAL The income tax is, of course, not final. Nothing is. The justice of such a tax must not be permitted to develop into a license to corporations to charge prices to the public ad libitum be- cause the state receives a part of the profit and is in fact a partner. While, in other words, the state may only be able to get a small share of the profits, arising in the operation of our steel, copper, ore, coal and oil miles, in the transportation, telegraph, telephone, 36 BY JOHN A. ZANGERLE, COUNTY AUDITOR water power and other monopolies, such participation should not render the public more lax in demanding at the earliest oppor- tunity that these natural resources become public property. They do not and cannot work for the government while they are private. Their private ownership impoverishes our people and besmirches our democracy. The greater the people's need for these mineral rights becomes, the greater is the mortgage the owners claim. It is anomalous that while the United States is depleting her coal, copper, iron and oil mines and impoverishing her forests, the people's need of such impoverished and barren resources cause them to become increasingly and fabulously valuable. The United States will not be organized efficiently for service to her people or for inter-national trade until the natural resources, the props to the whole social, economic and political structure become national. Now is the time, or never to make our country great, invincible and one. DIRECT INHERITANCE Another form of taxation which the public of Ohio will soon demand, and which needs to supplement the general property tax system and the classified property tax system, is that of taxing direct inheritances. The Committee on Taxation Study for the City of Pittsburgh, recommending this tax, reported among other things, as follows : "Both students of taxation and the general public are rapidly reaching the conclusion that a properly levied tax on direct inheritances is a desirable tax. New York first adopted a direct inheritance tax in 1891. Since that time, it has been adopted by 31 other states, one of which has abandoned it, so that it is now in use in nearly two- thirds of the states of the Union. Thirty-one states have a tax on direct inheritance, 20 having a progressive tax and only 11 a proportional tax. A proportional rate must be a low rate. Of the 11 states that have it, 8 have \% or less, while the other 3 have only 2%. Of the 20 states that have a progressive tax, 18 start with the rate of 1%, one with y 2 % and one with 3%. The rate advances as high as 15%." 37 SHALL WE CLASSIFY PROPERTY FOR TAXATION The progressive rate is perfected by exempting a certain amount entirely. The exemption, like the rate, should vary with the relationship of the heir to the deceased. This is the case in thirteen out of thirty-one states using the tax. The exemptions vary from $1,000 to $3,000 in Arkansas to from $5,000 to $25,000 in Oklahoma. Of the eighteen states that have a uniform ex- emption, five exempt $5,000, eight exempt $10,000 and one exempts $2,000, $3,000, $7,500, $20,000 and $25,000. In a few states the exemption is held to apply to the whole estate and in the remainder to the individual share. Under the constitution amendment adopted in 1912, the Ohio legislature is empowered to enact a direct inheritance tax at pro- gressive rates. ADDENDA REVENUE SYSTEMS States Containing Large Cities Illinois: This state is still operating under the general prop- erty tax as in Ohio. Several years ago by initiation of the people, the legislature was requested to submit to the people for ratifica- tion a classification amendment similar to the one proposed in Ohio. The legislature submitted, however, an amendment calling for classification only of "personal" property in 1916. The Sup- preme Court of Illinois has before it the question as to whether it was legally adopted, it not having received a majority of all votes cast at the election. Relief is apparently immediately necessary in Illinois. Cook County (Chicago) secured an aggregate listing of approximately $104,000,000 as representing all the taxable money, credits, bonds and stocks and other intangible property. In Cuyahoga County last year the same forms of property were listed at approximately $125,000,000 although this county represents less than one-third of the population of Chicago. New York: There is no limitation on the taxing power of the New York State Legislature. Since 1880 the policy of the state has been to classify property and to impose a special tax on each class. 38 BY JOHN A. ZANGERLE, COUNTY AUDITOR This state now has a mortgage recording tax of 50c per $100 of value payable once for all. A secured debt tax also is provided. Secured debts cover mortgages on real property outside the state and bonds secured thereby and also debts not secured by mort- gage, which includes certain corporation securities and also the public bonds of other states and counties and their sub-divisions. Promissory notes running for less than one year are excluded from the act. The rate is now 20c per $100 per annum and may be paid for a five year period. One-half of the recording tax inures to the state and one-half to the county. All of the Secured Debt Tax goes to the state. Whatever success attaches to the New York recording and in- vestment registration tax must be due, first to the simple, inex- pensive administration whereby the same is paid originally once for all and not levied annually as in some states, and second, it is largely due to the penalties provided. On mortgages and invest- ments unrecorded and unregistered, an additional and very heavy inheritance tax is imposed and the property becomes subject to the general tax which in New York City runs from $2.00 to $2.34 per $100 of assessment. In other words, the Recording and Regis- tration tax is an alternative partial exemption to a liability at a ten times greater rate. When in Ohio, low, flat rates or a registration and recording tax are adopted with no obligation or liability to a larger and higher rate as a penalty, will it prove as successful as in New York ? The New York feature of a heavy inheritance tax or some similar method may prove its salvation. The fact that these spe- cific taxes are immunities or exemption privileges has undoubt- edly much to do with their successful administration. In 1917 New York adopted an income tax against corporations at a 3% rate, using the United States income tax return. This was in lieu of all personal property and franchise tax. In view of the fact that the burden of the personal property tax is in- significant and the administration perfunctory in New York, a greatly increased revenue return may be expected, although com- paratively to the Ohio burden of corporations, it will be exceed- ingly light. One-third of this tax goes to the locality and two- thirds to the state. So far as I know no serious attempt is made to assess money in bank. New York has no listing system as 39 SHALL WE CLASSIFY PROPERTY FOR TAXATION prevails in Ohio. The assessors mark a taxpayer, so to speak, and notify him of the assessment, whereupon a substantial re- duction is generally granted by sworn representations. There are over 20,000 such reductions annually. New York agitated several measures this year. Among others a limited tax rate of $1.75 was proposed (the rate in Manhattan will be $2.36 this year). Shares of stock in local corporations were proposed to be taxed. The right of offset of indebtedness against property (not only credits) was distasteful to many. A listing system for all worth over $5,000 was sought. All of these failed, largely through the opposition of the New York Tax Re- form Association, with William G. Low as President and A. C. Pleydell as Secretary, incorporated in 1891. This organization is a powerful factor in the shaping of taxation matters for that state. Its platform is illuminating as showing the tendency and direction of leading thought of the leading industrial and com- mercial city of the United States: "1. The most direct taxation is the best, because it gives to the real payers of taxes a conscious and direct pecuniary interest in honest and economical government. 2. Mortgages and other capital engaged in produc- tion or trades should be exempt from taxation; because taxes on personalty tend to drive it away, to put a pre- mium on dishonesty and to discourage industry. 3. Real estate should bear the main burden of taxa- tion; because such taxes can be most easily, cheaply and certainly collected, and because they bear least heavily on the farmer and worker. 4. Besides real estate taxes, corporations should pay in taxes only the fair value of the franchises they obtain from the people. 5. No legislature will venture to enact a good system of local taxation until the people perceive the correct principles of taxation. THEREFORE : We are uniting our efforts to keep up intelligent agitation of the subject in order to improve the system." 40 BY JOHN A. ZANGERLE, COUNTY AUDITOR Pennsylvania: Places the burden of taxation for state pur- poses almost wholly on corporations and insurance companies. Corporations are taxed by the state except on their real estate which is taxed locally. Local taxation falls principally on the real estate of individuals, also on horses, cattle, occupations, licenses and certain corporate real estate as that of manufacturing companies, but not that of railroads and other quasi public cor- porations which are exempt from local taxation upon property essential to the exercise of their franchise privileges. There is an extensive system of business taxes and licenses. The capital stock of manufacturing corporations is exempt from taxation. In counties and municipalities, all offices, posts of profit, professions, trades and occupations as well as single freemen fol- lowing no calling are assessed along with property. Corpora- tions pay a tax of five mills on the actual value of the capital stock excepting capital stock invested and employed in manufac- turing. Corporations which do not pay the aforesaid capital stock tax are required to pay a tax of 3% on their net earnings or income. A corporate loan tax of 4 mills is laid on the nominal value of all mortgages, bonds, certificates of indebtedness of all corporations, public and private, except banks, which pay a 4-mill tax. Bank stocks pay a 4-mill tax on the actual value of the shares but they may elect to pay a tax at the rate of 10 mills on the par value of their stock. Not only is the system of securing taxes from business li- censes and fees as against wholesalers, retailers, brokers and restaurants, etc., extremely heavy, but the system of taxing oc- cupations and callings is very extensive. This latter might be called a presumptive income tax in that it taxes the callings at a fixed amount which may be said more or less to correspond with the value of the occupation or calling; for instance, a carpenters occupation is assessed $400, a lawyer at $1,000, a stenographer at $400, a plumber at $400. The Pittsburgh report, above referred to, says of this tax that "it is objectionable not only because of its obvious inequality and impracticability, but also because, ac- cording to the statement of the taxing officials, it costs more to levy and collect than the revenue produced from it. The report of the New York Bureau of Municipal Research, employed in 1914 to make an efficiency investigation for the county, said of 41 SHALL WE CLASSIFY PROPERTY FOR TAXATION the occupation tax: "Our examination of the operation of the occupation tax indicates that the law requiring it should be repealed." Pittsburgh and Philadelphia seem to have separate systems of taxation and Scranton and Pittsburgh, among others, have re- duced the rate of taxation against improvements so that the same are now assessed at 80% of their value. It is exceedingly difficult to understand the Pennsylvania system, in view of the fact that the state, county and municipalities use a different basis, that these different bases are assessed by different authorities, that some of the collections are apportioned as between state, county and municipality, and that the collections are separately made. Michigan: All municipal, state and county bonds are ex- empt. Apparently there is no annual franchise tax. Corporations pay one-half of one mill on each dollar of capital authorized when starting. All moneys, credits, stocks, bonds, bank stock and real estate are assessed and taxed the same as in Ohio. Real and personal property are assessed at true cash value. The franchise tax on railroad, canal and turn-pike companies, is $'4 of 1% annually on paid in capital stock. Railroad companies doing business within the state must report annually to the State Auditor, giving a list of stockholders, bond and security holders. State Auditor renders a bill to the railroad company of 2% upon the par value of stock and 1% upon the face value of the bonds and securities. This tax is paid by the railroad and deducted from the dividends and interest to the respective owners. Taxes are paid to the State Treasurer before June 30th, and if delinquent bear interest at 2% per month. All mortgages on real estate, located within the state pay a filing fee to the County Treasurer before being presented for record, at a rate of 50c on each $100. State gets one-half of these filing fees and county general fund one-half. Mortgages cover- ing real estate in Michigan and other states are only required to pay a filing fee upon the proportion representing the Michigan property. Mortgages cannot be released, assigned, enforced or received in evidence until this filing tax is paid. Secured debts pay y-2 of 1% on face value; paid to the County Treasurer; one- half goes to the state and one-half to the county. Any mortgage 42 BY JOHN A. ZANGERLE, COUNTY AUDITOR given by libraries, churches, fraternal societies and building and loans are exempt from the filing fee. Moneys deposited in banks are considered credits but other moneys are treated as money. Foreign life, and insurance companies other than life, are taxed 2% of their gross premiums and fire insurance companies 3%. This state also has an inheritance tax, all the income from which goes to the state. Each motor vehicle pays $3.00 annually, the fees going to the state. Minnesota: The law provides: "All real and personal property in this state, and all personal property of persons residing therein, including the property of corporations, banks, banking companies, and bankers, is taxable, except such as is by law exempted from taxation." State, county and municipal bonds are exempt. All property shall be assessed at its true and full value in money. In lieu of all other taxes the following property is classified: Railroad companies annually pay 5% of gross earnings, earned within the state. This is paid to the State Treasurer and is ap- portioned to the respective counties according to the relative use of railway property. State deducts state portion from amount allotted each county in proportion that the state rate bears to the total county rate ; balance is divided between county and city or township through which the line operates. Express companies pay 8%, freight companies 6%, sleeping car companies 5%, tele- graph and telephone companies 3% of gross earnings, earned within the state, which is divided the same as the railroad tax. Trust companies pay 5% of gross earnings annually to County Treasurer. All vessels owned or registered within the state pay 3c per ton to the State Treasurer annually, one-half of which goes to the state and one-half to the county. This state has a more or less complicated inheritance tax which is paid to the County Treasurer; 10% retained and the balance turned over to the state for the benefit of state revenue. In lieu of all other taxes, all mortgages upon real estate, located within the state, paying a filing fee or registration tax of 15c per $100, if the mortgages do not run for more than five years; if for more than five years the fee is 25c per $100. This fee is 43 SHALL WE CLASSIFY PROPERTY FOR TAXATION payable to the County Treasurer before record and is divided, l/6th to the state, l/6th to the county, 2/6ths to the school dis- trict, and 2/6ths to the village, township or city where the land is located. Mortgages cannot be foreclosed, cancelled, assigned or introduced as evidence until the tax is paid. Moneys and credits annually pay a tax of 3 mills on the dol- lar; paid to the County Treasurer, and divided the. same as the mortgage filing fee. Grain in elevators is taxed y^ of a mill per bushel on wheat and flax and ^th of a mill per bushel on all other grains received in elevator in a preceding year; tax is paid to the County Treas- urer and distributed as county taxes. All other property in the state is appraised at its true full value in money and then assessed for taxation purposes as fol- lows : Iron ore mined or unniined and lands containing iron ore at 50% of true full value. Household goods and personal effects 25% ; livestock, merchants' stock, manufacturers' material, tools, implements and unplatted real estate, 33-1/3% ; all other real estate and other personal property, 40%. Upon these various percentages is then levied the tax based upon the tax rate as fixed by the County Auditor. Motor vehicles pay an annual fee of $1.50 each which goes to the state. Massachusetts: This state until of recent years has been under the general property tax on real estate and tangible per- sonal property. Intangible property paid a flat rate until January, 1917, when an income tax measure was put into force. Interest on bonds, notes, etc., and from certain dividends of corporations, partnerships, associations and trusts is taxed at the rate of 6%, an exemption of $300 being allowed if the total income from all sources is less than $600. Income from annuities and excess over $2,000 from professions, trades or business are to pay at the rate of 1^2%. An exemption of $500 is permitted for a husband or wife and $250 for each child or dependent parent, although the total deduction under this head may not exceed $1,000. The law exempts intangible personal property from the tra- ditional general property tax locally assessed and substitutes therefor a uniform rate of 6% on the income therefrom. It does 44 BY JOHN A. ZANGERLE, COUNTY AUDITOR not apply, however, to intangibles exempt under the old system such as savings deposits, federal bonds and taxes against state and municipal securities. Deduction on account of indebtedness is permitted but only such proportion of interest paid out may be deducted from taxable income as the income from intangible prop- erty bears to total income. Corporations, partnerships and stock companies must file with the tax commissioner the names and ad- dresses of -Massachusetts share holders and also the names and addresses of the Massachusetts recipients of interest on their bonds and indebtecjness. Mortgages on real estate are not taxable upon their capital value or upon their income. The general rate of taxation in Boston was 17.70 for 1917. It is said that the yield for 1918 will surpass the 1917 yield by $1,000,000. It can hardly be said that a yield from this limited income tax on intangibles is very great. There was levied for the 1917 tax year for the entire state, $11,638,437.00, which on a per capita basis amounts to about $3.15 per capita. The total yield from tangible and intangible property under the general property tax and income tax for the 1917 year and for the entire state was $26,237,375.00 as against a yield of $23,328,159.00 for the 1916 year under the general property tax. It will be noted that the per capita return from intangibles was $3.15 per capita as against $2.00 realized in Cuyahoga County. Again this is hardly comparable because mortgages on real estate are not taxable either on their capital or their income and are therefore not reflected in the Massachusetts data, while they are included in Cuyahoga County. On the other hand, the income tax does not cover intangibles only but includes income in excess of $2,000 $3,000 from professions, trades, employment and business, which tax is the survival of the Colonial "faculty" tax, now en- forced, but for years a theory, yielding but little revenue. The present rate is 1.5%. In a general way it may be said that while the tax on intangi- bles and professions has yielded something in excess of the old law (about 12%), its greatest virtue lies in the fact that it operated to produce a greater uniformity and a lower rate, the rate .having been reduced to about one-seventh of the former tax on capital value. The assessment of intangible property leaped from $550,000,000 to $2,400,000,000 in a single year, the latter being 45 SHALL WE CLASSIFY PROPERTY FOR TAXATION estimated from the income tax. This merely shows how many tax payers were burdened formerly at excessive rates, while three-fourths of the intangible property owners entirely escaped. The yield from intangibles has remained about the same, while the \ T /2% tax on income, professions, employment, trades' and business has increased from $770,288.00 assessed in 1916, to $2,577,061.56 secured under the income tax. This latter sum con- stitutes 20% of the entire productiveness of this limited income tax, and therefore reduces the per capita productiveness of the tax frcrn intangibles to approximately $2.50 instead of $3.20 as aforesaid. Had income from real estate, dividends of corpora- tions (all excluded by the act) been included, a very large increase would of course have resulted. 46 CITY OF PASSAIC, NEW JERSEY Office of Board of Assessors February 2nd, 1918. r. John A. Zangerle, County Auditor, Cleveland, Ohio. Dear Sir: I am in receipt of your most excellent book of maps showing the method of valuing land and buildings followed by your assessing corps. It is by far the best I have seen, and I've seen a good many. My colleagues on the Board, join me in thanking you sincerely for the most useful present, and in oar efforts to adopt new methods here which in view of little economies is somewhat difficult the book will be very often consulted by us. I am enclosing stamps to cover postage. Sincerely yours, JOHN WOOD-S, Clerk, Board of Assessors, Passaic, N. J. THE TOLEDO COMMERCIAL CLUB Toledo, Ohio jt Mr. Mayo Fesler, Secretary, Civic League of Cleveland, Cleveland, Ohio. My Dear Mr. Fesler: Thank you very much for your courtesy in sending me a copy of Mr. Zangerle's report, entitled "Untaxed Wealth of Cleveland and Why." This is a mighty interesting report. I wish there were more county auditors like yours. Will you not advise me in the enclosed stamped envelope how I might obtain ten additional copies of this report, also how I might obtain the report, entitled "Rules and Principles with Land and Building Values Controlling the 1917 Community Assessment." I should be very glad to pay for these if they are not available for free distribution. Mr. Zangerle is certainly to be congratulated on the manner in which he has attempted to carry out the Ohio tax laws, which we all realize are almost impossible of equitable enforcement. I only wish other counties might point to as good a record as he can. Cordially yours, GARDNER LATTIMER, GL*AJ Director, Public Research Bureau. NEW YORK LIFE INSURANCE COMPANY 346 and 348 Broadway Now York, February 23rd, 1918. John A. Zangerle, Ksquire, Auditor, Cleveland, Ohio. Dear Sir: J spent the best part of Washington's birthday reading with a great deal of interest your admirable pamphlet entitled "Untaxed Wealth of Cleveland and Why." If more officials having to do with the subject of taxation had the ability and the courage to prepare data for public consumption along similar lines, there would be hope that we might soon arrive at an equitable system of taxation for which this country suffers. *********! shall be very glad to receive two additional copies of your pamphlet "Untaxed Wealth of Cleveland and Why," for which I enclose stamps to cover postage. Very truly yours, C. F. CUSHMAN, Manager. in an lit tr, th a , ca RETURN TO the circulation desk of any University of California Library or to the NORTHERN REGIONAL LIBRARY FACILITY Bldg. 400, Richmond Field Station University of California Richmond, CA 94804-4698 ALL BOOKS MAY BE RECALLED AFTER 7 DAYS 2-month loans may be renewed by calling (510)642-6753 1-year loans may be recharged by bringing books to NRLF Renewals and recharges may be made 4 days prior to due date. DUE AS STAMPED BELOW )5 by Ser- . Hist iiitual he ob- le-cen- nality, easure politi- retro- m for- if en- ;t ever le con- f man's rength way to ?comes n. %hts of >y have Father- ns and mption e utter leans a history i 1 MAY 1 2 2001 la 1 is tf th ai n la A\ o\ 12,000(11/95) ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ compreh 75m-8,'3i ? n an & P ro " gress in ow its dev- astating burdens; the masses would feel its economic pinch. Local and state affairs must be subordinated to our national and international crisis. Therefore, before you read this pamphlet, do your duty to your country by buying FOURTH LIBERTY LOAN BONDS 33 (September-October) Gaylord Bros. Makers Syracuse, N Y. nrr.MN.24jm YC 2: UNIVERSITY OF CALIFORNIA LIBRARY