I.I13RARY
or Till'
UNIVERSITY OF CALIFORNIA
.Q.55.75.
6
TAXATION OF CORPORATIONS,
REPORT ON SYSTEMS EMPLOYED IN VARIOUS STATES.
PREPARED UNDER THE DIRECTION OF THE INDUSTRIAL COMMISSION
BY
G-EORGKE CLAPPERTOlSr,
EXPERT AGENT.
CONTENTS.
Letter of transmittal: Page.
Review of conditions 7
Massachusetts:
Poll tax 11
General property tax _ 11
Mortgages 12
Personal property .' 12
General corporation tax _ _ 14
Railroads . . 17
Summary of results _ . . 17
Street railways _ 17
Banks ., 18
Trust companies 19
Insurance companies 19
Inheritance tax _ 20
Liquor-license tax. _ 20
Nature of personal property taxed _ 21
Recommendations of the tax commission 1 23
Minority report ___ 24
Report of the legislative committee- 25
Connecticut:
Property tax 29
Property directly taxable _ 30
State revenues 32
Railroads 32
Tax on nonresident stock _ _. 33
Domestic insurance companies 33
Foreign insurance companies 33
Savings banks _ 33
National banks _ _ 33
Telegraph and telephone companies 34
Express companies _ 34
Charter fees on capital stock 34
Investment tax _ _ _ . 34
Military commutation tax _ ._ 35
Inheritance tax _ 35
New York:
General property tax _ . _ 36
Real estate 36
Personal property 37
Taxation of corporations 40
Special franchise tax _ 40
Organization tax _ 41
License tax on foreign corporations '. _ . 41
4 CONTENTS.
New York Continued/ P age .
Capital-stock tax on corporations 41
Transportation and transmission companies 42
Street and elevated railroads 42
Water, gas, and electric companies, etc 42
Insurance corporations 42
foreign bankers 42
Banks 43
Taxation of railroads _ 44
Excise tax on sales of liquor _ 45
Transfer or inheritance tax 46
Report of the joint committee _ _ 46
New Jersey:
Local taxes _ 48
General property tax v 48
Deductions for debts 49
Boards of equalization and review 49
Taxation of corporations _ 51
Incorporation fee 51
Franchise tax _ 51
Tax on gross receipts or earnings 51
Franchise tax on capital stock. 52
Special franchise tax ."_ 53
Local taxation of corporations 53
Banks 54
Railroad and canal companies 55
Inheritance tax _ 57
Liquor licenses. 57
Pennsylvania :
State taxes 58
Bonus on charters 58
Tax upon capital stock _ _ . 59
Tax on loans of public and private corporations. 60
Tax on gross receipts of corporations . 61
Tax on premiums of insurance companies 61
Tax on bank stock . 62
Tax on net earnings 63
Building and loan associations 63
Excise tax upon express companies 63
Railroad taxation . 64
State tax from counties 64
Tax on collateral inheritances 66
Tax on direct inheritances 66
Tax on writs, wills, deeds, etc 66
Licenses -- 66
State taxation 67
Merits of the system 6?
Recapitulation of the State taxes on corporations _ - - - 68
Ohio:
General property tax
Real estate 72
Personal property -- 7%
Listing system _ - 73
Corporations in general i - 75
Banks.. 75
CONTENTS.
Ohio Continued. Page.
Foreign insurance companies
Railroad companies
The Ohio tax commission's report on railroads
Telegraph, telephone, and express companies
Sleeping, palace, chair, dining, and buffet cars, and freight line and
equipment companies
Excise tax on electric light and gas companies, etc ...
Collateral inheritance tax
Liquor and cigarette taxes
Indiana:
General property tax
Personal property - - -
Corporate taxation -
Rate of taxation
The Indiana system - -
Abstract of tax duplicates from 1878 to 1899 ... ... 100
Michigan:
General taxation system - 103
General property tax exemptions - 103
Personal property 104
Listing
Board of State tax commissioners 105
Banks - - 105
Corporations in general 106
Specific taxation system 108
Railroad specific-tax law 108
Express, telegraph, and telephones companies 115
The Atkinson law of 1899 - 116
Insurance companies . . 117
River improvement companies _ - - 117
Mining companies 117
Road companies 118
Franchise fees - 118
Liquor tax 118
Inheritance tax _ 118
Illinois:
Constitutional restrictions 119
Local assessment system _ . _ _ _ 120
Personal property 120
Mutual building and loan association stock 122
Property of banks, bankers, brokers, and stock jobbers 122
Pawnbrokers 122
Capital stock of corporations and franchises of persons 122
State and national banks 123
Railroads . _ 123
Telegraph companies _ 125
Insurance companies 126
Inheritance tax _ . 126
Assessment of property _ 126
Inequalities and iniquities in assessment 127
Assessment of the capital stock of corporations 128
Personal property assessed in 1890 - 129
Illinois tax commission.. 132
(3 CONTENTS.
Wisconsin: Page.
General property tax 134
Liquor license fees _ 137
Poll tax _ 137
Defects in the property-valuation system 137
Taxation of notes, bonds, mortgages, and other securities 139
Taxation of corporations _ 140
Railroads 140
Sleeping-car companies. 143
Freight-line companies and equipment companies 144
Express companies . _ 145
Telegraph companies .. . . , 146
Telephone companies _ 147
Street railway and electric light and power companies 147
Gas and water companies * 147
Trust, annuity, and guaranty companies - 148
Banks.. 148
Title guaranty companies 148
Boom companies, etc _ _ ._ 148
Plank and toll roads _ 149
Fire and navigation insurance companies 149
Life insurance companies 149
Casualty companies 149
Summary _ . 149
Report of the Wisconsin State tax commission 150
Personal property . 151
Recommendations of the commission 154
Iowa:
Assessment of real and personal property 158
Listing _. . --.. 159
Mortgages _ . . . . 159
Valuations .. 161
Banks 162
Shares of corporation stock . 162
Stock of building and loan associations _ _ 163
Telegraph and telephone companies - - 163
Insurance companies . 164
Railroads '. 166
Water and gas works, electric plants, street railways 168
Express companies _ 169
Collateral inheritance tax 170
Texas:
Real estate. 171
Personal property 172
Mortgages 172
Poll tax 173
Tax on occupations 173
Corporations - - - 175
Railroads 176
Express companies 176
Other special taxes 177
Banks.. , 177
Incorporation and franchise taxes. 178
TAXATION OF CORPORATIONS.
To the Industrial Commission:
I have the honor to submit herewith a report or compendium of the systems
of taxation with especial reference to corporations in each of the following States,
viz: Massachusetts, Connecticut, New York, New Jersey, Pennsylvania, Ohio,
Indiana, Michigan, Illinois, Wisconsin, Iowa, and Texas. These States were
selected, as directed by the Commission, because of their industrial prominence
and the varied character of the systems of corporate taxation therein.
It was found that one feature common to all these States, and running through
all systems, namely, the general property tax, or as it has been designated, the
"American system," applies not only to individual properties, but also, directly
or indirectly, to a greater or less extent, to corporate property as well. This
observation is doubtless true of all States in the Union.
For this reason it was deemed necessary to set forth the distinctive features of
the Entire system of taxation in each State applicable to general as well as cor-
porate property, not only as a matter of information, but in order to present an
intelligent and comprehensive view of the various methods for the assessment
and taxation of corporations, the reasons and principles upon which they are
based, and their comparative merits and results.
While in some States there is a marked tendency toward the segregation of
corporate property from the general property tax, and its subjection to special
methods better adapted to property of that peculiar character and reducing the
taxation thereof to a rational and harmonious system, thus far the separation is
nowhere complete.
An effort has been made therefore to present the characteristic features, the
merits and defects, of the system in vogue in each State, and in some instances
the efforts made to reform it and the difficulties encountered, giving especial
attention to the taxation of corporations.
In each instance it has been necessary to examine the taxation laws, the work
of legislative committees and appointive tax commissions, and a mass of public
reports and records in order to present intelligently the system of taxation exist-
ing, that your Commission might in the end have a basis for suggestions and
recommendations as to changes and reforms in the State systems, and as to inter-
state action with a view to uniformity of taxation methods applied to corporations.
This investigation has necessarily been somewhat tedious and laborious, and
this report, in view of the limitation in the time allotted therefor, is submitted
with the consciousness that it is not as thorough and complete as the writer would
have desired and not devoid of imperfections. I trust, however, that it may serve
the purpose of your Commission.
REVIEW OF CONDITIONS.
In the States hereinafter reported upon are represented substantially all the
special methods thus far devised for the taxation of corporations of a quasi-
public character, except that of a fixed rate upon net earnings, which is in vogue
in the States of Delaware and Virginia, and advocated by some distinguished
7
8 INDUSTRIAL COMMISSION.
writers upon the subject of taxation. It is a simple method, requiring no special
elucidation. While, as an abstract principle, it may perhaps be regarded as theo-
retically correct, still, under existing economic conditions and varied business
development of such corporations, and in view of the experience of some States
with it, it can hardly be regarded as preferable in actual practice to that of a
State"tax upon gross earnings.
The inadequacy, under existing economic conditions, of the general property
tax, so called, and its utter failure, even under the most rigorous and effective
administrative methods that have been devised, to reach for taxation property of
a corporate and intangible character, are recognized in all the States named.
It is clear that under this system there are numerous forms of wealth that do
not and can not be made to bear a just share of the public burdens, and which in
large part evade or escape taxation, and some forms which, when reached at all
under the prevailing general property tax, are riot equally and uniformly but
unjustly and disproportionately taxed, as compared with other property. The
inevitable result is that real estate and some forms of personalty are unduly bur-
dened with taxation.
These conditions under the search light of aggressive investigation have engen-
dered positive public and political agitation in many of the States, and have
inclined people in every State, keenly alive to prevailing injustice, to vigorous
criticism and denunciation of "tax-dodging" individuals and corporations.
While State tax officials, tax commissioners, and writers upon taxation, with
considerable justification, inveigh against the efforts of individuals and corpora-
tions to evade and escape just taxation, it should in justice be said that there is a
lack of appreciation of the fact that the principal cause of these conditions is
inherent in the system itself, rather than in a general desire to avoid just taxa-
tion. In all the States named vast amounts of property are virtually exempt
from taxation, and other property is unjustly and grievously burdened through
the operation of bad systems and injudicious laws. It is useless to inveigh against
tax dodgers and faulty administration unless the methods of taxing such classes
of property are changed.
Representatives of corporate management and others are animated usually not
so much, by the fear of " equal taxation " as of unequal taxation under the pre-
vailing systems.
Justice Cooley, in his work on Taxation, says:
The assessment of personal property reaches so small a portion of the amount
really protected by Government that it might almost be said that laws for the
purpose remain on the statute books rather as incentives to evasion and fraud
in the dealings of the citizen with the State than as a means of raising a revenue
for public purposes.
This might aptly be applied to the system for the taxation of corporations as
well as intangible personalty in many of the States, a system that puts a premium
upon evasion and inflicts a penalty upon honesty and weakness.
The remedies seem to lie in the adoption by the several States, working in har-
mony so far as may be, of new and modern methods based on correct principles
for the taxation of special forms of property, separate and distinct from the
general property tax in respect to both valuation and rates of taxation, and a
thorough administration thereof.
In the States investigated there has been more or less departure from the gen-
eral property tax toward the adoption of special methods for the taxation of
corporations. With few exceptions, however, efforts in that direction have thus
far been devoid of real method or design, and upon the whole " chaos " is the only
descriptive term applicable to existing conditions in Commonwealth taxation.
There is a marked tendency in all these States toward making earning power
the basis of taxation for quasi-public corporations. Properly directed, this must
TAXATION OF COBPOKATIONS. 9
be regarded as the correct principle and capable of practical application to such
corporations under existing industrial conditions. There is also, however, a strong
inclination to cling to the old system in part, and to use this principle in conjunc-
tion with some feature or factor of the property tax, more particularly to use
earning power as a basis of property valuations in connection with property tax
or ' uniform " rates.
A mistaken conception of the property-tax theory of " uniformity," and a gen-
eral disposition to apply the misleading iron rule of equal taxation to all forms
of property, are revealed in most of these States, so far as public sentiment is con-
cerned. As bearing upon this observation, the following is quoted from the case
of Pacific Express Company v. Seibert (142 U. S. Supreme Court Reports, 351):
This court has repeatedly laid down the doctrine that diversity of taxation,
both with respect to the amount imposed and the various species of property
selected either for bearing its burdens or for being exempt from them, is not
inconsistent with a perfect uniformity and equality of taxation in the proper
sense of those terms; and that a system which imposes the same tax upon every
species of property, irrespective of its nature, condition, or class, will be destruc-
tive of the principle of uniformity and equality in taxation and of a just adapta-
tion of property to its burdens.
The great problem of Commonwealth taxation, of commanding interest in all
States, consists practically of reform in the methods of taxing corporations and
individual personalty of an intangible character, and an improved administration
of a circumscribed property tax.
The principles that taxes should be levied in proportion to ability to pay, and
that, even under the general property system, they are designed to be upon per-
sons rather than upon property, are generally recognized. Under existing eco-
nomic conditions property is no longer regarded as an adequate test of ability to
contribute to the support of the government. Hence the marked tendency to
apply different tests to special classes of property owners. There is a growing
class of citizens who receive large incomes or salaries, and enjoy all the advan-
tages of society and good government, who, though possessed of abundant ability
to pay taxes, are, under existing systems, practically exempt from taxation or
inadequately taxed. This class is receiving and must continue to receive especial
attention in the revision or reformation of taxing systems in the several States.
While a tax upon individual incomes is generally conceded to be just and equi-
table in principle, it has been received with disfavor and regarded as impractical
in its operation. It is apparent, however, to the careful student of Commonwealth
taxation, that because of its justice and the increasing efficiency of State admin-
istrative methods that are being evolved, the idea of a limited supplementary
State income tax is growing in favor and coming to be more generally regarded
as a practical measure under State supervision.
Such a tax has always prevailed in Massachusetts, the present law of that Com-
monwealth, which the legislature recently refused to abandon, imposing a tax
upon so much of the income of a profession, trade, or employment as exceeds
the sum of 2,000, but exempting income derived from property subject to taxa-
tion. While this law is imperfectly administered, it is not infrequently suggested
by eminent authorities upon the subject that a supplementary income tax of that
character imposed directly by the States, under modern methods of administra-
tion, would become an efficient and practical source of State revenue. In con-
junction with the principle of taxing corporations upon earning capacity it seems
destined to receive increasing consideration in the several States.
GEORGE CLAPPERTON.
MASSACHUSETTS.
The principal source of revenue in this State, as in most others, is the general
tax on property.
POLL TAX.
A peculiar feature still retained in the taxation system of this State is the poll
or capitation tax levied on every male inhabitant above the age of 21 years, citizen
or alien, and upon every female citizen of said age who requests to be so assessed.
In the early period of our history the poll tax was quite general and popular, but
gradually became obnoxious and, in some of the States, as Ohio, was prohibited
by constitutional provision.
Careful provisions are made in the Massachusetts law for obtaining accurate
lists of those subject to this tax, and the assessors assess upon them State and
county taxes. The State tax is assessed upon the number of polls in each place
until such assessment amounts to $1 upon each poll, the remainder of. said tax
being then assessed upon property. County taxes are assessed in like manner.
The result is that the rate of poll tax is $2 per year throughout substantially the
whole State.
Formerly the payment of this tax was made by law a condition of the exercise
of the franchise and was in most part paid either by the person assessed or by
political organizations. This provision was repealed by an amendment of the
constitution in 1891. Since that time the collection of the poll tax from those not
liable to property tax has been difficult, and in cities it is now very largely uncol-
lectable from the persons who are not taxed upon property. Notwithstanding
this, the cities and towns of the State are required to contribute their apportioned
taxes, State and county, whether by poll tax or property tax, so that the resources
of State and counties are not affected by failure to collect poll taxes.
The number of persons assessed for poll tax in 1896 was 723,736; the number of
persons assessed for that tax only was 511,659, and the total amount of taxes
assessed on polls was $1,434,629. The total amount assessed on polls in 1898 was
$1,478,630, and in 1899, $1,504,990.
GENERAL PROPERTY TAX.
All property, real and personal, of the inhabitants of this State not expressly
exempted by law is subjected to taxation. There is the common exemption of
property used for the public good, and special exemptions designed to lighten the
burden of taxation upon those not able to bear it easily. Conspicuous in the latter
class are the property of soldiers or sailors who served in the war of the rebellion,
or their wives (exempt up to $2,000 if they suffered certain disablements or
became permanently incapacitated for manual labor, providing their estate does
not exceed $5,000) ; the tools of a mechanic not exceeding $300 in value, and house-
hold furniture not exceeding $1,000 in value.
The tax on real estate is by far the most important, nearly three-fourths of the
taxes of the State being assessed on real property. The taxation of real estate is
based in the usual manner upon assessment by estimate and valuation by local
assessors.
There seems to be an unusual lack of uniformity in the assessed valuation of
real estate in this State. The tax commission in its report of 1897 shows that
taxes in many of the farming towns, as a result of industrial causes, are excessively
and unfairly heavy as compared with taxes on real property in other parts of the
State, real estate in some towns being assessed above its selling value and the rate
often being $16 to $20 and sometimes more per $1,000.
The total assessed valuation of real estate for taxation in 1896 was $2,040,200,644.
The total amount of taxes assessed upon real estate was $30,120,730, out of a total
tax assessment on polls and property of $39,954,339.
In 1898 the assessed valuation of real estate was $2,182,596,651. The total
amount of taxes assessed upon real estate was $33,394,643, out of a total tax assessed
11
12 INDUSTRIAL COMMISSION.
on polls and property of $43,792,378. In 1899 the total assessed valuation of real
estate was $2,247,094,547, and of personal property, including resident bank stock,
$628,926,675. The tax on real estate was $34,188,810, out of a total tax on polls and
property of $43,038,672.
MORTGAGES.
A distinguishing feature of the method of taxing real estate is the treatment of
mortgaged property. The provisions of the statute are designed to impose only
one tax on real estate, whether mortgaged or not. the mode of payment of this one
tax being left to adjustment between mortgagor and mortgagee. This applies
only to mortgages on taxable real estate; mortgages on realty situated outside the
State or on real estate within it but exempt from taxation, such as church property,
are taxable as personal property to their holders. The mortgagor or mortgagee
of taxable realty may make to the local assessor a statement of the amount of the
mortgage and. name and residence of the holder of the mortgage interest therein.
The law provides that when this is done, the mortgage is to be taxed to the holder,
usually at its face value, but not to an amount in excess of the fair cash value of
the mortgaged property. The making of the statement, however; is optional with
the mortgagor, and there is usually no inducement to make it. mortgages being
invariably drawn obligating the mortgagor to pay all taxes. The mortgagee is
therefore virtually exempted from taxation on the mortgage.
This method was adopted in 1881. Prior to that time both the mortgage and the
mortgaged property were taxed for their full amounts to their respective owners.
It is pointed out by the tax commission of 1897 that under this former method
the taxation of mortgages was carried out with great uncertainty, and the larger
proportion of mortgage securities held by private lenders were not in fact taxed;
the rate of interest, however, was affected by the risk of taxation.
The result of the practical exemption of mortgages from taxation by the law
of 1881, providing for the taxation of mortgaged real estate once for all, and per-
mitting mortgagor and mortgagee to arrange between themselves for the payment
of the taxes, was a reduction of the rate of interest, not by the average rate of
taxation, but about three-quarters of 1 per cent. The competition in mortgage
investments was greatly increased, and there was a general and substantial decline
in the rate of interest.
The commission, after thorough investigation, recommends the retention of
the present method of one tax upon mortgaged property, with right of adjust-
ment of payment between mortgagor and mortgagee. The commission discusses
" the other feasible method," that followed by the State of California. There
also but one tax is imposed upon mortgaged property; the mortgagor is called
upon to state the name of the mortgagee and the amount of the mortgage, each
being taxed in proportion to his interest in the property, and no agreement for
payment of all taxes by the mortgagor is recognized. The effect of this method,
as shown by the investigation of the commission, is that while the lender is
taxed upon the full amount of his mortgage, the debtor is compelled to pay a
rate of interest higher by the amount of the tax and even by something more
mortgages in California usually bearing 2 per cent additional interest as com-
pared with other loans or investments.
In view of the experience in California and general probabilities, the commis-
sion concludes that the taxation of mortgages by an unfailing process would
increase the interest charged at least to the extent of the tax, and says that if the
existing method is defective, in that persons of means lending on mortgages do
not contribute proportionately to the public burden, the remedy should be sought
in some other way. As a means of securing greater contributions from the
estates of persons of means, the commission recommends an inheritance tax and
an income tax estimated according to the rental value of the habitation occupied.
The joint legislative committee on taxation, in its report, upon consideration
of the report of the special tax commission on, the subject of the taxation of
mortgages, says that the present law seems to work well, and that to repeal
it would be an unpardonable step backwards.
PERSONAL PROPERTY.
The statutes provide that, siibject to certain exceptions hereinafter considered,
" all personal estate within or without the Commonwealth shall be assessed to the
owner in the city or town where he is an inhabitant on the 1st day of May."
The exceptions to the rule that personal property is taxable to the owner at his
TAXATION IN MASSACHUSETTS. 13
place of domicile relate to certain specified kinds taxed where situated, or where
the business for which they are used is conducted. They consist in general of all
goods, wares, merchandise, and other stock in trade or manufacturing within
the State, whether the owners reside within or without the State. Such property
is taxed where the business for which it is used is carried on, whether the owner
resides there or not. The owner may reside in some other part of the State or
outside the State. Stock in trade outside the State, owned by inhabitants thereof,
is taxed to the owner where he lives. These provisions, however, do not apply
to stock in trade owned by corporations organized within the State.
" All machinery employed in manufactures whether owned by corporations or
individuals is assessed where it is situated or employed." Horses, mules, neat
cattle, sheep, and swine, when kept in places other than those where the owners
reside, and horses employed on stages or other vehicles for transportation of pas-
sengers, are assessed to the owner in the place where they are kept. All personal
property within the State leased for profit is assessed for taxation where .such
property is situated, to the owner or person having possession thereof.
As to these exceptions of tangible and visible property, the statutes depart from
the general rule that personalty is taxable to the owner at his place of domicile,
but property of an inhabitant of the State situated without the State is treated
according to the general rule.
Personal property in general is assessed for taxation by local assessors, who are
directed to require all inhabitants to bring in true sworn lists of all personal
estate owned by them. There is, however, no direct penalty imposed for failure
to comply with this requirement, the assessors in such cases being required to ascer-
tain, according to their best information and belief, the amount and kinds of
personal estate; but from the tax assessed the taxpayer may be allowed an abate-
ment only in case the tax exceeds by more than 50 per cent what it would have
been if return under oath had been made. In actual practice, according to
the best" information obtainable, but a small portion of personal property, even
of an intangible character, is assessed on sworn returns of taxables, the greater
portion being by doomage of local assessors.
The law defines with much detail what is personal property for the purpose of
taxation. It may be classified under the following heads:
1. Goods, chattels, money, and effects, wherever they are.
2. Ships and vessels not engaged in the foreign carrying trade.
3. Money at interest and other debts due the persons to be taxed over and above
what they are indebted or pay interest for. Debts secured by mortgages on taxable
real estate are expressly declared to be not included in such taxable debts, and
may not be used by the debtor to reduce the amount of taxable debts due him.
4. "Public stocks and securities, bonds of all railroads, including street railways,
stocks in turnpikes, bridges, and moneyed corporations within or without the
State." But shares in corporations chartered by the State or organized under its
general laws are not taxable to the holder for State, county, city, or town pur-
poses, the taxation of such property being secured by the general franchise tax
levied on corporations.
5. Income from an annuity, from ships and vessels engaged in the foreign carry-
ing trade, and so much of the income of a profession, trade, or employment as
exceeds the sum of $2,000 a year; but no income is taxable if derived from prop-
erty subject to taxation.
Under this provision incomes from professions and salaries are taxable, and it
has been held' that incomes from trade, being derived from skill and manage-
ment in business, as well as from the use of capital, are taxable, even though
the property engaged in the business was already taxed.
The total valuation of personal property assessed for taxation by local assessors
in 1896 was $582,319,634, the amount of taxes $8,398,980. The valuation and tax
upon real estate for the same year were about three and one-half times these
amounts.
In 1898 the assessed valuation of personal property was $581,646,133, and the
amount of taxes $8,719,105. The assessed valuation of real estate in that year was
about three and three-fourths times that of personalty. In 1899 the assessed
valuation of personalty was $628,926,675, and the amount of taxes $9,344,872.
The committee on taxation of the Boston Executive Business Association
reported: " The personal property of both the city and State, which under the law
is subject to taxation, can not be less than twice the value of the real estate.
Upon this all writers agree."
The real estate in 1896 being $2.040,000,000 in assessed value, the personalty
would, on this basis, be $4,080,000,000, instead of $582,000,000.
14 INDUSTRIAL COMMISSION.
GENERAL CORPORATION TAX.
The distinctive feature of the system of taxation of corporate property in
Massachusetts is that it is administered wholly or in part by officers of the State,
instead of by local officers.
The general franchise tax, so called, on corporations chartered or organized
under the laws of the State, designed to reach for the purpose of taxation all the
property of corporations, once and once only, is the most important tax in the
general system. " It is unique in the tax experience of the States of the Union."
The real estate and machinery of all corporations situated within the State are
assessed by the local authorities in common with other real estate and personalty
and the taxes thereon paid directly to the respective towns and cities where the
property is located, the other personalty and the stock being exempt from direct
local taxation.
The remainder of the property of corporations (except banks and some other
corporations, taxation of which is provided for by special statutes), as deter-
mined by the market value of outstanding shares in excess of the value of real
estate and machinery taxed locally, is assessed and taxed by the State directly
and payment made in the first instance to the State treasury; a large portion of
the taxes so raised is then distributed among the towns and cil^es of the State.
This annual corporation tax applies to corporations of the most various kinds,
such as manufacturing and trading establishments, railroads, street railways, gas
and electric-lighting companies, electric-power companies, private water-supply
companies, telegraph and telephone companies, and certain insurance companies.
This general corporation tax is assessed by the tax commissioner of the State,
valuation being based upon returns from the corporations and from local assessors
and such other information as the commissioner may obtain.
Every corporation subject to this tax is required to return annually to the tax
commissioner, under oath of its treasurer, a complete list of its shareholders and
their places of residence, the number of shares owned by each, the amount of
capital stock of the corporation, its place of business, the {jar value and the mar-
ket value of its shares on the 1st day of May, and a detailed statement of the
works, structures, real estate, and machinery subject to local taxation within the
State; in the case of railroad and telegraph companies, the whole length of their
lines and the length of so much of their lines as is within the State; in the case
of other corporations, the amount, value, and location of all works, structures,
real estate, and machinery owned by them subject to taxation without the State.
Returns to the tax commissioner are also made by the local assessors, showing
the names of all corporations and containing statements of their property and
the amounts for which such property is valued for local taxation.
From these returns or from other sources, at his discretion, he not being bound
by the returns of the corporation as to the value of corporate franchises or by the
returns of local assessors as to the value of the property assessed locally, the com-
missioner ascertains the true value of the shares of each corporation, which is
designated as the " true value of its corporate franchise."
The commissioner, in certain cases, is authorized to examine the books of cor-
porations and to examine, under oath, the treasurer and directors.
The tax commissioner then, from the aggregate value of the shares of the cor-
poration thus determined, makes the following deductions:
First. In the case of railroads and telegraph companies whose lines extend'
beyond the State, he deducts such a proportion of the whole valuation as that
part of the line without the State bears to the entire line, and also deducts an
amount equal to the value of real estate and machinery located and subject to
taxation within the State as determined by him.
Second. In the case of a telephone company, so much of the whole valuation as
is proportional to the number of telephones used or controlled by it without the
State is deducted, and also the value of all stock in other corporations held by it
upon which it has paid a tax for the preceding year.
Third. In the case of an insurance company, the value of mortgages on real
estate held by it subject to local taxation.
Fourth. In the case of all other corporations, there is deducted an amount equal
to the value of the real estate and machinery subject to local taxation within or
without the State.
The true value of corporate franchises, thus diminished, is then taxed at a rate
which is regarded as the average rate of taxation in the State, determined by an
apportionment of the whole amount of money to be raised by taxation upon prop-
erty in the State during the current year, as returned by local officials, upon the
aggregate valuation of the preceding year.
MASSACHUSETTS COEPOEATION TAXES. 15
The amount of the tax thus computed on corporate excess is paid by each cor-
poration to the State treasurer, upon notice from the tax commissioner of the
amount due, thus reducing the expense of collection to a minimum.
The weakness of this system of taxation upon corporate excess is the method of
determining the rate of taxation, which, theoretically fair and equal as com-
pared with other property, is likely to be practically unequal and excessive
because of the more accurate method of ascertaining the " true value " of the
property assessed. The " average rate " obtained by this method is apt to be une-
qual and misleading, and laws similar in general provisions have in some States
been held unconstitutional and void as violating the requirement of uniformity
provided in State constitutions. A better method, in some respects, would be a
rate fixed by law.
However, it is claimed that under penalties applied with ease and certainty these
taxes are, as a rule, paid promptly and with little complaint, the corporations
readily adjusting themselves to them. This tax having been paid into the State
treasury is in part distributed among cities and towns of the State and in part
retained by the State. Such proportion of the tax as corresponds to the num-
ber of shares of stock owned by residents of the State, as shown by the corpora-
tion's list of stockholders, or such other evidence as the tax commissioner may
obtain, is paid to the several cities and towns where such shareholders reside.
The remainder of this tax, representing shares of stock held outside the State, is
retained in the State treasury. This apportionment of tax according to the resi-
dence of shareholders is thought to work inequitably.
Formerly these provisions applied to street-railway companies, whether char-
tered in or without the State, doing business within the State, but by the act of
1898 the distribution of the franchise taxes of street-railway corporations is
changed from the towns where the stockholders reside to the towns where the
tracks are- located, in proportion to the length of tracks therein.
Foreign telegraph companies using lines within the State are required to make
like returns and pay a like tax.
Mining companies chartered or organized within the State for the purpose of
mining without the State are required to make sworn reports of the amount of
their capital stock, and pay thereon to the State treasurer a tax of one-twentieth
of 1 per cent upon their capital stock. Such companies are also required to make
accurate returns, under oath, of their business and profits, and the tax commis-
sioner, from such report or otherwise, determines the net profits or gains of each
such corporation, and assesses a tax of 4 per cent upon the amount thereof.
Yield of the general corporation tax in 1896.
Net amount assessed by tax commissioner $3, 829, 528. 02
Amount certified as due to cities and towns 2, 729, 665. 85
Balance accruing to the State 1,099,862.17
From the excellent report of the Massachusetts tax commissioners, made in 1897,
from which source we derive much of the information herein contained, we quote
the following comments upon the Massachusetts system of taxing corporations,
the italicizing being our own:
" We have seen that the methods of taxing corporations chartered by the State
and banks are in their main lines similar. We shall accordingly consider them
together.
" The taxation of shares in domestic corporations and in banks is in striking
contrast with that of bonds, foreign stocks, and other securities taxable to the
holder. Here there is no demand for a statement from the individual taxpayer,
no doomage by local assessors, no guesswork, no possibility of evading or dimin-
ishing taxes by change of domicile, no question of double taxation. The real estate
and machinery are assessed locally, doubtless not with perfect equality and justice,
but probably as carefully as would be possible under any system. The corporate
excess is taxed at a uniform rate by the State. The taxes are regular and certain.
They are heavy, and they yield a large revenue. The rate of taxes on corporate
excess for the last 15 years has been from year to year not far from $15 per $1,000,
or about 1^- per cent on the capital. The assessment in 1896 was $3,829,528.02.
Yet, little complaint is heard regarding these taxes a signal proof that the tax-
payers accommodate themselves, if not with ease, at least without serious com-
plaint, to burdens which are steady, regular, predictable, and for which, in
consequence, they are able to make calculations and adjust their affairs.
16 INDUSTRIAL COMMISSION.
" The corporation tax is particularly simple, and is assessed with unerring exact-
ness in the case of large and well-known corporations whose shares are regularly
dealt in, and consequently have a publicly recorded value. Railways, banks, the
larger manufacturing corporations, and others whose stocks are frequently quoted,
are taxed without a word of inquiry, and without a possibility of escape. A very
large number of miscellaneous corporations are in a somewhat different position.
Their shares are held by a few individuals, are rarely transferred, and are with-
out a quotable market value. In these cases the statement required by law from
the corporation itself as to the market value of its shares is important. The tax
commissioner may further require a transcript of the balance sheet, and other
information which he deems desirable. No doubt there is a possibility of under-
statement by a corporation of the value of its stock, and a possibility of the
manipulation of the balance sheet. There is reason to believe that sometimes
taxes on corporate excess are partially evaded in this way: but the evasions are
insignificant in comparison with those as to taxable securities. In any case, they
affect but a small proportion of the total taxes collected from Massachusetts cor-
porations as a whole. This part of our tax system is an excellent example of the
method of taxing corporations at the source and of refraining from any dealings
with the individual holder of corporate securities, a method admitted on all
hands to be the simplest, most efficient, and most equitable m the taxation of
corporate property.
" There are. however, some questions as to the present mode of distributing the
proceeds on the taxes on corporate excess to which we think it necessary to call
the attention of the general court. They are distributed, it will be remembered,
among the several cities and towns according to the ownership of shares by their
inhabitants. We have already referred to some anomalous results of this
method of distribution. It causes disproportionately large sums to be turned
over to a few towns much resorted to by persons of means. But even apart from
this difficulty there are others which make it doubtful whether, under any cir-
cumstances, corporate excess should be made a direct source of revenue to the
towns and cities.
' With many corporations there is a very large corporate excess. All railways,
by an old decision of the courts, are exempt from local taxation on their right of
way; and, in any case, the value of their real estate and machinery, taxable locally,
is not a great proportion of their total valuation. This is even more strikingly
true in the case of street railways. The cities and towns where the shareholders
happen to reside, perhaps distant from the place where the enterprise is carried
on, get the main benefit of the taxes.
''Disproportion of a different sort appears as to some manufacturing corpora-
tions. A mill owned by a corporation may bring to a town considerable popula-
tion of working people and a need for schools, streets, sewers, and water. It is
true that it may also bring some increase of the taxable dwellings, but this may
be comparatively small. If in the taxation of mill property there is considerable
corporate excess over and above the property locally taxed, the town feels that it
is deprived of resources which should fairly be called on to aid in meeting the
additional expenses.
f " Still another anomaly appears with regard to trading and mercantile corpora-
tions. A firm or individual carrying on mercantile or manufacturing business is
taxable locally on its real estate and machinery only. Its stock in trade simply
forms a part of its general assets, and is one element among the many which go to
make up the value of its shares. As mercantile corporations are likely to own
little or no real estate and machinery, the corporate excess is likely to be large,
and the taxes are distributed mainly to the cities and towns where the sharehold-
ers reside. In most parts of the State the shareholders reside in the cities and
towns where the business is carried on, and the distribution raises no question;
but in the city of Boston many mercantile corporations are owned by sharehold-
ers who reside in the suburban cities and towns. The latter get the large corpo-
rate excess, while the stock in trade is not taxable in Boston. It may be that the
city of Boston does not suffer seriously from this situation, for the mercantile
corporations usually occupy expensive real estate and, as tenants or owners, con-
tribute indirectly or directly to the taxes of Boston; but the suburban cities or
towns which get the corporate excess certainly seem to be little entitled to the
sums turned over to them in this way.
" On the whole, the present method of distributing corporate excess seems to us
to be based upon a doubtful principle and to work badly in practice. It is based
on the legal fiction that the situs of personal property is the domicile of its owner.
But this theory has already been disregarded, so far as the tax laws are concerned,
in various ways. It is not followed in the provisions as to stock in trade, live
MASSACHUSETTS COEPOEATION TAXES. 17
stock, and machinery, or in the taxation of savings banks and of insurance com-
panies. It results in an arbitrary apportionment of large sums of money with
little visible regard to the real claims and needs of the several cities and towns.
We shall accordingly make recommendations for a change in this part of the tax
system for the retention of the tax on corporate excess by the State in the first
instance and for the utilization of the general financial resources of the State
with a regard to the just needs of the local bodies."
These recommendations have not been adopted by the legislature.
RAILROADS.
This class of property is assessed by the State tax commissioner as a unit upon
"the true value of its corporate franchise," based upon verified reports and such
other information as the commissioner may obtain, at the " average rate " through-
out the State.
This is in lieu of all other taxes iipon the property within the right of way, 5
rods in width, but all property outside this right of way is taxed locally, as other
property. The value of real estate and machinery outside of this right of way,
assessed by local assessors throughout the State in 1899, was $69,027,535, and the
average rate was about $15.78 per $1,000, yielding about $1,089,254 in local taxes.
The tax on corporate franchises of railroads in 1899 was $1,631 ,354.46, making a
total tax of $2,720,608.
SUMMARY OF RESULTS.
The following is a summary of the results of the corporation-tax law for the
year 1898:
General list $4,184,240.72
Coal mining, quarrying, and oil companies 7, 785. 66
Foreign railroad taxes 26, 749. 00
4,218,775.38
The amount accruing to the Commonwealth is shown below:
From general list corporations:
Net amount assessed $4, 184, 240. 72
Amount due cities and towns 2, 563, 442. 01
1,620,798.71
Amount due to cities and towns on account of tax on street-
railway companies ...'. 569, 069. 29
Balance accruing to Commonwealth 1 , 051 , 729 . 42
Total valuation of capital stock of corporations in 1898 625, 595, 020. 00
The valuation of real estate and machinery 390, 392, 347. 00
Excess on which a franchise tax is laid _ 235, 202, 673. 00
STREET RAILWAYS.
In 1898 a change was made in the methods of taxing street railways.
The return to the tax commission must show, in addition to the statements
formerly required, the total length of track operated, the amount of capital stock
of the company, and of the dividends paid thereon during the previous year
and during each year from its organization. Companies which have, from the
commencement of their operation, paid dividends of 6 per cent on their capital
stock, and during the year preceding the statement paid dividends exceeding in
the aggregate 8 per cent upon their capital stock, are required to pay to the treasurer
for every such year, in addition to the general corporate franchise tax, a tax
equal to such excess of dividends.
The portion of the tax not retained by the State is to be apportioned among
the several cities and towns in proportion to length of track operated in such
cities and towns, instead of being distributed according to ownership of shares.
Roads are also required to file with the boards of assessors in the several cities
and towns through which they run annual statements of total length of track
and gross receipts, upon which gross receipts the assessors assess an excise tax
2
18 INDUSTRIAL COMMISSION.
equal to such proportion of the following percentage of gross receipts as the length
of track operated in any city or town bears to the total length of track operated
in public ways, viz:
In case gross receipts are $4,000 or less per mile. 1 per cent of the total
annual gross receipts; in case of gross receipts exceeding $4,000 per mile and less
than $7,000, 2 per cent; in case of gross receipts exceeding $7,000 and under
$14,000 per mile, 2 per cent; in case of gross receipts exceeding $14,000 and less
than $21,000 per mile, 2| per cent; in cases where gross receipts exceed $21,000
and are less than $28,000 per mile, 2f per cent: and in cases where gross receipts
exceed $28,000 per mile, 3 per cent. This excise tax is in addition to the other
taxes provided by law.
BANKS.
The method of taxing banks is in general similar to that of the general corpora-
tion tax described, differing somewhat in detail to secure conformity to the pro-
visions of the Federal laws governing national banks.
The taxes assessed are paid by the banks directly, shareholders having no
direct connection with assessment or payment, and the taxes collected from
banks are apportioned among the cities and towns according to residence of own-
ers of shares within the State, the remainder being retained in the State treasury,
as in the case of general corporations.
The shares are taxed to their owners by the local assessors at their fair cash
value, less the value of the real estate owned by the bank, which is assessed
directly to the bank in like manner as other real property is assessed to the
owners.
The taxes so assessed upon shares are paid by the bank on behalf of share-
holders at the local rate for State, county, and town taxes, and the shareholders
are then relieved from further taxation upon their shares.
The city or town in which the bank is located is entitled to so much of the tax
as is represented by local real estate owned by the bank and by shares which its
inhabitants own; other towns or cities are entitled to such proportion of the tax
as the ownership of shares by their inhabitants represents, while such part of the
tax as is represented by shares owned outside of the State accrues to the State
treasury.
Yield of the bank tax in 1896.
Whole amount of tax on shares $1, 543, 535. 11
Retained by t9wns where bank is located $547, 238. 37
Certified to other cities and towns on account of shares
owned 368,718.54
Due to institutions, societies, etc 206, 718. 54
Accuring to the State treasury 421, 051. 64
Total 1,543,535.11
. Taxation on bank shares, 1898.
Whole amount of tax on bank shares. $1, 509, 936. 75
Of which there was retained by towns on account of
shares owned by residents _ _ $547. 799. 92
Amount paid into State treasury . 976^ 136. 83
1,509,936.75
Of this amount $412.890.38 accrued to the Commonwealth.
SAVINGS BANKS.
Savings banks and institutions for savings form a class by themselves. They
are regarded as in the nature of trust institutions for the benefit of depositors and
are not taxable under the general corporation or bank law.
They pay to the State a special tax of one-half of 1 per cent annually on the
amount of their deposits, subject to certain deductions.
They are required to make semiannual returns to the State treasurer, showing
the amount of deposits on the first days of May and November, and the average
amount of deposits for the six months next preceding each of those days. From
these returns the tax commissioner assesses the tax upon the various banks in
proportion to the average amounts of their deposits during each period at the rate
fixed by law, one-fourth per cent for each six months, or one-half per cent per
year. Certain deductions, however, are made for the amounts invested in real
estate used for banking purposes taxed locally, in loans secured by mortgage on
taxable real estate, and in shares of banks taxed by the State.
MASSACHUSETTS CORPORATION TAXES.
19
The proceeds of the savings-bank tax accrue entirely to the State treasury.
Yield of the savings-bank tax.
1896.. . $1,291,256.47
1898 1,335,750.55
The valuation for the latter year was $276,150,455.
TRUST COMPANIES.
These companies form a separate class for taxation; they are taxed on their cap-
ital stock under the general corporation tax law like other corporations, and are
also subject to a separate tax on trust funds and deposits.
The tax on trust funds and deposits is levied in two distinct parts, upon personal
property held in trust and upon deposits. Annual sworn returns to the tax com-
missioner are required of all personal property held on the first day of May,
which is taxable on the aggregate amount owned by residents outside the State.
The tax commissioner, guided by the return, makes a valuation of the property,
and assesses a tax upon the full value of the property at the rate determined under
the general tax law, being the average rate of taxation, so called, in the State.
Annual sworn returns are also required of sums deposited, with residences
of depositors and aggregate amounts held for depositors in each place. Upon
the total value of these deposits the tax commissioner assesses a tax of three-
quarters of the average rate of taxation of the State. These taxes are paid
directly to the State treasurer, and distributed among the cities and towns of the
State, so far as the funds and deposits are owned by residents. Taxes assessed
on property held for persons outside the State accrue to the State treasury.
Valuation and taxation of personal estate.
1896.
1898.
Valuation of personal estate
$1, 289, 059
$1, 395, 421
Tax on personal estate
19 398
21 865
INSURANCE COMPANIES.
Insurance companies organized under the laws of Massachusetts, having
capital stock, are taxable on the market value of shares under the general corpora-
tion tax law.
Separate taxes are, however, imposed on certain kinds of insurance companies.
Mutual life insurance companies organized under the laws of the State, and
foreign life insurance companies of all kinds doing business in the State, are
subject to a tax of one-fourth of 1 per cent on the net value of all policies in
force held by residents of the State in the year preceding the assessment.
Mutual, fire, marine, and other insurance companies organized under the laws
of the State, except life companies and those taxed under the general corporation
tax, are required to pay a tax of 1 per cent on their receipts for all premiums and
assessments, subject to deduction for premiums received in some other State and
taxed in similar manner there. Companies of a similar character, organized
under the laws of other States or countries, pay a tax of 2 per cent on all
premiums received for the insurance of property or received by agents within the
State.
All taxes on insurance companies, except on those taxed on their corporate
franchise, pass to the treasury of the State without distribution.
Insurance tax, 1896 and 1898.
Subjects of taxation.
Values.
Tax.
Tax on life policies 1896
$68 499 367
$171 248
Tax on premiums, 1896
16, 066, 540
268, 356
Total to the State
439 604
Life insurance 1898 . .
77,209 204
193 023
Insurance premiums, 1898
16, 855, 384
285, 178
Total
478 201
20
INDUSTRIAL COMMISSION.
INHERITANCE TAX.
A State tax is levied on all property passing to collateral heirs in any manner,
after the death of the grantor, except that passing to or for the use of charitable,
educational, or religious institutions, the property of which is exempt by law
from taxation, and except in cases where the estate does not exceed $10,000 after
the payment of all debts, and excepting legacies or distributive shares of 500 or
less. Property passing to direct descendants and near relatives of deceased per-
s*bns is not subject to this tax. These taxes pass to the State treasury. The rate
is 5 per cent on the market value of all property thus passing.
Amount of collateral inheritance tax.
1894 . . $239,368.55
1895 419,427.11
1896 275,573.24
1898 563,672.00
LIQUOR LICENSE TAX.
Taxes are imposed upon the privilege of selling liquors within the State, divided
into several different classes with graded rates, and apportioned! between the city
or town in which the license is granted and the State, the former receiving three-
fourths and the latter one-fourth of the tax.
The amount of this tax to the Commonwealth, being one-fourth of the whole, was:
1895 $682,099.36
1896 669,602.17
1898. .. . f .. 769,834.25
The principal sources of taxation for the Commonwealth of Massachusetts may
be summarized as follows:
1. General property tax, 1896.. $1,745,340
2. Corporation taxes:
(a) General corporation tax " 1, 075, 030
(6) Bank stock tax _ 417, 398
(c) Savings bank tax 1,291,286
(d) Insurance premium tax 267, 667
(e) Excise tax on life insurance companies 171, 248
(/) Foreign railroad tax 26, 749
(g) Mining companies tax 4, 902
(h) Other taxes on corporations 63, Oil
3. Collateral inheritance tax _ 275, 573
4. License fees:
(a) Liquor licenses 669, 602
(6) Peddlers' licenses _______ 22, 902
(c) Other licenses f 44,576
6,075,284
Valuationand taxation of real and personal property in Massachusetts, 1896and 1898.
1S96.
Items.
Valuation of
real estate.
Valuation of
personal estate.
Tax on real
estate.
Tax on
personal es-
tate.
Real estate by assessors
$2 040 200 644
$30 120 730
Personal estate by assessors
$582, 319, 634
$8, 398, 980
Tax on polls bv assessors
1 434 629
Corporate taxable excess
252, 252, 082
3,809,004
Nonresident bank stock
71,714 368
996, 296
Savings-bank deposits taxable
248 083 232
1 240 439
Massachusetts Hospital Life Insurance Co..
10, 163, 425
50, 817
Life-insurance values
68 499 367
171,248
Insurance premiums
16 066 540
272 821
Foreign railways
53, 498, 000
26, 749
Trust companies' deposits
1,289,059
19,398
Mining companies
26 267 649
5 211
Gas and electric light companies' tax
13, 218
Railroad commissioners' tax, including
inquest
31,212
Inspector of gas meters tax
4,149
Liquor licenses
2, 678, 408
Collateral legacies and successions tax
275 723
Care and custody of deposits
1,800
Total
2 040 200 644
1 330 153 356
30 120 730
19 430,102
Total assessments, $49,550,832.
TAXATION IN MASSACHUSETTS.
21
Valuation and taxation of real and personal property in Massachusetts, 1896 and
1898 Continued.
1898.
Items.
Valuation of
real estate.
Valuation of
personal estate.
Tax on real
estate.
Tax on
personal es-
tate.
Real estate by assessors
$2, 182, 596, 651
$33 594 643
Personal estate by assessors
Tax on polls bv assessors
$581, 646, 133
$8, 719, 105
1,478 630
Corporate taxable excess
Nonresident bank stock
265, 288, 808
66 742 866
4, 162, 375
976 136
Savings-bank deposits taxable
255, 701, 663
1 278 506
Massachusetts Hospital Life Insurance Co
11 448 792
57 243
Life-insurance values
77, 209, 204
193 023
Insurance premiums
16 855 384
285 178
Foreign railways
53, 498, 000
26, 749
Trust companies' deposits
1, 395, 421
21 865
Mining companies
41. 632, 860
7,785
Gas and electric light companies' tax
13 215
Railroad commissioners' tax, including in-
quests
32 252
Inspector of gas meters tax
4 101
Liquor licenses
3 079 337
Collateral legacies and successions tax
563 672
Care and custody of deposits
l'800
Tax for special commission on street rail-
ways
6 502
Total
2 182 596 651
1 371 419 131
33 594 643
20 907 474
Total assessments, $54,502,117.
NATURE OF PERSONAL PROPERTY TAXED.
The total amount of personal property assessed is easily obtainable from the
official publications of the State, but information as to the different kinds of per-
sonalty taxed is not obtainable from those sources, and is obtained with difficulty.
By particular inquiry the tax commission of 1897 acquired much valuable informa-
tion upon this subject.
The total assessed property in the State in 1896 was $2,622,520,278, of which
$2,040.200,644 was real estate, and but $582,319,634 personal property, the propor-
tion being, roughly speaking, 4 to 1.
There is a remarkable variation in the ratio of personalty to the total assessed
valuation among the different cities and towns and in the State at large. Manu-
facturing cities, from the valuation of machinery, show a large percentage of per-
sonalty; other cities a smaller percentage, according to the information obtained
by the commission. In 4 towns the personalty assessed is less than 5 per cent of
the total valuation; in a few more it is less than 10 per cent, and in a considerable
number less than 15 per cent of the total, while in 16 towns the personal property
assessed by local assessors is 40 per cent of the total valuation.
An attempt was also made by the commission referred to to ascertain the
various kinds of personalty assessed, dividing it into 2 classes, tangible and intan-
gible, and classifying each.
In the cities (except Boston and Somerville) , the assessed personalty was classi-
fied as follows in 1896:
Tangible personalty:
Stock in trade , $35, 964, 749
Machinery 77, 338, 741
Furniture and carriages 6,561,177
Live stock 6, 357, 015
Ships and vessels 1, 872. 658
Other tangible property 1, 669^ 197
Total $129,763,537
Intangible personalty:
Money on hand and at interest. .. 2, 070, 766
Securities and investments 22, 810, 714
Income 3,880,220
Other intangible personalty 36, 258, 481
Total 65,020,181
Total personal property. 194, 783, 718
22 INDUSTRIAL COMMISSION.
In these cities the tangible personal property was in the ratio of 2 to 1 of the
intangible.
The classification of tangible personalty is somewhat accurate and reliable, but
that of intangible property evidently signifies nothing. Personalty of this char-
acter is assessed almost entirely by estimate or ' doomage " in a lump sum and
designated as " cash assets," " securities," "investments," etc., the separation of
various kinds being nominal. In Boston and Somerville no accurate data were
obtainable. From estimate and inference the commission concludes that the
excess of tangible assessed property over intangible is less marked in those cities
than in other cities of the State.
In the towns of the State, with the exception of a few where the conditions are
peculiar in that respect, the proportion of tangible to intangible personalty is also
about 2 to 1. In the few exceptional towns referred to, where intangible person-
alty crowds, the intangible personalty exceeds the tangible in the familiar ratio
of 16 to 1.
In practice the assessment of the various kinds of tangible personalty, such as
live stock, vessels, stock in trade, and machinery, is made by estimate rather than
return, upon the discretion and judgment of the local assessors and upon varying
standards and methods, resulting in the usual inequality.
In the country there is a more general and uniform assessment and valuation
of this class of property than in the towns and cities, and it is fairly satisfactory
in its working. Indeed, the commission says all authorities agreed that the gen-
eral property tax, which was first put into effect in the country under industrial
conditions very similar to those which are now found in a farming town, works
well under these conditions, but becomes more and more difficult of satisfactory
application as property becomes larger in quantity and more complex in character;
hence in the larger towns and cities of diversified industries in actual practice
the taxation of these forms of personalty is difficult, and varies as between differ-
ent places, the difficulties and divergences' being part of the general difficulty of
applying any general property tax.
The taxation of stock in trade in towns and cities by estimate, with the oppor-
tunity for correction by formal sworn return and informal conference, while
entirely unreliable, diversified, and incomplete, is regarded by the commission as
working better and resulting in less injustice than would a system of rigidly
enforced returns.
, No deduction from the assessed stock in trade is allowed for debts, which is
commended as avoiding fraud and evasion. It is related as a striking fact that
in the investigations of commissions and evidence brought before committees of
the general court no complaint is made by business men as to the working of this
part of the tax system. Whether complaint is made by other classes, who have
different kinds of property subject to taxation, is not stated.
The taxation of machinery is made in the same manner and with the same gen-
eral results. Because of the dependence of Massachusetts upon its manufacturing
industries, the doubtful value of machinery, its rapid depreciation, sudden
changes in value from improvements and new inventions, the commission con-
cludes that it would be advisable to exempt it from taxation entirely, and recom-
mends that it be done as soon as convenient substitutes can be found for the
revenue now derived therefrom.
It is clear that tangible personalty upon the whole is but partially and unequally
taxed. The taxation of intangible personal property, such as notes, stocks, bonds
etc., in which the State is particularly rich, is most unsatisfactory.
While the law permits sworn statements of taxables, and a limited number are
made, in practice these taxes are usually assessed by estimates or "doomage."
Sworn statements when made are often false, and perjury is committed for the
sake of evading or reducing taxation. Hence in a complicated society, with a mass
of varied investments ramifying in all directions, the taxation of intangible per-
sonalty is in a high degree uncertain, irregular, and unsatisfactory. It rests
mainly upon guesswork, and is demoralizing alike to taxpayers and tax officials.
The commission says that the fact that the great bulk of intangible property
taxable by law is not reached is admitted on all hands, and that ineffectual as
the taxation of securities is, its weight is nevertheless felt both as an actual bur-
den and as an imminent possibility: that the taxation of personal property in the
form of securities and investments is a failure, incomplete and uncertain, not pro-
portional to means as between individuals, and grossly unequal in its effects in
different parts of the State; that the experience of Massachusetts in this regard is
the same as that of the other States of the Union; that everywhere, without excep-
tion, the testimony is that this part of the system of the general property tax is
unequal, unsuccessful, often demoralizing to tax officials, always irritating to
taxpayers.
TAXATION IN MASSACHUSETTS. 23
The experience of Massachusetts in this respect is regarded as the more striking
because there the difficulty does not lie mainly in the administration of the tax
laws, because the assessors are usually honest, competent, and zealous. While
in other States there are grave abuses and corrupt laxity, in this State the standard
of public duty continues to be high, the assessors intelligent and experienced,
and the cause of failure is not in official dereliction, but lies in the system itself.
It is maintained on one hand that the difficulty lies in the method of valuation
and assessment of such property by local assessors, and that the remedy is to be
found in more stringent assessment by State officials at some uniform rate; and
on the other hand, that the whole system is bad, irrespective of the complication
arising from local assessment; that the taxation of securities involves double
taxation, is unjust, and in any case impossible of satisfactory execution by local
or State officials.
The commission, in discussing the taxation of foreign securities in the hands of
citizens of the Commonwealth, expresses the opinion that the method of taxing
such securities as property within the State is taxed is bad in principle as well
as ineffective in practice, and that while such citizens should be required to con-
tribute in some way to the public burdens not with respect to the property
represented by such securities, but with respect to the income therefrom they
should not be taxed on the securities in the same manner as if they held property
in the State. It is pointed out that the attempt to enforce such taxation by the rig-
orous and drastic measures frequently proposed would not only be ineffectual
upon such an elusive form of property, but to the extent accomplished would be
double taxation and unjust; that with the rate of interest upon such securities not
exceeding 44- per cent, and the average rate of local taxation 14 per cent, the
taxation amounts to one-third of the entire income, while no civilized country in
ordinary times has ever imposed with success an income tax of more than 3, or at
most 5, per cent; that such a taxation results in general evasion and perjury, and
that the taxation of such securities by rigid sworn returns is most demoralizing
and ineffective: that the method of local assessment is not the root of the evil,
but that the fundamental cause is the futile endeavor to tax securities mere
evidences of ownership of property by the same methods and at the same rate
as tangible, visible property.
RECOMMENDATIONS OF THE TAX COMMISSION.
The commission therefore proposes a radical change in existing methods, and
recommends that all securities and evidences of debt representing ownership or
interest in property outside the State be not subject to the general tax on prop-
erty. This, they say, would do away with all questions of double taxation and
administrative difficulties and make the legislation of the State with respect to
such securities consistent with itself.
With this recommendation the commission, recognizing the injustice and
inequality of exempting the holders of securities and obligations from taxation
and the necessity of requiring some contribution to the taxes of the State in
some reasonable proportion to means, is impelled to the consideration of sub-
stitutes for such tax.
Considering a tax upon income as such substitute, while recognizing such a tax
as in principle the most equitable that could be devised, and in practical working
preferable to the present system, the difficulty under present conditions of admin-
istering such a tax with certainty and equality of treatment as between different
taxpayers is thought to be too great to warrant the recommendation of its adop-
tion. The commission fails, however, to present any forcible or logical reasons
or argument to justify the assumption that such a tax levied by State authorities
by reasonable methods would be impractical in its results, or the apprehension
expressed that it would result in evasion and concealment to so great an extent
as to render it ineffectual and deservedly unpopular.
The commission seems to magnify the objection to requiring from the holder
of such securities a statement or return for taxation, such as would not appear
objectionable in business as a basis for credit, and to e oversolicitous of the
feelings of those whose sensitiveness is principally aroused by the desire to dodge
taxation.
Animated by this objection, which is regarded with undue seriousness, the com-
mission seeks for a substitute for the taxation of such securities and obligations
which would obviate the necessity of rigorous methods for discovery of property
by returns.
Referring to the Pennsylvania method designated as a compromise policy, in
its effect not far from a State income tax on securieties of taxing such securities
at the uniform rate of 4 mills on each dollar of the value, or $4 on each $1,000 of
24 INDUSTRIAL COMMISSION.
value, the commission concludes that its practical working in that State is not
satisfactory, and expresses the opinion that this method offers no advantages
over that of a State income tax.
The Connecticut method of taxing such securities subjecting them to a uni-
form State tax of $2 per 1,000 of value by registration is also considered, but
while some advantages are conceded, it is not regarded as satisfactory in its
operation or results.
The commission, in its search for methods of taxation of such property owners
which would relieve them from a declaration and yield more certain and uniform
contributions of revenue, recommends two modes as feasible and avoiding the
objections referred to; namely, the extension of the existing inheritance tax to
yield a substantial increase in revenue, and a tax on occupants of habitations, or
a tax on presumed or estimated income based on the expenditure of the taxpayer
for dwelling-house purposes. It proposes a graded tax on all persons occupy-
ing dwellings of an annual rental value exceeding $400, and, in view of this tax, the
abolition of the present tax on incomes "from professions, trade, or employment."
These further innovations upon the " simple system of the general property tax"
are proposed for the commendable purpose of securing still greater variety in the
methods of taxation, to correspond with the growing complexity in the owner-
ship and distribution of wealth. It is suggested that if the changes recommended
were made and followed in other States as well, they would avoid double taxation
and result for the country as a whole in a sound and consistent system of local
and State taxation.
The commission finally recommends the abolition of existing taxes on intangible
personalty, such as stocks, bonds, and loans on mortgages, the inheritance and
habitation taxes being relied upon to yield an equivalent revenue.
MINORITY REPORT.
One member of the commission presented an elaborate and characteristic
minority report, vigorously opposing most of the recommendations of the
majority.
The difference in the positions of the respective branches of the commission
upon fundamental propositions apparently arises from the fact that they occupy
different view points as to the nature of the general property tax system as applied
to the industrial and property conditions existing in the Commonwealth.
Both are animated by the same commendable purpose the attainment of the
greatest possible degree of justice and equality in the practical application of a
system of taxation.
Both evidently agree upon the essential principles of taxation, but the majority
is apparently moved by a sense of the inadequacy of existing methods alone to
provide a practical operation of those principles, while the minority evidently has
abounding faith in the efficiency of the system if properly supplemented and
enforced by legislation and correct administration.
The majority recognizes the necessity of adopting other methods in conjunc-
tion with those existing for the assessment and taxation of certain kinds of cor-
porate and intangible property, which it assumes can not be properly reached
through existing methods alone, while the minority affirms the efficiency of the
present system through proper administration to reach for taxation all kinds of
property.
The majority is apparently impelled to the conclusion that the principle of
self -assessment of taxables through verified property statements, supplemented
by coercive measures for its enforcement, and the self -assessment of townships and
wards by the competitive valuation method, have proven utter failures in the
practical experience of States, while the minority is impressed with the conviction
that the success of these methods is a question of proper administration.
Brief reference to some of the points in his report will suffice to indicate his
views and his trend of thought upon the subject of taxation; and inasmuch as he
voices the sentiment of a large class of people active in the advocacy of their
opinions, such reference. may not be out of place in this report.
His conviction that every taxable should be compelled to contribute to the sup-
port of government and society according to his ability, and that ability to con-
tribute is justly measured by the value of his property, in whatever form it exists,
is unyielding. He exhibits no patience, leniency, or toleration towards the " tax-
dodging constituency," and his policy is that of compulsory equality of taxation
by uniform assessment and taxation of all kinds of property through coercive
measures.
TAXATION IN MASSACHUSETTS. 25
The way to reduce the tax rate without increasing the tax valuation, he says, is
simply to secure the payment of the tax upon property that escapes. He vigor-
ously protests that the present tendency, as shown in the demands for exemption
from taxation of those who have the most of the world's wealth, rests upon the
theory that the prosperity of the State is in direct proportion to the exalted priv-
ileges of the few. He inveighs against that tendency and urges that " Massachu-
setts should stand as the conserver of her ancient rights and privileges, and should
insist upon a system of equal taxation, exempting only the poor, the unfortunate,
the aged, and such institutions as shall best advance the interests of the whole
people."
He favors the taxation of securities of all kinds, contending that they are not
merely evidences of property, but actual property to all intents and purposes,
subject to transfer and sale, and that the taxation of such property is not, in the
proper sense of the term, " double taxation." He opposes the abolition of this tax
and favors its enforcement by drastic penal measures, bitterly condemns evasion
and tax dodging on the part of citizens, and characterizes one who by willful
concealment evades his tax as " a lawbreaker with malice prepense. "
" The man who refused to pay his poll tax was incarcerated for his refusal, and
the common people, unlearned in tax theories, might well ask: Why should not
the millionaire who evades the tax be liable to as severe a penalty?"
He recommends that the "vast sums, escaping taxation through imposition
upon the generous provisions of the State" by deposits in savings banks favored
in taxation should be reached, and that amounts on deposit exceeding $500 be
taxed above the present reduced rate.
He maintains in sweeping generalities that intangible personalty should be
taxed as all other property, and that a system should be adopted to prevent its
escape, to the end that the State might enjoy a rate so low that one class would
not be burdened with the weight of the taxes of others.
He agrees with his associates that " the great bulk of intangible properties do
escape taxation," and has much to say about the " privileged classes" who own
such property and the power of the State to " compel obedience to the law."
He commends the sound sense of the Maine commission of 1899: " We have no
sympathy with the idea that because some men will defraud the revenue, because
they will conceal property, commit perjury, and resort to all conceivable trickery
to prevent taxation, therefore the whole classes of property which they would
thus hide from the assessor should be exempted by law."
He gives little consideration to the substitution of other methods for the taxa-
tion of such persons and property, but insists that they shall be actually taxed
through present methods.
He proceeds to show by statistics that the personal property of the city and
State subject to taxation is at least twice the value of the real estate, and that on
the basis of 2,040 millions of realty assessed in 1896, the personalty should have
been 4,080 millions, or 2,750 millions more than was actually taxed.
On a total taxation of $38,519,570 of that year the added assessment of even
2,000 millions of intangible personalty would have reduced the rate to about $8.50
per $1,000.
He attributes such escape of property from taxation to the laxity of the laws
and not to the system in force, and favors compulsory statements as the remedy.
He favors the taxation of real-estate mortgages and denies that the exemption
of the mortgage in the hands of the holder would relieve the owner of the land
by a corresponding diminution of interest, as the rate of interest depends upon
many other things than the rate of taxation.
He undertakes to prove by statistics that mortgage rates of interest show
no greater decline where these securities are relieved from taxation, and that
mortgage exemption causes no appreciable reduction of interest charges to the
borrower.
He does not favor State assessment, but recommends " no new departure from
the ancient policy of the State ' to tax all men according to the measures of their
ability,' but rather to complete the system now in operation by such amendments
as shall adapt our policy to the more complicated conditions of our time."
REPORT OF THE LEGISLATIVE COMMITTEE.
A special committee on taxation, consisting of 4 members of the senate and 11
members of the house of the Massachusetts legislature, was appointed, to which
were referred the recommendations of both the majority and minority reports of
the special commission above set forth, and various bills submitted for carrying
out such recommendations.
26 INDUSTRIAL COMMISSION.
The recommendations of the majority were briefly as follows:
1. An inheritance tax upon both realty and personalty of 5 per cent, exempting
estates not exceeding $10,000, and abating $5,000 on estates between $10,000 and
$25,000, the revenue to be divided between the State treasury and local districts.
2. A tax on occupiers in proportion to house rentals, only the excess over $400
rental being taxable.
3. Abolition of the present taxes on intangible personalty, such as stocks, bonds,
loans on mortgages, and incomes, the tax under 1 and 2 being relied on to yield at
least as much as is now secured from this source.
4. Assumption by the State treasury of county expenses.
5. Appropriation by the State of the revenue from taxes on corporate excess
now distributed among the several cities and towns.
The minority report protested against the removal of the tax on intangible prop-
erty as putting all the burdens of taxation on the poor and active and exempting the
rich, and as being unconstitutional class legislation; condemned the house-rental
tax, and opposed the redistribution of county expenses. The positive recommenda-
tions were the taxation of intangible personal property like all other property, and
the adoption of a rigid system to prevent its escape. In detail, it advocated the
increased taxation of savings banks deposits in excess of $l,000fthe taxation of
mortgages, and incidentally the prohibition of covenants by borrowers to assume
and pay taxes on mortgages; a tax on personal property at a uniform rate through-
out the State, to be determined by the average rate of the previous year, the per-
sonal tax to be doubled when sworn returns are not filed, such tax to be laid by
the tax commissioner, assisted by a corps of State assessors, with power to control
local assessments, who, when not otherwise employed, are to seek for the discovery
of concealed personal property and the detection and punishment of those making
false returns . In view of the experience of enlightened foreign nations , a graduated
inheritance tax was favored for additional revenue, but not as a means of exempt-
ing intangible property.
The report of the special tax commission was given most careful consideration,
and the committee held many hearings and heard a large number of witnesses
both for and against the proposed recommendations. The committee says in its
report that there was no evidence from the attendance upon the hearings of any
widespread feeling of dissatisfaction upon the part of the taxpayers with the
existing system.
The case of the petitioners, so called, or those who desired a change in the exist-
ing laws and approval of the recommendations in the majority report of the tax
commission, was ably conducted by the counsel of the Anti-Double Taxation
League, having a membership of 1,000 citizens of Massachusetts especially
interested in the abolition of the present taxes on intangible personalty proposed
by the majority. The testimony came chiefly from those who had made a specialty
of the subject and had very positive views upon the proposed changes, and the
arguments made in favor of such changes displayed great learning and ability.
Among the numerous witnesses representing various classes of property were
representatives of mining companies having large sums of money deposited in
local banks and whose offices were in Boston, although many of the companies
were organized in other States, who testified that if their stockholders were
reached and taxed it would be necessary for them to leave the State; that the
royalties and franchise taxes in other States were considerable and the taxation
of stock there would be double taxation; that the State could compel them to
furnish a list of shareholders (a bill for that purpose having been introduced) ,
and if such a law were passed they would move their offices from the State.
The remonstrants against the changes proposed by the majority report were
made up largely of those who had studied the subject and had very decided opin-
ions upon it, of assessors, who were practically a unit against them, representatives
of farming interests, and mayors and solicitors of several cities of the Common-
wealth; and able and learned arguments were also made against the proposed,
changes.
The committee also gave careful consideration to the views and opinions of
economists and writers upon the subject of taxation, and sought light upon the
difficult subject in every direction by exhaustive study and investigation.
A most notable feature of the hearings was the wide divergence in the opinions
and views of witnesses and counsel upon the subject of taxation and the positive-
ness and tenacity with which such diametrically opposite views were advocated.
The nature and sources of the testimony given, coming principally from stu-
dents, theorists, and assessors, comparatively little being heard from taxpayers
generally, suggested to the committee the probability that the truth might lie
between the extremes presented chiefly on theoretical grounds, and led to a
TAXATION IN MASSACHUSETTS. 27
most careful examination of the existing system as it affects the great mass of
taxpayers.
The committee says that looking at the situation broadly, and considering taxa-
tion as the art of raising necessary public revenue fairly and in a manner not
only proportional but reasonable, rather than as the exact science of finding
every bit of property and extracting from it the largest possible tax by strict
logical rules, it may be questioned whether the strictures upon the present sys-
tem, from theorists upon the one side and assessors on the other, are as deserved
as might at first appear. A considerable revenue is collected, the committee says,
from the tax on intangible property, and no general complaint was made by those
who pay taxes out of proportion to what others pay. The conclusion was that
the undeniable defects in the present system ought not to be needlessly exag-
gerated, and that the Commonwealth should be very slow to overturn its methods
of taxation on no better ground than that they are not ideal or perfect.
In a conservative and practical spirit the features of the various changes pro-
posed were considered and discussed from the standpoint of practical successful
legislation, in the light of the circumstances which exist among the people and
the industrial and political conditions existing in the Commonwealth.
Considering the views of the extreme advocates of opposing views among wit-
nesses the committee says: " When the practical assessor is consulted for what is,
and the theoretical economist for what ought to be, it is learned from the econo-
mist that what the assessor wants ought not to be, and from the assessor that
what the economist wants already exists."
The committee, believing that the majority report of the special tax commis-
sion should be accepted or rejected as a whole, refused to recommend its adoption
as a substitute for the existing system of taxation. The abolition of the present
tax on intangible personalty could not be recommended unless some less objection-
able substitute were provided which would yield the required revenue.
The proposed habitation tax was regarded as open to many objections, as a
sumptuary law that would fall especially upon the most deserving class in the
community, discourage marriage and residence in Massachusetts, and above all
place an excessive burden upon the home, the creation and maintenance of which
are of the highest importance to the well-being of the community. It would bear
disproportionately upon those with moderate means, and its constitutionality was
questionable.
The inheritance tax of 5 per cent on both realty and personalty was regarded as
objectionable, and an inheritance tax on personalty alone at a rate which would
not be burdensome would not afford an adequate substitute for the loss of revenue
which would result from the exemption of intangible personalty.
The committee was unable to report favorably upon any of the recommenda-
tions proposed in the minority report for the stricter enforcement of existing
laws, and did not approve of the act providing for the State assessment of per-
sonalty. It was also opposed to the graduated inheritance tax.
In regard to the petition of the Anti-Double Taxation League, providing for the
exemption from taxation in the Commonwealth of personal property situated and
taxed without, and shares of certain corporations organized under the laws of
other States, but owned in Massachusetts, the committee said that in so far as it
would exempt the taxation of personal property, such as stock in trade, cattle, and
property of like nature already taxed in other States, it was not open to serious
objection, but it was thought that the evil was not of sufficient magnitude to jus-
tify legislation upon the subject, in view of the complications which would follow.
To the proposed exemption of shares of foreign corporations owned within the
State serious objections were found.
In announcing its conclusions that it could not reccommend any legislation
introducing fundamental changes in the present law or any radical changes in
the administration of the law as it existed, the committee recognized the disap-
pointment likely to be felt by both sides, and stated that the committee did not
feel called upon to originate any legislation, but concerned itself with the consid-
eration of the commission's report, with the result stated; that changes in laws so
vital to the well-being of the community as those of taxation must be made only
after the most careful, painstaking, and* deliberate investigation; that such laws
are the result of extended legislation, and the system one of growth which has
more or less adequately kept pace with changes in industrial conditions; that
the members of the system are so articulated that the disturbance of one more or
less affects all the States; that to formulate a tax system for a new community is
one thing, to revolutionize an existing system quite another; and that legislation
in this direction should come only in response to a pressing and widespread demand
for it. Admitting all alleged defects in the present system, the prudent legislator
28 INDUSTRIAL COMMISSION.
must be confident that changes proposed will improve conditions before he can
recommend them, and such changes must come to meet the wishes of the average
opinion. They can not be hastened to conform to the views of reformers who
always ride on the crest of the wave of progress, nor can they be long retarded
to avoid offending those who would never change existing conditions. Legisla-
tion on the subject can not be made in advance of public opinion, and as a com-
mittee they were not satisfied that this mandate had yet been expressed in favor
of radical changes.
The committee said the fact that no radical changes were recommended should
not discourage those who believe that existing conditions can be improved, and
invited continued agitation on the subject as the only way that intelligent public
opinion can be created, in response to which changes in the law are sure to be made.
The reports and proposed changes in the taxation laws were also carefully con-
sidered and discussed in the assembly, and no material changes in the taxation
system have yet been made. Thus the laborious work of the special tax com-
mission appointed in recognition of " the widespread disatisf action " with exist-
ing laws, composed of men of recognized ability and standing, resulting in the
presentation of one of the ablest and most comprehensive reports ever made by
a tax commission, and one of the most valuable contributions to the literature of
taxation, has thus been unproductive of direct results in legislation.
These reports of the special tax commission and of the joint legislative com-
mittee form a most valuable study, and constitute one of the most interesting
and instructive chapters in the modern literature of taxation, and an important
object lesson in the obstacles to practical reform in long-established systems.
Therein is clearly and forcibly illustrated the wide gulf between conception
and attainment; between scientific theories of taxation and the action of practi-
cal legislators upon the subject, and the fact that practical reform in taxation is
attainable only in response to enlightened aggressive public sentiment along prac-
tical lines and under the direction of men in whom are combined ability and learn-
ing in the theories of correct taxation, with a practical knowledge and experience
in business and political affairs.
The practical value of this chapter in the able and voluminous contributions of
the Commonwealth of Massachusetts to the literature of taxation induced us to
give it so considerable space in this report.
CONNECTICUT.
The distinguishing feature of the system of taxation existing in this State is the
entire separation of State and local revenues, real estate and personal property in
general being assessed and taxed locally for local purposes, and all State revenues
being raised by special taxes, mostly on corporations, and not by direct prop-
erty tax.
There are no constitutional limitations or provisions as to the power of taxa-
tion, the authority of the legislature in respect to matters of taxation apparently
being supreme.
For the reason that there is no direct. property tax for State purposes, the reve-
nues of the State being raised largely from special taxes on corporations, little
need be said for our purpose upon the system of local taxation.
PROPERTY TAX.
In respect to local taxation, the general property tax prevails.
The general plan of taxing property was adopted in 1819. Prior to that time
Connecticut from her earliest history had pursued the plan of taxing incomes
rather than property. Those engaged in trades or professions were assessed on
an estimate of their annual incomes.
Real estate was rated for taxation not at its capital value, but in proportion
to its estimated annual income.
Lands, as well as houses and buildings, were listed at fixed rates by statutes
thought to represent, not values, but the average income they would produce,
thus placing them beyond the control of assessors and preventing opportunity for
evasion.
Although the system was to a great extent changed in 1819 to one of assessment
on property valuation, the old theory of taxing property in proportion to income
or productive capacity was partly kept up by listing real estate at 3 per cent and
personalty at a larger proportion, frequently 6 per cent, of its true value.
In 1850 this distinction between real and personal property was abolished and
all taxable property was made ratable at 3 per cent of its value.
This preserved the form only of an income tax, and in 1860 was abandoned and
replaced by legislative provision for listing all property at its full value.
Prior to 1891 the revenues required by the State were in considerable part raised
by the same methods employed for raising local taxes, and mingled with them in
the direct tax upon local property. The result was the usual growth of the evils
of unequal assessment and escape of property from the tax rolls.
While the statutes require the assessment of all taxable property at the fair market
value thereof, and not at its value at a forced or auction sale, the tax commission
in its report of 1887 says that few, if any, town assessors value real estate at what
they think it is fairly worth, but, on the contrary, first make appraisal of its actual
value and then put it in the list at a certain proportion thereof, varying from 33
to 75 per cent; and that similar reductions are made in valuing personal property,
though with less uniformity and more injustice.
This abuse was attributed to the payment by each town of a State tax of a fixed
percentage of its grand list.
Although no State tax is now levied directly upon property, the habitual under-
valuation of property, and failure to assess at all a large proportion of personalty,
still constitutes the most prominent evil in the system of local taxation, which
operates with special injustice to the small property owner in that State, accord-
ing to the twelfth annual report of the bureau of labor statistics in 1896.
The bureau, in the report referred to, reports an investigation based largely
upon statements of local assessors themselves, showing valuations varying from
50 per cent to 100 per cent of full value, the average percentage in the entire
State being 69.6, which, from the sources of information, would obviously be
sufficiently high.
29
30 INDUSTRIAL COMMISSION.
From this report, very few of the assessors, in their own statement even, pre-
tend to assess full value, or 100 per cent.
While taxable personal property that can be seen and handled is, according to
the reports referred to, listed and taxed with great inequality and discrimination,
but a small portion of the intangible property, such as notes, bonds, book debts,
stocks, mortgages, etc., all of which are taxable, has ever been listed, and this
portion is decreasing each year, although such property is rapidly increasing in
amount and value in that State.
PROPERTY DIRECTLY TAXABLE.
All real estate not exempt is subject to taxation and assessed by local assessors,
and set in the list of the town where situated.
Personal property in this State or elsewhere not specially exempt for the pur-
pose of taxation includes all notes, bonds, and stocks (not issued by the United
States) , moneys, credits, choses in action, and all vessels, goods, chattels, or effects,
or any interest therein; and such property belonging to a resident in the State is
required to be set in his list in the town where he resides, at its then actual valua-
tion, except when otherwise provided; but money secured by mortgage on real
estate in Connecticut, when there is no agreement that the borrower shall pay the
tax, is set in the list and taxed only in the town where said real estate is situated.
These provisions do not include money or property actually invested in mer-
chandising or manufacturing carried on outside of the State, and the list of any
person need not include any property situated in another State when it can be
made satisfactorily to appear to the assessors that it is fully assessed and taxed in
such State to the same extent as other like property owned by its citizens; but
this does not apply to moneys loaned by residents of this State to parties out of
the State as money at interest, nor to bonds issued by or loans made to any rail-
road company located out of the State; when such bonds are owned and loans
made by residents of Connecticut, they are subject to taxation as other personalty
or may come within the tax on investments hereafter referred to.
It has been held by the supreme courts of the State and of the United States
that foreign mortgage loans are taxable under present laws against the holder,
notwithstanding the borrower may pay the taxes on the mortgaged property
where situated. (Kirtland v. Hotchkiss, 100 U. S., 491.)
Money loaned at interest with the agreement that the borrower shall pay the
taxes thereon, and secured by mortgage of real estate in Connecticut, is exempt
from taxation to an amount equal to the assessed value of the land mortgaged, as
valued and set in the assessment list of the town where it is situated, but the
excess of such loan over such valuation is assessed and taxed in the town where
the lender resides, in the same manner as other money at interest. While real-
estate mortgages are taxable to the holders as other personalty, in practice the
holders do not pay any tax, the borrowers paying all that is paid.
The whole property of every corporation in this State whose stock is not by law
liable to taxation and which is not required to pay a direct tax to the State in lieu of
other taxes, and whose property is not by law expressly exempt from taxation, is
liable to taxation in the same manner as the property of individuals.
Real estate owned by a corporation not required for the transaction of its appro-
priate business, unless specially exempted by law, is taxable.
The real estate of any such corporation is assessed in the town where it is situ-
ated and the personal estate where it has its principal place of business, and the
stockholders of any corporation the whole property of which is assessed and
taxed in its name are exempt from assessment or taxation for their stock therein.
Shares of capital stock of any bank, national banking association, trust, insur-
ance, investment, turnpike, bridge, or plank-road company, owned by a resident
of the State are set in his list at their market value in the town where he resides, but
so much of the capital of any such company as may be invested in real estate on
which it is assessed and pays a tax is deducted from the market value of its stock
in its returns to assessors.
The cashiers or secretaries of all corporations whose stock is liable to taxation
are required annually to inform the assessors of each town, city, or borough of
the names of the stockholders residing therein, the amount of stock held by them
and its market value, and a penalty is imposed for failure to comply with this
provision.
The cashier of each bank, the treasurer of each savings bank, and the secretary
of each corporation is required upon request of assessors of any town, city, or
borough to inform them of the name of any person therein owning stock or bonds
TAXATION IN CONNECTICUT. 31
held by such corporation as collateral security for any indebtedness or liability
and the amount and description thereof.
The owner of any share of the capital stock of any corporation who transfers
such share to another with the intent of evading the provisions of the tax law
forfeits to the town in which he resides 1 per cent of the value of stock so
transferred.
No person is assessable for manufacturing materials or manufactured goods on
hand beyond the amount of capital actually invested and surplus earnings, nor at
a less sum than the present true value of his real estate and machinery belonging
thereto, unless reduced by indebtedness as provided by law.
The interest of any trading, mercantile, manufacturing, or mechanical business
is assessed where the business is carried on.
The average amount of goods kept on hand for sale during the previous year is
the rule of assessment and taxation; but merchants are liable to assessment for
any amount due them from responsible persons beyond their liabilities.
A resident of any town indebted to another resident of the State in siich man-
ner that the debt is liable to be assessed to the creditor may have the amount
deducted from his list, and it is then added to the list of the creditor.
Assessors who may omit any real estate or any amount equivalent to its valua-
tion from the list of any person because of indebtedness secured by mortgage on
such real estate, or the board of relief who may reduce such list for such cause,
are required to add the amount of such indebtedness to the list of the creditor, if
resident in the same town, and if he does not reside in such town, to make a list
against him embracing such indebtedness, and notify him in writing of the same.
By special statute the assessors are required to take from all persons giving in
tax lists a rigorous sworn statement in form prescribed, but the listing statute
is not enforced. Personal lists of taxable property are, in practice, filled in by
estimate of assessors, and corrections made by local boards of relief upon appli-
cation and showing.
The following grand list for 1899 shows the classes of property assessed locally
for taxation, and the assessed valuation thereof:
Grand list for 1899, October 1.
Valuation.
Dwelling houses (with land up to li acres) $255, 913, 932
Land - 63,.752,308
Mills and investments in manufacturing operations. 105, 101, 733
Horses 3,496,632
Neat cattle - -- 3,190,281
Sheep 20,647
Swine and poultry 6, 271
Farming and mechanic utensils - 93, 126
Clocks, watches, etc - 359, 729
Musical instruments. 914, 450
Household furniture and libraries 1, 398, 963
Carriages, etc - 1,879,757
Bridges, etc. , stocks - - - 147, 124
Bank insurance, etc., stocks.. 32,707,119
State stocks.. 173,232
Railroad, city, etc., bonds . 690,320
Stores, merchandise and trade 35,428,463
Quarries, fisheries, and mines 1, 103, 804
Investments in vessels, etc -- 1 > 182, 590
Money at interest 1,508,231
Money on hand .- 1,103,312
All other taxable property : 3, 821, 81
Addition by board of relief (township board) 3, 854, 243
Total.. -- 517,848,086
Deduction b v board of relief . . 9, 704, 337
508, 143, 749
Added by board of equalization 62, 020, 000
State valuation. . 570, 163, 749
32 INDUSTRIAL COMMISSION.
STATE REVENUES.
The principal revenues of the State of Connecticut are derived from the fol-
lowing sources:
RAILROADS.
With the exception of certain real estate not used directly in the operation of
railroads, no railroad property is assessed for local purposes, but all the property
of a railroad is assessed as a unit for State purposes only, at a rate fixed by law.
This method is based on the assumption that the market value of the stock and
bonds and floating debt of a railroad company represents the taxable value of all
its property, and that the rate fixed by law 1 per cent of such valuation is prac-
tically a fair average as regards taxes paid by other interests, and what it would
pay if assessed proportionately in each taxing district through which its line
passes. It appears to be generally regarded in the State as a just system.
Each company operating in the State is required to deliver to the controller of
the State a verified annual report, showing the number of shares and different
classes of its stock and the market value of each share; the dividends paid on each
class during the preceding year; the amount of its funded and floating debt, and
the market value of any such indebtedness which is below par in value; the num-
ber, amount, and market value of any unpaid bonds secured by mortgage; the
amount of bonds issued by any town or city in aid of the construction of such
road, such bonds being specially exempt by statute; the amount of money on
hand; the amount paid for taxes during the previous year; the whole length of
the road, and those portions thereof lying without the State.
Every railroad company is required to pay annually on or before November 25
to the State 1 per cent of the valuation of said stock made and corrected by the
State board of equalization, and of the par value of funded and floating indebt-
edness as contained in such statement, or if any of such indebtedness is worth less
than par, then of its valuation fixed by said board after deducting from the valu-
ation the amount of any obligations or of their market value, if below par, held
in trust for said company, as part of any sinking fund belonging to it, and from
the amount required to be paid for taxes the amount of taxes paid on real estate
not used for railroad purposes; and the valuation so fixed by said board is declared
by law to be the measure of value of such railroad, its rights, franchises, and
property in the State for purposes of taxation; and this tax is in lieu of all other
taxes on its franchises, funded and floating debt, and railroad property in the
State.
When any part of a railroad lies in Connecticut, the company owning such
road pays 1 per cent on such proportion of said valuation as the length of its road
lying in the State bears to the entire length of the road.
But in fixing the valuation the length of any branch thereof in the State of
less value per mile than one-fourth of the average value per mile of the trunk
road is excluded, and every such branch is estimated at its just and true value,
and assessed at said rate.
In the case of any railroad company, which during the 2 years preceding the
making -of the annual return has paid regular dividends at the same annual rate
per cent on all or any class of its shares of stock, the market value of each share
of said stock is by law declared to be the average of the closing bids or prices
offered for said stock or any shares thereof, during the 12 consecutive months
preceding the making of such returns, as regularly published by any board of
directors, unless the State board considers it desirable that the market value thereof
shall be otherwise ascertained.
In all cases where, for any reason, it is not possible or feasible to fix the market
value of any stock in the manner described, the value in the return is fixed at the
price of the last reported market sale of such stock, and the board may fix and
determine the valuation according to the best information they can obtain.
From the judgment and determination of the State board of equalization as to
valuation there is no appeal except through the courts.
The amount of taxes paid by railroads in this State in 1899 was $965,502.92.
Individuals are not taxed either on the stock or the securities of railroad compa-
nies in the State held- by them.
STREET RAILWAYS.
The foregoing methods and laws with regard to the taxation of railroads apply
also to and include all street railways of every description. The amount paid by
street railways in 1899 was $138,502.78.
CONNECTICUT CORPORATION TAXES. 33
TAX ON NONRESIDENT STOCK.
The cashier or secretary of each corporation whose stock is liable to taxation,
and not otherwise taxed under the provisions of the laws for the taxation of cor-
porations, is required to deliver annually to the State controller a sworn list of
its stockholders residing without the State, and the number and market value of
the shares of stock therein belonging to each, and to pay to the State H per cent
of such value, under penalty of forfeiture of $100 in addition to said l| per cent
for neglect to comply with these provisions. The yield from this tax, mostly
from banks, trust companies, and insurance companies, in 1899 was $167,537.27.
DOMESTIC INSURANCE COMPANIES.
The secretary or treasurer of every mutual fire or life insurance company
chartered by the State is required annually to render to the controller a sworn
statement showing the total amount of its assets and market value thereof, the
amount of premium notes held by it, with certain deductions for unpaid losses,
and real estate liable to taxation in this State and other exempt property; and every
such mutual fire-insurance company is required to pay as a tax upon its corporate
franchise three-fourths of 1 per cent of such valuation remaining, and every
such mutual life-insurance company is required to pay to the State annually as a
tax upon its corporate franchise a sum equal to one-fourth of 1 per cent on the
total amount of its premium notes, and on the market value of all its other
assets, deducting its unpaid losses and the market value of its real estate taxed
locally, and other property that may be exempt from taxation.
These sums so required to be paid by fire and life insurance companies annually
are in lieu of all other taxes upon their assets, except upon real estate held over
and above what may be necessarily used in transacting their appropriate business,
and in case of a life-insurance company except its taxable stock.
The yield of these taxes in 1899 wasf
Tax on mutual fire-insurance companies. _ $11, 036. 38
Tax on mutual life-insurance companies 283, 817. 12
Total 294,853.50
FOREIGN INSURANCE COMPANIES.
Every insurance company organized under the laws of another State, and doing
business in Connecticut, and each agent of every such insurance company, is
required to pay to the insurance commissioner of this State reciprocal taxes, or
the same fees and taxes as are imposed by such other State upon any similar Con-
necticut insurance company transacting business in such other State, and every
agent of any insurance company organized under the laws of any foreign govern-
ment, licensed to do business in Connecticut, is required to pay to the insurance
commissioner an annual tax of 2 per cent upon the amount of premiums collected
or received during the year. The receipts of the insurance commissioner for 1899
were $77,946.98.
SAVINGS BANKS.
The treasurer of each savings bank is required annually to make to the State
controller a sworn statement of all its deposits, exclusive of surplus, and each
bank to pay to the State an annual tax on its corporate franchise equal to one-
fourth of 1 per cent on the amount of its deposits, exclusive of surplus, deducting,
however, from said deposits the sum of $50.000 and certain classes of bonds exempt,
said tax being in lieu of all other taxes upon such bank, its deposits and surplus,
except upon real estate owned by it not required and used in its appropriate busi-
ness. The amount of this tax in 1899 was $392,782.98.
NATIONAL BANKS.
The cashier of each National bank in the State is annually required to give to
the treasurer of the town where such bank is located a sworn list of all its stock-
holders residing outside of the State, and the number of shares belonging to each
and the market value thereof, and to pay to the treasurer a tax of H per cent of
such value; and upon failure to comply with this provision forfeits to such town
$100, together with such 1 per cent required to be paid.
34 INDUSTRIAL COMMISSION.
TELEGRAPH AND TELEPHONE COMPANIES.
A tax is imposed upon telegraph companies of 25 cents per mile of wire, and on
telephone compcinies of 70 cents for each transmitter, based upon sworn reports.
The amount of this tax in 1899 was $14,026.65.
EXPRESS COMPANIES.
Every express company doing an express business in Connecticut is required to
deliver to the State controller annually a sworn statement of the gross amount
of express charges paid at each of its offices in the State during the preceding
year, and pay to the State 5 per cent of the gross amount of all express charges
paid to it in the State during the preceding year, which sum is in lieu of all other
taxes upon the estate of such company used exclusively in the express business;
but when any such express company fails to make such return the treasurer may
accept $100 in lieu of the sum then due.
The amount of such tax in 1899, paid by the Adams and American express
companies, was $9,958.36.
CHARTER FEES ON CAPITAL STOCK.
The law provides for charter fees on capital stock of new corporations organized
under the general law, at 50 cents per $1,000, but on corporations organized to do
business exclusively within the State, 10 cents per $1,000. There is a tax of $1 per
$1,000, or not less than $50 for any one company, for special charters for incorpo-
ration.
The amount of this tax in 1899 was $28,846.
INVESTMENT TAX.
A special tax is imposed upon investment companies and investment brokers
at 1 per cent on the aggregate amount of all choses in action secured by mort-
gages on real estate in any other State or Territory. Such company or broker is
required to secure from the State treasurer a certificate of authority to act in
such capacity and to make annual reports of the amounts of such securities sold
during the preceding year, and pay to the State a sum equal to 1 per cent on the
aggregate of all such securities.
This is regarded rather in the nature of a penalty for nonpayment of the 4-mill
tax in the following statutory provision, most of such foreign securities paying
such 4-mill tax before negotiation.
It is specially provided that any person may take or send to the State treasurer
any bond, note, or other chose in action, or description of the same, and may pay
to the State a tax of 2 per cent (formerly 1 per cent) on the face amount thereof
for 5 years, or at the option of such person for a greater or less number of years
at the same rate, and the treasurer thereupon certifies that the same is exempt
for such period, and all bonds, notes, and other choses in action so certified are
exempt from all taxation in the State during the period for which said tax is paid.
The law for such investment tax was enacted in 1890, and the taxes paid under
it are shown by the following table:
Fiscal year ending
Rates.
Number
of notes,
etc.
Amount of
notes, etc.
Tax.
1890
Mills.
2
44 501
33 654 335 00
$129 452 Oft
1891 ....
2
30 061
24 792 509 04
80 524 47
1892
2
44 635
39 473 988 78
108 433 95
1893 .
2
16 863
12 418 673 91
33 991 48-
1894
2
25 583
20 507 396 21
56 003 88
1895
2
23 719
16 533 543 90
56 861 83-
1896 .
2
24' 338
21 159 161 35
48' 576* 77
1897
r 2
14, 496
14, 580, 981. 57
44, 543. 84
1898.
I 4
4
7,974
21 910
7, 435, 807. 02
20 637 643 59
32, 194. 53
87 177 19
1899
4
23' 036
21 597 311 43
92 425 12
This 4-mill annual tax applies to bonds and notes held in the State not other-
,wise taxed, and is quite generally taken advantage of by the holders.
TAXATION IN CONNECTICUT. 35
It will be observed that the largest amounts of such securities returned and
taxes paid were in the first years of the law, 1890 to 1893.
The foregoing special taxes, with some other minor receipts, constitute all the
sources of revenue for State purposes, and the total revenues therefrom in recent
years have exceeded the State expenditures for current purposes, leaving a con-
siderable amount for the payment of the State debt.
The State tax commissioners, in their report made in 1887, at a time when a por-
tion of the State revenues was raised by direct tax on property in the several
local taxing districts, stated that they did not believe it would be either practi-
cable or desirable to dispense with the direct State tax. They gave as a reason for
such belief that the weight of this tax came home to every taxpayer, in an
increase of his town rate, which he could not fail to feel, and made the whole
community watchful of any unnecessary appropriation from the public treasury;
and if all the revenue of the State were derived from corporations or other
sources riot directly affecting the individual taxpayer, it would be apt to be
expended with less thought and care.
For some years last past all the revenues of the State have been derived from
corporations and other sources not directly affecting the individual taxpayer,
with the effect as to amount of revenues already stated. We were informed by a
State official in conversation that the State taxes so raised were expended liber-
ally and without strict regard for economy, and the separation of State taxe-
from local was apparently conducive to liberality in public expenditures.
MILITARY COMMUTATION TAX.
An annual tax of $2 in commutation of military duty is imposed upon every
male citizen between the ages of 18 and 45 not exempt therefrom by law. which
is paid in the manner provided for town taxes, and remitted to the State treas-
urer for the use of the State. While special laws have been enacted looking to
the enforcement of this tax, it does not appear to be generally enforced and col-
lected, especially in the cities.
In 1899 8150,598.84 was paid by 83,644 persons.
INHERITANCE TAX.
An inheritance tax, so called, is imposed upon all estates of deceased persons in
excess of $10,000. Where the estate passes to direct heirs the tax is $5 on each $1 ,000
of the excess above 10,000, and where it passes to collateral heirs the rate is $30
on each 1,000 of such excess.
The amount of this tax in 1899 was $115,195.30.
NEW YORK.
The controller of New York, in his report for 1898, commenting upon "the
confused, illogical, and conflicting" condition of the taxation laws of the State,
says: "Investigation shows that they have been largely adopted, from time to
time, simply to meet the increasing expenditures of the State, with little regard
to economic or any just and equitable principle. They were framed rather in
accord with the witty Frenchman's definition of taxation, ' the plucking of the
goose in such manner as to get the most feathers with the least squawking.' In
a word, it must be confessed that nearly all our tax laws are legislative make-
shifts and many of them blunders."
It may be said, however, that the officers of the State who have to do with the
system of taxation, from the governor down, have of late years kept up such
persistent " squawking" over the inefficiency and inequality of the present sys
tern of taxation that public thought is fully aroused upon the subject of revision
and reform of the taxation laws, and in obedience to the public will important
legislation in that direction has already resulted, and the subject is now a live
issue in that State.
GENERAL PROPERTY TAX.
The system of a uniform tax upon the assessed valuation of all kinds of prop-
erty prevails. The methods of assessment employed are conducive to defective
assessment and valuation, especially in respect to personal property. The assess-
ment of real and personal property, including corporate property not specially
exempt, is made by local, township, or ward assessors for State, county, and local
purposes, and in a measure "the lower the assessment, the lower the tax." This
method creates a rivalry among local assessing officers for advantage to their
respective districts by low assessments of property, resulting in gross inequalities
and discriminations. There are also elements of personal advantage to assessors
and political influences contributing to unfair and unjust assessments.
The amount of State tax required from property assessment, based on previous
valuation of real and personal property, is fixed by annual bills in the legislature
and apportioned among counties according to their assessed valuation, the county
taxes apportioned among the townships and smaller taxing districts, so that all
taxes, State, county, and local, with the exceptions referred to, are raised upon
the basis of local assessments paid to local collectors, who retain the local tax and
remit the county and State taxes to the county treasurer, who in turn remits the
State tax to the State treasury. About one-half of the State revenues is thus
raised by local assessment and the other half by special methods hereafter
referred to.
The board of supervisors is charged with the equalization of assessments and
valuations of the several districts in the county. The entire assessment system
is under the supervision of a State board of tax commissioners, two or more of
whom are by law required to officially visit every county in the State at least once
in 2 years and inquire into the methods of assessment and taxation, and see
whether the assessors faithfully discharge their duties. In addition to this, there
is a State board of equalization composed of the State tax commissioners and com-
missioner of the land office, who meet each year for the purpose of examining and
revising the valuations of real and personal property of the several counties in
the State. The rate of taxation is governed in each taxing district by the require-
ments for State, county, and local purposes.
REAL ESTATE.
For our purpose, little need be said as to the taxation of real estate generally.
The law provides that all real estate not expressly exempt shall be assessed and
taxed by local assessors where located at its full cash value.
Practically all real estate not exempt is assessed, but by no means at full or
uniform value. Although the law requiring assessment of real estate at its full
36
TAXATION IN NEW YORK. 37
market value applies to all counties alike, yet the report of State tax commission-
ers for 1898 shows that in their judgment real estate was assessed at varying pro-
portions of its full value in the several counties, ranging from 50 per cent in one
county to 90 per cent in another. The 60 counties of the State had 25 different
percentages of full value at which real estate was assessed. There is a like dis-
parity among the towns of the same county.
The assessed valuation of real estate in 1899 was $4,413,848,496, or about 7
times the valuation of the personal property of the State. This significant dis-
crepancy is further emphasized when followed through the collection of taxes for
State, county, and town purposes. The latest returns for that purpose at hand
are those of 1897. For that year the total amount of taxes for the purposes
named was $80,865,704. Of this amount, real estate paid $72,358,268 and personalty
$8,507,436, or a little more than one-tenth of the total. These figures are taken
from the report of the controller for 1900, who says that, after giving careful
attention to the condition of real property in this respect, he is satisfied that
" unless relief of some kind is afforded, real estate in a short time will not be
worth the owning for investment purposes." He says further, in the same report,
that "under the present statutes real estate has to bear nearly the entire burden
of tax, while personal property, which is so much better able to contribute, pays
very little at the best, while vast amounts escape tax altogether."
Encumbered real estate is assessed to the owner at full value, without deduc-
tion for mortgages, the mortgages being assessable to the holders by local assessors
at local tax rates.
PERSONAL PROPERTY.
While the reports of State officials emphasize the inefficiency of the present tax
laws of New York in regard to real estate, still greater disparity and injustice is
shown in the taxation of personal property under the prevailing system. It
appears that such property is in small part only assessed, and that very unequally
and capriciously. In this connection it may be stated that New York is an
exceedingly wealthy State, especially in the manifold forms of personal property.
The report of State tax commissioners for 1900 contains a table showing the
percentage of State tax paid by real and personal property in each year from
1867 to 1899, inclusive. In 1867 the percentage paid by personal property was
25.30; it was reduced to 9.94;in 1884, and varied somewhat to 1898, when it reached
11.20; in 1899 it was 13.05, there being a considerable increase in tne assessment
valuation over previous years. A schedule of assessed valuations of real estate
and personal property in the same report shows that in 1867 the valuation of real
estate was $1,327,403,886 and of personal property $438,685,254. In 1890 the
valuation of real estate had gradually increased to $3,397,234,679, while that of
personalty had decreased to $382,159,067, having in some previous years been con-
siderably lower. From 1890 a steady increase in valuation in both real and per-
sonal property is shown, and in 1899 that of real property was $4,813,779,260 and
personalty $748,424,938.
In 1897 an investigation by the grand jury of Westchester County disclosed the
fact that in that wealthy county bordering on New York the ratio of taxable
valuation of personal to real propertj 7 " in five towns was only 1 per cent, and in
four other towns the ratio was less than 2 per cent. In another town in which
the assessor tried to enforce the law the rabio of personal to real was 37 per cent;
but for the whole county it was only 3.3 per cent. In the neighboring county of
Richmond, in New York Harbor, the rate was only six-tenths of 1 per cent': in
Kings County, containing the city of Brooklyn, the ratio was only 4 per cent;
in Monroe County, including the city of Rochester, it was 5.6 per cent; in Erie
County, including the city of Buffalo, it was 6.4 per cent, and in the county of
Onondaga, including the city of Syracuse, it was 6.7 per cent; while in the almost
exclusively agricultural counties of Genesee and Jefferson it was 13 per cent; in
Livingston, 14 per cent; in Washington and Warren counties, nearly 20 per cent,
and in New York County, 22^ per cent; the ratio in the whole State being 12.6
per cent.
The controller in his report for 1898 gives another striking illustration of the
escape of personalty from taxation, found in the figures of 107 estates taken indis-
criminately from the inheritance-tax rolls from several of the large and populous
counties, the tax actually having been paid, so that the figures are accurate and
reliable. The assessed taxable value of these estates was $3,471,413, while the
appraised value at the death of decedents was $215,891,568, the former being only
1.6 per cent of the latter.
This interesting and instructive examination showed not only gross evasion of
taxation, but ridiculous discrimination in the assessment of even the 1.6 per cent;
38 INDUSTRIAL COMMISSION.
for while 34 per cent, or one-third, of the estates absolutely escaped taxation, in
the estates which did pay the tax varied from two-tenths of 1 per cent to nearly
19 per cent. In his report for 1899 the comptroller says that, excepting the stock
of banks and trust companies assessed under a special law, and which can not
escape taxation, the assessed valuation of personalty in New York State has not
increased during the last 40 years, and that from study and observation he is con-
vinced that not more than 3 per cent of the personal property in the State is
assessed; and that the personalty of the State amounts to $18,000,000.000. or nearly
four times the assessed valuation of real estate. In this and other reports he
expresses a positive opinion that the attempt to reach personal property, in a
general property tax, should be abandoned, as it has been in "practically every
civilized community in the world except the United States."
The joint committee on taxation in the last legislature in its report accepts the
above estimate of the comptroller as substantially correct, and says that this con-
dition of tax affairs in the State has long been a subject of complaint and a
prominent feature of the reports of special committees and commissions on tax-
ation without exception, and has received serious comment in the annual mes-
sages of all governors for more than a quarter of a century.
C. C. Plehn, in his work on Public Finance, says that in N^v York personal
property is assessed at a trifle over 11 per cent of the real estate, and about 10 per
cent of all property; that according to the census valuation of 1890 there was in
New York $5,817,704,667 worth of real property and $2,758,997,324 worth of per-
sonalty. Real estate was assessed at $3,403,751,246, or about 58 per cent of its
census value, while personal property was assessed at $382,159,067, or not quite
14 per cent of its census value. ' ' When," he says, " it is remembered that the census
report omits some unascertainable items of personal property, it is fair to say
that 90 per cent of the personal property in New York is untaxed, where, at the
same time, only 42 per cent of real estate is untaxed/'
It is said that in two adjoining counties a few years ago there was a difference
of $24,000 per mile in the assessment of the same railroad, illustrating the inequal-
ity resulting through the competitive valuation occurring from the levying of
State and county taxes upon the basis of township assessment.
This unsatisfactory condition of the taxation laws and the manner of their
enforcement has received special attention from State officials and the public gen-
erally during the past few years, resulting in some advantageous legislation in
the substitution of a board of tax commissioners for the State board of assessors,
with enlarged powers for the enforcement of more equitable valuation and assess-
ment of property, in advancement in values, and in the addition of new proper-
ties to tax lists by local assessors, as shown in the increased valuation of both real
and personal property during the past few years, which has excited considerable
criticism and opposition.
The increase for the years 1896, 1897. and 1898 in real estate assessments aggre-
gated $503,430,033, and in personal assessments, $216,970,118.
For the purpose of securing more equitable taxation of property, material
amendments have been made to corporation and transfer tax laws, which will be
referred to under those subjects.
Personal property, in general, is assessed locally for State, county, and local
taxes, and that class of property alone is subject to deduction of just debts of
owners. All real estate mortgages are included in the indebtedness of taxables,
subject to deduction from the valuation of their personalty, a privilege resulting
in gross abuses and escape of much property from taxation.
A public official stated to the writer in a general way that one year personal prop-
erty in the city of New York was assessed at about $1,400,000,000, and deductions
for indebtedness amounted to about $1,000,000,000.
The personal property of corporations, associations or partnerships, taxable
under the law for the taxation of franchises, capital stocks or dividends, is exempt
from taxation for State purposes, if the special taxes referred to have been paid,
and so with the personal property of a private or individual banker taxed under
special law.
The capital of nonresidents of the State, invested in business within the State,
is taxable as personal property where the business is carried on to the same extent
as if they were residents.
Debts owing to nonresidents of the United States are assessed as other per-
sonal property in the State, every agent of such nonresident creditor being
required to make annual statement of such taxable property in any county where
it may be for the purpose of local assessment and taxation.
The owner or holder of stock in an incorporated company, liable to taxation on
its capital, is not taxed as an individual for such stock.
TAXATION IN NEW YORK. 39
There are no special provisions for the listing of personalty for taxation,
and the assessment is made largely by estimate of local assessors. There appears
to be strong opposition to the adoption of a listing system; the conclusions of the
joint committee on taxation of 1899 as to that method for increasing assessments
of personal property, will be referred to in the consideration of its report.
The terms real estate and personal estate are, for purposes of taxation, com-
prehensively denned in the law of New York as recently amended. Real estate
includes the land itself, above and under water, all buildings and other articles
and structures erected upon, under or above or affixed to the same; all wharfs
and piers, including the value of the right to collect wharfage, cranage, and dock-
age thereon; all bridges, all telegraph lines, wires, poles, and appurtenances; all
supports and inclosures for electrical conductors and other appurtenances upon,
above, and under ground; all surface, underground or elevated railroads, includ-
ing the value of all franchises, rights, or permission to construct, maintain, or
operate the same in, under, above, on, or through streets, highways, or public
places; all railroad structures, substructures, and superstructures, tracks, and
the iron thereon; branches, switches, and other fixtures permitted or authorized
to be made, laid, or placed in, upon, above, or under any public or private road,
street, or ground; all mains, pipes, and tanks laid or placed in, upon, above, or
under any public or private street or place for conducting steam, heat, water, oil,
electricity, or any property, substance; or product capable of transportation or
conveyance therein or that is protected thereby, including the value of all fran-
chises, rights, authority, or permission to construct, maintain, or operate, in, under,
above, upon, or through any streets, highways, or public places, any mains, pipes,
tanks, conduits, or wires with their appurtenances for conducting water, steam,
heat, power, gas, oil, or other substance, or electricity for telegraphic, telephonic,
or other purposes; all trees and underwood growing upon land, and all mines,
minerals, quarries, and fossils in and under the same, except mines belonging to
the State.
A franchise or right is designated as a " special franchise," and is deemed to
include the value of the tangible property of a person, copartnership, association,
or corporation situated in, upon, under or above any street, highway, public place
or public waters, in connection with the special franchise, and such tangible
property is taxed as a part of the special franchise.
The term " personal property " includes chattels, money, things in action, debts
due from solvent debtors, whether on account, contract, note, bond, or mortgage;
debts and obligations for the payment of money due or owing to persons residing
within this State, however secured or wherever such securities shall be held; debts
due by inhabitants of this State to persons not residing within the United States
for the purchase of any real estate, public stocks, stocks in moneyed corporations,
and such portion of the capital of incorporated companies liable to taxation on
their capital as shall not be invested in real estate.
MORTGAGES.
This species of property, except when held by savings banks, life insurance com-
panies, building and loan associations, and nonresidents, is subject to assessment
at full value in the local tax district where the holders reside, at the local tax rate
in each locality. This local rate varies, but will average at least 2 per cent.
As a matter of fact, however, this class of property, while legally taxable, yields
very little revenue, and usually succeeds in avoiding the tax rolls. When the
local assessors do happen to find it and place it upon the roll, it is usually in the
case of trustee, guardian, executor, or the abnormally conscientious citizen of the
State, in which case the local tax rate upon a high valuation operates with undue
severity, and subjects the mortgage property to many times the tax actually paid
by personal property in general. It subjects those who are taxed upon such
security to the gross injustice of a tax equal to one-half the income thereon, while
the great mass of mortgages escape entirely.
The joint legislative committee on taxation, after careful investigation, reported
the estimated value of the mortgage indebtedness of the State to be $2.000,000,000.
The assessed valuation of all personal property in the State was only $748,424,938.
The committee, in view of these facts, and taking into consideration the revenue
needs of the State, the effect upon the rate of interest, and the condition of bor-
rowers of the State, recommended in lieu of other taxes a State tax of 5 mills on
the dollar upon indebtedness secured by mortgage upon corporate and individual
real property, estimating the State revenue that would be derived therefrom at
$10,000,000, being the amount of State taxes now raised by direct levy upon real
estate. After careful investigation, the committee concluded that although mort-
40 INDUSTRIAL COMMISSION.
gages generally escape taxation, under the existing system, the liability to tax
affects the interest rate to the extent of one-half of 1 per cent now, so that the
exemption of mortgages from all taxation, except to the extent of a State tax of
one-half of 1 per cent, would produce no substantial change in the average rate of
interest in the State.
The committee contended that the tax would not be subject to the common
objection of double taxation, "a phrase which is itself brimful of duplicity and
highly convenient for sophistical reasoners," for the reason that the mortgage
would be subject only to a State tax, while the land would be subject to local
taxation alone under the plan to raise all the State revenue otherwise than by
direct levy upon assessed valuations of real and personal property.
In the taxation of mortgages under the proposed plan, recourse would be had
by the State to mortgage records, therefore none would escape, and opportunity
for tax dodging would be removed. There would be no deduction for debts and
no exemptions, and the revenue from that source would be steady and reliable.
TAXATION OF CORPORATIONS.
While the general property tax is the main part of the system ftf New York for
even State purposes, it is supplemented by certain other methods for reaching
corporate property. The existing corporation tax law in its entirety is one of
the most complicated and clumsy statutes on the books.
In general, the real estate of all incorporated companies liable to taxation,
including that of quasi-public corporations, is required to be assessed in the tax
district where it is located in the same manner as real estate of individuals, and
the personal property of such companies in the tax district where their principal
offices are located. The reports of corporations as to personal property are meager,
and the assessment thereof by local assessors is in practice arbitrary and largely
estimated.
The law also requires the capital stock of every company liable to taxation, except
such part as shall have been excepted on the assessment roll or exempt by law,
together with its surplus profits or reserve funds exceeding 10 per centum of its
capital, after deducting the assessed value of its real estate, and all shares of stock
in other corporations owned and otherwise taxable, to be assessed at its actual
value.
Every moneyed or stock corporation deriving an income or profit from its capi-
tal or otherwise, is required under penalties for failure, to give annual verified
written statements to the assessors of the tax district in which it is liable to be
taxed, showing:
First. Its real property, location, and unless a railroad corporation, the sums
actually paid therefor.
Second. The capital stock actually paid in, or secured to be paid in, excepting
sums paid for realty and capital stock held by the State and by any incorporated
literary or charitable institution.
Third. The tax district in which its principal office is located or operations
carried on.
The assessors are required to assess corporations liable to taxation in their
respective districts as follows:
In one column, the name, amount of capital stock paid, amount paid for real
property, amount of surplus profits or reserve funds exceeding 10 per cent of cap-
ital, after deducting real property and stock exempt; in another, the real property,
except special franchises, and value thereof; in another, the capital stock paid,
and surplus profits as aforesaid, after deducting sums paid for real estate and
amount of stock exempt; in another, the value of any special franchise owned by
it as fixed by the State board of tax commissioners, in accordance with the pro-
visions of the franchise tax act of 1899.
SPECIAL FRANCHISE TAX.
In May, 1899, the legislature of New York passed an important act amend-
ing the tax law of the State in relation to the taxation of public franchises as
real property. It provides for the valuation of each special franchise subject to
assessment in each city, town, village, or tax district by the State board of tax
commissioners, and the filing of a written statement of such valuations as fixed
by said board, preceding each annual assessment of property, with the clerk of
each city, town, or village; such valuation so fixed being the assessed valuation
on which all taxes based on such special franchises shall be levied by the local
assessing officers.
NEW YOKK COKPOBATION TAXES. 41
For this purpose every person, copartnership, association, or corporation sub-
ject to taxation on a special franchise is required to make a written report duly
verified to such board containing a full description of every such franchise pos-
sessed or enjoyed, and a statement of the authority under which the same is held,
together with such other information relating to the value thereof as such board
may require, and supplemental reports as requested by such board.
Notice of hearing on each special franchise assessment is required to be given
by said board to each franchise taxable.
When such special franchise tax is due and payable, any tax that may have
been paid by the taxable within the year preceding to any city, town, or village,
under any agreement or statute, based upon a percentage of gross earnings, or
any other income or license fee, or any sum of money on account of such special
franchise, is to be deducted from such tax based upon the assessment of such
board, and the remainder shall be the tax on such special franchise payable for
city, town, or village purposes.
The imposition of such special franchise tax does not relieve from any other
tax provided by law, but tangible property subject to such franchise tax situated
in, upon, under, or above any street, highway, public place, or public waters is
not otherwise taxable.
The rates of taxation upon special franchise assessments is the same as on other
property locally assessed and equalized and expended by the boards of super-
visors of the several counties. It is expected that this franchise tax will yield
a large revenue and relieve real estate and taxable personalty.
The clerk of each board of supervisors is required to deliver to the county
treasurer a statement showing the names, valuation of property, and amount of
tax of every railroad corporation, telegraph, telephone, and electric-light line in
each tax district in the county, and each company may, upon receipt of notice
of such statement, pay its tax with one per centum fees to the county treasurer,
who is required to credit the same to the collector of the tax district.
The corporation taxes above referred to on real and personal property, capital
stock, and special franchises being mingled in assessment and taxation with other
property on local assessment rolls, we are unable to give the amount of such
taxes paid by the several classes of corporations separately, except in some
instances hereafter referred to.
There are, however, in addition to the taxes already referred to, other special
taxes imposed on corporations requiring special notice.
ORGANIZATION TAX.
Every stock corporation organized under any law of the State is required to
pay to the State treasurer a tax of one-eighth of 1 per cent upon the amount of
stock authorized or any subsequent increase thereof. This does not apply, how-
ever, to State and national banks, or to building, mutual loan, accumulating fund,
and cooperative associations. This tax yielded in 1899 $474,667.65.
LICENSE TAX ON FOREIGN CORPORATIONS.
- Every foreign corporation, joint stock company, or association, except banking,
fire, marine, casualty, and life insurance companies, and corporations wholly
engaged in carrying on manufactures in this State, cooperative fraternal insur-
ance companies, and building and loan associations, authorized to do business
under the general corporation law, is required to pay to the State treasurer for
the use of the State a license fee of one-eighth of 1 per cent for the privilege of
exercising its corporate franchises or carrying on its business in the State, to be
computed upon the basis of the capital stock employed by it during the first year
of carrying on business in the State.
This tax was in 1898, $2,454.58; 1899, $2,981.38.
CAPITAL STOCK TAX ON CORPORATIONS.
Every corporation organized under the laws of New York must also pay to the
State treasurer an annual tax, to be computed upon the basis of the amount of
its capital stock employed within the State at the rate of one-quarter of a mill
for each 1 per centum of dividends made and declared upon its capital stock dur-
ing the year, if the dividend amounts to 6 per cent or more upon the par value of
such capital stock; if less than 6 per cent on the par value of the capital stock,
the tax is at the rate of !- mills upon such proportion of the capital stock at par
42 INDUSTRIAL COMMISSION.
as the amount of the capital employed within the State bears to the entire capital
of the corporation. If no dividend is made, the tax is at the rate of 1-J- mills upon
each dollar of the appraised capital employed within the State.
If such corporation has more than one kind of capital stock, and upon one
dividends amounting to 6 or more per cent upon the par value thereof have been
made and upon the other no dividends made, or less than 6 per cent, then the
tax is at the rate of one-fourth of a mill for each 1 per cent of dividends upon the
former, and in addition a tax of 1 mills upon every dollar of the valuation of
the latter.
Foreign corporations must pay a like tax for the privilege of carrying on busi-
ness within the State, computed upon the basis of the capital employed within
the State.
Certain corporations are exempted from this tax, viz: Banks, savings banks,
institutions for savings, insurance or surety companies, laundry corporations,
manufacturing corporations to the extent of capital employed within the State
in manufacturing and selling, mining corporations engaged in mining in the
State, agricultural and horticultural societies, and corporations operating elevated
railways or surface railroads not operated by steam, gas, water, electric, steam-
heating, lighting, and power companies.
TRANSPORTATION AND TRANSMISSION COMPANIES.
An additional excise or license tax is imposed upon steam surface railroad,
canal, steamboat, ferry, express, navigation, pipe line, transfer, baggage, express,
telegraph, telephone, palace, or sleeping-car companies, and all other transporta-
tion companies except elevated railroads and surface railroads not operated by
steam. This tax is at the rate of five-tenths of 1 per cent upon the gross earnings
within the State, not including earnings derived from business of an interstate
character.
STREET AND ELEVATED RAILROADS.
A like tax is imposed by the State on corporations operating any elevated railroad
or surface railroad not operated by steam, amounting to 1 per cent upon gross
earnings from all sources within the State, and 3 per cent upon the amount of divi-
dends declared or paid in excess of 4 per cent upon the actual amount of
paid-up capital employed.
WATER, GAS, AND ELECTRIC COMPANIES, ETC.
Corporations formed for supplying water or gas, or for electric or steam-heat-
ing, lighting, or power purposes, must also pay a franchise tax of five-tenths of 1
per cent upon their gross earnings from all sources within the State, and 3 per
cent upon the amount of dividends declared or paid in excess of 4 per cent upon
the actual amount of paid-up capital employed.
INSURANCE CORPORATIONS.
Every insurance or surety corporation doing business in the State, except fire,
marine, or casualty companies of another State, must pay to the treasury of the
State an annual tax of five-tenths of 1 per cent upon the gross amount of premiums
received for business done in the State.
Life insurance companies and purely mutual benefit associations, whose funds
are for the benefit of members, their families or heirs, or made up of contributions
of members, are exempt from this tax.
FOREIGN BANKERS.
Every foreign banker, corporation, or partnership doing business in the State
must pay to the treasurer a tax of one-half of 1 per cent on business done in the
State, to be ascertained by computing the daily average for each month of business
done and dividing the aggregate of such monthly averages by the number of
months during which business was done in the preceding year.
The special taxes upon the several classes of corporations above enumerated
are based upon detailed, verified reports of the corporations to the State con-
troller, who is empowered to examine books and records and take testimony and
proofs as to such corporations. The special taxes on corporations above set forth
are for State purposes.
NEW YORK CORPORATION TAXES. 43
The personal property of every corporation or partnership subject to the fore-
foing special taxes, other than the organization tax, is exempt from taxation for
tate purposes if such special taxes have been paid. This exemption is regarded
as a defect in the corporation tax laws of New York, arid-it is claimed that large
numbers of corporations take advantage of this provision to evade and escape
just taxation.
Another defect in the corporation tax law, pointed out by the controller in
his report of 1900, is the provision referred to, taxing only so much of the capital
of a corporation as is " employed in doing business in this State," as it is said to
permit of the successful introduction of subterfuges for the evasion of taxation.
It is pointed out as a notorious fact that very many corporations whose plants
are located in New York and whose business is chiefly transacted there escape
all special taxation in that State and much local taxation by reason of being
incorporated in other States. Changes in these respects in the corporation laws
of New York are advocated, and are receiving consideration by the legislature.
The yield of the foregoing special corporation taxes to the State, other than the
organization tax, was as follows for 1899:
Insurance companies:
Tax based on premiums $116,620.93
Tax based on capital 8,745.60
$125,366.53
Transportation companies:
Tax based on earnings 827,567.97
Tax based on capital 426, 844. 57
1,254,412.54
Telegraph and telephone companies:
Tax based on earnings 49, 245. 94
Tax based on capital 70,932.27
120, 178. 21
Mining and miscellaneous companies: Tax based on dividends and
capital only ,. 453, 312. 30
Foreign and other State banks 55, 089. 20
Water works, gas, electric or steam heating, lighting, and power
companies: Tax based on earnings and dividends 255, 310. 24
License fees from foreign corporations 2, 981. 38
Total 2,266,650.40
A distinguishing feature of these sources of revenue is the economical manner
in which the corporation tax laws are administered. The amount of corporation
taxes collected in 1899, as above stated, was the largest ever obtained, and the
cost of collection was only a trifle over 1 cent on the dollar, this expense including
salaries of clerks in the corporation tax bureau of the controller's office, the
expense of commissioners at the cities of New York and Buffalo, and of expert
examiners in short, all expenditures connected with the collection of corporation
taxes.
BANKS.
The law provides that the stockholders of every organized bank in the State
shall be assessed and taxed on the value of their shares of stock therein, such
shares being included in the valuation of the personal property of stockholders
in the assessment of the tax district where the bank is located, regardless of the
residence of the stockholders themselves.
Every individual banker is taxable upon the amount of capital invested in his
banking business in the district where the place of such business is located, and
for that purpose is deemed a resident of such district. He is required to make
an annual report to the assessors of such district of the amount of capital invested
in such banking business, such capital being assessed as personal property to such
banker.
Every organized bank or banking association doing business in New York is
required to make a duly verified report of its condition annually to the assessors
of the tax district in which the principal office is located, and also to the State
board of tax commissioners, showing the amount of its authorized capital stock,
the number and par value of shares, the amount of stock paid in, the date and
rate per cent of each dividend declared during the previous year, the capital
employed during the year, the amount of surplus, amount and value of real estate,
a complete list of names and residences of stockholders and number of shares
held by each, and such other information as the State board may require.
44 INDUSTRIAL COMMISSION.
In assessing such shares of stock each stockholder is allowed all the deductions
and exceptions allowed by law in assessing the value of other taxable property
owned by individual citizens of the State, and it is especially provided that the
assessment shall not be at a greater rate than is made or assessed upon other
moneyed capital in the hands of individual citizens. There is also deducted from
the value of such shares a sum which bears the same proportion to such value
as the assessed value of real property of such bank bears to the capital stock
itself, such realty being assessed to the bank.
The principle of " stoppage at the source " is invoked, and every bank is required
to retain any dividend that may be payable until the delivery of the tax roll and
warrant of the current year, and within 10 days thereafter is required to pay the
collector so much of the dividend as may be necessary to pay any unpaid taxes
assessed in the State.
The tax is made a lien on the shares of stock until the payment thereof, and if
stock is transferred it remains subject to such lien.
The shares of stock are taxed at local tax rates, the same as other individual
property. The banks are exempt from special corporation tax on capital stock or
dividends.
It will be observed that by this method the shares of stock in fcanks are assessed
at their full value, and there is no escape from taxation thereof except by the abuse
of the privilege of deduction of the indebtedness of shareholders.
In conversation with an eminent lawyer of this State, who is counsel for the State
in taxation matters, he stated in a general way that the only property in the State
taxed at substantially uniform value was bank stock, which, in his judgment, was
excessively taxed as compared with other property.
Trust companies do not come within the law for the taxation of banks, as the
courts have held that, in a commercial sense, such companies are not banks, and
do not come within the bank taxation laws. Their franchises are not taxable,
and the value of stock is held to be partly franchise and not taxable under pres-
ent laws, hence under the existing law they bear a small proportion of taxation as
compared with other banking institutions, with which, in many ways, they com-
pete. The report of the bank superintendent on savings banks and trust compa-
nies for 1899 shows that the capital, surplus, and undivided profits of the trust
companies of New York were for that year $97,000,000, and that the total amount
of taxes paid during the preceding year was $455,557, the average rate being less
than 5 mills on the dollar. They are apparently regarded as insufficiently taxed,
and some of the State and national banks are considered too heavily burdened
under the present method.
The tax on foreign banks doing business in New York has been referred to under
the head of corporation taxes.
The deposits in savings banks which are due depositors are exempt from taxa-
tion, as is also the surplus of such banks. Such deposits and surplus amount to
about a billion of dollars.
TAXATION OF RAILROADS.
While the above report on the taxation of corporations applies to railroads, for
greater clearness the taxation of such property is here considered separately.
The real estate of railroads in New York, as well as that of other quasi-public
corporations, is assessed in the local tax district where it is situated, by estimate
of assessors rather than upon definite reports, and the tangible personal property
where the principal office of the company is located. This property is mingled
with other property on local assessment rolls and taxed at local rates. This
class of property, as well as other real estate and tangible property locally taxed,
will be affected by the franchise tax under the new law elsewhere referred to.
Railroad property is also subject to the capital-stock and profits tax, license fee,
gross earnings, and other indirect State taxes already referred to.
While the reports of State tax officers do not show the amount of local and
State taxes paid by railroads upon the rolls of local tax officers, such property
being mingled with other local property, we find from the reports of railroad
companies to the State board of railroad commissioners statements of the
amounts of taxes paid and value of property for the year ending June 30, 1899, as
follows:
Total amount of taxes paid by New York railroads. . , $9. 049, 639. 15
Total amount paid outside New York 4, 851, 257. 89
The amount paid in New York 4,198,381.26
TAXATION IN NEW YOEK. 45
This amount, we understand, includes all taxes within the State, both local
and State.
This report also shows the value of property and earnings as follows:
Total stock and debt.. ._ $1,661,388,873.00
Gross earnings 220, 027, 722. 90
Operating expenses 149,411,333.05
Net earnings 170,616,389.85
These amounts, it will be observed, include all property, values, and earnings
of New York railroads, both within and without the State. From this it appears
that the rate of taxation paid by New York railroads on the total amount of their
stock and debts within and without the State was 0.005446 per cent, and the rate
of taxation upon their total gross earnings was 0.041 per cent. While these
rates, of course, do not accurately represent the aggregate rates paid in the State
of New York, they would represent them approximately. In 1899 the joint
committee on taxation in the legislature, with a view to withdrawing from local
taxation steam railroads and other quasi-public corporations and taxing them
directly for State purposes, and in order to determine the feasibility of such a plan,
made an investigation in three counties to ascertain the proportion of the total
tax raised in the said counties by such companies, and found that in the county
of Oswego in 1897 the sum of $627,759.82 was raised by taxation for all purposes,
and that of this sum the steam railroads paid 9.03*per cent; in Cattaraugus
County in 1898 $484,358.22 was raised for all purposes, and of this sum the steam
railroads paid 11.89 per cent; and in Chenango County in 1897 $317,837.69 was
raised, and of this sum steam railroads paid 7.97 per cent.
In some school districts in the counties named the steam railroads alone paid
50 per cent of the taxes.
The committee said that the labor involved in the exact ascertainment of taxes
paid by such corporations was so great that more counties could not be analyzed,
but it is safe to say that these three counties furnish a criterion for the rest of the
State.
ELEVATED STEAM RAILROADS.
The value of property, amount of gross earnings, and amount of taxes paid by
these roads for the year ending June 30, 1899, are as follows:
Capital stock and debt . $139,099,921.86
Cost of road and equipment -. . 109,100,839.90
Gross earnings 10, 777, 139. 50
Operating expenses. 6, 771, 528. 23
Net earnings 4,005,611.27
Taxes and miscellaneous 966, 701. 13
What portion of the amount is represented by miscellaneous we are unable to
state, but presumably the greater part of it is taxes.
SURFACE STREET RAILROADS.
The valuation and amounts of gross earnings and taxes paid by these roads for
the year ending June 30, 1899, are as follows:
Capital stock and debt.. $318,040,804.88
Gross earnings 35,460,822.71
Net earnings . . - 14,318,259.08
Taxes 1,661,449.06
EXCISE TAX ON SALES OF LIQUOR.
The amount realized by the State of New York from this source for the year
1899 was $4,231,278.55, being one-quarter of the total taxes paid; the remaining
three-quarters being retained by local tax districts.
46 INDUSTEIAL COMMISSION.
TRANSFER OR INHERITANCE TAX.
A tax greatly favored in New York is the inheritance tax, imposed upon the
transfer of property, real or personal, of the value of $500 or over, or of any inter-
est therein or income therefrom, in trust or otherwise, to persons or corporations
not exempt by law from taxation on real or personal property, in the following
cases:
v First. When the transfer is by will or by the intestate laws of the State, from
any person dying possessed of the property while a resident of the State.
Second. When the transfer is by will or intestate law, of property within the
State, and the decedent was a nonresident of the State at the time of his death.
Third. When the transfer is of property made by a resident, or by a nonresi-
dent of property within the State, by deed, grant, bargain, sale, or gift, made in
contemplation of the death of the grantor, vendor, or donor, or intended to take
effect after death.
Fourth. Such tax is imposed when any person or corporation becomes benefi-
cially entitled to property or income thereof by any such transfer.
The tax is fixed by law at the rate of 5 per cent upon the clear market value of
such property; but where the property or interest passes 1$> direct or lineal
descendants enumerated in the act it is not taxable unless it is personal property
of the value of $10,000 or more, in which case it is taxable at the rate of 1 per
cent on the clear market value.
This tax is made a lien upon the property transferred, and the transferee and
the administrator, executors, and trustees of every estate so transferred are made
personally liable for such tax until payment. If a foreign executor, adminis-
trator, or trustee assigns or transfers any stock or obligation in the State stand-
ing in the name of or in trust for a decedent liable to any transfer tax, such tax
must be paid to the treasurer of the proper county on the transfer thereof.
No safe-deposit company, bank, or other institution, person, or persons holding
securities or assets of the decedent can legally deliver or transfer the same to the
executor, administrator, or legal representative of said decedent unless notice
of the time and place of such intended transfer is served upon the county treas-
urer or controller at least 5 days prior to such transfer.
All transfer taxes levied and collected are paid into the treasury of the State
for the use of the State.
The amount of transfer taxes collected in 1899 was $2,194,612.24, an increase of
$197,402 over the previous year, being the largest amount returned to the State
in any one year except 1893, when 4 large estates paid over $1,100,000 taxes.
The number of estates on which such tax was paid was 2,721; the number
appraised during the year was 3,549, in which orders assessing the tax were
made in 2,895 and 654 were held exempt.
The records of transfers during a limited period, prior to the death of the party
whose estate might be liable to this tax, are closely scrutinized to determine
whether any such transfers were made in contemplation of death.
REPORT OF THE JOINT COMMITTEE.
In 1899 a resolution was adopted by the legislature of New York reciting the
unsatisfactory condition of the tax laws of the State, and the necessity for their
modification and revision upon a just and wise basis, and providing for the selec-
tion of a joint committee of the senate and assembly for the purpose of examin-
ing and considering the subject and reporting thereon.
The committee employed eminent counsel, and made a thorough investigation
of the subject of taxation, holding meetings in various portions of the State, and
giving hearings to various classes of property interests. Its report recommended
material changes in the existing system of taxation.
Referring to the fact that many intelligent and thoughtful persons in the State
advocated reform of taxation by exempting personal property entirely and levy-
ing all taxes upon real estate, the committee expressed the opinion that a vast
majority of the people of the State disagreed with such a proposition and believed
the burdens of taxation to be best distributed by the taxation of different classes
of property in the hands of its actual owners and the burdens now borne by real
estate to be unduly grievous. But the committee did not believe that any change
in existing tax laws looking to increased assessment of personalty would meet the
condition without the adoption of the so-called listing system, which it was loath
to recommend because it has invariably been disappointing in its ultimate results
and was deemed inquisitorial and repugnant to the true American spirit. Capital
has left the jurisdiction of the State where it has been tried. The committee
declared, however, the sentiment of the people to be such that unless a system
of taxation is adopted which will compel the payment of a larger proportion
TAXATION IN NEW YORK. 47
of the public burden by personal property, the State, although a commercial
State, will be forced to adopt a statute similar to those of Ohio and Illinois, com-
pelling every citizen to list his entire property for taxation.
The committee formed the opinion, which it positively expressed, that the most
practical reform in the existing tax laws in the State lies in the direction of rais-
ing State revenues otherwise than by the direct levy upon the assessed valuations
of real and personal property by annual bills, and laid it down as a fundamental
principle of government that such a political entity as a State should have an
independent jurisdiction, into which it alone may go and from which it may
realize sufficient revenue for its own support.
The committee therefore sought for subjects of taxation which, together with
the revenue now collected by the State, would be sufficient for the support of the
State government.
At the outset it was believed that this purpose might be accomplished by with-
drawing from local taxation steam and surface railroads, telegraph, telephone,
electric light and power companies, gas, water, and pipe-line companies, and
banks and trust companies, and by levying upon such corporations a definite,
fixed rate of taxation for State purposes. A careful analysis, however, of the
proportionate amounts raised for State, county, city, town, school, and highway
purposes in certain counties which were regarded as a reasonable criterion for the
whole State, showed that this plan was not feasible, and it was speedily abandoned.
Other suggestions were carefully considered and pursued up to the point where
their impracticability or injustice was demonstrated.. Among others were the
propositions to tax the entire stock of all corporations in the hands of individuals;
to tax the entire deposits and surplus of savings banks, amounting to about a
billion of dollars, now exempt, and to place an excise license tax upon various
forms of business according to the amount of business done each year, the latter
being regarded as undesirable for the reasons given for rejecting alisting system.
The latter, if embarked upon, should be gradually done, and if adopted should be
the result of a system of education upon the subject, as in Pennsylvania.
The committee recommended raising the additional revenue required for State
purposes by a tax on mortgages, already referred to, which would yield $10,000,000;
a tax of 1 per cent upon the stock of national and State banks and trust companies,
the value of shares to be determined by adding together the capital stock, surplus,
and undivided profits, and deducting therefrom the assessed value of their real
estate, which would continue to be assessed locally. This tax it was estimated
would yield about $3.000,000, which, with the mortgage tax and present revenue of
the State, would produce a sum adequate for the support of the State government.
The advantages anticipated from these recommendations are summarized as
follows:
First. There would be no necessity for the equalization of assessments between
counties.
Second. The burden of taxation upon the owners of real estate would be reduced
to the extent of about $10,000,000.
Third. The new taxes would be uniform throughout the classes and certain
and unvarying in their application. Payment would be enforced, if need be, as
in the case of real-estate tax, by divesting the owner of his title. No mortgages
would escape. There would be no deduction of debts and no exemptions. Con-
sequently there would be no opportunity for tax dodging, and no occasion for
the discontent which the tax-paying owners of personalty now so generally and
so rightly feel, because others, as well or better able to pay, manage in one way
or another to avoid their just share of the burden.
Fourth. The new taxes would be collected without any mischievous inquisi-
torial process. Mortgages are generally spread upon the public records, and the
special policy of other laws has already opened the affairs of banks and trust com-
panies to the supervision of public officials.
Fifth. Counties, towns, and other local subdivisions would raise no taxes,
except for their own purposes exclusively, and consequently the entire responsi-
bility would be centered upon the local officials.
The committee also suggested that there should be a material increase in the
taxation of corporations incorporated in other States and paying to other States
an organization or capital stock tax and yet doing business in New York and
employing their capital there. New York, the committee said, can not afford
to ignore much longer the discriminating legislation of other States with refer-
ence to the organization and taxation of corporations.
The bill embodying the foregoing recommendations which was prepared by the
committee and presented to the legislature, although receiving quite careful
consideration, was not passed; but we were informed that it was received with
favor by legislators and the public generally, and was likely to receive further
consideration.
NEW JERSEY.
The segregation of State from local taxes is the distinguishing feature in the
system of taxation in this State. Since the year 1884 there has been no direct
State tax levied on real and personal property, the revenues derived from the
special tax on railroad and canal corporations, riparian lands, the franchise tax
on miscellaneous corporations, the tax on intestate estates and collateral inher-
itances, and official, judicial, and other fees being sufficient to defray all State
expenses.
The general system of taxing corporations directly by the State is efficient,
simple, certain, and economical so far as it extends.
The confusion in the scattered and fragmentary laws of New Jersey upon the
subject of taxation renders it exceedingly difficult to ascertain and determine
just what the existing system as to the general property tax is, in all its details.
This confusion is, according to the statements of the State tax commission,
one of the principal causes of improper or negligent administration of the
tax laws, and the means by which much of the evasion of proper taxation is
accomplished.
The codification of the laws relating to taxation is greatly needed and would
alone improve the taxation of property in that State.
LOCAL TAXES.
The principal form of local taxation is upon an ad valorem valuation of real
and personal property not exempt as returned by assessing officers in local taxing
districts.
A poll tax not to exceed $l-is also assessable to every male inhabitant of full
age, excepting volunteer soldiers and sailors, paupers, and insane persons, which
is not generally enforced, especially in the cities where it is less popular than in
the country districts.
GENERAL PROPERTY TAX.
By a constitutional provision, all property is required to be assessed for taxa-
tion under general laws and by uniform rules according to its true value; and the
statutes of the State, following out this constitutional provision, expressly direct
that property shall be assessed according to its full and actual value. The mean-
ing of the phrase "true value" has been construed by the courts to be that
amount of money that any given piece of property would exchange for in money,
or the amount of money its holder would be willing to sell it for when not
obliged to sell that is, its real market value.
The usual exemption from taxation is granted to the property of charitable,
educational, religious, and public institutions, and also limited exemptions to
soldiers, sailors, firemen, and veterans. The amount of exemptions allowed under
these heads in 1899 was nearly $100,000,000 of property valuation, and the State
board of taxation notes the gross abuse of these privileges and recommends the
greatest possible limitation thereof consistent with sound public policy.
Stocks and other personalty situated outside the State, owned by citizens of the
State, upon which taxes are shown to have been assessed and paid where located
within 12 months prior to the date of assessment in New Jersey, are exempt from
taxation.
The assessment of property in general is made by a single officer elected in each
township and borough for a term of 3 years; but in many municipalities the
assessors are variously appointed or elected, and are variously designated as
assessors, commissioners of assessment of taxes, commissioners of assessment,
or board of assessment and revision of taxes. These boards consist of 1, 2, 3, or
5 members, with clerks to assist them.
All property, real and personal, including exempt property, is required to be
annually assessed by such officers at its true value. Real estate, individual or
48
TAXATION IN NEW JERSEY. 49
corporate, is required to be assessed in the local taxing district where it is located,
and to each inhabitant liable to such tax at the place of his residence. The per-
sonal property of nonresidents is taxed in the taxing district where situated. The
personal property of corporations is assessed in the taxing district where the prin-
cipal office is located; and if there is no principal office, in the township or ward
where the operation of such company is carried on. Pipes under ground, whether
owned by individuals or corporations , are taxable as real estate in the township
where such pipes are located.
DEDUCTIONS FOR DEBTS.
Any person or corporation in the State is entitled to deductions of bona fide
indebtedness from the assessment of real and personal estate, providing a verified
statement is made to the assessor of the debts owing and desired to be deducted,
to whom owing, and where creditors reside, and also a statement of the total
amount of real and personal property of the taxpayer, including mortgages held
and other debts due and owing from solvent debtors, and also a statement showing
when the indebtedness for which said deduction is claimed was incurred and a
detailed list of the securities or property claimed to be exempt from taxation and
of the dates of purchase of such securities or property, together with a declara-
tion under oath that such indebtedness was not incurred or securities or property
purchased with intent to escape taxation, but in good faith. Penalties are
imposed for making a false statement and for transferring property to escape
taxation. It is specially provided that no deduction shall be made from the
taxable value of real estate on account of the indebtedness of the owner to any
State or national bank, but such deductions may be made from personalty.
Mortgages on real or personal property are not assessable for taxation unless a
deduction therefor shall have been claimed by the owner of the property and
allowed by the local assessors, in which case they are assessable for taxation by
such assessor, and the taxes are payable where the property covered by the mort-
gage is located.
The State board has adopted a rule requiring each assessor to notify assessors
in other districts of deductions claimed for debts due from creditors therein.
By an act known as the " five counties act," it is made lawful for owners of
land in the counties of Hudson, Essex, Union, Bergen, and Passaic, and in the
cities of Trenton, New Brunswick, and Camden to enter into agreements with
holders of mortgages on lands therein not to apply for any deductions, by reason
of any mortgage, from the taxable value of such lands.
The counties and cities named in this act lie contiguous to New York City, and
to this fact the act, one of the most curious statutes in American tax legislation,
making one tax law for one part of a State and a different law for the remainder,
is attributable. Prior to 1869 New Jersey had a uniform law for taxing mort-
gages, providing that the person giving a mortgage should pay the tax on it and
deduct the tax from the principal or interest in settling with his creditor, the
result of which was that mortgages falling due were foreclosed and new loans
were not readily obtainable. In 1869 a statute was enacted exempting from
taxation mortgages in the growing counties near New York City, for the relief of
the inhabitants of those particular counties. This was modified by the "five
counties act " above referred to, which is still in force, and which is said to oper-
ate to draw capital away from New York and into New Jersey.
Mortgages on lands exempt from taxation are taxable to the mortgagees at the
place of their residence.
Deductions allowed from the assessed valuation of property in 1899 amounted
to $36,403,620, and the privilege is said to be grossly abused by taxpayers through-
out the State.
BOARDS OF EQUALIZATION AND REVIEW.
The assessment is revised and equalized by township committees, borough
councils, and the common councils of cities and villages, by county boards of
equalization, commissioners of appeal, and the State board of taxation.
In 1891 the State board of taxation was established, for the equalization, revis-
ion, and enforcement of taxation. This board is composed of four members, no
more than two members of which may belong to the same political party. They
have power and authority to hear and determine the appeals of individuals, cor-
porations, and municipalities from tax assessment, and to make such rules, orders,
recommendations, and directions as they may deem necessary to secure the revis-
ion, equalization, and enforcement of taxation within the State. They are empow-
ered to investigate the methods of local assessors, and may cause assessments to
50 INDUSTRIAL COMMISSION.
be made under their direction, and by another assessor if the local assessor fails
to comply with the law or the directions of the board. The members of such
board receive an annual compensation of $2,500 each, and are required to make
an annual report and such recommendations as to laws and methods of taxation
as they may deem advisable to the State legislature.
The efforts of this board have been efficient in obtaining improvement in
assessments, in correcting errors, and in procuring improvement in legislation
arid administration of taxation laws generally.
As before stated, real and personal property generally is relieved from State
taxation and assessed for local purposes only, except as to an apportioned State
school tax. The assessment of corporate property for local purposes will be
referred" to under a subsequent head.
counties from 92.6 per cent and 7.4 per cent, respectively, to 64.6 percent and 35.3
per cent; the proportion of personalty assessed in agricultural counties being
much greater than in the counties containing large cities.
While the separation of the State and local taxes removes tMe principal cause
for rivalry among assessors for relief from State taxes through undervaluation,
there is still an apportionment among local taxing districts of a State school tax,
tending to some extent to induce competitive undervaluation, and through that
and local causes the evils resulting from defective assessments by local assessors
still exist in a marked degree, notwithstanding the removal of the cause mentioned.
The tax commission of 1897, in the discussion of the local system, says that the
assessors do not comply with the constitutional mandate and make "the assess-
ments upon a standard of true value, but assess at less than true value; nor as
a rule do they succeed in listing and taxing all the intangible property subject to
taxation. This is noticeably so in cities, resulting in part from inherent diffi-
culties , and in part from the fact that local public sentiment does not encourage
and support the local assessor in resorting to such inquisitorial methods, so called,
as seem necessary to unearth and reach all of this class of property.
Mr. James F. Busling, one of the tax commission, in a special report, considers
this subject more fully, and refers to the varieties and differences in the valuation
and assessment of real estate in all parts of the State and to the escape of personal
property from taxation almost altogether, particularly in the large cities, as shown
by the evidence presented by the commission.
He says there are about 400 separate assessors and boards of assessors in the
State, and nearly as many different rules of valuation and assessment. As offi-
cially reported, " each assessor seems to be a law unto himself." Their valuation
in no two counties agree, nor scarcely in any two cities or townships of the same
county. Referring to the fact that all assessors take an oath that they have val-
ued and assessed " all property liable to taxation in their several cities and town-
ships at its full and true value, at such price as it would sell for at a fair and bona
fide sale by private contract," he says in practice they value real estate from 25
to 75 per cent of its true value, depending on the location and personal or political
prejudices, and value different contiguous areas at different valuations, though of
equal values really; and as to personal property they appear to make no earnest
or honest effort to reach it anywhere except in agricultural districts, and even
there very imperfectly. This practice has proceeded so far in New Jersey, he
says, that it is now literally true that " about the only ones who now pay honest
taxes on personal property are the estates of decedents, widows, orphans, idiots,
and lunatics."
It is such inequalities and inequities, he says, " that sadden and exasperate our
fellow-citizens and make the cry of ' equal taxation ' an easy rallying cry for the
demagogue and anarchist."
The State board, in 1891, when first appointed and upon a general survey of these
conditions, take a philosophical view thereof and say that there is a total absence
of uniformity and equality in the assessments of New Jersey, should not excite
surprise so much as the fact that there is not more inequality and injustice by the
337 assessors, all acting independently of each other, and all, in fact, trying to
impose on one another fior the purpose of favoring their friends and localities.
While, as above stated, the efforts of the State tax board to " bring about a
more equitable, just, and lawful state of affairs " have, in recent years, resulted
in substantial improvement in assessments and administration of the tax laws
generally, and they, as well as the tax commission, have recommended remedial
legislation, the progress in this direction has been slow.
NEW JEKSEY CORPORATION TAXES. 51
The defects in the general property assessment referred to have an important
bearing upon the comparison of railroad taxation with that of general property,
as shown in the investigation of the tax commission hereinafter referred to.
TAXATION OF CORPORATIONS.
The contributions of corporations in general, except railroad and canal compa-
nies, to the revenues of the State and municipal governments are received from:
First. A tax upon the privilege of incorporating.
Second. A license fee or franchise tax to the State.
Third. A local tax upon real estate and visible personal property by munici-
palities.
By the act of 1875 no tax of any kind was imposed upon the franchise or privi-
lege of incorporating. No tax was laid upon the capital stock, and it was declared
that the real and personal estate of all corporations thereafter found should be
taxed the same as that o individuals. The purpose of the legislature was to treat
the property and business of corporations in the same way as that of natural per-
sons, and the only restrictions imposed were such as were thought necessary for
the protection of stockholders and creditors.
INCORPORATION FEE.
Not until 1883 was any fee in the nature of a tax required to be paid on filing a
certificate of incorporation, and no change in this fee has been made since then.
The payment required on filing such certificate is 20 cents for each $1,000 of the
total amount of capital stock authorized, but in no case less than $25. A further
fee of 20 cents per thousand of increase is charged upon increase of capital stock, and
like fees upon consolidation where an increase of capital stock is authorized. The
secretary of state received for fees and taxes from corporations under the general
corporation act and supplement in 1899, $726,133.61. (Controller's report, p. 15. )
From the 1st of January to the 1st of August. 1899, 1 ,336 corporations were organ-
ized under the laws of New Jersey, with an authorized capital of $2,000,000,000.
FRANCHISE TAX.
In 1884 franchise taxes, in addition to the local taxes upon real and personal
property, were first imposed upon corporations, and in this year it was provided
that a certain annual tax by way of license for its franchises should be paid by
all corporations, except certain corporations en joying special privileges, which, at
present, are railway, canal, banking and trust companies, savings banks, ceme-
teries, religious corporations, and charitable or educational associations; also
manufacturing or mining companies, at least 50 per cent of whose capital stock
issued and outstanding is invested in mining or manufacturing carried on within
the State.
Two methods of determining such franchise tax are provided for:
First. By computing a per cent of gross receipts or gross earnings.
Second. A per cent of the capital stock.
The first method is applied to certain specified corporations doing business
within the State, wherever chartered, and the second to corporations incorporated
under the laws of the State, whether exercising their functions within or without
the State.
TAX ON GROSS RECEIPTS OR EARNINGS.
Every telegraph, telephone, cable, or electric-light company not owned by a
railroad company and otherwise taxed, every gas company, palace, parlor, or
sleeping-car company incorporated under the laws of the State, every fire, marine,
live-stock, casualty, or accident insurance company doing business in the State,
except mutual fire-insurance companies, which do not issue policies on the stock
plan, is required on or before the first Tuesday in May in each year to make a
return to the State board of assessors, and to pay an annual franchise tax, as
follows:
TELEGRAPH, TELEPHONE, CABLE, AND EXPRESS COMPANIES.
These are required to report to the State board of assessors the gross amount of
their receipts from business done in the State for the year ending January 1 next
52 INDUSTRIAL COMMISSION.
preceding, and are required to pay to the State an animal license fee of 2 per cent
of such gross earnings.
In 1899, the gross receipts of such companies amounted to $878,784.87 and the
tax to $17,575.67.
GAS AND ELECTRIC LIGHT COMPANIES.
s These companies pay annually one-half of 1 per cent of the gross amount of
receipts for light or power supplied within the State and 5 per cent of the divi-
dends in excess of 4 per cent paid or declared by such companies. The tax
amounted in 1899 to $39,812.49.
PARLOR, PALACE, AND SLEEPING CAR COMPANIES.
These pay an annual franchise tax of 2 per cent of the gross amount of the
receipts for fare or tolls for transportation of passengers within the State. In
1899 this tax amounted to $1,220.
OIL OR PIPE LINE COMPANIES.
These pay a tax of eight-tenths of 1 per cent of the amount of their gross receipts
from the transportation of oil or petroleum in the State, or if a part of their trans-
portation line is without the State upon such proportion of the total gross receipts
of such company as the length of line within the State bears to the total length of
the line. In 1899 this tax amounted to $10,758.20.
LIFE INSURANCE COMPANIES.
Life insurance companies incorporated under the laws of the State are required
to pay a license and franchise tax of 1 per cent of the amount of their surplus on
the 31st day of December each year, and in addition thereto an annual license fee
or franchise tax of thirty-five one-hundredths of 1 per cent upon the total gross
insurance premiums collected by such companies; but it is provided that any
charges or taxes imposed by the State upon life insurance companies of other
States shall be applied in rebate of such taxes. Such franchise tax in 1899, less
the rebate of $11,577.73, amounted to $190,964.84.
Insurance companies other than life pay an annual franchise tax of 1 per cent
of the gross amount of premiums received by such companies for insurance within
the State upon property or persons within the State. In 1899 such tax amounted
to $7,452.09.
SURETY COMPANIES.
Surety companies pay an annual franchise tax of 2 per cent of the gross amount
of premiums received by them. In 1899 such tax amounted to $861.13.
FRANCHISE TAX ON CAPITAL STOCK.
All other corporations liable to a franchise tax on their capital stock as afore
said, such as street railways, manufacturing companies, etc., pay to the State an
annual license fee or franchise tax of one-tenth of 1 per cent on all amounts of
capital stock issued and outstanding up to and including the sum of $3,000,000; on
all sums of capital stock issued and outstanding in excess of $3,000,000 an annual
franchise tax of one-twentieth of 1 per cent, and the further sum of $50 per annum
per $1,000,000, or any part thereof, on all amounts of capital stock issued and out-
standing in excess of $5.000,000. Such tax in 1899 amounted to $1,063,991.53.
This tax was imposed simply for the purpose of additional revenue, and the
rates were made low in pursuance of the long-established policy of encouraging
rather than burdening the aggregation of capital for the purpose of business. It
is not regarded as a property tax, but as a franchise tax. Franchises are not
taxable as property.
The tax is computed upon the basis of the capital stock issued and outstanding,
not upon authorized capital stock, and it is held that stock is issued when the
company has received and accepted subscriptions for the same, whether paid or
not.
As long as the corporation exists it is liable for this franchise tax. It contin-
ues after a receiver has been appointed, and until the dissolution of the company.
NEW JEESEY CORPORATION TAXES,
53
Summary of franchise tax in 1899.
Character of business.
Num-
ber.
Tax.
101
4
32
8
9
1
30
5,289
$39,812.49
190, 964. 84
7, 452. 09
861.13
10, 758. 20
1, 220. 00
17, 575. 67
1,063,991.53
Life insurance companies incorporated in New Jersey
Surety companies
Oil or pipe line companies
Parlor palace or sleeping car companies
Telegraph telephone cable, and. express companies
Companies taxed on capital stock
Total
5,469
1, 332, 635. 95
SPECIAL FRANCHISE TAX.
In March, 1900, the legislature of New Jersey passed an act for the taxation of
all the property and franchises of persons, copartnerships, associations, or corpo-
rations using or occupying public streets, highways, roads, or other public places,
except municipal corporations, railroads., ana canals, withdrawing such property
from taxation under the general State franchise tax above referred to and now
in force, and subjecting such property to the following franchise tax:
The respective assessors, or officers having like powers and duties to perform in
each taxing district, are required each year to ascertain the value of such prop-
erty located in, upon, or under any public street, highway, road, lane, or other
public place in each taxing district, and the value of property not so located;
when so ascertained, all such property shall be assessed and taxed at local rates
as now provided by law.
The local assessors are required annually to make certified return in writing
of the valuation of all property assessed under the provisions of this act, which
is located in, upon, or under any street, highway, road, lane, or other public place
in such taxing district, together with the names of the owners and those operating
the same, and file it in the office of the State board of assessors,
All persons, copartnerships, associations, or corporations subject to taxation
under this act are required to return to the State board of assessors a statement
showing the gross receipts of their business in New Jersey for the year ending
December 31 next preceding. Any oil or pipe line , having part of its transportation
in this State and part outside of the State, is required to make a report showing
its gross receipts for transportation on its whole line, together with a statement
of the length of its whole line and the length of its line in New Jersey, along any
street, highway, road, lane, or other public place, and the franchise tax of such
company for business done in this State is upon such proportion of its gross
receipts as the length of its line in this State bears to the length of its whole line.
Such statements are to be verified, and a penalty is attached for failure or neglect
to make such statement.
An annual franchise tax of 2 per cent on the annual gross^ receipts as aforesaid
shall be assessed upon all persons, copartnerships, associations, or corporations
taxable under this act. This franchise tax is to be apportioned by the State board
of assessors to the various taxing districts in proportion to the value of the prop-
erty located in, upon, or under any public street, highway, road, lane, or public
place therein, as shown by the statement so filed with the State board, and the
taxes so apportioned are collectable in the local districts.
The franchise taxes imposed by this act are to be in lieu of all other franchise
taxes now assessed against the persons, copartnerships, associations, or corpora-
tions subject to the provisions of this act and their property, and the act is not to
apply to any corporation which has not hitherto or may not hereafter exercise
any municipal franchise.
The real and personal property of such persons and corporations will be assess-
able locally as other property.
The provisions of this act took effect January 1. 1901.
LOCAL TAXATION "OF CORPORATIONS.
All corporations excepting railway, turnpike, insurance, canal, or banking cor-
porations, savings banks, cemeteries, church, or purely charitable or educational
associations are assessed on their real and personal property for purposes of tax-
ation the same as natural persons, and are permitted deductions for debt the same
as individuals.
54 INBUSTKIAL COMMISSION.
The stock of corporations, except banks, is not assessable in the hands of the
individual holders, nor their bonds, except when deductions for the same have
been claimed and allowed to the corporation. The property is taxable to the com-
pany, and the capital stock as such is not assessed, only such property as actually
within the State being taxed in this way.
It is the law and universal practice, as advised by the State board of taxation
to the various assessors of the State, to list and assess corporate property, both
real arid personal, in the taxing district where located or found. It is said to be
the common practice of the most capable and experienced assessors to measure
the true value of such property for local assessment by the cost of reproduction,
making allowance for the natural wear and tear and depreciation from use. The
value is thus determined by the estimate and judgment of the local assessor,
" each being a law unto himself." Such property is, of course, taxed at local rates
as other property.
Manufactories and mills are said to be, as a rule, favored by the assessors in
cities, while assessed higher in the country districts; it being the disposition of
the people in cities to favor this class of property first, because they employ a
large amount of labor, and, second, because much of the value of a manufacturing
plant is unstable, depending upon the success of the enterprise
The real and personal property of street railways, telephone, telegraph, electric,
gas, and water companies is said by the State board to be systematically assessed
in taxing districts where such companies operate, the basis of computation of
value being as a rule the cost of reproduction less a percentage allowed for depre-
ciation by the assessor. Pipes underground are assessed as real estate in the place
where located.
Insurance companies are assessed and taxed locally at the full amount of their
capital stock paid in and accumulated surplus, after deducting the value of prop-
erty in which the stock and surplus are invested, which is by law not taxable, and
real estate which has been separately assessed to such company.
Savings banks without capital stock are assessed and taxed for the full amount
of their property and valuable assets, without any deductions for debts and liabil-
ities. Those having capital stock are taxed the same as insurance companies
above set forth.
Safe deposit, guarantee, and trust companies are assessed and taxed locally at
the full amount of their capital stock paid in and accumulated surplus, after
deducting property in which such stock and surplus is invested which is not tax-
able, and real estate separately assessed to such companies is not assessable in the
hands of its holders.
BANKS.
The shares of stock in National and State banks in New Jersey are assessed to
the owners thereof in the place where they reside in case of residents, and in
the place where the 'bank is located in case of nonresident shareholders. In the
latter case the tax assessed is a lien upon the stock, which may be levied upon and
sold for said tax; and it is made the duty of the bank upon demand, for that pur-
pose made by the collector, to pay the amount of tax assessed against such non-
resident shareholders, and to retain the amount so paid out of the dividends, and
the bank is given an express lien upon such stock for any taxes paid thereon.
No obligation is imposed upon banks with respect to the payment or collection
of taxes on the shares of resident holders, and there is considerable confusion
and lack of uniformity in the assessing of banks and bank stock throughout the
State.
It is made the duty of officers of banks, when applied to by the assessor, to give
him a statement under oath of the names of the stockholders and of the amount
of capital stock, surplus, and other property and assets; and the assessor is
authorized to take such other means as may be in his power to ascertain the true
amount for which stockholders should be assessed.
No means are provided by law, however, for notifying assessors throughout the
State of the stock of residents in their respective districts in banks outside said
districts and taxable therein.
In the absence of legislative provisons in that regard, the State board has tried
to secure uniformity of taxation of shares of resident holders by supplying local
assessors with a list of names and addresses of the taxing officers throughout
the State, and to secure an interchange of information with respect to resident
stockholders and the taxable value of their stock, each assessor being requested
to procure a list of stockholders in banks in his district and notify other assessors
in the State where any stockholders may reside of the amount and value of their
shares. The failure of assessors to strictly comply with this rule results in great
NEW JEESEY CORPORATION TAXES. 55
lack of uniformity in the assessment of bank shares. It has been held that the
value per share at which bank stock is to be assessed is properly determined by
dividing the capital stock, surplus fund, and undivided profits of a bank, as shown
by statements to the comptroller of the State, by the number of shares, but there
is no central authority to determine such value and assess it uniformly throughout
the State.
A recent statute also provides that all real estate of any bank shall be assessed
to the bank where such real estate is located in the same manner as real estate of
individuals, and the amount of such assessment deducted from the assets of said
bank in estimating the assessable value of the shares of stock. The shares of
resident stockholders are taxed at local rates, and the stock of a bank is obviously
taxed at as many different rates as there are shares in different taxing districts.
There is no direct State tax levied upon the property of banks or upon bank
shares.
It is claimed on the one hand that much of this class of property escapes taxa-
tion entirely, and on the other, complaint is made that in many taxing districts
it is taxed more excessively and at a higher percentage than other classes of
personal property.
RAILROAD AND CANAL COMPANIES.
The system of taxation of railroad and canal companies may be described
briefly as a property tax by the State, through State assessors or officers, with a
distribution of a part of the tax by the State to the local taxing districts for the
support and maintenance of the local and municipal governments.
Property used for railroad and canal purposes is segregated from the property
owned by other corporations and individuals, and is valued, assessed, and taxed
as a class by itself.
The property of railroad and canal companies not used for railroad and canal
purposes is assessed and taxed by the same assessors, in the same manner, and at
the same rate as the taxable property of other property owners in the same
municipal division or taxing district. The property of railroad and canal com-
panies used for railroad and canal purposes is assessed by the State board of
assessors, which meets annually for that purpose, and is required in such valua-
tion to ascertain
First. The length and value of the main stem of each railroad and of the water-
way of each canal, which is held to include the roadbed, not exceeding 100 feet
in width, with its rails and sleepers, and depot buildings used for passengers con-
nected therewith, and the length of such main stem and waterway in each taxing
district, whether city, village, township, or borough; the above being designated
as " first-class property " or " main stem."
Second. The value of the other real estate used for railroad or canal purposes
in each taxing district in this State, including the roadbed (other than main stem)
waterways, reservoirs, tracks, buildings, waterworks, riparian rights, etc. , usually
designated as '* second-class " property.
Third. The value of all the tangible personal property of each railroad and
canal company, which includes all rolling stock, locomotives, cars, ferryboats, all
machinery, and other tangible personal property of railroad or canal companies;
also the locomotives and cars not belonging to such railroad company, but built
for its uses and actually used in the State or under its control in the State by sleep-
ing car or other companies.
Fourth. The value of remaining property, including franchises.
The State board of assessors may require a complete statement and description
of the property of such companies in the various taxing districts to be furnished
by the assessors of such districts, showing the property used and that not used
for railroad and canal purposes.
Every railroad and canal company is also required to file annually with such
board a sworn statement, showing the nature and extent of its property in each
taxing district as it existed on the 1st day of January last past, and showing in
detail its real estate, total length of road, including branch and leased lines, length
within the State, length of double or side tracks, number and value of all buildings
and structures, rolling stock, and tangible personal property; also a statement
showing the amount of capital stock authorized and the number of shares, amount
of capital stock paid up, the market value, or if no market value, the actual
value of the shares and the total amount, and the details and particulars of all
indebtedness.
Where the property of any railroad or canal company is leased to or operated
by any other corporation, foreign or domestic, such property is assessed to the
56 INDUSTRIAL COMMISSION.
lessor, and if the lessee or operating company, being a foreign corporation, has
property other than that derived from the leasing company, it is taxed upon such
property as any domestic company. Any tangible personal property of such
foreign company, if used but part of the time within the State, is assessed such
proportionate part of its value as the time for which it is used bears to the whole
year.
The same deductions for debts are allowed as in the case of private individuals.
Upon the completion of this valuation and assessment the State board proceeds
to compute the tax upon the entire assessed valuation. Each company pays to
the State a tax at the rate of one-half of 1 per cent annually upon each dollar of
its entire valuation i. e., on all property included in the above 4 classes or sub-
divisions. Until the year 1897 all this tax was paid into the State treasury, and
was used exclusively by the State for State purposes. In 1895 this tax amounted
to $1,103,529, levied upon a valuation of railroad and canal property of $220,705,822.
By an act of 1897 the amount of such tax which is assessed to the property
described in subdivision 2, and designated second-class property, is required to be
paid over to the taxing district through which such railroads or canals run, giving
to each district the amount of taxes assessed to the property of each railroad or
canal company therein.
Besides this tax of one-half of 1 per cent of their valuation, Viich companies
are required to pay to the State a tax at the local rate as fixed by the local taxing
district in which such property is located, for county and municipal purposes, on
the property included in subdivision 2, provided that such tax shall in no case
exceed 1 per cent of the valuation.
The tax is paid to the State treasurer, and the State controller pays the amount
of such tax, together with the respective shares of such districts in the tax levied
at one-half of 1 per cent aforesaid, to the various county collectors or city treasurers.
In 1895 this local tax amounted to $410,882.13 upon a valuation of $41,120,216.
The total tax paid in 1895 by railroad and canal companies amounted to
$1,514,411.24.
In 1899 the total valuation amounted to $222,216,534, the State tax (one-half of 1
per cent) on first-class property retained being $907,636.22, and the whole tax on
second-class property $610,192.96, made up of the one-half of 1 per cent tax
($203,446.45) and the tax at local rates ($406,746.51). The total tax paid by rail-
road and canal companies in 1899 was $1,517,829.19.
The State thus receives from, railroad and canal companies a tax of one-half of
1 per cent upon the total assessed valuation, after deducting the value of the
second-class property described in subdivision 2. The local taxing districts
receive a tax of 1-J- per cent upon the assessed valuation of such second-class
property, 1 per cent being the local rate.
It seems to be generally conceded that under this system such property is
assessed at its full cash value, but whether this class of property pays a propor-
tionate amount of taxes as compared with a like amount in the hands of individu-
als or corporations subject to the general property tax is a question about which
there has been considerable contention.
It is obvious that if it be assumed that the constitutional and statutory require-
ments as to valuation are carried out by assessors, and all property assessed at
full values under both systems, the taxation of one as compared with the other is
not uniform and equal, the rate of taxation upon the one being one-half of 1
per cent on the whole and 1 per cent additional on a portion, while the ''average "
rate upon the other in the various taxing districts in the State was, in 1895, accord-
ing to the report of the State board of taxation, $17.20 per $1.000 of valuation.
It is conceded, however, that under the general property tax substantially all
assessed property is greatly undervalued, while a large part of the property
escapes entirely, which facts must be taken into consideration in attempting a
comparison.
The tax commission of New Jersey, in 1897, undertook to make such a com-
parison of the taxes paid by railroads and canals with the taxes paid by individuals
and other corporations. Evidence and arguments pro and con were made and
submitted, and schedules were made under different methods of comparison. One
set of schedules showed that railroads derived an advantage in taxes and the other
that they were paying in excess of their just share of taxes.
The commission in its report says that the varying schedules illustrate "how
impracticable it is to compare two things which are essentially dissimilar; how
difficult and unsatisfactory it is to make a correct and just comparison of two
systems of taxation based upon dissimilar principles. Such comparisons may be
useful in a general way and for the most general purposes, but they are unsuited
to base tax legislation upon, without a principle, which should always be the pri-
TAXATION IN NEW JEESEY. 57
mary consideration, and the figures secondary. And whether the one set of fig-
tires is mathematically correct, or approximately so, or the other, is of small
moment in the view which the commission takes of this branch of the subject,
viz., the act of 1884, as amended 1888, (the present system of taxing railroads),
should not be disturbed, except as indicated."
While this does not, in express terms, state that such property is justly and
equitably taxed as compared with other property, that is the logical inference to
be drawn from the positive approval of the existing system, and failure to recom-
mend any change in the rates of taxation of such property.
One of the commissioners, Mr. Jas. F. Rusling, who joined in the report of the
commission, in a special report discusses the subject of comparison more fully,
and says:
' ' In effect this system yields a tax of one-half of 1 per cent on all railroad
property (except what is not used for railroad purposes) , for the use and benefit
of the State, and amounted in 1895 to $1,514,411.24. It is true this taxes railroad
property only one-half of 1 per cent in part and only !- per cent as to the rest.
But the listing of railroad property has been made so thorough and complete, and
the valuations fixed so high and true by the State board of assessors that, so far
as appeared in evidence before the commission, this class of property seems now
to pay its just and full share of taxes in New Jersey. Indeed, the State board of
assessors in their annual report for 189.4, page 7, declare: ' It can be proven by
facts and figures, beyond any question, that the railroad corporations (of New
Jersey) are paying to-day more taxes in proportion to their ownings than are the
individual taxpayers of the State,' and in their report for 1896 (p. 6) they reiterate
this opinion. And, besides, they pay their taxes regularly every year to the last
dollar assessed against them, without any deduction for debts or otherwise, and
without costing the State a dollar to collect them. Let us then be fair to our
railroads. They constitute a large item in the tax ratables of the State, and from
the official reports, exhibits, and other evidence, produced before the commission,
it is but just to say they do not appear to be in fault on this line."
INHERITANCE TAX.
A tax for the use of the State of $5 on every $100 of value of all estates valued
over $500, which shall pass by will or by the intestate laws of New Jersey, except
legacies or estates passing to certain designated relatives or certain charitable
bequests, is imposed by law. The amount received from this source in 1899
amounted to $85,520.68.
LIQUOR LICENSES.
The estate has no interest in the amount received from liquor licenses. These
are levied by the various municipalities and collected by them for local uses.
PENNSYLVANIA.
A distinguishing feature of the taxation system of this State is the separation
of State and local taxation.
The work of assessing State taxes is put into the hands of a single tribunal,
while local assessments are confined strictly to local purposes. Property, real and
personal, liable to local taxation is not taxed for State purposes, and vice versa.
Taxes for county, township, and municipal purposes are assessed upon real
estate, horses and cattle over 4 years of age, occupations, professions, and posts of
profit. Real estate so taxed does not include that essential to tfte operation of the
quasi-public corporations, that being included in the State taxation.
All this property is taxable for local purposes only, and assessed by local assess-
ors who have nothing to do with State taxes. All other personal property is
assessed by the State board, but three-fourths of the State tax on personal prop-
erty is apportioned to the several counties in reduction of the local taxes. Rev-
enue derived from retail liquor licenses is also given up to counties, townships,
and municipalities.
The taxes for State purposes are almost wholly paid by corporations, leaving
individuals subject to taxation for local purposes only, except that the mortgages,
bonds, and other classes of personal property taxable under State laws held by
them pay a State tax, but three-fourths of this tax is returned to the counties.
Corporations pay no local tax except upon real estate (and in case of railroads
and other quasi-public corporations, not upon that), and except upon horses and
cattle owned by them.
The property of corporations is in the main taxed by the State board for State
purposes. The real estate of manufacturing companies is subjected to local taxa-
tion as other real estate in the districts where the same is located, but the capital
stock of such companies engaged in manufacturing business is exempt from tax-
ation for all purposes by statute. This exemption is by way of encouragement to
manufacturing investments.
STATE TAXES.
The revenues of the State are collected by two distinct methods and divided
into two classes:
First. Taxes paid directly or through other State officers to the State treasurer.
Second. Taxes collected by county officers, and by them paid to the State
treasurer.
BONUS ON CHARTERS.
One of the sources of direct revenue for State purposes is a bonus on charters
of corporations, such a bonus being defined by the courts to be the price paid the
Commonwealth by a corporation for the privileges conferred on such corporation
by its charter. It is not regarded as a tax in a legal sense, although for our pur-
pose it may be considered as such, and it does not relieve any corporation from
regular taxation.
The bonus is fixed by law at the rate of one-third of 1 per cent of the amount of
authorized capital stock, and a like amount on authorized subsequent increases of
stock on one class of corporations, payable before the charter's issue, and one-
fourth of 1 per cent on another class, payable one-eighth of 1 per cent before the
charter's issue, and a like amount at the expiration of one year from the date of
the charter.
The amount realized by the State from this source in 1898 was as follows:
From incorporated State banks $984. 50
From trust companies 7, 333. 34
From corporations and associations 438, 579. 71
Total 446,897.55
58
PENNSYLVANIA CORPORATION TAXES. 59
TAX UPON CAPITAL STOCK.
This State derives about one-half of its public revenue from the taxation of
corporations. All such taxes are assessed and collected by State officers. The
principal tax upon corporations is that upon capital stock, so called, to which all
corporations having capital stock, except banks, savings institutions, and foreign
insurance companies, are subject.
The companies subject to such tax include every corporation having capital
stock, associations and limited partnerships organized or incorporated by or
under the laws of the State or incorporated or organized by or under the laws of
any other State or Territory, by the United States, or by any foreign government
and doing business in and liable to taxation within Pennsylvania or having capital
or property employed within the State, with the exceptions above named.
Formerly this tax was assessed on the capital stock on the basis of the dividends
paid, but under an act passed in 1891, which provides increased revenue for the
purpose of relieving the burden of local taxation and for greater uniformity, the
taxing of dividends based on assessment of capital stock was abandoned, and pro-
vision was made for the assessment of the capital stock of all corporations upon
its true value.
In the assessment of capital stock of corporations by State officers, the value of
such capital stock is based in the judgment and discretion of such officers upon a
wide range of inquiry and investigation, and such assessment is made to include
the actual value of all property, franchises, and everything of value they possess.
Under the decisions of the courts of the State and the practice of State assess-
ing officers, the value of capital stock of corporations is based upon all the prop-
erty, assets, franchises, and earning capacity of such corporations, without regard
to their debts.
As a factor in determining such valuations, sworn detailed reports are required
annually from officers of corporations, except banks, savings institutions, and
foreign insurance companies, showing:
(1) The total authorized capital stock.
(2) Total authorized number of shares.
(3) Number of shares of stock issued.
(4) Par value of each share.
(5) Amount paid into the treasury on each share.
(6) Amount of capital stock paid in.
(7) Amount of capital stock on which dividend was declared.
(8) Date of each dividend declared during the year.
(9) Rate per cent of each dividend declared.
(10) Amount of each dividend during previous year.
(11) Gross earnings during the year.
(12) Net earnings during the year.
(15) Amount of surplus.
(16) Amount of profit added to sinking fund.
(17) Highest price of sales of stock between the 1st and 15th days of November
of the year.
(18) Highest price of sales of stock during the previous year.
(19) Average price of sales of stock during the year, and also the sworn esti-
mate and appraisement of two officers of each corporation of the capital stock
at its actual value in cash, not less than the average price which said stock sold
for during the previoiis year, and not less than the price or value indicated or
measured by net earnings, or by the amount of profits by dividends or carried
into surplus or sinking fund.
These reports are not conclusive upon the State assessing officers, who ascertain
the value of this capital stock not only from the extensive data furnished in these
sworn reports, but from information obtained from other sources.
This method of valuation takes into consideration, as we have stated, not only
the franchises or rights of business, but the success of business, good will, future
prospects, administrative efficiency, and everything that goes to make up the
value of capital stock.
A distinguished judge of that State recently said, "There is a tendency in
Pennsylvania to settle down upon the earning capacity as the true subject of tax-
ation." However this may be, it seems clear that everything going to make up
the earning capacity of corporations is practically taken into consideration in
determining the assessment of their capital stock.
It will be observed that the law requires that the valuation of capital stock
shall in no case be less than the average price of sales of shares. The actual value
may be much greater, but in no case may it be less.
60 INDUSTRIAL COMMISSION.
The supreme court, construing the act of the legislature governing the valua-
tion of capital stock for taxation in the case of Commonwealth v. N. Y. P. & O.
R. R. (188 Penn. State Rep., p. 169), held the declared purpose to be to tax the
capital stock by ascertaining its value in view of the tangible assets of corpora-
tions, what was owing to them, the value of their franchises, and the rights and
privileges they possessed under their grants.
The question of the actual value in cash of the capital stock is a question of fact
which must be determined by considering the value of the company's tangible
property and assets of every kind, including its bonds, mortgages, and money at
interest, and its franchises and privileges; and the amount of the incumbrance on
its property and franchises is also a relevant fact to be considered, but is not
to be specifically deducted from the valuation so ascertained and determined.
Foreign corporations doing business in Pennsylvania are taxable like domestic
corporations, on so much of their capital as is invested in the State.
The fact that a foreign transportation company running its cars into, through,
and out of the State, also operates them in other States, does not exempt the com-
pany from taxes upon the capital invested in cars in Pennsylvania.
Palace car companies whose cars run into Pennsylvania and other States are
taxable on the proportion which the total number of miles traveled in Pennsyl-
vania by their cars bears to the miles traveled by all their cars in all States.
Railroad companies whose lines extend from Pennsylvania into other States
are taxable on the proportion of their capital stock which the mileage of the main
track in Pennsylvania bears to the total mileage of the company.
Telegraph companies doing business in many States, where the like value of
the tangible property representing capital within and without the State can be
accurately ascertained, are taxed on the proportion of their entire capital stock
which the length of their lines within the State bears to the total length of all their
lines.
The capital stock of corporations representing tangible property permanently
located outside the State of Pennsylvania is not taxable.
By the payment of the tax on capital stock, corporations do not relieve them-
selves from any local taxation to which they would otherwise be subject.
Corporations, except quasi-public ones, are also taxed locally upon real estate,
and the value of such real estate is also included in the capital stock valuation.
Quasi-public corporations are taxable locally on real estate not necessary to the
operation of their lines.
It has been held that the tax on capital stock being a tax for State purposes
only, local taxation upon the property in which the capital stock of a company
is invested does not constitute double taxation.
An appeal from the tax assessment of the State officers may be taken by any
corporation in the State to the court of common pleas of Dauphin county, where
the capital of the State is located.
Blank forms of reports of capital stock for the use of different classes of cor-
porations are prepared by State officers.
Corporations which pay a tax upon their capital stock, or which are expressly
relieved from such payment as in the case of manufacturing companies, thus
relieve their shares of stock from taxation in the hands of the holders thereof,
and are not required to make any report nor pay any further tax on the mortgages,
bonds, and other securities held* by them in their own right.
The rate of taxation upon capital stock is fixed by law, being a uniform rate
of 5 mills upon each dollar of the actual value of the stock.
The amount actually collected from this source during the year 1897 upon a
valuation of $765,518,672 was $3,827,593.36, or about 29 per cent of the entire rev-
enue of the Commonwealth.
In 1899 the capital stock tax was $4,575,511.
TAX ON LOANS OF PUBLIC AND PRIVATE CORPORATIONS.
The law also imposes a tax on corporate loans, requiring the payment of 4 mills
on the dollar on all investments by residents of the State in the bonds and other
obligations of corporations, public or private, for profit, except banks, savings
institutions, and foreign insurance companies.
Instead of depending upon the holders of such obligations returning them to
the assessors for taxation, the treasurer of each corporation is made the agent of
the State for the collection of this tax, and is required to deduct it from the inter-
est accruing on such obligations and pay it to the State, the corporation, however,
being responsible for its payment. These obligations of domestic owners are
then exempt from taxation in the hands of the owner. Obligations held by non-
residents of the State in their own right are not taxable.
PENNSYLVANIA CORPORATION TAXES.
61
The amount of this tax in 1897 on a valuation of $219,994,522 was $879,978, or
6.08 per cent of the entire revenue of the State. The amount of this tax in 1898
was $866,316.88, and in 1899, $1,149,409.
This method of taxation has been declared to be constitutional by State and
Federal courts. It is practically a tax upon individual property in the hands of
the individual taxpayer.
The auditor of the State in his report of 1897 says; " This method of collecting
the tax upon the obligations of corporations has been successful, and has secured
a tax upon a class of securities dificult to reach through the local assessors.
TAX ON GROSS RECEIPTS OF CORPORATIONS.
A tax of 8 mills on the dollar is imposed upon the gross receipts of railroad,
street passenger railway, express, telegraph, telephone, and electric-light com-
panies doing business in the State, from business done wholly within the State;
the act thus limiting gross receipts being prepared with a view to conformity
with the interstate-commerce clause of the Constitution of the United States.
The treasurer of each corporation is required to furnish the auditor-general of
the State with a statement under oath of the amount of gross receipts of such
company derived from all sources, and of gross receipts of business done wholly
within the State.
It is interesting to note the method by which the gross receipts tax of companies
doing business in this and other States is apportioned. In the case of the palace
car companies, for instance, the gross receipts are taxed as follows: The company
reports all the moneys received for transportation between places in Pennsylvania
and other places in the same State. It returns separately, or in different sched-
ules, the receipts of this nature earned by cars running wholly within the State,
and in another schedule such receipts as are earned by cars whose trips are not
confined to the State, but are continued beyond the borders of Pennsylvania, or,
beginning without the State, pass through or terminate in it. The tax on gross
receipts, however, is settled upon the full amount of receipts earned wholly in
Pennsylvania, so returned, whether earned by cars running only within the State
or by those engaged in interstate commerce.
Mr. Frank M. Eastman, from whose excellent work on Taxation in Pennsylvania
we obtained much information relating to taxation in this State, says: " So long as
the traffic is carried on within the State, it makes no difference whether the cars
earning the receipts are engaged in interstate commerce r run only within the
State. The fact that a car runs between States does not make so much of the
traffic carried on by it, as is limited to the territory of a given State, interstate
traffic/'
The tax upon gross receipts of corporations for 1896, such gross receipts amount-
ing to $89,188,400, yielded a revenue of $713,373.12, being 5 per cent of the total
revenue of the State for that year.
The receipts from this source for 1895, 1896, and 1897 were collected from the
following classes of corporations:
Class of corporations.
1895.
1896.
1897.
Railroads (steam)
$402 910 95
$450 473.61
$404, 429. 30
Railways (passenger) . .
112, 797. 46
149, 349. 20
158, 216. 84
Transportation (miscellaneous)
27, 388. 34
47, 776. 08
39, 938. 29
Telegraph and telephone
13, 856. 51
22, 921. 80
21, 669. 67
Electric light
34, 254. 70
42, 852. 43
49, 504. 43
Total
591,208.06
713, 373. 12
673, 758. 53
The receipts for 1898 were $691,522.99, and in 1899 $748,214.
This tax has been held by the courts to be constitutional upon so much of the
gross receipts as are derived from business wholly within the State.
TAX ON PREMIUMS OF INSURANCE COMPANIES.
This tax is divided into two classes: First, tax on foreign insurance companies;
second, tax on gross premiums of domestic insurance companies having capital
stock.
First. The tax on foreign companies.
These companies are required to obtain from the commissioner of insurance a
certificate of authority, showing that the company or association is authorized
62 INDUSTRIAL COMMISSION.
to transact business in the State; and as a condition of the annual renewal thereof,
the duty is imposed upon every such company or association to make report to
the commissioner in the month of January in each year, under oath of the presi-
dent or secretary thereof, showing the entire amount of premiums of every char-
acter and description received by said company in Pennsylvania during the year
or fraction of the year ending with the 31st day of December preceding, whether
said premiums were received in the form of money, credits, or any other substitute
for money, and to pay into the State treasury a tax of 3 per cent upon said pre-
miums. The commissioner has no power to grant a renewal to such company or
association until the tax is paid into the State treasury. This tax upon foreign
insurance companies has been held by the courts in Pennsylvania to be constitu-
tional.
The tax is paid directly to the commissioner of insurance, no settlement there-
for being made by the accounting officers. The commissioner ascertains whether
the amount paid corresponds with the premiums reported, and if so, pays the
money into the State treasury.
The law provides that one-half of the amount of this tax shall be paid by the
State treasurer to the treasurers of the several cities and boroughs of the Com-
monwealth.
The amount collected from these companies was:
1895.. 1 $513,616.19
1896 548,442.18
1897 575,829.65
1898 620,922.08
1899 646,775.00
Second. The tax on gross premiums of domestic insurance companies having
capital stock.
A tax of 8 mills on the dollar is imposed, in addition to the tax on capital stock,
upon the gross premiums and assessments, received from business transacted
within the State, of all domestic insurance companies except those doing busi-
ness on the mutual plan without any capital stock or accumulated reserve, and
except purely mutual beneficial associations.
This tax is based upon semiannual reports of these companies, and is required
to be paid on the last days of July and January in each year. The revenue from
this source was:
1895. . ._ $43,355.68
1896 54,751.19
1897. ... 54,302.13
1899. 61,882.00
TAX ON BANK STOCK.
A tax of 4 mills on the dollar is imposed upon the actual value of the shares of
stock of every bank or savings institution incorporated under the laws of Penn-
sylvania or of the United States and represented in Pennsylvania.
Each bank having capital stock is required to file with the auditor-general an
annual report, under oath of one of its officers, showing
(1) The full number of shares of capital stock subscribed for or issued by such
bank or savings institution, and
(2) The actual value thereof; and the actual value of the shares is to be ascer-
tained by adding together the amount of
(a) Capital stock paid in, and
(b) The surplus and undivided profits.
The tax is assessed by the auditor-general on the actual value of these shares
so ascertained and a copy of the assessment or settlement is transmitted to the
bank, whose duty ?.t is to post it in a conspicuous place in the bank, so as to give
notice of the valuation to the stockholders.
The bank may then within forty days from the receipt of a copy of such settle-
ment either collect the tax from its shareholders or pay it out of the general
fund.
The auditor-general has the power, and it is his duty under the law, in case
he shall not be satisfied with the correctness of the report as made by any bank
or savings institution, to summon the officers before him for examination and
require them to bring with them the books of their bank; and he may take fur-
ther evidence to satisfy himself as to the correctness of the report.
PENNSYLVANIA CORPOEATION TAXES. 63
It is further provided that in case any bank or savings institution having capital
stock shall collect this tax from the' shareholders, and pay it into the State treasury
on or before the first day of March each year, the shares and so much of the cap-
ital or investment of such bank or savings institution as shall have been invested
in real estate shall be exempt from local taxation, and such bank or savings insti-
tution shall not be required to make any report to the local assessors or county
commissioners of personal property owned by it in its own right and shall not be
required to pay any tax thereon. While the law imposing this tax is not very
clear upon the subject, it is understood to relieve shares of stock from taxation
in the hands of the owners thereof.
It is specially provided that any bank may elect in lieu of the foregoing method
to collect annually from its shareholders a tax of 10 mills upon the par value of
all its shares subscribed for or issued, and pay the same to the State treasury.
There are, however, but few banks in the State that can profitably take this
option, so that the 4-xnill tax is practically the bank tax of the State.
Banks which do not collect and pay the tax on or before March 1 of each year
as provided are subject to taxation on the personal property held by them, except
in the case of national banks.
The taxes from this source in 1897 amounted to $595,684, and in 1899 to $548,800.
Trust companies are required to pay the regular capital stock tax on the actual
value of their property, franchises, etc., the rate of taxation being 5 mills on the
dollar, and the real estate being taxed for local purposes. They also pay the tax
of 4 mills upon loans.
Taxes paid by trust companies in 1898 amounted to $369,645.56. The trust com-
panies, it will be observed, are taxed at a higher rate than banks, the reason prob-
ably being that they enjoy more valuable franchises and privileges than banks,
doing banking business to all intents and purposes, and in addition having the
right to do trust business.
TAX ON NET EARNINGS.
Private bankers or brokers, savings institutions, and corporations not subject
to a tax on their capital stock or gross premiums, are subject to a tax of 3 per
cent on their net earnings or income.
BUILDING AND LOAN ASSOCIATIONS.
Building and loan associations have been exempted from taxation, but are now
taxed by an act of 1897, providing that upon all " full-paid, prepaid, or fully
matured " stock in any building and loan association incorporated under the laws
of Pennsylvania or under the laws of any other State, upon which annual, semi-
annual, quarterly, or monthly cash dividends or interest shall be paid, there shall
be a State tax equal to that required to be paid upon moneys at interest by the
tax laws of the State, viz., 4 mills on the dollar; and such associations are required
k> make detailed annual statements to the auditor-general.
EXCISE TAX UPON EXPRESS COMPANIES.
In July, 1897, an act was passed providing for an annual excise tax, so called,
upon the corporations or other associations, partnerships, or individuals engaged
in the express business. They are required to pay to the State treasurer for the
use of the State an annual excise tax for the privilege of exercising their fran-
chises in Pennsylvania. The amount of the tax is ascertained as follows: Each
company, firm, or person so taxed is required to make under oath to the auditor-
general an annual statement of the amount of its express receipts that is to say,
the amount of total receipts derived by it from carrying on the express business
for the previous year, with a statement of the total length of lines of rail and
water routes over which it was doing business during the year. The gross
amount so returned to the auditor-general is divided by the number of miles of
lines to ascertain the average gross receipts per mile.
When average receipts are $100 a mile or less the rate is 1 per cent; when the
receipts exceed $100 and do not exceed $150 the rate is 2 uer cent, and so on, the
rate of the tax increasing 1 per cent for each $50 of average receipts per mile
or fraction thereof, but never exceeding 5 per cent. When the route or routes
over which the express business is conducted lie partly within and partly without
the State, the gross express receipts over the entire line or system within and
without the State are divided by the total number of miles operated to obtain the
64
INDUSTRIAL COMMISSION.
average gross receipts per mile, and the gross express receipts in Pennsylvania
are taken to be the average gross express receipts per mile multiplied by the
number of miles operated within the State.
These companies are also subject to the tax on capital stock, on loans, and on
gross receipts heretofore mentioned.
RAILROAD TAXATION.
The railroads of the State paid taxes for State purposes in 1898 as follows:
Tax on capital stock (5 mills) _ $974, 688. 64
Tax on loans (4 mills) 451,617.06
Tax on gross receipts (8 mills) 423, 709. 04
Total 1,850,014.74
As has been observed, they pay comparatively little in the way of local taxes.
All their property is exempt from local taxation except such as is not essential to
the legitimate operation of their lines. Such property, however, is subject to
local taxation, and has been so declared by the supreme court of the State.
In some of the counties they are required to pay local taxes on that portion of
their real estate not essential to the operation of their lines, and in 1898 they paid
taxes on such property amounting to $757,593.48, the larger portion of which was
paid in the counties of Philadelphia and Allegheny.
For the year 1899 railroads paid a tax of $1,833,184 on capital stock valued at
$366,636,990, or $36,663 a mile, and a gross receipts tax of $451,613 upon a total
of $56,451,640 of 'gross receipts derived from traffic wholly within the State, mak-
ing a total tax of $2,284,797 paid directly to the State.
In addition, railroads paid to local communities for 1899 taxes amounting to
$728,714.
The total amount of taxes paid in 1899, both State and local, was $3,013,511.
There is also collected by the State through railroad corporations a tax of 4
mills upon the par value of their loans or interest-bearing indebtedness. The act
taxing all personal property, as above set forth, makes a class of corporate loans,
bonds, mortgages, or other interest-bearing indebtedness, and imposes upon the
treasurer of the company the duty of deducting the tax of 4 mills upon the nomi-
nal or par value from the interest paid to taxable residents of Pennsylvania, and
returning the amount so collected directly to the State treasurer. Nearly all mort-
gages securing such loans contain covenants providing for the payment of inter-
est coupons free and clear of all State taxes, the company thus assuming to pay
the tax of the bondholder. The amount collected from this source in 1899 from
railroads was $515,301, or a 4-mill tax upon $128,825,000 of corporate loans.
Taxes paid by transportation and transmission companies, 1898.
Basis of taxation.
Railways
(passenger,
street, elec-
tric, etc.).
Telegraph
and tele-
phone com-
panies.
Transporta-
tion com-
panies (mis-
cellaneous),
including
express com-
panies.
%
Light, heat,
and power
companies.
Tax on capital stock (5 mills)
$676, 034. 93
$19, 121. 91
$293, 386. 25
$70, 841. 21
Tax on loans (4 mills)
74,668.77
460. 49
39, 196. 45
13, 990. 09
Tax on gross receipts (8 mills)
163 591 49
24 586 39
36 246 98
42 283.37
Bonus on charters
20, 556. 88
9, 236. 37
128, 806. 66
24, 138. 44
934, 852. 07
53,405.16
497, 636. 34
151, 253. 11
The local taxes collected on real estate of corporations other than railroads in
1898 amounted to $2,501,423.60.
STATE TAX FROM COUNTIES.
The remainder of the State revenues of Pennsylvania are assessed and collected
by county officers and by them paid to State officers, the auditor-general having
supervisory control over the manner of such assessment and collection. This tax
is assessed upon the basis of sworn reports required to be made by taxables
annually, and upon such further information of record or otherwise as the assess-
ors may obtain.
^^ S R A H y ">,
/ lliJi TV" I
TAXATION IN PENNSYLVANM^ r 65
N^CALlfO^
The rate of taxation for State purposes on personal property of the following
descriptions, whether owned or held as trustee or agent, is fixed by law at 4 mills
on the dollar of valuation, viz:
(1) All mortgages.
(2) All moneys owing by solvent debtors.
(3) All articles of agreement and accounts bearing interest.
(4) All public loans, except those of the State or United States.
(5) All loans issued by or shares of stock in any bank, corporation, or com-
pany, domestic or foreign, or limited partnership, created or formed under the
laws of the State or United States or any other State or government, including
car-trust securities and loans secured by bonds or any other form of certificate
or evidence of indebtedness, whether the interest be included in the principal of
the obligation or payable by the terms thereof, except shares of stock in any com-
pany liable to the capital-stock tax.
(6) Moneys loaned or invested outside of the State.
(7) All other moneyed capital in the hands of individual citizens of the State.
(8) Shares of stock in foreign corporations held by residents of the State are
taxable, although the stock of the companies issuing such shares is taxable in
other States. Bonds and mortgages held by a resident trustee for the benefit of
a nonresident cestui que trust are held to be taxable in this State.
(9) Also stages, omnibuses, hacks, cabs, and other vehicles, and all annuities
yielding annually over $200.
This tax on personal property in 1898 was $2,738,666.26 on a valuation of $684,-
666,565.27.
As has already been stated, three-fourths of the net amount of this tax on per-
sonal property is returned by the State treasurer to the several counties of the
State.
There is a special significant provision in the act making it unlawful for any
person or persons loaning money at interest to require the person borrowing the
same to pay the tax imposed thereon, and providing that in all cases where such
tax shall be paid the same shall be deemed and considered usury and subject to
the laws governing the same.
To facilitate the assessment of this class of intangible property each taxable is
required to make to the local assessor a sworn detailed statement of such property
owned by him, and heavy penalties, by way of fine or imprisonment, are imposed
for making a corrupt and fraudulent return. The recorder of deeds, mortgages,
and other instruments in each county is required to keep a separate detailed
record of all mortgages or agreements to secure the payment of money and fur-
nish a statement of such record on the first of each month to the county or city
board of revision of taxes, and the prothonotary or clerk of the court of common
pleas in each county or city is required to keep and furnish to such board a like
record of every single bill, bond, judgment, or other instrument securing a debt
entered of record in his office. It is the duty of the county commissioners or board
of revision of taxes, upon obtaining record of the existence within any county or
city of such mortgages and other obligations owned outside of that county, but
within the Commonwealth, to transmit a certified statement of such record to the
commissioners or board of the county where such obligations are owned.
A statement of such obligations is in turn transmitted to the local assessors
before each regular assessment, for the purpose of assessment and taxation to the
owners thereof.
Upon the refusal or failure of any taxable to make a properly verified return
the assessor is required to make such return according to the best information he
can obtain from the records or otherwise, which return the county board revises
and corrects according to the best information obtainable. It is the duty of the
board to send for the taxable and examine him under oath as to such taxable
property, and, unless satisfactory reasons under oath are shown for such failure
or neglect, to add to the amount of the estimate 50 per cent, the aggregate
amount so obtained being the basis of taxation.
Up to the passage of the act of 1885 the assessed valuation of money at interest,
including mortgages, judgments, bonds, notes, stock, etc., was but a fraction of
the actual amount of such property in the State, the total valuation in that year
being $145.286,746; but under the improved methods of listing and assessment,
and the 50 per cent penalty provided by the legislature, the valuation was greatly
increased.
The increasing amounts returned since 1891 are as follows:
1891 . . $579,036,227 I 1895.. $620,020,507
1892.. 590,882,560 1896 670,803,246
1893 607,664,408
Id94 .. 616,043,542
1897 - 675,713,437
1898.. ..- 684,879,157
66 INDUSTRIAL COMMISSION.
The increase in Philadelphia alone was from $95,071,724 in 1885 to $309,828,762
in 1895.
TAX ON COLLATERAL INHERITANCES.
All estates located in Pennsylvania or outside of that State, when the person
seized thereof is domiciled in said State, passing from any person dying seized
thereof, either by will or otherwise, to any person other than father, mother, hus-
band or wife, children, and lineal descendants born in lawful wedlock, or the
wife or widow of the person dying possessed thereof, which estates are of the
clear value of $250, are subject to a tax of $5 on every hundred dollars of the clear
value thereof. The amount of such collateral inheritance in 1898 was $834,855.96.
TAX ON DIRECT INHERITANCES.
In 1897 a law was enacted which provided for a tax of $2 on every $100 of the
clear value of all personal property passing by will or by the intestate laws of
the State to any heirs not subject to the collateral inheritance tax; but personal
property so passing, to the value of $5,000, was exempted. This tax has been
declared void by the courts on account of the generous exemption.
TAX ON WRITS, WILLS, DEEDS, ETC.
A State tax of $3.50 is imposed on every writ of error issued or appeal granted
by the supreme court, and a tax of 50 cents on every writ issued by the inferior
courts, and of 25 cents on every transcript of a judgment of a justice of the peace
or alderman. Recorders of deeds are required to collect for the use of the State
50 cents for every instrument offered for record. Registers of deeds collect 50
cents for the probate of each will and the same amount for granting letters of
administration. A State tax of $10 is levied upon the commissions of inferior
officers of cities and counties, such as sheriffs, clerks of courts, health officers, etc.
The amounts realized from these sources in 1898 were as follows:
Tax on writs, wills, deeds, etc $146, 787. 40
Fees of county officers 23,517.33
Fees of State officers 140,463.76
Besides these revenues the State receives certain amounts from the fees of
different State officers.
LICENSES.
Among the oldest sources of revenue in the State of Pennsylvania are licenses
on various classes of business.
MERCANTILE LICENSES.
All persons engaged in mercantile business are required to pay annually, for
the use of the Commonwealth, amounts varying, according to the annual sales,
from a tax of $7 on sales amounting to $5,000 to a tax of $1,000 upon sales of
$4,000,000.
The amount realized from this source in 1898 was $536,999.55.
LIQUOR LICENSES.
The amount of State tax derived from various liquor licenses in 1898 was as
follows:
Retail liquor licenses $531,029.46
Wholesale liquor licenses 458, 738. 12
Brewers' licenses _ 162, 61 1 . 31
Bottlers' licenses 158, 752. 01
Total.... - 1,311,130.90
OTHER LICENSE FEES.
State license taxes obtained from other sources in 1898, viz., billiard, brokers',
auctioneers', peddlers', theater, circus, etc., and eating-house licenses, amounted to
$120,651.90.
TAXATION IN PENNSYLVANIA. 67;
STATE TAXATION.
The principal taxes received by the Commonwealth of Pennsylvania for the
year 1898 may be summarized as follows:
1. From financial corporations:
National banks $494, 712. 44
Incorporated State banks 66,730.83
Incorporated savings institutions _ _ 36, 624. 19
Trust companies 362, 1 54. 30
Total.. 960,221.76
2. From corporations in general:
Foreign insurance companies.- 620,922.08
Tax on capital stock. 3,014,465.24
Tax on loans 824,555.75
Tax on gross receipts 691, 522. 99
Tax on gross premiums 38, 698. 01
Bonus on charters ,_ -.... 438, 579. 71
Total .- 5,646,743.78
From or through counties:
Tax on personal property 2, 722, 245. 58
Tax on writs, wills, deeds, etc.. 146,787.40
Tax on collateral inheritances 834, 855. 96
Tax on direct inheritances 3, 811 . 85
Tax on loans (municipal and county) 339, 134. 40
Receipts from licenses 2,051,445.13
Total 6,098,280.32
4. From other sources:
Tax on net earnings or income (brokers, etc. ) _ 44, 333. 35
Tax on sale of fertilizers. 13,490.00
Total 57,823.35
MERITS OF THE SYSTEM.
Mr. Eastman enumerates what he regards as the principal merits of the system
of taxation in Pennsylvania as follows:
1. The separation of the local system, in subjects and administration, from the
State system.
2. The uniformity resulting from taxation of corporations through State offi-
cers, whence it results that companies of the same class are taxed precisely alike
in all sections of the Commonwealth, except upon their real estate, which is taxed
locally.
3. The resulting inability of communities to harass corporations in the taxation
thereof, and on the other hand the impossibility of large corporations obtaining
exemptions to any extent from taxation by bribery or other similar means.
4. Simplicity and effectiveness in taxing all that a corporation has by assessing
its capital stock at its real value, or rather at what its value would be but for its
indebtedness.
5. The taxing of corporations on the basis of sworn reports required to be made
by their officers, the accounting officers having the power to compel the appear-
ance of company officers before them with their books and papers whenever they
need more information than the reports of the company afford.
6. The requiring of sworn returns of personal property, with the system of
checks thereon before mentioned. A taxpayer in Pennsylvania can not get rid
of taxation on his personal property by swearing to a conclusion of law.
7. Finally, the fact that the consideration of practically all questions arising
concerning the taxation of corporations is by law intrusted to one court the
court of common pleas of Dauphin County whose jurisdiction as to such question
extends throughout the State, with an appeal, of course, to the supreme court.
The judges of the first-named tribunal have uniformly been men of ability, and
by having constantly to deal with tax questions they have become deeply learned
in the tax laws, so that their decisions have been generally consistent and uniform.
68
INDUSTRIAL COMMISSION.
RECAPITULATION OF THE STATE TAXES ON CORPORATIONS.
Bonus on charters. This source of revenue is not strictly a tax, but the price
or consideration paid for the charter privileges. It is now one-quarter of 1 per
cent upon the amount of authorized capital of the corporation, or any subsequent
increase, payable in two installments, one at the time the charter is granted and
the other within one year thereafter. The revenue from this source amounted
during the fiscal year 1899 to $780,626.
Tax on capital stock. A tax is assessed upon the actual value in cash of the
capital stock of corporations at the rate of 5 mills upon the dollar, with the excep-
tions noted. The amount collected in 1899 from capital stock (exclusive of banks)
was $4,575,511.
Tax on gross receipts. A tax is imposed upon the gross receipts of transpor-
tation, telegraph, telephone, and electric-light companies, derived from business
done wholly within the State, the rate being 8 mills upon each dollar of such
receipts. The tax from this source amounted in 1899 to $748.214.
Tax on gross premiums. This tax is imposed upon the gross premiums of
domestic insurance companies, derived from business done within the State, at the
rate of 8 mills upon the dollar. The receipts from this source amounted in 1899
to $61 ,882.
Tax on corporate loans. This tax is imposed upon the interest-bearing loans or
indebtedness of corporations, and is collected from the holder of the indebtedness
by the treasurer of the corporation, who is required by law, as the agent of the
State, to deduct the tax when paying interest to resident and taxable holders.
The tax is at the rate of 4 mills upon the nominal or par value of the loan or
indebtedness, and the amount collected from this source in 1899 was ,$1,149,409.
Tax on bank slock. This is imposed upon the shares of bank stock at the rate of
4 mills upon its actual value, and is collected from the shareholders of the bank.
The amount derived from this source in 1899 was $548,800.
Tax on net earnings or income. This tax is imposed at the rate of 3 per cent
upon the net earnings or income of incorporated State banks and savings institu-
tions without capital stock. The revenue from this source in 1899 amounted to
$83,337.40.
(Bankers and brokers are required to pay a tax of 3 per cent upon net earnings
or income, and the amount is included above.)
Tax on foreign insurance companies. This tax is imposed upon the business of
foreign insurance companies done in Pennsylvania, at the rate of 3 per cent of
the gross premiums, and is collected through the commissioner of insurance.
The revenue derived from this source in 1899 was $646,775.
Classified statement showing amounts paid into the State treasury by the several
classes of corporations named for the fiscal year 1898.
Class of corporations.
Tax on capi-
tal stock.
Tax on
loans.
Tax on
gross re-
ceipts.
Tax on
gross pre-
miums.
1
National banks
State banks
^
Trust companies
$314, 179. 04
$23,761.13
$16, 880. 79
4
Incorporated savings institutions (without
K
Brewing companies
63 647.58
7, 906. 05
6
Brick clay slate stone and quarrv companies
6 444 36
2 098 68
7
Bridge and turnpike companies
29, 297. 82
17, 380. 60
8
Coal coke and coal-mining companies
287 361 55
74 415 06
8497. 55
<)
197 80
290 11
10
Gas (artificial and natural)
125, 387. 13
6, 475. 66
158. 32
1 1
Insurance companies (domestic)
76 229 54
38, 698. 01
12
Insurance companies (foreign)
620, 922. 08
18
Land and improvement companies
60 322 37
14, 148. 75
"M
Light heat and power companies
70 841 21
13 990 09
4'> "83 37
Ti
138 426 19
86 258 91
lf>
Market companies
11 479 06
3 453 15
17
27 288 23
2 838 31
"3 76
IS
Railroads (steam)
974 688.64
451,617.06
423, 709. 04
ii
Railways (passenger)
676 034 93
74 668 77
163 591.49
>o
293 386 25
39 196 45
36 246 98
23
Telephone and telegraph companies
19' 121 91
' 460. 49
24, 586. 39
22
Water companies
81 374 21
26 749 88
132. 91
28
72 936 46
20 898 34
3 07
Total .
3, 328, 644. 28
866, 316. 38
691, 522. 99
676, 500. 88
TAXATION IN PENNSYLVANIA.
Classified statements showing amounts paid into the State treasury by the several
classes of corporations named for the fiscal year 1898 Continued.
Class of corporations.
Tax on
bank
stock.
Tax on net
earnings.
Bonus on
charters.
Total.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
National banks
$494,712.44
$494, 712. 44
66, 730. 83
362, 154. 30
36,624.19
80,462.83
14,373.54
46,761.76
378, 63. 77
492.17
191,449.40
114,927.55
620, 922. 08
78,183.46
151,253.11
349, 353. 58
14, 935. 96
31,306.63
1,850,014.74
934,852.07
497, 636. 34
53, 405. 16
133, 064. 25
104, 785. 88
State banks
65, 746. 33
$984.50
7, 333. 34
Tru^t companies
Incorporated savings institutions (without
capital stock )
$36, 624. 19
Brewing companies
8,909.20
5, 830. 50
83.34
16,289.61
4.26
59,428.29
Brick, clay, slate, stone, and quarry companies.
Bridge and turnpike companies
Coal coke and coal-mining companies
Ferries
Gas (artificial and natural)
Insurance companies (domestic)
Insurance companies (foreign)
Land and improvement companies
3, 712. 34
24, 138. 44
124, 668. 48
3.75
1,156.33
Light, heat, and power companies
Manufacturing companies
Oil and mining companies
Railroad** ( ^team )
Railways ( passenger)
20, 556. 88
128, 806. 66
9, 236. 37
24, 807. 25
10,948.01
Transportation companies (miscellaneous)
Telephone and telegraph companies
Miscellaneous companies
l
Total
!
560,458.77 j 36,624.19
446,897.55
6, 606, 966. 04
Valuation of property taxable for local purposes, 1898.
Real estate taxable $2,685,199,712
Horses, mares, geldings, and mules over 4 years old 23, 771 , 539
Neat cattle over 4 years old 11, 915, 317
Salaries and emoluments of office, offices, posts of profit, profes-
sions, trades, and occupations .'. . 125, 622, 996
Aggregate value of all property taxable for local purposes. _ . 2, 846, 607, 609
The secretary of internal affairs in his report for 1898 says in relation to the
taxation of property for local purposes: " It is probable that the system of taxa-
tion, according to the enactments of the legislature of Pennsylvania^ as equita-
ble a one as has yet been devised, and the failures that are encountered and the
inequalities that exist are attributed in most part to the faulty execution of the
laws rather than to any defects in the enactments themselves. Therefore it fol-
lows that the wrongs that exist, if such wrongs do exist, are due to a failure on
the part of the people to execute with fidelity the duties imposed upon the officers
chosen by the people to carry out the laws.''
Taxes for all purposes, 1898.
Amount of taxes collected in counties for all purposes. $50, 315, 870. 81
Amount of taxes collected on personal property $3, 427, 385. 63
Amount collected on occupations, etc 1 , 934, 982. 05
Amount collected on licenses 5, 779, 153. 96
Amount on real estate, railroad (locally assessed) _ _ 757, 593. 48
Amount on real estate of other corporations 2, 501, 423. 60
14, 400, 538. 72.
Balance on real estate of individuals : 35, 915, 332. 09
The tax on occupations, professions, etc., is not generally enforced, some coun-
ties, among them Philadelphia and Dauphin, making no returns whatever.
More stringent legislation for the enforcement of this tax is urged by officials.
Assessments are made triennially under the authority of the county commis-
sioners of the several counties. Precepts are issued by such commissioners to-the
local assessors, who proceed to take an account, in forms directed by law, of the
names of all taxable inhabitants of their respective districts, and also an account
of the following real and personal property:
First. Real estate, viz: All houses, lands, lots of ground of all descriptions, all
furnaces, forges, bloomeries, distilleries, sugarhouses, malt houses, breweries,
tanyards, and ferries.
70 INDUSTRIAL COMMISSION.
- Second. The following personal property, viz: All horses, mares, geldings, and
cattle above the age of 4 years.
Third. All offices and posts of profit, professions, trades, and occupations; also all
single freemen above the age of 21 years who do not follow any occupation or calling.
Only the subjects of taxation thus enumerated are directly taxable for local
purposes. The whole system is under the supervision of a State board of review
commissioners, consisting of the auditor-general, State treasurer, and secretary
of the Commonwealth.
The cities of Philadelphia and Pittsburg have special systems of their own for
local taxation from like sources.
In conclusion we quote the f ollowing from Eastman on Taxation for State Pur-
poses in Pennsylvania as to the attempts made in recent years to change the sys-
tem in that State:
"At the session of 1887 an act was passed which would have materially changed
the tax system of the State, but which failed to become a law, as will be remem-
bered, owing to the failure of the president pro tempore of the senate to affix his
signature thereto. A tax commission was created by law at the same session of
the legislature, which reported a revenue bill, a principal feature of which was
the substitution of a single tax on corporations to take the place of the existing
taxes thereon on capital stock, gross receipts, and loans or bonded indebtedness.
The legislature took no action on the bill so reported, and at the session of 1889
another tax commission was created. , The members thereof failed to agree on
any measure and made individual reports, suggesting various changes in methods
of taxation, none of which was made.
"At almost every session of the general assembly for the past 8 or 10 years per-
sistent efforts have been made to secure the passage of bills usually known as
* granger bills,' because very generally supported by the members of the order of
Patrons of Husbandry, so drawn as to effect sweeping changes in our tax legislation.
"As a concession to the supporters of these measures, the auditor-general was
instructed by resolution of the general assembly at the session of 1895 to procure
from all corporations in the State reports made in the manner required by the
tax bill then pending, and to make feigned settlements thereon, in order to ascer-
tain whether the proposed measure would supply a sufficient amount of revenue
to meet the expenses of the State government, or. in other words, whether the
proposed system would produce an equal amount of revenue with the old. Such
reports were to be obtained for 2 consecutive years. They have already been
obtained for 1 year, and have recently been required for the second year. It is
understood that the statistics thus far obtained have failed to show that the pro-
posed measure would produce the necessary amount of revenue.
"In 1892 a Pennsylvania tax conference was formed by the representatives of
various important interests in the State, an unofficial but highly respectable body,
owing to the talents and earnestness of the members thereof. The object of the
commission was to supply statistics upon which discussions of proposed changes
of taxation might be based. It has been mainly owing to the lack of such data
that former attempts to agree upon a revision of the tax laws have failed. Two
preliminary reports were made by this conference, one containing much valuable
information relative to objects of taxation in Pennsylvania, and the other giving
a comparative statement of the tax systems of all other States. The commission
finally reported the revenue bill introduced at the session of 1895, above referred
to, data concerning the operations of which, if it becomes a law, are yet being
procured. Owing to the death of Joseph D. Weeks, of Pittsburg. the chairman
of the conference, its operations have of late languished, if indeed its organiza-
tion may not be considered as practically dissolved.
"In closing this sketch it may be said that, while the State tax system of
Pennsylvania can doubtless be improved in many respects, the system itself is a
very excellent one. The burdens of taxation for State purposes are almost wholly
placed upon corporations, leaving individual taxables subject to taxation for
local purposes only, except that the mortgages, bonds, and other classes of per-
sonal property taxable under the laws of the State held by them pay a State tax,
but three-fourths of even this tax is returned to the counties to relieve the bur-
dens of local taxation.
"The State tax laws of Pennsylvania are not only in the main just, but they
have been so thoroughly construed by hundreds of decisions of the courts that
but little opportunity exists for disputing over the proper interpretation thereof.
" Before wholly abandoning a system so long established, so thoroughly inter-
preted, and so generally equitable, for the purpose of adopting any untried sys-
tem devised by theorists, every feature of which must be construed by the courts,
it is believed that thoughtful men will require nothing short of 'an absolute
demonstration that the proposed system will prove in all important respects the
superior of the old."
OHIO.
The power of the legislature in this State over taxation under the constitution,
as determined by the decisions of the supreme court, is thus defined by the Ohio
tax commission of 1893:
" First. The constitution prohibits the taxation of persons.
" Second. As to property: (a) It must be taxed for general revenue and by a uni-
form rule, according to its true value in money; (b) it may be taxed by assess-
ment for special benefits derived by it from public improvements.
' ' Third. Business, which includes all subjects of taxation other than persons and
property, may be taxed either for general revenue or for the purposes of regula-
tion, in such mode and manner as the legislature in its discretion may determine."
GENERAL PROPERTY TAX.
To these excessive limitations upon the legislative power, imposed by the con-
stitution of the State, appears to be due, to some extent at least, the retention of
the general property tax system, which, "in principle, is a survival of the economic
conditions of the early part of the century," and the most vigorous efforts to sub-
ject property to taxation by means of one uniform tax on all classes.
The general property tax still constitutes the principal source of revenue for
State as well as local purposes, and Ohio has adopted the most rigorous and drastic
methods devised in any State for bringing upon the tax rolls all classes of prop-
erty, real and personal.
During recent years efforts have also been made through special legislative enact-
ments, without pursuing any uniform or definite plan, to supplement the general
property tax system and bring it more in harmony with modern economic condi-
tions. In consequence of such desultory efforts we find in this State the general
property tax " side by side with the gross-receipts tax. the excise tax, and assess-
ment by the unit rule obtained from the stock, bonds, and earnings, and others, all
imposed on corporations essentially alike in character and differing only in name."
The legislature seems to have been inclined to resort to any expedient within
constitutional restrictions which promised to bring about improvement in the
antiquated system of the State, and we find corporations substantially alike in
character taxed by 6 distinct methods, which will be described hereafter.
THE LEVY.
The amount of taxation necessary to be levied annually for State purposes is
determined by the legislature, for county purposes by the county commissioners,
for township purposes by township trustees, for school purposes by the boards of
education, for municipal corporations by the city councils. Each of these bodies
reports its estimates to the county auditor, who levies the taxes upon the valu-
ation as reported to him by the various boards of equalization.
ASSESSMENT.
One assessor is annually elected in each ward and township to list and return
personal property. His labor is supplemented by the county auditor and the
annual city and county boards of equalization.
Other assessing officers and boards are the county auditors; the board of
appraisers and assessors for express, telegraph, and telephone companies, com-
posed of the State auditor. State treasurer, and the attorney-general; the annual
State board of equalization for banks, composed of the governor, the attorney-
general, and the State auditor: the annual State board of equalization for railroads,
composed of the State auditor, the attorney-general, and the State treasurer; the
decennial city, county, and State boards of equalization for real estate.
71
72 INDUSTRIAL COMMISSION.
All property in the State, whether real or personal, and whether belonging to
individuals or corporations, and all moneys, credits, investments in bonds, stocks,
or otherwise, of persons residing in the State, are declared to be subject to tax-
ation, except only such as may be expressly exempted.
EXEMPTIONS.
Tender the provisions of the constitution the legislature has granted exemptions
to public-school property, all property of public colleges not used with a view
to profit, cemeteries, State and Federal property, county buildings, houses
used exclusively for public worship, poorhouses, buildings belonging to institu-
tions of purely public charity together with the land occupied by such institutions
not used with a view to profit, property used for extinguishing fires, public prop-
erty used for public purposes exclusively, personal property to an amount not
exceeding $100, etc.
REAL ESTATE.
Real estate is defined to include not only land, but all buildings, structures, and
improvements and fixtures of every kind thereon, and all rights and privileges
belonging thereto unless otherwise specified, to be assessed where located " accord-
ing to its true value in money."
Real estate is assessed decennially by assessors elected by the people for the
various assessment districts, which are coequal with the number of wards and
townships within the county, each assessor assessing the real property within his
district.
The action of the assessors is reviewed by the city and county decennial boards
of equalization for real estate, and their action in turn is reviewed by the decen-
nial State board of equalization for real estate. Changes in valuations and errors
in the valuation of real estate are reported by the annual assessor of personal
property, and changes in valuation and errors are corrected and equalized by the
annual city and county boards of equalization.
PERSONAL PROPERTY.
Personal property of all kinds, tangible and intangible, is by law subject to
taxation, almost without exemption.
Apparently to avoid misunderstanding and escape from the duplicate, such
property is defined with great minuteness of detail.
The statute provides that the term " investment in bonds " includes all moneys
in bonds or certificates of indebtedness or other evidences of indebtedness of
whatever kind, whether issued by domestic, public, or municipal corporations, or
by the United States, held by persons residing in Ohio, whether for themselves or
others. The term "investment in stocks " includes all moneys invested in the
capital stock of any company, for the taxation of which no special provision is
made by law, held by persons residing in the State, either for themselves or oth-
ers. The term " personal property " includes, first, every tangible thing, being
the subject of ownership, whether animate or inanimate, other than money, not
forming any part of real property; second, the capital stock, undivided profits,
and all other means not forming part of the capital stock of every company, and
every share, portion, or interest in such stock, profits, or means, by whatsoever
name the same may be designated; third, the money loaned on pledge or mort-
gage of real estate, although a deed or other instrument may be given for the
same, if between the parties the same is considered as security merely. The term
" money " includes any surplus or undivided profits held by societies for saving, or
banks having no capital stock, gold or silver coin, bank notes of solvent banks in
actual possession, and every deposit which the person o wring, holding in trust,
or having the beneficial interest therein is entitled to withdraw in money on
demand. The term " credits " means the excess of the sum of all legal claims
and demands, whether for money or other valuable thing, due or to become due,
including deposits in banks or with persons within or out of this State, other than
such as are held to be money, when added together (estimating every such claim
or demand at its true value in money) , over and above the sum of legal bona fide
debts owing by the owner; but in making up the sum of such debts owing,
there shall be taken into account no obligation to any mutual insurance company,
nor any unpaid subscription to the capital stock of any joint stock company, nor
any subscription for any religious, scientific, literary, or charitable purpose; nor
any acknowledgment of any undebtedness, unless founded upon some consideration
actually received and believed at the time of making such acknowledgment to be
TAXATION IN OHIO. 73
a full consideration therefor: nor any acknowledgment made for the purpose of
diminishing the amount of credits to be listed for taxation ; nor any greater amount
or portion of any liability as surety than the person required to make the state-
ment of sucti credits believes that such surety is in equity bound and will be com-
pelled to pay or to contribute in case there be no securities.
LISTING SYSTEM.
Every person " of full age and sound mind " is required to make out and deliver
to the assessor a detailed statement of all personal property owned by him or in
his possession or control, and verify the same by oath; and the assessor is required
to demand such sworn statements.
Any person who. being called upon to list property for taxation and claiming
to have none, either on his own account or for others, subject to taxation, is required
to make oath to the truth of his claim in that regard.
Such statement is required to set forth truly and distinctly in number, detail,
and value thereof, various kinds of chattels and the value of all articles of personal
property not included in any special class; the average value of the goods and
merchandise which such person is required to list as a merchant; the value of
property which he is required to list as a banker, broker, or stock jobber: the
average value of materials or manufactured articles which he is required to list
as a manufacturer; moneys on hand or on deposit subject to order; the amount
of credits as above defined; the amount of all moneys invested in bonds, stocks,
joint stock companies, or otherwise; the monthly average amount or value for
the time he held or controlled the same within the preceding year of all moneys,
credits, or other effects invested in or converted into securities of the United
States or of the State: and any indebtedness created in the purchase of such
securities can not be deducted from credits.
Every person who may hold any property belonging to others is required to list
the same separately from his own and in like manner, specifying the name of
the person, estate, company, or corporation to whom it belongs.
Deposits with banks or persons subject to draft on demand are taxable as money;
if payable on time they are taxable as credits.
These provisions apply to all b'onds and other evidences of indebtedness of any
city, county, town, railroad, telegraph, express, or other company, and the stock of
any corporation whether in or out of the State, and notwithstanding the capital
of the corporation is taxed in the State where it is located.
Money or credits as defined must be listed wherever the same maybe, and debts
can only be deducted from credits.
Shares of stock in banks, railroads, and other companies in Ohio specifically
provided for are omitted from returns of holders, because the returns of the offi-
cers of such companies embrace both capital and means.
Specific rules are prescribed for the valuation of personal property, the general
rule being - k at the usual selling price thereof."
Investments are to be valued at the true value thereof in money; deposits at the
full amount; credits for certain sums payable in money, property, or labor at the
full amount: annuities or moneys receivable at stated periods at the sum which
they are believed to be worth at the time of listing.
Severe penalties are imposed by law upon assessing officers for the violation of
rules for valuing personal property.
If any party required to list neglects or refuses to list or swear to the state-
ment the assessor must note such fact and make the return from the best informa-
tion he can obtain, whereupon the auditor is required to add 50 per cent to the
amount returned, and the amount so increased becomes the basis of taxation.
The manner in which the stock and property of merchants and manufacturers
shall be listed and the kinds of property that shall be included are minutely
defined.
Shares of stock in building and loan associations upon which no loans have
been made are regarded as credits and the holders required to list them for taxa-
tion at their true value in money.
The law particularly specifies what the oath administered to the party listing
property shall contain. It is comprehensive and "ironclad," and includes
everything that might possibly disclose any evasion or deception.
If any person required to list property for taxes shall in any year or years make
a false return or evade a return, the county auditor is required to ascertain as
nearly as practicable the true amount of personal property omitted during such
years and add 50 per cent thereof, and taxes are to be collected on the sum so
obtained.
74 INDUSTRIAL COMMISSION.
In case the county auditor has reason to believe or is informed that any person
has made to the assessor a false statement, or that the assessor has not returned
the full amount required to be listed or has omitted or made erroneous return of
any property, he is required to proceed to correct such return, and empowered to
summon and examine witnesses, the party found to have made such false state-
ment being liable for the costs of the proceedings.
It will thus be seen that in this State the laws provide for the most careful listing
by individual statement under oath and under pain of heavy penalties, the most
inquisitorial examination into private affairs, and they have even gone so far as
to authorize the employment by county commissioners of persons to give informa-
tion concerning the property of individuals, which would result in the personal
property being placed upon the tax rolls. These persons are termed inquisitors,
and in some counties such tax inquisitors have been allowed and paid 25 per cent
of the taxes collected through such information. Yet, notwithstanding these
efforts, the results, so far as getting personal property, tangible and intangible,
upon the rolls is concerned, are not much more satisfactory than in other States,
and there appears to be an increasing disposition to employ other methods to a
greater extent in reaching personal property substantially of a corporate character.
Referring to this subject, the governor of the State, in his special message, says
that personal property is valued all the way from full value down to nothing: in
fact, the great majority of the personal property of the State is not returned, but
entirely and fraudulently withheld from taxation. So far as personal property
is concerned, the fraud is with the people who list their property for taxation.
The idea seems largely to prevail that there is inequality in taxation, and that
there is no harm in cheating the State, although to do so a fraudulent return
must be made and perjury committed. This offense against the State and good
morals is too frequently committed by men of wealth and high character and
corresponding position in society.
Dr. Ely, after investigating this system and conversing with many of the prom-
inent men of the State, says that " nobody claimed that more than a compara-
tively small fraction or part of personal property was reached in the larger cities,
while it was generally if not unanimously held that the larger the city the smaller
the proportion of the personalty reached as indeed always happens."
He refers to the statement of a prominent lawyer in that State who holds estates
in trust for several parties, that whenever he goes to the tax office he feels capable
of committing robbery, arson, and murder, because he is compelled to pay taxes
on estates of $2,000, $3,000, and $4.000 belonging to little orphan children, whereas
he sees wealthy clients paying on 10 or 15 per cent of what he knows they are
worth.
Dr. Ely, in conversation with a gentleman, once an official, who had had
long service in the tax departments of Ohio, said: " It seems to me from what
you say there is not a wealthy man in the State of Ohio who is not a perjurer."
He replied, " It is true."
The tax commission, in its report of 1893, after thorough investigation and sta-
tistical demonstration of the results of these methods in the taxation of personal
property, concludes that they are productive of very gross injustice and inequality;
that while fully one-half of the property exists in Intangible form, of this all but
a mere bagatelle escapes taxation entirely. The commission is very severe in
condemnation of the system and its results in this respect.
Mr. Frederic C. Howe, of the Cleveland bar, formerly secretary of the Pennsyl-
vania tax conference, in a pamphlet upon Taxation of Quasi-public Corporations
in Ohio, says:
" Personal property, while by law subject to taxation almost without exemp-
tion, and with the most stringent measures enacted to secure its assessment, is
seldom returned save in the rural districts, where it can not escape the assessor's
notice. Every conceivable device of the legislator to get personal property on the
duplicate has failed here as elsewhere, and realty can hope for but little relief from
this source."
The rigid inquisitorial system is frequently pointed to by tax commissions and
officials of other States as a practical success in reaching personal property. The
Ohio tax commission of 1893, however, after careful investigations, shows that
this system does not succeed in getting upon the tax duplicates any appreciable
part of the personal property which is not tangible and not in sight; that while
in country counties, where the assessor is personally acquainted with the circum-
stances of the taxpayer, it is in a measure successful, in the city counties it is an
utter failure.
The commission states, as a result of a thorough discussion of the subject, that
fully one-half of the property of a modern State exists in intangible forms, and of
this all but a mere bagatelle escapes entirely when the attempt is made to reach
it in the form of property.
OHIO CORPORATION TAXES. 75
CORPORATIONS IN GENERAL.
All corporations, except telegraph, telephone, express, and railroad companies,
and such others as are otherwise specially provided for, are required to list, under
oath, and return to the auditors of the several counties in which such property is
situated, all their personal property, including moneys and credits of such com-
panies within the State, and also the real estate necessary to their daily operations,
at the actual value in money; together with a statement of the amount of such
property situated in each ward, City, village, or township therein.
The value of all movable property is thereupon added to the stationary and fixed
property and real estate, and apportioned to such wards, cities, villages, or town-
ships pro rata, in proportion to the value of the real estate and the fixed property
therein, and all property so listed and apportioned is subject to and pays the same
taxes as other like property in such cities, villages, wards, or townships.
Such corporations are also required to return to the State auditor the aggregate
amount of property listed in the several counties. If, in the opinion of the county
auditor, such report is incorrect, he is authorized to correct it.
The county board of equalization and the State board of equalization convene
annually, and the county auditor is required to lay before these boards, for the
territory they respectively have jurisdiction over, the returns of the assessors,
together with the returns made to him by corporations.
These boards have power to hear complaints, and may equalize the valuations
of all real and personal property, adding to or deducting from the valuation
thereof upon such evidence as shall be satisfactory to them.
BANKS.
Unincorporated banks are required to file annually with the county auditor a
statement, under oath, showing
First. Average amount of notes and bills receivable discounted or purchased in
the course of business.
Second. The average amount of accounts receivable.
Third. The average amount of cash and cash items in possession or transit.
Fourth. The average amount of stocks, bonds, including United States Govern-
ment bonds, or evidences of indebtedness held as an investment or in any way
representing assets.
Fifth. The amount of real estate at its assessed value.
Sixth. The average amount of deposits.
Seventh. The average amount of accounts payable, exclusive of current deposit
accounts.
Eighth. The average amount of United States Government and other securities
exempt from taxation.
Ninth. True value of furniture and other property.
From the aggregate amount of the first 5 items is deducted the aggregate
amount of items 5, 6, 7, and 8, and the remainder added to the ninth item becomes
the basis for taxation, and subject to the same rate as other personal property.
These provisions apply also to incorporated savings banks.
INCORPORATED BANKS.
All the shares of the stockholders in any incorporated bank located in the State
are listed at their true value in money and taxed in the city, ward, or village
where such bank is located at the same rates as other" property taxed locally.
The real estate of any such bank is taxed where located.
The cashier of each incorporated bank is required to return to the county audi-
tor a true statement, under oath, exhibiting in detail and under appropriate
heads the resources and liabilities of such bank on the Wednesday next preceding
the second Monday in May, together with the name and residence of each stock-
holder and the number of shares held by each.
Upon receiving such report the auditor fixes the total value of the shares of such
bank according to their true value in money and deducts therefrom the value of
the real estate as shown by such report.
Such reports and valuations are thereupon passed upon and equalized by the
State board of equalization for banks, composed of the governor, State auditor,
and attorney-general.
76 INDUSTRIAL COMMISSION.
Valuations, 1899.
Valuation of real estate in Ohio in 1899 . . . $1 , 256. 524, 809. 00
Valuation of personalty 530,034,260.00
Total... 1.786,559,069.00
^The amount of taxes raised in 1899 was as follows:
State tax $5,071,800.31
County and local purposes 37,864,845.06
Totaltax 42,936,645.37
The classification of valuations of various kinds of personal property, as equal-
ized by local boards, is shown by the following table from the report of the auditor
of State for 1899:
Horses $27, 283, 936. 00
Cattle 24,802,704.00
Mules, etc ..... 494,346.00
Sheep 6, 753, 401 . 00
Hogs 4,972,424.00
Carriages 4, 229, 946. 00
All other personal property subject to taxation and not included
in any of the foregoing or subsequent items of this statement. _ 37, 033, 250. 00
Watches 1 , 320, 1 9 . 00
Pianos and organs 1 4, 680, 475 . 00
Mining stock 37,318,721.00
Value required to be listed as banker, broker, or stock jobber 753, 817. 00
Manufacturers' stock, etc 15, 439, 263. 00
Value of all moneys in possession or on deposit subject to order . . 41, 102, 825. 00
Value of all credits after deducting all bona fide indebtedness 90, 135, 764. 00
All moneys invested in bonds, stocks, joint stock companies, annui-
ties, or otherwise. 7, 874, 476. 00
Bank, railroad, and other corporation property returned to county
auditors... 210,110,948.00
Total value 514,384,745.00
FOREIGN INSURANCE COMPANIES.
Every agency of an insurance company incorporated outside the State is
required to return annually to the auditor of the county in which it does busi-
ness or from which it collects premiums the amount of the gross premium
receipts in such county for the calendar year; provided, however, that in the
case of regular companies, wherever property holders participate in the surplus
and earnings of the company, dividends or surplus from previous payments
allowed and used in the payment of current premiums, cancellation or surrender
values, and commissions paid to citizens of the State during the period for which
receipts are reported are deducted from such gross receipts, and the net amount so
obtained is the basis for taxation in such county. Such gross premium receipts
are entered upon the tax list of the proper county and are subject to the same
rate of taxation as other personal property.
The superintendent of insurance annually charges and collects from such insur-
ance companies such a sum as added to the amount of taxes collected in the vari-
ous counties will amount to 2* per cent of the gross receipts as shown by their
annual statements under oath to the insurance department. Upon failure to pay
such tax or upon false statement of the gross premium receipts the license of
such insurance company is revoked. The amount so collected by the superin-
tendent of insurance is paid into the general revenue fund of the State. The
amount so collected in 1899 was $142,615.41.
RAILROAD COMPANIES.
Mr. Frederic C. Howe says:
' Steam railroads are still assessed for taxation in Ohio by methods long since
abandoned by more progressive States. The plan is a modified survival of the
general property tax," and has persisted by inertia. While most States have appre-
ciated their inability to measure railroad values by an actual inventory of con-
OHIO COEPOEATION TAXES. '\ 77
C W I V H1KSITY
stituent elements, and have adopted methods based on the idea that the road is a
unit or a system, and that its value includes its franchise and is indicated by its
capital stock or earning capacity, Ohio has clung to the theory that railroad
values are to be determined in the same manner as the value of a farm or stock
of goods, by enumerating the separate valuations of its real estate, right of way,
rails, rolling stock, and equipment.
" The plan is primitive and the results unsatisfactory. It not infrequently
favors dishonesty on the part of the officials.
" Valuations are low and tend to become Lower, and bear no necessary relation
to the assessment of other forms of wealth."
Railroad companies in Ohio are subject to two forms of taxation; the first in the
nature of an ad valorem property tax, and the second in the nature of an excise
tax levied by the State.
PROPERTY TAX.
Valuations of railroad property for assessment and taxation are made by the
several auditors of counties through which the roads pass, or within which they
have their tracks or roadway.
These county auditors are constituted a board of assessors and appraisers to
revise, value, and apportion the property, moneys, and credits of such railroad
companies in the several counties. The board keeps a complete record of its pro-
ceedings, certified copies of which are required to be sent to the auditor of each
county constituting a member of such board, to be recorded and open to public
inspection.
This board meets annually to ascertain and value the roadbed, water and wood
stations, and such other realty as is necessary to the daily operation of the roads,
and all the personal property of the railroad companies, including moneys and
credits and the undivided profits, reserve or contingent funds, and also the equip-
ment, locomotives, cars, machinery, tools, etc., belonging to them or under their
control.
The board may require from the officers of each road a detailed statement under
oath of all the items and particulars constituting such property, moneys, and
credits, and the value thereof, and may examine the books and papers of the road
and any or all of its officers, receivers, servants, and agents touching any matter
relating to the same.
The value of the property, moneys, and credits so found is apportioned by the
board among the several counties through which the road or any part thereof
runs, and to each city, village, township, and district; the real estate, structures,
and stationary property, in proportion to the value of the real estate, structures,
and stationary personal property therein, and the rolling stock, main track, road-
bed, supplies, moneys, and credits, in proportion to the length of road in each
county, city, village, and district.
Where the line of such railway is divided into divisions or branches, it is
provided that so much of the rolling stock as belongs to or is used solely upon
any one of such divisions shall be apportioned in the same manner to the county
or counties and to each city, village, or district through which such division
runs.
When any railroad company has part of its road in the State and part thereof
in another State, such board is required to take the value of such property,
money, and credits, so found as aforesaid, and divide it in the proportion which
the length of such road within the State bears to the whole length of such road,
apportioning the values thereof in the State as aforesaid.
Certificates of such apportionment are sent to each county auditor and to each
city, village, or district interested. The several county auditors thereupon appor-
tion upon the tax list the amount, as certified or as equalized by the State board,
to such county, city, village, or district.
The action of the board of county auditors is reviewed by the State board of
equalization for railroads, composed of the State auditor, State treasurer, commis-
sioner of railroads and telegraphs, and attorney-general. This board has power
to hear complaints and to equalize the valuation of the board of county auditors,
but may not reduce the aggregate of the value of the property of railroad com-
panies within the State below the amount returned by such board.
EXCISE TAX.
In 1896, an act was passed by which every railroad company doing business
within the State of Ohio is required to file annually with the State auditor a
statement under oath showing the name and nature of the company, location
78 INDUSTRIAL COMMISSION.
of principal office, names and addresses of officers, and in case of each railroad
situated wholly in Ohio, the gross earnings from operation, and in case of each
railroad partly within and partly without Ohio, the gross earnings from the opera-
tion of the entire line, with the miles of line within and without Ohio.
The auditor of the State, State treasurer, and attorney-general constitute a
.State board of appraisers and assessors, which proceeds to ascertain and determine
the gross earnings of such railroads in the State from such reports, and reports
made to the commissioner of railroads and telegraphs. When the line of a railroad
coinpany is partly within and partly without the State, such proportion of the
gross earnings are taxed as the length of line within the State bears to the whole
mileage.
The State auditor annually charges and collects an excise tax of one-half of 1
per cent of such gross earnings, the proceeds being paid into the general revenue
fund of the State.
The amounts of excise taxes on the gross earnings of railroads for the 3 years
during which the act has been in force are as follows:
1897.. . $304,950.24
1898 344,715.32
1899 t __._ 363,218.74
The excise tax per mile of road was $41.32 in 1899.
The total value of property of railroad companies in 1897, 1898, and 1899, as fixed
by county auditors and equalized by the State board, was as follows:
1897.. . $105,101,916
1898 105,730,241
1899 106,487,590
Statement of valuation of property of railroads in 1899.
Maintrack. . $65,746,848
Second track 4, 574, 393
Branches 2, 733, 564
Sidings 1 7,229,079
Rolling stock 18, 955, 451
Buildings 4,845,965
Tools and machinery. 780,468
Moneys, credits, etc 1, 618, 986
Total of taxable property 106,484,754
Value fixed by State board, 1899 106, 487, 590
The State and county taxes paid by railroad companies in Ohio on their right
of way, real estate, and equipment for the same years were:
1897.. - $2,816,229.97
1898 2,614,137.05
1899 (estimated). 2,662,189.00
making the total taxes, State and county and excise, in those years
1897 .. 3,121,087.29
1898. -. 2,958,852.37
1899 3,025,407.74
Total taxes per mile of road in 1899, $343.54.
The gross earnings of railroads, Ohio proportion, in 1898 were $68,764,938.78. and
in 1899 $72,369,848.68.
The income, Ohio proportion, after deducting operating expenses, was in 1898
$19,702,720.32, and in 1899 $21,101,792.89.
By the foregoing statement it appears that railroad companies in Ohio pay in
taxes nearly 4^ per cent of their gross earnings. Comparison with the taxes paid
in Michigan and Wisconsin shows that the percentage of gross earnings paid is
considerably in excess of that levied in those States, which impose a specific tax
only on gross earnings.
In Michigan, in 1899, the total gross earnings of railroads were $35,892,864.22,
and the total tax amounted to $1,063.199.76, or about an average of 3 per cent of
the earnings. The graded rate in Michigan is from 2 per cent to 5 per cent,
according to the amount of earnings per mile. The Ohio roads undoubtedly have
a greater average traffic and would come within the higher rates.
The total gross earnings of railroads in Wisconsin for the year 1898 amounted
to $32,139,172.20, and the tax on such earnings was $1,247,357.03, a small fraction
less than 4 per cent.
OHIO CORPORATION TAXES. 79
The value of all taxable real estate and personal property in Ohio, according to
the consolidated tax duplicate of 1897, was $1,748,008,639, and the total tax levied
upon that basis amounted to $40,721,769.85, making the average rate of taxation
2.32 per cent.
The aggregate assessed valuation of all taxable property in Wisconsin in 1897 was
$625,101,151.31, and the aggregate of all taxes was $16,663,592.72, making the rate
of taxation 2.66 per cent.
The aggregate valuation of property subject to taxation in Michigan in 1896
was $1,105,100,000, and the amount of taxes for that year was $19,500,061; rate of
taxation, 1.76 per cent.
This comparison is of some value as affording a measurement in contrast with a
modern method of taxation, entirely separate and distinct from the general prop-
erty tax system in both valuation and rate of taxation, but can not be regarded
as a reliable criterion as to the adequacy of railroad taxation in Ohio, even if a
comparison between two utterly irreconcilable systems of taxation can be made
a safe criterion at all.
The proportion of the assessed valuation to the actual value of all the
property of the States named, assessed and unassessed, can not be given with any
degree of accuracy. From varying statistical statements of taxing officials and
investigators, the statement that the assessed valuation is not more than one-
third of the actual value of all property would probably be a very conservative
guess.
THE OHIO TAX COMMISSION'S REPORT ON RAILROADS.
One of the most interesting features of the very excellent report of the Ohio
tax commission of 1893 is its elaborate investigation of railroad taxation, its
attempt at comparison of the burden imposed upon railroads in Ohio with that
of other property under existing methods, and the proportionate amount of the
earnings of such property paid in taxes as compared with that of some other
forms of corporate property and some city real estate this in support of the
contention of the commission that the correct measure of corporate ability as a
basis of taxation is income or earning capacity. Its recommendations along
that line and the results of its investigation and conclusions are in some respects
more surprising than sound. This feature of the report has attracted special
attention throughout the country.
The commission attempted to arrive at the true value of railroad property by a
comparison of gross and net earnings, stock-exchange quotations, and bonded
indebtedness, the assessed valuation being compared with that of 1892, and finally
adopted as a fair method of determining the value of the property of railroads
within the State the capitalizing of their net income at 6 per cent. Up to the
year 1896 the ad valorem valuation by county auditors was the only method of
assessment and taxation of railroads, and the excise tax law of that year, above set
forth, was the recommendation of the commission. After showing that the
valuations by county auditors in 1892 were less than the valuations in 1878, the
commission says:
" The valuation of the Lake Shore and Michigan Southern Railroad Company
in the year 1878 was $12,996,609; in the year 1892 it was $12,457,745. In the year
1878 the gross earnings of the whole Lake Shore system were $13,505,159, whereas
in the year 1892 the gross earnings were $22,415.382, and the net earnings were
$6,612,192 as against $5,493,165 in 1878.
" The comparison for the same respective years of the valuations of the Cleve-
land and Pittsburg Railway Company is equally striking. In 1878 the whole
valuation was $5,731,000; in 1892 it was $4,495,000. On the other hand, the com-
pany did 50 per cent more business in 1892 than in 1878, its gross receipts being
$2,272,166 in 1878 and $3,429,278 in 1892.
" The Pittsburg, Fort Wayne and Chicago Railway Company was assessed in
Ohio in 1878 at $10,732,001 and in 1892 at $10,525,948. while the gross receipts in
1878 were $7,830,000 and $11,659,142 in 1892."
The commission says it is hardly open to doubt ' ' that the real value of the
property of many of these railroads has greatly increased, and that this is certainly
true of the leading lines. It is a matter of common information that the
through ' trunk lines,' like the Pennsylvania and Lake Shore systems, have spent
enormous sums of money of late years in the improvement of their roadbeds.
"Again, the equipment of these roads has improved with the improvements
made in rolling stock. The earning capacity per mile must be vastly greater now
than it was 16 years ago."
The commission attempts to determine the real value of many of the railways in
Ohio. After mature consideration, the commission says the railroad companies
80 INDUSTE1AL COMMISSION.
suffer no injustice if their income is capitalized at 6 per cent ; this is in effect determ-
ining that their real value is 16 times their net income, or, to put it in another
form, that anything that pays 6 per cent is worth par. In the case of many of the
railway companies the statements of the net earnings were obtained by the courtesy
of the railroad officials, and in other cases from Poor's Manual of Railroads for
the year 1892. It may perhaps be said that the year 1892 was an exceptional year.
For a series of years, however, since 1886, the earnings of many of our railways
had been reasonably constant. Even great systems like the Lake Shore Railway
Company showed variations in net earnings of comparatively small amounts. It
is shown that a large part of the capital of railroad companies is represented by
bonds, which are often the only real capital which the railway has. In most
cases the interest on the bonds is regularly paid for long series of years together.
Again, it is noted that this method of reaching the real value of a railway com-
pany's property is entirely independent of the amount of stocks or bonds issued
upon the property. The earning capacity of the property is its real test, and not
at all the judgment of the promoters of the enterprises. Their judgment may be
greatly at fault; the stock may be " watered,'' to use the popular phrase, yet no
injustice is done to the owners by the method which has been adopted. Of course,
it will be understood that in determining the values of those pr<jperties which run
through several States the amounts which are proportionate to the mileage in
Ohio were ascertained.
Pursuing these methods, it is seen, for instance, that the real value of the prop-
erty of the Cleveland and Pittsburg Railway Company is $18,641,207; it has 86
per cent of its mileage in Ohio; the real value in Ohio is therefore $16,031.438: the
appraised value in Ohio is $4,495,228. Take another instance: The net earnings of
the Columbus, Hocking Valley and Toledo Railway Company are $1,567,457.33;
its real value by this method is determined to be $26,124,289: it is assessed for taxa-
tion in Ohio at $4,024,221. Taking the Baltimore and Ohio Southwestern Railway
Company, its net earnings are $809.809.40: its real value, all in Ohio, is $13.496,825;
its assessed value is $2,701,839. Take still another instance: The Toledo and Ohio
Central Railway Company has net earnings of $506,306.01: its total value, all in
Ohio, is $8,438,433; its appraised value is $2,461,538.
It will be useful, again, to compare the results obtained by this method with the
estimates placed upon the value of the railroad by the investing public. If
all the issues of stocks and bonds of a given railway are taken and the prices at
which they are sold at the New York Stock Exchange in a year of normal values
are ascertained, a means is obtained for determining what estimate is placed upon
the value of these railways by those who in the long run fix values the persons
who buy for investment.
Taking, for instance, the different issues of bonds and stock of the New York,
Chicago and St. Louis Railway Company, and determining the value of the entire
issues by the average of the quotations at which they were sold on the New York
Stock Exchange in the year 1892, it was ascertained that the whole property was
worth, in the opinion of investors, about $28,000,000, and that that part of it which
is in Ohio was worth $13,196,000. Its value as determined by capitalizing its
income at 6 per cent was found to be $7,633,547. It thus appeared to the com-
mission that in this case, at least, no injustice was done to the railway com-
pany by the method selected.
The value of the Cleveland and Mahoning Valley Railway Company's property,
capitalized at 6 per cent, is $7,861,336; capitalized at 5 per cent, it is $9,433,600;
determined by the average of quotations upon the New York Stock Exchange
for the year 1892 (partially estimated), its property was worth $8,450.000.
Again, the Lake Shore and Michigan Southern Railway Company was worth,
upon the basis of the New York Stock Exchange quotations, about $109,000,000;
capitalized at 6 per cent it is worth about $110,000,000.
It should further be remembered, the commission said, that it is impossible in
the case of many railways to reach any adequate conclusions by determining their
values upon the basis of their stock-exchange quotations. For instance, the prop-
erty of the New York, Pennsylvania and Ohio Railway Company is covered with
mortgages securing a bonded indebtedness of about $90,000,000; its capital stock,
amounting to about $45,000,000, is entirely held by trustees, who are selected by
the bondholders under a scheme devised when the road was reorganized in 1880.
The common stock of the Baltimore and Ohio Southwestern Railway Company
and a large part of the stock of the New York, Chicago and St. Louis Railway Com-
pany are owned by the Lake Shore and Michigan Southern Railway Company. In
all these cases it is apparent that the selling value of the stock is determined by
other considerations than the earning capacity of the railroad. In so far, how-
ever, as the stock-exchange valuations can be obtained for the several properties
OHIO COKPOEATION TAXES. 81
the commission says, the figures obtained will bear out the conclusions reached by
the other method adopted; namely, the capitalization of the income of the railway
companies at 6 per cent.
The commission also obtained statements of the taxes paid in Ohio, the gross
earnings and the net earnings of all, or all but one or two, of the railways in
Ohio. It also obtained the percentage of mileage in Ohio in those cases where the
railway systems run into other States. It has been already stated how the net
earnings were obtained. In almost every instance the items of proportionate
mileage in the State and of the taxes paid in Ohio were obtained from the audi-
tors or other officials of the several railway companies. By an easy calculation,
from this data, it was determined what part of the net earnings arose in Ohio.
"It is then possible to make the same comparison which has been made with
other classes of investments, namely, what ratio the taxes paid in Ohio bear to
the net earnings which arise from the business in Ohio. It will, of course, be
understood that net earnings include the interest which is paid upon bonds. In an
economic sense bonds are capital; railways are built with the avails of bonds, and
in many instances the bonds are the only real capital. To cite a single instance,
the bonded indebtedness of the New York, Pennsylvania and Ohio Railway Com-
pany is, as stated, over $90,000,000; the stock of the corporation is about $45,000,000;
the real value of the railway company's property has been estimated by compe-
tent experts at 835,000,000. In this case.it is certainly clear that the real capital
of this corporation is represented by those issues of bonds which correspond to
its true value and which are secured by the mortgages first in priority.
' ' The following table shows the percentage of taxes paid in Ohio to net income
arising in Ohio in the year 1892 by a number of railway companies which are
believed to be representative ones:
Percentage.
Lake Shore and Michigan Southern 11.22
Cleveland, Columbus, Cincinnati and St. Louis 10.62
Pennsvlvania system 6. 90
The Valley Railway 8. 83
Cleveland'and Canton 7. 05
Cleveland, Lorain and Wheeling 6. 39
Cleveland and Pittsburg 8. 48
Toledo and Ohio Central 6. 54
Columbus, Hocking Valley and Toledo 5. 16
Cleveland and Marietta 8. 25
Cincinnati, Portsmouth and Virginia 17. 94
Baltimore and Ohio Southwestern 6. 57
New York, Chicago and St. Louis 11.99
Wheeling and Lake Erie 7. 99
Cincinnati, Hamilton and Dayton 9. 35
Baltimore and Ohio 6. 02
" A large number of the smaller roads are omitted from this table.
" Again it should be remembered that our system of assessing railway property
estimates its value by the mile, and that a mile of road through a country swamp
is worth as much for taxation as a mile through the heart of a large city. The
result is that the railway company pays the low rates prevailing in the country
counties on the great bulk of its mileage, and the high rates of the large cities only
on a small fraction thereof.
" If the principles set forth in the foregoing discussion are correct; if it be true
that the proper basis of taxation is ability to pay, and if it be true that the correct
rule is proportionality of taxes to income or earning capacity, then it is submitted,
from the facts which have been collected, that investments in no other form in
Ohio pay in taxes so small proportion of the earnings derived from the invest-
ments as do the investments in railway corporations. While investments in
improved real estate in Cleveland and elsewhere pay from 16 to 25 per cent of
their gross rentals in taxes; while banks pay 20 per cent or more of their net
income in taxes; while investment securities are taxed at the ratio of 60 to 70 per
cent of their income; while street-railway companies, at least in Cleveland, pay
25 per cent of their net income in taxes, investments in railway property do not
pay nearly so much proportionately. Few railways of the State pay as much as
10 per cent of their net earnings in taxes, while the great majority pay only from
6 to 8 per cent.
" To sum up the conclusions derived from these considerations: It is found that
the railways of the State are assessed for taxation at only $105,000,000; that the
railways, so far as they can be identified, were assessed upon a higher valuation
82 INDUSTRIAL COMMISSION.
in 1878 than they are now; that they only pay from 6 to 10 per cent of their net
earnings in taxes, while capital invested in other classes of property pays a much
larger percentage of its earnings. If their appraised valuations be compared with
their real values, as determined by capitalizing their net earnings at 6 per cent,
it is found that the appraised valuation is not more than 25 to 33 per cent of their
real values. W*nl e it is true that land is appraised at less than its real value in
various parts of the State, yet in no considerable section is the percentage of under-
valuation nearly so low as this."
Applying the methods of the Ohio tax commission and capitalizing at 6 per
cent the net income of railroads in Ohio, which was $19,702,720 in 1898, we find
the true value to be $328,378,606. The total taxes paid in 1898, including the new
excise tax, were $2,958,852.37, making the rate of taxation on such valuation a
little more than 9' mills.
Applying the rule adopted by the tax commission to the net earnings and
taxes of all Ohio railways for 1899, as reported by the State commissioner of rail-
roads, we have the following:
Total net income _ _ $21, 101 , 792. 89
Total taxes paid. . . 3, 025, 407. 74
Percentage of net income, 14.33, about one-seventh.
Mr. F. C. Howe, referring to the subject, says: "While the burdens of other
property have increased in recent years, the valuations on railroad property have
either diminished or become stationary."
As indicative of the truth of this statement, Mr. Howe produces the following
statistics of assessments and gross earnings of six railroad systems lying wholly
within the State of Ohio, which he says are in no sense exceptional:
1885.
1890.
1896.
Earnings
$4 498 423
$6 097 131
$10 266 465
Assessment
8, 944, 386
10, 165, 174
10 000 328
These show that while gross earnings increased in eleven years over 200 per
cent, the assessments increased little over one-tenth.
Mr. Howe says, further, that the same disparity has been found to exist in the
case of all roads that have been examined in that State, and that not only has
the assessment of railroad values either diminished or remained stationary, while
that of other forms of property has increased, but the valuation of the roads is
both absolutely and relatively lower than that of any other class of realty in the
State.
The restriction of Mr. Howe's comparison to realty is significant and suggests
that personalty might afford more just comparison.
In the consideration of new systems of corporate taxation in connection with a
prevailing general property tax, it appears to be a common diversion to under-
take to demonstrate the justice or injustice thereof by contrasts and comparisons
with the taxation of property generally, through methods similar to those above
set forth. It may, however, be regarded as questionable whether any such com-
parison for the purpose of determining upon a just measure of taxation by new
and modern methods can be satisfactory or reliable, and whether such attempts
are not apt to be entirely misleading.
The rates of taxation under the general property-tax valuations form no relia-
ble or even approximate basis of taxation under a system that is based upon an
arbitrary valuation of corporate property, which includes all elements of value,
real or fictitious, such as franchises, earnings, earning capacity, stocks and
bonds, etc.
The necessity for new systems of taxation of corporations is based upon the
assumption that the general property tax is a failure, even in its application to
tangible property, both real and personal, and utterly inadequate for the just or
reasonable taxation of property of a corporate or intangible character. Conse-
quently, when methods are devised based upon different principles of taxation, it
seems unsound and futile to undertake to measure or compare their adequacy by
applying to the property under one method a rule of valuation which measures
all elements of value, and from which neither value nor property escapes, and com-
paring it with the taxation of property under another method which only partly
values a mere portion of the property to which it is sought to be applied.
OHIO COEPOKATION TAXES. 83
The rules of valuation under these new methods and the rates of taxation tinder
the old can not form any reliable basis of comparison as to taxation yields. Such
comparison in the end is the wildest guesswork. New methods must be consid-
ered independently, both as to valuation and rates, to determine their efficiency
and the adequacy of taxation burden.
Viewed in this light, the conclusions of the Ohio tax commission and the results
of all similar methods of investigation appear less startling and of questionable
worth.
The conclusion that a great class of corporate property, peculiar in character
and uncertain and fluctuating in value, under a method of valuation impossible
of correct application, is assessed at one-third of its real value, as determined by
an arbitrary method based upon the uncertain earning capacity of a prosperous
period, should be viewed in the light of the facts that other property in large part
escapes taxation entirely, is subject to important exemptions, and the portion that
reaches the tax roll is greatly undervalued. Then the justice of rates of taxation
may be intelligently considered.
When the statement is made that a class of property, upon a valuation of
$328,378,606, based upon earning capacity, pays a tax of 9 mills upon each dollar,
if we try to regard it in comparison with property in general, subject to a tax
rate of 2^ per cent, the theorist is apt to deduce erroneous conclusions unless he
first discovers some method for determining the earning value of all existing
tangible property, the exact amount of moneys, all the deposits, the face value of
all mortgages, the earning power of bonds, stock, and all interest-bearing or
dividend-sharing securities and investments, franchise values, the value of busi-
ness reputation and good will, in short, all the manifold forms of value existing
under modern conditions, to complete the comparison.
An illustration of the results of comparison of taxation rates under different
methods of valuation will be found under the head of ' ' excise tax on electric light
and gas companies, etc."
TELEGRAPH, TELEPHONE, AND EXPRESS COMPANIES.
These companies are taxed under an act known as the Nichols law. They are
required to file annually with the State auditor a sworn statement showing name
and nature of company, location of principal office, names and addresses of officers,
number of shares of capital stock, the par and market value, or if no market value,
the actual value of the shares, real estate owned in Ohio and the value thereof,
personal property in Ohio, including moneys and credits and the value thereof,
total value of real estate and personal property outside the State, length of lines
within and without Ohio, and in the case of telegraph and express companies the
Sross receipts for the year, from whatever source derived, from each office in
hio. and the total gross receipts within the State; and such other information
as may be required by the State auditor, upon blanks provided by him. The
State auditor, State treasurer, and attorney-general constitute a State board of
assessors, which meets and proceeds to ascertain and assess the value of the
entire property of such companies within the State in the proportion which the
same bears to the entire property of such companies, being guided by the value
of their capital stock and such other evidence and rules as will enable it to arrive
at the true value in money.
This value is apportioned by the State auditor among the various counties
through which the lines of such companies run in proportion to the value of the
property therein and in the proportion that the mileage in the respective coun-
ties bears to the total mileage within the State, and the amounts so apportioned
are in turn placed upon the duplicates of the minor divisions of the counties and
taxed with other property at local rates.
The valuation of the property of telegraph companies by the board for the
years 1898 and 1899 was as follows:
Company.
1898.
1899.
Postal Telegraph Cable
$306, 693
$312, 768
Western Union Telegraph
2 108,073
2, 099, 401
Express companies are required to make statements similar to those required
of telegraph companies, their property is valued by the same board, and after
84 INDUSTRIAL COMMISSION.
deducting the value of real estate taxed locally, is apportioned by the State
auditor among the various counties in which the company does business, in the
proportion that the gross receipts in each county bear to the total gross receipts
within the State.
The valuation of the board for the years 1898 and 1899 was as follows:
-\
Company.
1898.
1899.
Adams Express
$314 662
$357 534
American Express
279 518
362* 638
National Express
34 009
33 741
Pacific Express
10,521
10 527
Southern Express .
11 398
11 416
United States Express
277 938
300 626
Wells- Fargo Express. . . .
87 481
83 822
The constitutionality of this act was tested in the case of the Adams Express
Company v. Ohio State Auditor, and its constitutionality \vt,s sustained by the
supreme court (51 O. S., 492) , and on appeal by the Supreme Court of the United
States (165 U. S., 194), Justices White, Field, Harlan, and Brown dissenting.
The latter decision on the taxation of quasi-public corporations of an interstate
character was an exceedingly important one. The court held in substance as
follows:
The transportation of the subjects of interstate commerce, or the receipts
received therefrom, or the occupation or business of carrying it on, can not be
directly subjected to taxation, yet property belonging to corporations or com-
panies engaged in such commerce may be, and whatever the form, if it is essen-
tially only property taxation, it is not within the inhibition of the Constitution.
It has often been held that the property of railroad, telegraph, and sleeping car
companies, engaged in interstate commerce in the several States through which
their lines may pass, may be valued as a unit for the purpose of taxation, taking
into consideration the uses to which it is put and all the elements making up
aggregate value, and a proportion of the whole, fairly ascertained, may be taxed
by a particular State without violating any Federal restriction.
It has been decided that a proper mode of ascertaining the assessable value of
so much of the whole property as is situated in a particular State, as in the case
of railroads, is to take that part of the value of the entire road which is measured
by the proportion of its length therein to the length of the whole, or taking as the
basis of assessment such proportion of the capital stock of a sleeping-car company
as the number of miles of road over which its cars run in a particular State bears to
the whole number of miles traversed by them in that and other States; or such a
proportion of the whole value of the capital stock of a telegraph company as the
length of its lines within a State bears to the length of all its lines everywhere,
deducting a sum equal to the value of its real estate and machinery subject to
local taxation within the State.
Property, tangible and intangible, in one State possesses a value in combination
and from use in connection with property and capital elsewhere which can right-
fully be recognized in the assessment for taxation.
The whole property of such a company constitutes a single plant a unit.
Such tax may fall upon the business of a company indirectly, but it is essen-
tially a property tax, and as such not an interference with interstate commerce.
The earlier decisions of the Federal courts had created great confusion in the
practical methods for the taxation of total State earnings or franchise values of
transportation, transmission, and other companies of an interstate character by
individual States, in some instances preventing the adoption of modern methods
of taxation and in others reflecting grave doubt upon the validity of existing
methods. Consequently, as the consolidation of such companies extended and
the earnings from interstate traffic increased, such values were frequently inade-
quately taxed or relieved from taxation altogether. The different States were
therefore impelled to the adoption of devices for the purpose of adjusting them-
selves to the Federal decisions, and the varying methods adopted for the taxation
of such companies by different States have resulted in an exceedingly chaotic con-
dition and in the absence of unity, reason, or design. Licenses, gross-receipts tax,
and capital-stock tax are found separately or in conjunction with the general prop-
erty tax, in some cases assessed by State boards, in others by boards of county
OHIO CORPORATION TAXES.
85
assessors, and in others by assessors of individual counties, proportionately or
otherwise.
This condition resulted in inequality, discrimination, undervaluation, and escape
of such property almost as serious as in the case of other forms of property under
the general property-tax system.
This is brought out in the opinion of the court above cited, which gives the rela-
tive valuation of express companies in Ohio under the former rule assessing tan-
gible property, including moneys and credits, but not real estate, and the existing
one for assessment of all property, including franchise, under the unit rule.
Company.
Former
rule.
Unit rule.
Gross re-
ceipts in
Ohio.
Adams Express
$42 065
$533 095
$282 181
American Express
23 430
499 274
275 446
United States Express
28 438
488 264
358 519
Total
93 933
1 520 633
916 146
It will be observed that the valuation under the present plan is 16 times more
than under the former.
The average rate of taxation in the State for 1899, to which this value together
with the value of the real estate of these companies was subjected, was 2.46 per
cent.
This plan, under the decision referred to, may be greatly developed, adjusted
to modern industrial conditions, and applied to the various and growing corpora-
tions whose values are represented not by real estate and tangible personal prop-
erty, but by franchise values, the whole value being measured by bonds and capital
stock or earning capacity; and thereby such property may be easily subjected tc
fair, certain, and adequate taxation, to the relief of real estate and personalty
generally.
Through this general method a State, by taxing all that to which corporate
earnings give value, may indirectly reach traffic of an interstate character. This
plan appears now to enable all public-service corporations, so called, to be placed
on a basis of taxation representing their entire value, and reaching franchises as
well as other forms of property.
Express companies are probably more heavily taxed than any other class of cor-
porations in Ohio. They are subjected to 3 separate and distinct taxes.
First. The ordinary local tax levied upon the real estate of such companies
where located.
Second. A tax in the nature of a local tax by what is termed the "unit rule "
of valuation, determined in like manner to that of telegraph and telephone
companies.
Third. An excise tax for State purposes only, based upon gross receipts. Each
company is required to file annually with the auditor of the State a sworn state-
ment upon blanks furnished by the State auditor showing
(1) The name and nature of the company and names of officers.
(2) The entire receipts (including all sums earned or charged, whether actu-
ally received or not) for business done within the State, of each agent doing
business within the State for and on account of such company, including its pro-
portion of gross receipts for business done by such company within Ohio in con-
nection with other companies; also the total amount of such receipts for business
done within the State.
(3) An itemized statement of the amounts actually paid by such express com-
pany to the railroads within the State for the transportation of its freight within
the State, showing the amount paid to each railroad company.
(4) The entire receipts of the company for business done within Ohio, as defined
in the second item, after deducting the amount paid for transportation of freight,
as defined in the third item.
The State auditor, State treasurer, and attorney-general constitute a State board
of appraisers and assessors, who proceed to ascertain and determine the entire
receipts, as defined in the second item, after deducting the sums paid for trans-
portation of freight, as defined in the third item, and the amount so ascertained
is held and deemed to be the gross receipts of such express company for business
done within Ohio.
86
INDUSTRIAL COMMISSION.
The State auditor charges and collects from such express companies 2 per cent
of such gross receipts, such excise tax being paid into the general fund of the
State. The excise taxes for the years 1898 and 1899 were as follows:
Company.
1898.
1899.
j>tdams Express
$2 834 58
$3 071 12
American Express
" I'M ( )ii
2 620 74
National Express
198 92
237 70
Pacific Express
69 54
70 12
Southern Express
114 04
1 9 2 26
United States Express
4 049 30
3 921 38
Wells-Fargo Express
911 12
961 46
Total
10 602 46
11 004 78
SLEEPING, PALACE, CHAIR, DINING, AND BUFFET CARS, AND
FREIGHT LINE AND EQUIPMENT COMPANIES.
In 1894 an act for the taxation of sleeping, palace, chair, dining, or buffet car
companies was passed, known as the Griffin law.
Sworn statements are required showing, among other things, the number of
shares of capital stock, their par or market value, description and value of real
estate, the whole length of lines of railway over which their cars run, and the
length of such lines within the State of Ohio.
The State board of appraisers and assessors, consisting of the State auditor,
State treasurer, and attorney-general, thereupon determine the amount and value
of the capital stock, the tax being based on " the proportion of the capital stock
of the company representing rolling stock which the miles of railroad over which
such company runs cars in Ohio bears to the entire number of miles in Ohio and
elsewhere over which such company runs cars, and such other rules and evidences
as will enable the board to determine fairly and equitably the amount and value
of the capital stock of such company representing capital and property owned
and used in Ohio."
Real estate assessed and taxed locally is deducted from the valuation.
The State auditor charges and collects an excise tax of 1 per cent of the valua-
tion reached by the above means, the amount so collected being paid into the
State reasury.
These provisions were subsequently applied to freight line and equipment com-
panies, statements suitable to such companies being required for the determina-
tion of the proportionate value of the stock, and the excise tax being collected in
like manner, for like purpose, and at the same rate.
The taxes under these laws were as follows:
Company.
1898.
1899.
Pullman Palace Car . .
$3, 699. 66
2, 214. 00
$4, 420. 17
2, 214. 00
7,738.41
Wagner Palace Car
Freight line and equipmei
Total
it companies
7, 689. 57
13, 603. 23
14, 372. 58
EXCISE TAX ON ELECTRIC-LIGHT AND GAS COMPANIES, ETC.
Electric-light, gas, natural-gas, pipe-line (for natural gas or oil) , waterworks,
street-railroad, and messenger or signal companies are required to file with the
State auditor annually a sworn statement showing, among other things, the entire
gross earnings of the company (including all sums earned or charged, whether
actually received or not) for business done within the State, including the com-
pany's proportion of gross receipts for business done by it within the State in
connection with other companies. The State board of assessors and appraisers
thereupon determines the entire gross receipts of such companies for business
done in Ohio. An excise tax of one-half of 1 per cent is levied and collected by
the State auditor and paid into the general revenue fund of the State. This taxa-
tion is in addition to the ordinary assessment and taxation of the tangible property
of such companies.
TAXATION IN OHIO.
Such taxes in 1898 and 1899 were as follows:
87
Character of business.
1898.
1899.
Electric-light companies
$12 089 37
$12 80 9 46
Gas companies
20, 375. 23
20, 595. 24
Natural-gas companies ...
8 192 20
10 894 82
Pipe-line companies
33 818 03
37 23 l> 49
Waterworks companies
2. 250. 84
2 163.77
Street- railway companies . . ....
47 807 02
49 859 67
Messenger and signal companies
788 13
799 64
Total .
125 320 82
134 348 09
The utter inadequacy and injustice of the general property tax as applied to
this class of corporate property appears from an examination of the assessments
of several Ohio street-railway companies given below, taken from the local tax
duplicates, the actual value being obtained by adding the market value of the
stock to the par value of the bonds as obtained from stock-market quotations.
It is believed that even greater discrepancy would be shown in the case of gas
and electric companies.
Company.
Assess-
ment, 1896.
Actual
value.
Cleveland Electric Railway
$1 121 320
$9 870 000
Cleveland City Railway .
678, 460
6, 560, 000
Columbus Street Railway
419 700
4 '802 000
Cincinnati Inclined Plane Railway
65,890
955,000
Cincinnati Street Railway
637, 760
18, 140, 000
Total
2, 923, 130
40, 327, 000
The valuation under the former assessment at an average rate of taxation of
2.5 per cent would yield $73,078 in taxes. To raise the same amount on the actual
valuation would impose a rate of taxation of only 0.18 per cent.
The latter valuation at a rate fixed at 0.005 would yield a tax of $201,635 on the
same property.
COLLATERAL INHERITANCE TAX.
A tax of 5 per cent is imposed upon collateral inheritances above the sum of
"), of which 75 per cent is paid into the general revenue fund of the State and
the balance is received by the county in which such tax is imposed.
In 1898 the State received from this tax $24,159.02; in 1899, $17,547.02.
LIQUOR AND CIGARETTE TAXES.
The State received from liquor and cigarette license taxes in 1898 and 1899 the
following amounts:
1898.
1899.
Liquor traffic taxes
$1 024 324 89
$1,058,235.08
Cigarette traffic taxes
13, 460. 73
13, 643. 68
INDIANA.
In this State we find established the general property tax system the attempt
to subject all property to taxation by means of one uniform tax on all classes of
property.
During the last decade a persistent effort has been made through legislation and
the improvement of the assessing machinery of the State to perfect this system,
bring it into harmony with modern economic conditions, and apply it equitably
to all forms of property. The keynote of the application of this system is the
assessment of all property at its actual cash value, following the rule laid down
by the United States Supreme Court in a case from Indiana familiar to all its
assessing officers, that " what property of any kind, corporate <5r individual, tan-
gible or intangible, is worth for income or sale, it is worth for taxation/'
Methods for assessment of various kinds of property are fixed by law in minute
detail.
There is little distinctive or new in the system as established, but there has been
an organized effort on the part of the legislature and taxing officials to secure
greater uniformity of assessment, discovery of property and correct valuation
thereof, and modification of competitive undervaluation by local assessors.
It was designated by one public official as " a practical business system, and not
a hotchpotch; " but this statement must be regarded as applicable to the system
for assessment by taxing officials rather than to the system of taxation as a whole.
The system of assessment in actual practice comprises the township or ward
assessor; the county assessor, elected to devote his entire time to the supervision
of local assessments; the county board of review, which assesses the property of
certain corporations for county purposes, and to which appeal lies from the assess-
ment of township assessors; and a State tax commission, the head of which is the
governor of the State, which assesses the property of quasi-public corporations and
has supervision over county assessments, and to which appeal lies from county
boards.
The valuation of the property of railroads and other public-service corpora-
tions, so called, for the purpose of taxation, is determined by the State board and
apportioned among the several counties of the State in which such property is
located, according to mileage, for entry and taxation with other local property at
a uniform rate. This board, in compliance with the mandatory provisions of law,
aims to value the property and capital stock of such corporations at its full mar-
ket value upon the basis of earning capacity.
Through these varied methods of valuation it is designed to bring all the prop-
perty of each county upon the tax duplicate at its full value, and to extend the
taxes at a uniform rate for State, county, and local purposes.
The revision of the system in 1891 was calculated to bring about a reform in
the execution and enforcement of the tax laws for the valuation of property,
rather than a material change in the system of taxation.
The provisions of the Indiana tax laws have been frequently assailed in the
courts, and in the main sustained, so that there is now little question as to the
right and authority of taxing officers to assess and tax all forms of property as
provided in the laws.
The law of 1891 provides that all taxes shall be assessed on polls and property,
listed and valued in an equal and ratable proportion, except such stocks and other
property as may be specifically taxed.
The amount necessary to be charged for State expenditures and school purposes
is fixed by law, and the amount to be charged for county expenditures is deter-
mined by the board of county commissioners.
The amount of taxes raised in 1899 for State and local purposes was about
$20,000,000.
It has been held that the constitution does not require a uniform method of
valuation of property for taxation, but only such method as will insure a just
valuation; and further, that it is not necessary that the rate of taxation shall be
uniform throughout the State, but it is only required that the rate of assessment
and taxation shall be uniform and equal throughout the locality in which the tax
is levied.
TAXATION IN INDIANA. 89
The law requires a poll tax to be assessed upon every male inhabitant of the
State between the ages of 21 and 50 years. The levy fixed by the legislature for
State purposes is 50 cents for the general fund and 50 cents for the school fund
on every poll. The amount of poll tax in 1899 was $560,838.
GENERAL PROPERTY TAX.
All property not expressly exempt is subject to taxation. What shall consti-
tute real or personal property for taxation is specifically defined. Little need be
said as to the taxation of real property. It includes all lands within the State
and all buildings and fixtures thereon and appurtenances thereto, except in cases
otherwise expressly provided by law. This class of property is assessed by the local
assessors, and for the purpose of assessment is divided info four separate classes,
viz.: Lands, improvements on lands, city or village lots, improvements on city
or village lots. Mortgaged real estate is assessed to the mortgagor while in his
possession, and at its full value, with the following exception:
In 1899 a law was passed by which the owner of land may have the amount of
any mortgage thereon not exceeding $700 and not more than one-half of the
assessed valuation of the land deducted from the assessed valuation of such mort-
gaged premises. Such mortgagor is required to make a statement showing the
name and residence of the mortgagee, which is used by assessors for the purpose
of taxing the mortgagee.
The amount of deduction in the State under this law in 1900 was $29,159,931,
while the total gain of taxable property, exclusive of mortgage deductions, was
$31,723,152, or a net gain of $2,563.221.
The total valuation of real estate in 1899 was $860,365,972, or about 2f times the
valuation of the personal property, and the average rate of taxation was, roughly
speaking, $1.50 on each $100 valuation.
PERSONAL PROPERTY.
Personal property, for the purpose of taxation, includes all visible personalty
within the State belonging to inhabitants; all such property belonging to inhab-
itants of the State Tbut situate without the State, except the property actually and
permanently invested in business outside the State; all indebtedness of every
kind due to inhabitants of the State above the amounts respectively owed by
them; all shares in corporations organized under the laws of the State, when the
property of such corporation is not exempt or is not taxable to the corporation
itself; all shares in banks organized in the State, deducting the value of real estate
taxed to the bank; all shares in foreign corporations, except national banks,
owned by inhabitants of the State; all moneys, including notes and certificates,
circulating as currency: all annuities and royalties.
It is the express purpose of the law throughout to enable assessors to reach for
taxation all property belonging to inhabitants of the State in whatever form it
may exist or wherever it may be located, at its full value. Methods for the dis-
covery and valuation of property are provided with much detail, and these pro-
visions have been generally sustained by the courts.
It has been held to be within the legislative power to make money, stocks, and
choses in action outside the State and belonging to residents of the State taxable
in the State, and where a business of buying and selling property, making loans
and investments is conducted and the notes and mortgages so used retained in
the State, although the owner thereof may have his residence in another State.
the property and business are subject to taxation in the State whether such busi-
ness is conducted by the owner or his agent.
Corporate stock and franchises, except where some other provision is made by
law, are assessable locally at full value, but shares in corporations all the prop-
erty of which is assessed to the corporation, are relieved from taxation in the hands
of the shareholders.
Obligations secured by real-estate mortgages are regarded as personalty, and
assessed to the owners as credits at full value and local rates.
There seems to be a united and determined effort to bring notes secured by mort-
gage and other obligations and credits upon the rolls. Through the individual
listing of obligations by creditors and debtors, the cooperation of local and State
boards, record evidences of mortgages, and other means, assessors seek to discover
as much as possible of this class of property and subject it to taxation. For this
purpose rigorous power is given to the assessors for the discovery and listing of
su^h property, and inquisitorial methods are provided by law.
90 INDUSTRIAL COMMISSION.
There is a law requiring the assignment of mortgages to be placed on record
within 45 days. It has been declared by the supreme court to be a settled law
that township assessors, county assessors, the auditor of State, boards of review,
and the State board of tax commissioners, for the purpose of listing property for
taxation, have the right to inspect and examine the records of all public offices
and the books and papers of all corporations and taxpayers in the State, and may
enforce such right by writ of mandamus; and that the county auditor may main-
tain an action on the part of his county to set aside the final settlement of a
decedent's estate within 3 years, and subject such estate to the payment of taxes
on property fraudulently concealed by the decedent in his lifetime. Thus the sin
of the tax dodger committed during his lifetime may be atoned after his departure
from the " Hoosier " to a taxless state.
In 1899 the supreme court affirmed a judgment of $1,800 recovered by the officers
of a county as a penalty on account of the returns of false and fraudulent schedules
of property for taxation.
It has even been advocated by assessors, the governor concurring in the sug-
gestion, that all notes be made by law uncollectable in the courts unless they
bear upon their face the stamp of the tax assessor.
Interstate cooperation, for the purpose of facilitating the discovery and assess-
ment of mortgages and other sequestered obligations, has also been suggested by
State tax officials in their conferences.
There has been established a system of deductions of indebtedness of taxables
from the various forms of credits, undue advantage of which, according to state-
ments of officials, is to a great extent taken by owners of that class of property,
thereby taking from the tax duplicates a great deal of property that should be
taxed.
The total valuation of personal property in 1899, including property and capital
stock of domestic corporations and all shares in banks, was $315,540,675.
The provisions for the discovery and assessment of personal property being a
distinguishing and important feature of the Indiana system of taxation, it is
essential to set forth the methods employed.
For the purpose of properly listing and assessing property for taxation and
equalizing and collecting taxes, the township assessor, county assessor, board of
review, auditor of State, and State board of tax commissioners each have the
right to examine and inspect the records of public offices and books and papers
of all corporations and taxpayers in the State, and all assessors and other officers
charged with the duty of listing property for taxation are required to give in
writing all information they may obtain regarding the concealment of property
from taxation by any person or corporation to the county auditor or board of
review, to the auditor of State or State tax commissioners.
Each taxable is required to give a minute detailed statement of all the various
items of personal property owned or held in trust by him, the blank schedule
provided for that purpose containing 100 different items, and to affix what he
deems the true cash value to each item for the guidance of the assessor.
The determination of the valuation of each item is made by the assessor, who
may, if he deems it necessary, examine the taxable under oath, and must be gov-
erned by what is the true cash value, particularly defined to be the market or
usual selling price at the place where the property is, and if there be no market
value, the actual value governs.
Every company, association, or person not incorporated for banking purposes
who engages in the business of lending money, receiving money on deposit, buying
or selling bills of exchange, notes, bonds, or stocks, or other evidence of indebted-
ness, with a view to profit, is required each year to furnish the assessor a detailed
statement of his business and property, to be listed for taxation in a manner specially
provided.
Severe penalties are imposed for false statements, and any prosecuting attor-
ney, upon notification of such statement, is required to prosecute the offender to
final judgment and execution, receiving himself, in addition to his regular com-
pensation, 10 per cent commission on all money so collected and a docket fee of
$10 to be taxed against the offender. In case any taxable refuses to make out a
statement or subscribe to any oath required, the assessor ascertains as best he
may the number and description of articles and property belonging to him, and
the value thereof, and the county auditor adds to such valuation 50 per cent
thereof.
For the purpose of listing and assessing property for taxation an assessor is
elected in each township for a term of 4 years, whose duty it is to assess the real
and personal property in his township as particularly provided by law, except
that assessed by the county assessors or State board, as hereafter set forth. All
TAXATION IN INDIANA. 91
real estate is assessed once in 4 years, and each year the assessor assesses any
improvements made thereon and notes and lists all changes found since the pre-
ceding assessment.
He also assesses all the personal property he can discover by the rigorous
methods specially provided, except capital stock, which is assessed by the county
board, and property of quasi-public corporations, assessed by the State board.
The returns of these local assessors are made to the county auditor, who, if sat-
isfied that any real estate or personal effects have been omitted, may authorize
anfl require the proper assessor to correct any error or omission, but can not
increase the assessment of property as returned' although purposely undervalued.
Once in every 4 years a county assessor is elected in each county, who is not eli-
gible for reelection more than twice in any term of 12 years, and who devotes
his entire time to the duties of his office. Such county assessor receives all returns
of real and personal property made by the several local assessors in the county,
together with the assessment lists, securities, statements, maps, and other papers
filed, and it is his duty to make a careful examination of the tax duplicates of the
county, and also of all other records and papers in the offices of the county audi-
tor, treasurer, recorder, clerk, sheriff, and surveyor, local assessors' books, all
omitted assessable property of every kind or nature, including tax certificates,
mortgages, debts, judgments, claims, and allowances of courts, legacies, and
property in the hands of administrators and other trust officers, and for that pur-
pose has all the rights and powers given by law to local assessors for the examina-
tion of taxables and their property and the discovery and assessment of the same,
and he may list and assess any omitted property that he may so discover at any
time during the year. Such county assessor is also required to advise and
instruct all township officers in his county as to their duty under the laws, and
for that purpose must visit each local assessor each year.* In short, the county
assessor has supervision over all local assessors and their work, with full power
to list and assess upon the rolls all property omitted by the assessors under him;
and he and the local assessors constitute an organized force for the discovery
and assessment of property.
There is also an annual county board for the review of assessments and valua-
tion of real estate and personal property in each county, composed of the county
assessor, county auditor, and county treasurer, with 2 freeholders appointed by
the judge of the circuit court, the county assessor being president and the county
auditor secretary of said board of review. Such board has power to hear com-
plaints of any owner of personal property except " railroad track " and " rolling
stock," to equalize the valuation of property, and to correct any list or valuation
as it may deem proper and necessary to fix the assessment at its true cash value.
It corrects all errors in names of persons, descriptions of property, and the
assessments and valuations thereof, and causes to be done whatever may be
necessary to make the lists and assessments comply with the law, and where it
appears that any property owner had bona fide indebtedness, the same is deducted
from the amount of his credits listed in the county, and he is assessed only on the
residue of his credits fixed by the board of review.
It is also the duty of this board to inquire as to the valuation of the various
classes of property in the respective townships and divisions of the county and
make such changes as may be necessary to equalize the same as between the
townships, but it has no power to reduce the aggregate valuation of all the town-
ships below the true cash value nor to increase the same beyond the amount
actually necessary for a proper and just equalization. It is also the duty of the
board to value and assess for taxation the capital stock, franchises, and privileges
of certain private corporations, as hereinafter set forth under the head of corporate
taxation.
There is also a State board of tax commissioners, consisting of 2 skilled and
competent persons, not more than 1 from the same political party, together with
the governor, secretary of state, and auditor of state the last 3 being ex-officio
members, and the governor being chairman. It is the duty of this board
First. To prescribe all forms of books and blanks used in the assessment and
collection of taxes.
Second. To construe the tax and revenue laws of the State and instruct them in
relation to their duties with reference to taxation and assessments whenever
requested so to do by any officer acting under any other person interested therein.
Third. To see that all assessments of property are made according to law.
Fourth. Especially to see that all the railroads and other corporations of the
State are assessed and taxed as provided by law.
Fifth. To see that all taxes due the State are collected.
Sixth. To enforce penalties prescribed by any revenue law of the State for
disobedience of its provisions.
y^ INDUSTRIAL COMMISSION.
Seventh. To determine, whenever necessary, the amount required to be levied
upon property in the several counties to cover any deficiency in the State revenue
not otherwise provided for.
Eighth. To examine all books and accounts and all persons necessary to enable
it to obtain all information required to aid in securing a compliance with the tax
laws by all persons or corporations liable to taxation.
Ninth. To make such rules and regulations as it may require.
Tgnth. To report to the general assembly at each session the amount of revenue
collected in the State for all purposes, classified as to State, county, township, and
municipal purposes, with the sources thereof, and such other matters of informa-
tion concerning the public revenues as it deems of public interest.
Eleventh. To make investigation concerning the revenue laws and assessments
of other States and countries, and with the aid of information thus obtained and
of its own experience and observation to recommend to the general assembly, at
each session thereof, such amendments, changes, or modifications of revenue laws
as it may deem advisable.
Twelfth. To see that each county of the State is visited at least by 1 member of
the board as often as once each year to hear complaints and collect information
concerning the workings of the tax laws. Said board, or any riember thereof,
has the power to subpoena and examine witnesses, and has access to and power
to order the production of any books or papers in the hands of any person or
corporation whenever necessary in the prosecution of any inquiry made in an
official capacity.
Any taxpayer who may be dissatisfied with the action of the county board of
review has the right to appeal from such board to the State board, and in like
manner any township or county assessor or member of the county board has the
right to appeal to such State board from any assessment or order of the county
board. It is also the duty of the State board, and it has exclusive authority, to
value and assess for taxation all railroad property denominated for that purpose
" railroad track " and improvements thereon and "rolling stock," and all property
belonging to telephone, telegraph, palace car, sleeping car, drawing-room car,
dining car, express and fast freight, and other associations transacting business in
the State, and for that purpose, and to hear appeals and applications for revisions
and assessments and equalize assessments of real estate, the board is required to
convene annually at a stated time.
CORPORATE TAXATION.
Having completed the description of the main features of the tax system of
Indiana relating to the assessment of real and personal property generally, the
discovery and listing thereof, and the assessing machinery of the State from the
local township assessor to the State board of tax commissioners, we turn now to
the subject of general corporation taxes.
As we have already observed, there is no distinct or separate system for the
assessment and taxation of such property, it being a part of and mingled with
the general property tax system of the State.
The laws for the assessment and taxation of corporate property are designed
to reach and bring it all upon the tax rolls with all other property, upon the same
basis of valuation and the same local rates of taxation, the practical result
depending upon the judgment and action of the local assessors.
The real estate and tangible personal property of corporations, except as spe-
cially provided for bylaw, are assessed and valued for taxation by local assessors,
the same as other real and personal property of their respective localities, and
the capital stock and franchises by county boards.
While substantially all classes of corporate property are valued and assessed
upon the several county rolls and extended for taxation with other property at
the same rate, we shall consider each separately.
BANKS.
The shares of capital stock of any bank are assessed to the owners where the
bank is located and taxed at the rate at which other personal property in the same
locality is taxed. The officers of each bank are required each year to make out a
statement under oath, in duplicate, showing the number of shares of capital
stock, true cash value of each of said shares, and also the true cash value of the
entire capital stock of the bank, and such bank stock is thereupon listed and
assessed in all respects the same as similar property belonging to other corpora-
tions and individuals. Real estate and other tangible property assessed to the
INDIANA COEPORATION TAXES. 93
bank is deducted from the valuation of the capital stock. In making such state-
ment of the true cash value of shares the credits are given and the bona fide
indebtedness of the bank deducted therefrom, as in the case of individuals.
The assessor, in determining the cash value of the shares of stock, may examine
the officers under oath, and in fixing such value is governed by the market or usual
selling price of such stock at private sale at the place where the bank is located,
and if there is no market value, he otherwise determines the actual value, tak-
ing into consideration the surplus and profits, if any. Taxes on such shares are
required to be paid by the owner in the place where the bank is located, in the
same manner that other individuals or corporations pay taxes, and it is made the
duty of each bank, after being notified to do so, to retain so much of any divi-
dends belonging to stockholders as shall be necessary to pay any tax levied upon
their stock, until it is made to appear that such taxes have'been paid.
This class of corporate property being mingled with other property upon the
county duplicates and taxed at a uniform rate, we are unable to give a separate
valuation thereof or the amount of taxes paid upon it in the State. It is included
in the assessed valuation of personal property, which in 1899 was $315,540,675.
FOREIGN INSURANCE COMPANIES.
There is a distinct departure from the general system of the State in the taxa-
tion of these companies.
Every such company is required to report semiannually to the auditor of state,
under oath, the gross amount of all receipts received in the State on account of
insurance premiums for the 6 months preceding, and at the time of making such
report pay into the treasury of the State the sum of $3 on every $100 of such
receipts, less losses actually paid within the State.
The yield of this tax in the year ending July 1, 1899, was as follows:
From fire companies $57, 695. 77
From life companies 93, 172. 77
Total _ 150,868.54
The total amount paid by such companies for the year ending July 1, 1900, was
$167,349.59.
FOREIGN BRIDGE COMPANIES.
Every foreign bridge company doing business in the State is required to report
to the assessor of the county in which any part of its business is carried on, under
oath, the gross amount of all moneys received and a list of its tangible property
within the county, and true cash value thereof. The amount of such gross receipts,
together with the true cash value of such tangible property, is entered on the tax
duplicate of the proper county, and the taxes so assessed become a lien upon the
property until paid.
GENERAL DOMESTIC CORPORATIONS.
Every street railroad, waterworks, gas, manufacturing, mining, gravel road,
plank road, savings bank, insurance, and other association incorporated under
the laws of the State (except railroad companies and others especially designated)
is required each year, in addition to the tangible property to be listed, to make
and deliver to the local assessors a sworn statement of the amount of its capital
stock, setting forth paricularly
First. The name and location of the company or association.
Second. The amount of capital stock authorized, and number of shares.
Third. The amount of capital stock paid up.
Fourth. Market value, or if no market value, the actual value of the shares.
Fifth. Total amount of indebtedness except that for current expenses, excluding
from such expenses the amount paid for the purchase or improvement of property.
Sixth. The value of all tangible property.
Seventh. The difference in value between all tangible property and the capital
stock.
Eighth. The name and value of each franchise or privilege owned or enjoyed by
such corporation.
Such statement is scheduled and returned by the assessor to the county auditor,
who lays the same before the county board of review, which values and assesses
the capital stock and all franchises and privileges of such companies within the
county in the manner provided, and the auditor computes and extends the taxes
94 INDUSTRIAL COMMISSION.
for all purposes on the respective amounts so assessed, the same as on other prop-
erty in the towns, cities, or other localities where such companies are located.
Where the capital stock so valued exceeds in value that of the tangible property
listed for taxation, it is subject to taxation upon such excess of value; where no
tangible property is returned or found, and the capital stock has a value, it is
assessed for its true cash value, but where the capital stock or any part thereof is
invested in tangible property returned for taxation, such capital stock is not
assessed to the extent that it is so invested. Every franchise or privilege of the
corporation is likewise assessed at its true cash value.
Where the full value of any franchise is represented by the capital stock listed
for taxation, then such franchise is not itself taxed; but in all cases where the
franchise is of greater value than the capital stock, then the franchise is assessed
at its full cash value, and the capital stock in such case is not assessed.
In case of the failure or refusal of any person or company to make such state-
ment, the auditor of State is required to make out such statement and valuation
from the best information he can obtain, and for that purpose has power to sum-
mon and examine under oath any person whom he may believe to have a knowl-
edge thereof, and is required to add 25 per cent to such valuation.
The property of these corporations, including their capital stoctf, is included in
the personal property valuation and assessment.
RAILROAD PROPERTY.
Every railroad company is required to cause its taxable property to be listed
annually with reference to its amount, kind, and value. It is required to make
and file with the county auditors of the respective counties in which the railroad
is located a statement or schedule, verified by oath, showing the property held for
right of way and the length of the main and all side and second tracks and
turn-outs in such counties and in each city and town through which the road runs,
and also to state the value of improvements and stations located on the right of
way.
Such rights of way, including the superstructures, main, side, or second tracks,
and turn-outs, and telegraph poles, wires, instruments, and other appliances, with
the stations and improvements on such right of way (excepting machinery, sta-
tionary engines, and other fixtures, which are considered personal property) are
held to be real estate for the purpose of taxation, and are listed and valued as
" railroad track."
The value of " railroad track " is listed and taxed in the several counties, town-
ships, cities, and towns in the proportion that the length of the main track in such
local division bears to the whole length of the road in the State, except the value
of the side or second track and all the turn-outs, station houses, depots, machine
shops, or other buildings belonging to the road, which are taxed in the county,
township, city, or town in which the same are located.
The movable property belonging to a railroad company is held to be personal
Eroperty, and denominated for the purpose of taxation "rolling stock;" it is
sted and taxed in the several townships, cities, and towns in the proportion that
the main track used or operated in each local division bears to the length of the
main track used or operated by such company.
All real estate other than that denominated " railroad track." with improve-
ments thereon, is listed as "land" and " lots." as the case maybe, in the county
and township, town, or city where the same is located.
Each company is also required to return annually to the county auditor a veri-
fied list or schedule containing
First. A full and correct detailed inventory of all the rolling stock belonging
to, leased, or operated by such company, setting forth the number of locomotives
and tenders of all classes, passenger cars, and all other kinds of cars, and the true
cash value thereof set opposite each, and also to set forth the number of miles of
main track on which such "rolling stock " is used in the State.
Second. A full and correct inventory of all the other personal property not
specifically taxed, including the tools and machinery for repairs, and machinery,
fixtures, and stationary engines, which property must be classified according to
the particular county, township, city, and town in which the same may be, with
the true cash value thereof.
Third. An inventory of all the real estate except " railroad track," which shall
also be listed as to the amount, kind, and value.
The county auditor returns to the proper assessor a copy of so much of said list
as is contained in the second and third specifications, and such property is listed
and assessed by him as other similar property belonging to individuals.
INDIANA CORPORATION TAXES. 95
Each company is also required to return to the auditor of State sworn statements
or schedules, as follows:
First. All " railroad track," giving length of main and second tracks and turn-
outs, the proportion in each county and township, and the total in the State.
Second. The "rolling stock," with length of main track in each county and
entire length of the road in the State.
Third. The number of ties in track per mile, weight of iron or steel per yard
used in the main or side tracks, what joints or chairs are used in track, the bal-
lasting of road, number and quality of buildings or other structures on " railroad
tracks," length of time iron or steel has been used, and length of time the road
has been built.
Fourth. A statement showing
(1) The amount of capital stock authorized and the number of shares.
(2) The amount of capital stock paid up.
(3) The market value, or, if no market value, the actual value of the shares.
(4) The total amount of all indebtedness except for current expenses for operat-
ing the road.
(5) The total listed valuation of its tangible property in the State.
Severe penalties are imposed for failure to make the statements or schedules
required.
The auditor of State each year lays before the State board of tax commissioners
the various statements and schedules made by railroad companies. In assessing
railroad property the State board has exclusive authority to value and assess
" railroad track " and ''rolling stock " as a unit, taking into consideration capital
stock and earning capacity. The amounts determined and assessed are appor-
tioned and certified by the auditor of State to the county auditors of counties
through which the railroad runs, who enter the railroad property of all kinds as
listed for taxation in their counties upon the proper tax duplicates, enter the valu-
ation as assessed, distribute the values to the several townships, cities, and towns
entitled to a proportionate value, and against such valuation compute and extend
all taxes for which said property is liable, the same as against other property.
The county treasurer collects the taxes charged against railroad property in his
county and pays over and accounts therefor in the same manner as other taxes
are collected and accounted for.
The State board, in fixing the valuation of corporate property for taxation, is not
confined for information to the statements of such corporations, but may resort to
other available means to obtain information, and for that purpose is given the
power and authority to examine persons and papers.
The following quotation from an address of the auditor of State, at a recent
conference of tax commissioners, may indicate the spirit in which the valuation
of this class of property is made, and an attempt on the part of the State board to
make such valuations accord, so far as may be, with the valuation of property in
general:
" The law of 1891 affords a basis of computation that places it on the duplicate
in line with the values of all other classes of property, just and fair to these large
commerce-carrying corporations of the county. The greater portion of the time
of the State board is dedicated to the assessment of railroads. There are few if
any of these lines but what could duplicate anew their properties within the valu-
ation placed upon them; but there are other elements, such as bonded indebted-
ness, income, operating expenses, dividends, each or all with the tangible value as
the base, which go to make up the value for taxation, always keeping on a parity
with every other class of property, for the law contemplates that all assessments
shall be kindred in fairness."
When the railroad runs through 2 or more States its value for taxing purposes
in Indiana is estimated by taking that part of the value of the entire road which
is measured by the proportion of the length in this State to that of the whole
road.
The total assessed value of railroad property in 1899 was $153,693,506. The
amount of taxes paid by railroads in the several counties at the average rate of
taxation, estimated by State officials at $1.50 per $100 of assessed valuation in 1899,
was $2,305,400, or about one-ninth of the total taxation of the State.
The valuation of railroad property in 1890, under the old law, was $66,206,295,
and as other classes of property were also assessed at lower values than under the
new law, the rate of taxation was higher. In 1891, under the revised tax law, the
valuation of railroad property was increased to $161,039,169, and the tendency
since has been in the direction of a reduction in assessed valuation, as a result of
continuous appeals on the part of railroads.
The valuation of railroad property in 1899 was about one-half of that of all the
personal property of the State and nearly 18 per cent of that of the real estate.
96 INDUSTRIAL COMMISSION.
The present mode of assessing and apportioning ;t railroad track and "rolling
stock " among counties and the same difference in the modes of assessing such
property and other property had their inception in this State in 1858, and have
continued, with modifications from time to time, to the present.
It will be observed that the valuation of railroads is apportioned among the
several counties through which the roads run in proportion to the mileage in
each. Counties containing railroads therefore receive the benefit of railroad tax-
ation according to the values of the road within their borders, and to that extent
other property is relieved. Counties containing no railroads receive no direct
benefit. The valuation in 1898 ranged from nothing in Brown County to $9,408,939
in Lake County.
There is one significant result of the taxation of railroads in Indiana somewhat
unique in the experience of the States with respect to railroad taxation that is, a
general public feeling that railroads are paying a full proportionate share of the
taxes of the State. The complaint in that regard is of overtaxation on the part
of the railroads rather than undertaxation on the part of the public.
The system does not seem to be satisfactory to the railroads of the State, but is
quite generally regarded by them as crude, cumbersome, and expensive to both
State and roads in its operation and inequitable and unjust inits results. It is
contended on the part of the railroads that their property is of such a character
that its full cash value, based not upon stable qualities alone but also upon
changeable fictitious elements of franchise values or earning power, is easily
determined, that no value of any kind escapes, and that its taxation at uniform
rates with property undervalued and partially valued is therefore unequal and
excessive taxation as compared with other taxable property.
It appears that continual complaints are made on behalf of railroads, to assess-
ing bodies, of excessive valuation as compared with other property, and consider-
able litigation has resulted therefrom. For example, the Pennsylvania road,
assessed at $37,000,000 and taxed in the sum of $800,000, recently contested the
payment of taxes in 45 counties, securing affidavits of a large portion of even the
assessing officers of the State that real estate was assessed at two-thirds or some
portion only of its cash value, while on the other hand the State officers procured
thousands of affidavits that real estate was assessed at substantially its cash value,
the same as railroad property. While, after a time, the suit was adjusted upon
practically somewhat of a compromise, it demonstrated the uncertainty and
dispute as to the valuation of railroad property as compared even with real estate.
From conversation with rail way representatives, we infer that taxation of such
Property directly by the State, upon unit valuation or gross earnings at a rate
xed by law, and with taxes payable to the State treasury, would be more satis-
factory to them, even though the same amounts were levied and paid.
It is claimed that if all real estate and personal property, tangible and intangible,
in the State could be as completely and accurately valued for taxation as railway
property is, under the present method, the rate of taxation would be much less
than an average of SI. 50 on each $100 of valuation; and that they, under the
existing system, are compelled to pay this high rate upon full valuation of all
their property, while the real and personal property of the State is undervalued
in comparison, and a vast amount of it escapes the tax duplicates entirely. In
short, they claim that they are compelled by law to endure in aggravated form
the evils inseparable from the general property tax system applied to all kinds of
property, and to pay excessive taxes. On the other hand, as already stated, the
tax officials of the State contend that railroad property is placed upon the dupli-
cate in a manner just and fair as compared with other property.
It is contended that by this system all the property of such companies is reached,
and the cause of common complaint that it is not taxed on the same basis as the
property of individuals is removed.
The further reason is given that, being essentially a tax upon property, and
sustained by a long line of Federal decisions, it is open to less objection on con-
stitutional grounds than some other methods, where interstate commerce is
affected.
TELEGRAPH, TELEPHONE, EXPRESS, AND SLEEPING-CAR COMPANIES.
By special act, these companies are required to file with the auditor of State
annual statements showing in detail their capital stock, number of shares,
market value, real and personal property owned by them within the State, mort-
gages, total length of lines in and out of the State, and length of lines within
each of the counties and townships of the State, length of lines over which cars
run, etc.
INDIANA CORPORATION TAXES. 97
If these statements are deemed insufficient by the auditor, he may require such
further statements and information as he may desire. These statements, with
such other information as the auditor requires, are laid before the State board of
tax commissioners, which values and assesses the property from such statements
and other information as it may obtain, being required to assess such property at
its true cash value.
It is provided that this board shall first ascertain the true cash value of the
property by taking the aggregate value of all the shares of capital stock in case
they have a market value, and in case they have none by taking the actual value
thereof or of the capital of said company in whatever manner the same may be
divided; provided that in case the whole or any part of such property is encum-
bered by mortgage, the board ascertains the true cash value of such property by
adding to the market value of the aggregate shares of stock or to the value of the
capital the aggregate amount of such mortgage or mortgages, and the result is
deemed or treated as the true cash value of the property.
For the purpose of ascertaining the true cash value of the property within the
State it next ascertains, from such statements or otherwise, the assessed value for
taxation in the localities where the same is situated of the several pieces of real
estate without the State and not specifically used in general business, which said
assessed values are deducted from the gross value of the property as ascertained.
It next ascertains and assesses the true cash value of the property of the com-
pany within the State by taking the proportion of its whole aggregate value,
after deducting the assessed value of such real estate, which the length of the line
of said company, in case of a telegraph or telephone company, within the State
bears to the total length of the lines thereof; and in the case of a palace, drawing-
room, sleeping, dining, or chair car company the proportion is the proportion of
such aggregate value, after such deduction, which the length of the lines within
the State over which its cars are run bears to the length of the whole lines over
which said cars are run; and in the case of an express company the proportion is
the proportion of the whole aggregate value, after such deductions, which the
length of the lines or routes within the State bears to the whole length of the lines
or routes of such company; and such amount so ascertained is deemed the entire
value of the property of the company within the State.
From the entire value of the property within the State, so ascertained, the board
deducts the assessed value for taxation of all the real estate, structures, machinery,
and appliances within the State subject to local taxation, and the residue of such
value is assessed to the company.
The State board thereupon ascertains the value per mile of the property within
the State by dividing the total value as above ascertained, after deducting the
specific properties locally assessed within the State, by the total number of miles
within the State, and the result is deemed to be the value per mile of the property
of such company within the State.
The board thereupon, for the purpose of determining what amount shall be
assessed by it to such company in each county, multiplies the value per mile thus
ascertained by the number of miles in each county as reported in such statements
or as otherwise ascertained, and the result thereof is certified to the auditor of
State, who thereupon certifies the same to the auditors, respectively, of the several
counties through which the line extends, and such auditors apportion the amount
certified for their counties, respectively, among the several minor taxing districts
over which said lines or routes extend in proportion to the length of lines in such
districts.
To enable the county officers to properly apportion the assessment, they are
authorized to require the agents of such companies to report to them, under oath,
the length of the lines in each township, and they thereupon add to the value so
apportioned the assessed value of real estate and personal property situated in any
township and extend the taxes thereupon on the duplicate as in other cases.
The assessed valuation of these classes of property in 1898 was $5,189,324 and in
1899 $6,900,239, which, at the approximate average rate of $1.50 per $100, may be
said to have yielded in 1898 about $77,839 and in 1899 about $103,503.
BUILDING, LOAN, AND SAVINGS ASSOCIATIONS.
By special act in 1897 paid-up stock in these associations was defined to be*such
stock as the owner shall have paid the full face value of at the time of the sub-
scription therefor; prepaid stock, that upon which the owner has paid any specific
sum in advance at the time of subscription, leaving the balance necessary to
mature the same to be paid by dividends declared, or stock on which more than
six months' dues have been paid in advance. All building and loan associations
98 INDUSTRIAL COMMISSION.
as such are exempted from taxation. Shares of stock on which loans have not
been made or advanced by the association, which stock is paid up or prepaid, are
considered credits of the members, individually, and listed by and assessed
against them for taxation as other property.
RATE OF TAXATION.
The value of all property being placed upon the duplicates of the several coun-
ties, the State tax is apportioned among the counties and all taxes State, county,
township, or city are mingled and levied upon this valuation.
The State commissioners endeavor to equalize the valuations of the property
in the several towns, cities, townships, and counties as fixed by local assessors,
and its proceedings show that the valuation of an occasional county is increased
or lowered by a small percentage, as the appearance of the rolls may suggest, no
personal inspection of the property in the counties being made by the board.
THE INDIANA SYSTEM.
The Indiana system, as it is designated in that State, establisHed by the revised
taxation law of 1891, while it has undoubtedly resulted in the increase and
improvement of property valuation and assessment for taxation in some respects,
must still be regarded as inefficient and inexact and exhibiting the characteristic
defects of the general property tax, especially in its application to corporate
property and intangible personalty. The great burden of taxation is still upon
real estate, relieved somewhat by the increased valuation of corporate property.
Recent legislation and the united, organized action of assessing officers have
tended to produce a State force of tax officials trained and educated in the busi-
ness of listing and assessing property, and in this respect the system is most
commendable.
The assessment of quasi-public corporations by a State board is also a praise-
worthy feature, although the method of valuation, apportionment, and levying
at local rates, as a whole, can hardly be regarded as scientific, equitable, or exact,
and is of questionable merit.
Under this method the equitable assessment of this class of property must
depend upon the exercise of discretion and judgment 011 the part of the State
board in attempting to make valuations accord with the general valuations of
tangible and intangible property made by local assessors, with results inevitably
conjectural and open to contention. The system involves a continual attempt to
square the unit rule of valuation, based on earning capacity, with the strictly
general property tax of the State.
The same may be said of the assessment of other corporations by local assessors
and county boards. As to values of personalty and capital stock and franchises,
there is a wide latitude of judgment, and valuation upon a parity with property
in general must depend upon the action and shifting guess of local officials in
different taxing districts. Just taxation is difficult to attain through proportional
valuation by local assessors.
Under these methods of valuation of different classes of property, and the appli-
cation of " uniform rates," unequal taxation would seem to be inevitable. It is
difficult to conceive how the assessment of moneys and various forms of credits
and securities at their certain value, and the assessment of corporate property
upon the basis of capital stock, franchise values, and earning capacity in strict
accordance with the specific directions of the law, can result in anything but
excessive taxation as compared with general property. Equal taxation must
depend upon compromise of assessing officers in the valuation of various forms of
property; 'upon the shifting judgment arid equitable adjustment of individuals.
Equality of taxation can not be obtained by "uniform" tax rate and unequal
valuations. The natural tendency of these conditions here, as elsewhere, is to
encourage' evasion and concealment and justify it in the minds of taxables.
As to 'personal property other than corporate, and especially the great mass of
intangible personalty, the condition is admittedly unsatisfactory. The invariable
injustice and confusion still exists to a greater or less degree, and there appears
no reason to regard the system as more successful in preventing the inadequate
and unequal valuation or the escape of such property than the same rigorous
methods have been in other States under the general property tax.
While the : laws governing property assessment and the united action of assess-
ment boards combine to direct a careful and systematic search for these classes
of property and their assessment upon the rolls, the result, upon the whole, in this
TAXATION IN INDIANA. 99
respect may, as in many other States, be regarded as a travesty on "taxation of all
property at its true cash value at a uniform rate."
While the proceedings of the State board of tax commissioners and conferences
of such board and county assessors show throughout that the complete uniform
assessment of all property at its true cash value is clearly understood to be the
purpose of the law, it is very evident that assessors come far short of the attain-
ment of that purpose in actual practice, and that the result is still uncertainty,
doubt, inequality, and evasion of taxation.
While there are manifestly many good features in the Indiana tax system, so
called, which perhaps may be regarded as the most effectual in its application of
those of the States where the general property tax prevails to the same extent,
it still appears to come far short of establishing the correctness or practicability
of that system or the vindication of the methods employed to facilitate the just
taxation of corporate property and intangible personalty.
We find among public officials and citizens the same allegations and complaints
common in other States as to ineffective enrollment and valuation of intangible
property.
In the conference of the State board of tax commissioners and county assess-
ors of 1900 a prominent tax official said, among other things, that much personal
property of inhabitants of Indiana held outside of the State escapes taxes, it
being difficult, if not impossible, to go beyond the return of the taxpayer. Refer-
ring to the ordinary debts and demands, accounts and bills, and notes, he says:
" These classes are' singularly elusive, and the difficulty in securing their return
for taxation has proved so far insurmountable to legislators. As the law now
stands, the taxing officers through the carelessness, neglect, or defective memory
of many taxpayers are certainly unable to procure a very large proportion of
personal property in these classes. The fact that personal property bears less than
27 per cent of the burden of taxation in Indiana is due largely to property of
these classes, which in some way or other manages to escape taxation. It is prob-
ably true that the personal property in the State of Indiana equals or exceeds the
value of the real estate and improvements, but how to find it and how to tax it
are still questions for legislators."
And another prominent State official, in the same proceedings, after reference
to the action of the convention looking to enactment of still more searching stat-
utes for the discovery and assessment of property, says:
li The personal-property valuation of the State in 1899 was practically $300,-
000,000. The reports of the banks at the time in Indiana show one-fifth of this
amount was on deposit due to individuals. It is unjust to corporations that may
be taxed faithfully, it is unjust to farmers whose lands are listed in accordance
with law, that the statutes do not give more powers of investigation to the assess-
ing officers, and with the legislation that I ani sure the experience of this conven-
tion will recommend, the sequestration of personal property will be unearthed and
the volume of personal property upon the duplicates be increased millions of
dollars."
That the value and effectiveness of other methods of taxing railroad property
and that of other public corporations is appreciated by the taxing officers of this
State is shown by the statement pf the auditor of State in an address to the
State board of tax commissioners and county assessors in the conference of 1900,
who, after referring to the assessing of railroad and other corporate property and
sharing in the burdens of not only State but local government, says: " If the end
could have been seen from the beginning, a franchise tax on railroads would have
been a blessing to the State. It should always be remembered that in the organ-
ization of corporations, the legislature acting for the people speaks them into
being. The people never lose their identity. The corporation is a supplicant.
The humblest citizen is given a right in the organization of the largest corpora-
tion. I believe that always and everywhere, when a franchise is given a railroad,
-the public treasury should receive a per cent on the gross receipts. In this State
we tax insurance companies 3 per cent on net receipts, and this with the collateral
fees gives to the general fund of the State nearly a quarter of a million of dollars
annually. These public utilities are creatures, so far as vested rights are con-
cerned, of the people. And if the State shared in the gross revenue, the day would
come when the State levies of direct taxes could be materially reduced if not
altogether done away with."
The same officer again says: " The franiers of the law in 1891 not only were wise
in arriving at the methods and the basis of assessing corporate property, but in plac-
ing the assessment of it almost wholly within the duty of a separate board. County
and township taxing officers are restricted to the property within their limits.
100
INDUSTRIAL COMMISSION.
It is only the nonessential elements of corporate property, such as is not an inte-
gral portion of the operation of corporations, that is touched upon by the local
officers. It is the more especial province of local taxing officers, so far as vigilance
is now concerned, to reach personal and sequestered property."
We quote the following from an address of the governor to the conference
convention of the county assessors and State tax commissioners in 1899:
' ' The results of the conference one year ago were most gratifying. There was an
irifcrease last year in the assessment of personal property of $10,000,000. During
the six years preceding there had been a loss in the personal property assessment
in the State of $11,663,421, while during the same period there was an increase of
assessments upon real estate of $40,709,018. There can be no question that if all
personal property had been justly listed, there would have been a large increase
instead of reduction. The vast amount of intangible personal property that
escapes taxation is causing dissatisfaction among holders of real estate and will
prove an incentive to them to seek undervaluation.
" The prevailing disposition to seek investments in intangible securities, thereby
escaping the assessor, not only places a premium upon such investments, but
tends to discourage efforts to secure homes, the purchase of which often incurs
debt, thus imposing upon the home getter the unequal burden f paying tax upon
more than he possesses, while other investments escape altogether.
" This widespread wrong, grievous as it may seem, does not justify in any degree
undervaluation of real estate. It is your duty to see that all property, real or
personal, tangible or intangible, is assessed at its true cash value. Upon this
point there seems to be a wide divergence of opinion."
One of the members of the State board of tax commissioners in the convention
of 1899 thus referred to those who seek to evade taxation: " There are many
men who in all else stand well in their communities, men who would scorn to
beat a neighbor out of a nickel, but who seem to look upon it as a matter of
course that a man should, if he can, escape taxation: and they resort to all sorts
of shifts and subterfuges, even to perjury itself, to escape their just share of the
burdens of the Government, without whose protection they should have security
for neither person nor property. These tax-dodging gentry are not always of the
under half of society. Many of them occupy high social positions, and are rated
as gilt-edged in the business world by Dun and Bradstreet, while many of them
also occupy front pews in our houses of worship, and the fervor of their appeals
to the Throne of Grace on Sunday is in no wise diminished by reason of a hard
day's work in hiding their property from the tax assessor on Saturday."
These comments, together with the property valuations elsewhere referred to,
indicate that tax dodgers are about as numerous and elusive pests in Indiana as
in other States.
ABSTRACT OF TAX DUPLICATES FROM 1878 TO 1899.
Statement showing the total taxable property of the State, real and personal,
including railroad and other corporate property, for the years 1878 to 1899,
inclusive.
Year.
True value
of lands.
True value
of improve-
ments.
True value of
lands and im-
provements.
True value
of Jots.
True value
of improve-
ments.
1878
$389, 839, 375
$73, 545, 220
$463,384,595
$94,242,671
$81,200,179
1879
384, 029, 696
74, 958, 342
458, 988, 038
93, 294, 796
84,554,929
1880 . .
326,810,513
62, 721, 296
389,531,809
72, 056, 594
71,873,971
1881
329,531,570
63,481,830
393, 013, 400
72,819,733
73,991,981
1882
331,696,565
65,017,573
396, 714, 138
73, 342, 409
73,078,370
1883
330, 524, 836
65, 805, 368
396, 330, 204
73,421,963
77, 575, 270
1884
332, 585, 700
74, 542, 113
407, 127, 813
73, 806, 902
84, 965, 539
1885
330, 740, 778
73, 787, 101
404, 527, 879
73, 373, 104
88, 620, 998
1886
316, 425, 125
63, 478, 905
379,904,030
70, 868, 426
81,323,090
1887
315, 588, 490
66, 050, 246
381,638,736
71,027,930
82, 658, 119
1888
309, 457, 303
64, 926, 562
374, 383, 865
75, 936, 688
88, 906, 633
1889
307 834 605
65, 439, 284
373, 273, 889
76, 515, 627
93, 997, 381
1890
308, 173, 414
69, 102, 918
377, 276, 332
76,585,557
100, 075, 855
1891
450,186,112
79,351,475
529, 537, 587
140, 902, 050
128, 160, 686
1892
449, 544, 057
81, 553, 811
531,097,868
141,133,709
136, 635, 393
1893 . -
453, 895, 136
84, 708, 043
538, 603, 179
147, 890, 880
146, 799, 593
1894
454 131 203
86, 544, 952
540, 676, 155
149, 263, 802
153,441,643
1895
455, 733, 569
80, 354, 330
536, 087, 899
149, 585, 197
150, 319, 353
1896
453,881,049
81,864,942
525, 745, 991
151,043,597
157,970,527
1897
455, 443, 089
83, 471, 438
538, 914, 527
151,351,899
162, 384, 354
1898
452,891,523
84, 869, 118
537, 760, 641
151,662,796
168, 203, 319
1899
449 561,158
84, 692, 005
534, 253, 163
162,741,375
163,371,084
TAXATION IN INDIANA.
101
Statement showing the total taxable property of the State, real and personal,
including railroad and other corporate properties, etc. Continued.
_
Year.
True value of
lots and im-
provements.
True value
of personal
property.
True value
of telephone,
telegraph,
express, and
sleeping-car
property.
True value
of railroad
property.
Total true
value of tax-
ables.
1878...
$175, 442, 850
$198, 333, 157
$130 346
$37, 629, 6l4
$874 921 062
1879.
177, 849, 725
208, 585, 821
38 019 926
883 443 510
1880
144 930 565
192 382 202
38 442 941
764 287 517
1881
148,811,714
220, 858, 701
43 336 140
804 019 935
1882
146 713 304
213 889 952
47 885 398
804 910 267
1883
150 997 233
212 761 052
53 480 932
920 569 421
1884
158, 772, 441
218, 391, 019
55 057 687
839 348,960
1885
161 994 102
217 004 098
54 983 513
837 770 099
1886
152, 191, 516
221, 730, 233
395, 802
55,244 820
809,466 401
1887
153 686 049
224 399 516
434 985
61 314 078
821 473 364
1888
164 843 321
227 263 502
584 963
64 211 717
831 287 368
1889
171 980 268
234, 413, 787
680 589
63 134 933
842 016 406
1890
176 661 412
236 831 076
698 672
66 206 295
852 673 038
1891
269 062,736
293, 745, 534
1, 871, 012
161, 039, 169
, 255, 256, 038
1892 ...
277 769 102
295 914 156
1 686 831
160 970 108
267 438 065
1893
294 690 473
304 581 768
5 058 780
159 376 050
302 310 270
1894
302 705 445
291 085,815
3 513 965
157 125 035
, 295, 106, 415
1895
299 904 550
288 381 711
5 206 793
156 469 578
286 050 531
1896
309 014,124
287, 091, 096
5, 953, 791
154, 836, 265
,292,641,177
1897 .
313 736 253
282 082 113
6 406 405
154 825 758
1 295 965 056
1898
319, 866, 115
295,032.580
5, 189, 324
153, 659, 348
1,311,508,008
1899
326 112 409
315 540 675
4 695 690
153 693 506
1, 334, 295, 443
ANALYSIS OF ABSTRACT.
The purpose of the reformed tax law of 1891, as already shown, was to bring
about a more complete and equal valuation and assessment of property.
The results are roughly shown by the foregoing abstract of tax duplicates from
1878 to 1900.
The valuation of lands had gradually decreased from $389,839,375 in 1878 to
'1,173.414 in 1890. It was in 1891 increased to $450,186,112, or about 50 per
cent, subsequently increased to $455,733,569 in 1895, and gradually decreased to
$449,561,158 in 1899.
There was a smaller increase in the valuation of improvements in 1891 over
1890 and no material change during the last few years, that of 1899 being
$84,692,005. The valuation of lands and improvements under the new law
reached its maximum in 1894, $540,676,155, varied a few millions in subsequent
years, and in 1899 was $534,253, 163. The value of lots and improvements increased
in 1891 over 1890 about $92,000,000, to $269,062,736, or more than 50 per cent, and
has since increased to $326,112.409.
The valuation of personal property increased under the new law from $236,-
831,076 in 1890 to $293,745,534 in 1891, or about 25 per cent, with varying changes
in subsequent years, until in 1899 it reached $315,540,675, an increase that year of
substantially $19,500,000.
The increase of the valuation of all real estate in 1891 over that of 1890 was
$244,662,579, or 44.1 per cent. The increase of the valuation of personal property
in 1891 over that of 1890 was $56,914,458, or about 24 per cent. The valuation of all
real estate in 1890 was $553,937,744, and of personalty $236,831,076. the personalty
being about 42 per cent of the real estate. In 1899 the valuation of real estate
was $860,365,572 and that of personalty $315,540,675, the personalty being about
36.6 per cent of the real estate.
It will thus be seen that the ratio of personalty to real estate was greater in
1890 than in 1899, and yet it is a matter of common knowledge that personal prop-
erty has greatly increased since 1890.
The assessment of telegraph, telephone, express, and sleeping car companies
increased from $698,672 in 1890 to $1,871,012 in 1891, and reached about $5,000,000
in 1893. The valuation of railroad property increased from $66,206,295 in 1890
to $161,039,169 in 1891, or nearly 150 per cent, and the tendency has since been
downward until 1899. The increase in the assessment of public-service corpora-
tions was proportionately greater than that of real property, and the latter much
greater than that of personal property. The increase in the valuation of all tax-
ables was from $852,673,038 in 1890 to $1,255,256.038 in 1891, and in 1899 the valua-
tion reached $1,334.295.443.
102 INDUSTRIAL COMMISSION.
This analysis does not disclose any remarkable reformation in the relative
assessment of real and personal property under the law of 1891. It immediately
increased the total valuation of the State $402,583,000, or nearly 50 per cent.
This increase was apportioned among the different classes of property as follows:
Increase.
Lands. 142,021,698
Improvements 10, 248, 557
Lbts 64,316,493
Improvements 28 , 084, 831
Total increase of real estate 244,662,579
Personal property 56,914.458
Telegraph, telephone, express, and sleeping car companies 1, 172, 340
Railroad property 94, 832, 874
MICHIGAN.
GENERAL TAXATION SYSTEM.
The constitution of Michigan imposes upon the legislature the duty to provide
a uniform rule of taxation, except upon property paying specific taxes; and it pro-
vides that taxes shall be levied upon such property as shall be prescribed by law,
and that all assessments shall be on property at its cash value.
Following these constitutional provisions, the legislature at the time of the
formation of the State government enacted laws providing a general system of
taxation of the property of the State by two separate and distinct methods, desig-
nated as " general tax '' and ' specific tax.''
The most important part of the tax system is the general tax on property. The
laws first, in a general way, provide that all property, real and personal, within
the jurisdiction of the State not expressly exempted 'shall be subject to taxation.
They provide for the annual assessment of all property in the State, including
corporate property, with certain exceptions, such corporate property to be assessed
to the corporation in its name as to a natural person, in the several townships,
villages, and cities of the State by the supervisors of the several townships and
wards, or in villages and cities where provision is made in the acts of incorpora-
tion or charter for some other assessing officer, then by such other assessing
officer. The general property tax assessment is made by local assessors for local
and State purposes, the amount of State taxes each year being apportioned by the
auditor-general of the State among the several counties in proportion to 'the
valuation of the taxable property therein, and this is again reapportioned by
the board of supervisors of each county among the several townships and wards
and levied in the same manner.
This system of general property taxation, adopted at an early date, when the
greater portion of the property of the State consisted of real estate, although
somewhat changed and supplemented in details from time to time by the
attempts of different legislatures to adapt it to the needs of a rapidly growing
State, continues to the present time, and now, in many respects, appears crude and
antiquated under the changed conditions of industrial development, and ill
adapted to the just and equitable taxation of the enormously increased amount
of personal property in the State, which is largely in corporate form.
Through this system substantially all the real property of the State is assessed
upon the rolls in the various localities, but the mingling of local and State taxes
naturally results in systematic attempts by local assessors to secure advantage
for their respective localities by a reduced property valuation, notwithstanding
the constitution and statutes impose upon them the duty of assessing property at
its true cash value. A comparatively small portion of the personal property,
individual and corporate, is assessed. Intangible personalty, especially, in great
part escapes.
From statistics of assessment and taxation gathered by the auditor-general
from the different counties of the State and published in his report for 1870, it
appears that the cash value of all real and personal property upon the tax rolls
was a little more than three times the assessed valuation of the same property.
While since that time no such systematic attempt to determine the relation of
assessed valuation to cash value of property has been made, it is probablyjsafe
to assume that the same difference still exists.
GENERAL PROPERTY TAX EXEMPTIONS.
The State subjects to taxation "all property, real and personal, within the
jurisdiction of the State not expressly exempted."
The exemptions are of three kinds:
First. Property used not for gain, but for purposes which it has been thought
well to cherish and encourage.
103
104 INDUSTRIAL COMMISSION.
Second. Property of corporations exempt by reason of paying specific taxes.
Third. Certain exemptions made with a design to prevent the burden of taxa-
tion from being unduly heavy upon those not able to bear it without undue
hardship.
The real property expressly exempted consists of all public property; the real
estate of libraries, benevolent, charitable, scientific, and educational institutions
incorporated under the laws of the State; that of all religious societies, agricul-
tural societies, and military organizations, and corporate property exempt by
reason of specific tax.
Personal property expressly exempt consists of that of societies above enumer-
ated; shares in building and loan associations, and mortgages and other securities,
held by such associations; pensions receivable from the United States: so much of
credits as shall equal the amount of debts owed; the library, family pictures, and
one sewing machine of each individual or family, and wearing apparel of each
individual; household furniture, furnishings, and fuel of each householder not
exceeding $500, and personal property in connection with his business to the
value of $200; the working tools or any mechanic, not exceeding $100; all mules,
horses, and cattle not over 1 year old, and sheep and swine not over 6 months
old, and all domestic birds.
PERSONAL PROPERTY.
For the purpose of taxation, personal property includes substantially every-
thing of that nature, tangible and intangible, not specially exempted by law, and
is particularly classified in special statutes.
Property actually invested in business outside the State is not included. Debts
Tare deductible from credits only, and the balance of credits of every kind is tax-
able. Shares in foreign corporations owned by citizens are taxable to the owners.
While the law does not refer in express terms to the taxation of notes and mort-
gages, they are regarded as taxable to the owner under the provisions for taxa-
tion of credits and other personal property not expressly enumerated. Such
property, however, has almost entirely escaped taxation under the existing system.
The State tax commission is, however, making special effort throughout the State
to bring such property upon the tax rolls.
In 1891 a law was enacted providing that a mortgage or other obligation secured
by lien on real estate should be treated as an interest in real estate for the pur-
poses of taxation; that the value of property less the value of the seem ity should
be taxed to the owner and the value of the security assessed separately to the
owner thereof in the assessing district where the property so affected was located .
The provision was not thoroughly enforced, and in practice the taxes on both land
and mortgage were, by contract between the parties, paid by the owner of the
land. Confusion and dissatisfaction resulted, and the law was repealed in 1893.
LISTING.
Rigorous provisions for the listing of personal property for taxation have been
upon the statute books for many years, but have in practice been ignored.
The assessment of personalty by local assessors has been almost entirely by
estimate without statement of 'taxpayers and has been characterized.by extreme
laxity and neglect, resulting in low, unequal assessment of a portion only of tangible
personalty and the escape of substantially all intangible property. At a recent
session of the State legislature, however, the laws constituting the listing system
were amended in important particulars and a vigorous effort has since been made
by the board of State tax commissioners, hereafter referred to, to enforce them.
By the change of the word "may " to " shall" the duty of the local assessor to
require a statement under oath from every " person of full age and sound mind''
whom he believes to have property not exempt from taxation is made mandatory.
The assessor's and the taxable's duties in this regard are minutely defined. Every
resident owner of the State, individual or corporation, is required to give a care-
fully detailed list of all personalty, tangible and intangible; and severe penalty, by
fine qr imprisonment, is imposed for willful neglect or refusal to make out such
statement or for answering questions falsely.
The assessing officers or members of the State board are especially empowered
to examine under oath any other person thought to have knowledge of the prop-
erty of such negligent taxable concerning such property, and arbitrarily to assess
such amount of real or personal property as they may deem reasonable and just.
An interesting case bearing iipon the legal effect of the intentional undervalu-
ation and omission of property by assessors in making up the assessment rolls,
MICHIGAN CORPORATION TAXES. 105
illustrating the infirmities of the general tax system, was recently decided by the
supreme court of the State. (Auditor-General v. Pendill et al., decided March 27,
1900.)
Where the evidence showed an intentional omission of personal property, an
intentional undervaluation of a large part of the personal and real estate, not
accidental, not inadvertent, but known and intentional, the entire assessment
roll was held to be void.
The listing of property of corporations will be referred to in connection with
the subject of corporate taxation.
BOARD OF STATE TAX COMMISSIONERS.
In 1899 a law was passed creating a board of State tax commissioners to exer-
cise supervisory control over local tax officers. It was vested with arbitrary power
and authority for the enforcement of the tax system of the State, and charged
with the duty of investigation and recommending future legislation upon the sub-
ject of taxation.
The board consists of three members, appointed by the governor, and the full
term of service is 6 years. The members are given access to the records and files
of the State and of counties, townships, and municipalities, the right to examine
the books and papers of any person or corporation owning property liable to
assesssment. and the power to summon and examine witnesses. It is required
to exercise supervision over all the assessing officers of the State, and to take
such measures as will secure the enforcement of the tax laws, " to the end that all
the properties of the State liable to assessment for taxation shall be placed upon
the assessment rolls and assessed at their actual cash value."
The duty is imposed upon it to confer with and advise assessing officers as to
their duties, and to institute proper proceedings to enforce the penalties and lia-
bilities imposed upon public officers, officers of corporations, and individuals
failing to comply with the laws; to receive complaints and correct errors and
irregularities: to visit each county at least once a year, to hear complaints con-
cerning the laws, collect information as to its workings, and see that officers com-
ply with the law, that violations are punished, and that proper suggestions as to
amendments and changes are made; to ascertain the assessed and equalized valua-
tion of all property listed for taxation throughout the State; to inquire into and
ascertain the valuation of the property of corporations paying specific taxes, and
the actual rate of taxation based upon property valuation; to investigate the reve-
nue laws and systems of other States, and with the aid of all information and
experience obtained, recommend to the legislature at each session such amend-
ments and changes of the revenue laws of the State as may seem proper to remedy
injustice and irregularity and facilitate the assessment and collection of public
revenue: to report to the legislature at each regular session specifically the true
valuation of the properties of corporations paying specific taxes, and rates actually
paid thereon, and the true valuation of all other properties of the State, and the
rate of taxation thereon, to the end that the legislature may have the requisite
information to rearrange the rates or system of taxation on such property, so that
all properties may be uniformly taxed.
This board is also charged with the inspection of the several assessment rolls of
the State, and empowered to direct such changes and additions as may be neces-
sary to compliance with the laws and the correct taxation of all property. It is
also given power to tax upon the current rolls in any year property that has been
shown to have been omitted in previous years for the tax of the omitted period.
BANKS.
The real estate of all banks organized within the State is assessed to such banks
where such property is located. All shares in such banks are assessed at their
cash value to their "owners in the place where the bank is located, except that
shares owned by a person residing in the same county but in a different township
or city are assessed where such owner resides.
The cash value of the real estate assessed separately to such banks is deducted
from the assessed value of shares of stock. When the stock of a bank is not regu-
larly quoted in the market, the value of shares may be determined by dividing the
sum of the paid-up capital arid surplus by the number of shares, deducting from
each a proportionate part of the cash value of realty taxed to the bank.
The real estate and shares so valued are taxed at local rates with other assessed
property.
Bank deposits are taxable by law to depositors or owners and not to the banks.
In practice, however, bank deposits have not been taxed in this State.
106 INDUSTRIAL COMMISSION.
For convenience in collecting these taxes the cashier of the bank is made the
agent of. the shareholders, the official duty being imposed upon him to pay the
taxes assessed upon such shares of stock when called upon to do so, and charge
the amount so paid against the shares of stock so taxed.
The cashier is required each year to file with the clerk of the county where such
bank is located a list of the names of the stockholders, with the amount of stock
held by each and their respective residences, and a heavy penalty is imposed for
wjllful neglect to perform this duty.
Thereupon the county clerk is required to notify the assessing officer of each
township of the names of each shareholder residing therein and the amount of
stock held.
The principal or accounting officer of every bank whose capital is not repre-
sented by shares of stock, and every private banker, broker, or stock jobber is
required each year to give to the local assessor a sworn statement showing:
First. The amount of money on hand and in transit.
Second. The amount of funds in other hands subject to draft.
Third. The amount of checks and other cash items not included in above items.
Fourth. The amount of bills receivable and other credits.
Fifth. The amount of bonds and stocks of every kind, except United States
bonds and shares of capital stock held as an investment or representing assets.
Sixth. All other property appertaining to such business, except real estate.
Seventh. Amount of deposits.
Eighth. Amount of accounts payable other than deposits.
Ninth. Description and value of real estate.
The aggregate amount of items 7 and 8 are deducted from aggregate of 1, 2, 3,
and 4, and the remainder, if any, assessed as moneys.
The amount of the fifth item is assessed as stocks and bonds, the sixth as other
similar property, and the whole makes up the aggregate personal assessment, the
real estate being assessed separately.
The property of banks being subjected to local rates of taxation upon the basis
of valuation determined by the methods above described, it follows that by reason
of full valuation it is much more heavily taxed than property in general, and from
this excessive taxation there is no escape.
CORPORATIONS IN GENERAL.
Under the tax laws of Michigan a corporation whose property is taxable under
the general law stands upon the same footing as an individual. The property of
both come under the general property-tax system. The real estate is assessed
in the name of the corporation in the place where located.
The law as to the taxation of the personal property of corporations is not very
clear, but in a general way it may be said that there is no substantial distinction
between the taxation of such property and that of individual owners.
It is specifically provided that "all corporate property, except where some other
provision is made by law, shall be assessed to the corporation as to a natural per-
son, in the name of the corporation."
The provisions declaring what personal property for the purposes of taxation
shall include and relating to exemptions apply to corporate property as well as to
that of individuals.
Under these provisions the indebtedness of either an individual, firm, or corpo-
ration can be deducted only from credits; if no credits are shown in a statement
of such property there is nothing from which debts can be deducted. Where the
property of corporations is taxable to itself the shares of stock are exempt from
taxation in the hands of the owners.
The personal properties of all gas and coke companies, natural -gas companies,
electric-light companies, waterworks companies, and hydraulic companies are
assessed where the principal works are located. The mains, pipes, and wires of
such companies laid in or along roads, lanes, streets, or alleys are assessed as
personalty where the same are laid or placed. The personal property of street
railroad, plank road, cable or electric road or transportation companies, bridge
companies, and all other companies except those paying specific taxes, are assessed
where the principal office of the company is located, and the track, road, or
bridge of any such company is held to be personal property and assessed where
the same is located, placed, or laid.
Formerly street-railway companies were taxed at the rate of one-half of 1 per
cent on the whole amount of capital paid in on the capital stock in lieu of all other
taxes, but this law was repealed in 1882.
The property of many classes of corporations is specifically taxable to the cor-
porations themselves by provisions in the acts under which they are incorporated.
MICHIGAN COEPOKATION TAXES. 107
The law for the incorporation of manufacturing companies contains the follow-
ing provisions: "All corporations formed or existing under this act shall be liable
to be assessed for all real and personal estate held by them in this State at its true
value, and shall pay thereon a tax for township, village, city, county, and State
purposes the same as other real and personal estate, and such tax shall be assessed,
collected, and paid in the same manner as other taxes on real and personal estate
are required to be assessed, collected, and paid: Provided, That nothing herein
contained shall authorize the taxing of the capital stock of such corporations
as such capital stock."
For the purpose of assisting the local assessor in determining the valuation of
corporate property, each corporation taxable under the general law is required to
make and deliver to him annually a sworn statement setting forth:
First. The name and location of the company.
Second. The amount of capital stock authorized and the number of shares into
which it is divided.
Third. The amount of capital actually paid in.
Fourth. The market value of the stock, or, if it has no market value, then its
actual value.
Fifth. The cash value of all personal property, giving each kind separately as
far as practicable.
Sixth. The total of all bona tide indebtedness, except indebtedness for current
expenses, excluding from such expenses all amounts paid for the purchase or bet-
terment of said property.
Seventh. A description and value of real estate.
The amount of the seventh item is deducted from the amount of the fourth
item, and the balance, if any, is assessable as the cash value of the personal estate.
The amount of the sixth item is deducted from the amount of the fifth item, which
is held to refer to credits, and the balance, if any, is assessed as personal property.
Special statements are required of navigation or transportation companies as
to vessel and marine property.
If any corporate officer makes or verifies any false statement to an assessing
officer, the intention or effect of which is to escape taxation, such person is
declared guilty of a misdemeanor and is punishable by fine or imprisonment.
Severe penalties are by law imposed for neglect or refusal to make true and
correct sworn statements. The assessor or board of State tax commissioners
in certain cases may examine under oath any person believed to have knowledge
of such property, and are authorized to assess to any corporation neglecting or
refusing to make such statement such amount of real and personal property as
they may deem reasonable and just.
When the valuation of personal property is determined in the manner set forth,
it is assessed to the corporation in like manner as individual property.
Until 1899 the requirement of statements of the property of corporations
was discretionary with the assessors, and in practice they were generally not
required, and the real and personal property of corporations under the general
law was assessed by estimate of the local assessing officers as individual property,
regardless of capital stock, franchise valuations, or earning power as factors, and
with like result as to true valuation.
The amendment of 1899 makes the requirement of such statements mandatory,
and some attempt has since been made to enforce them.
It will be observed that no specific provisions are made for the valuation . or
assessment of franchises, and their value, if assessed at all, must be included in
capital stock or personal property generally.
The crudeness and inefficiency of this system as applied to corporate property
is obvious, and the undervaluation and unequal valuation of such property as
compared with the real value thereof, based upon capital stock, franchises, earn-
ing power, and other material factors, and escape of property from the rolls
entirely, are disclosed by the most cursory examination, and are the cause of
continual controversy throughout the State.
The taxation of corporate property under the general law in Michigan is a farce
and a travesty upon justice and equality of taxation.
Assessed valuations, 1896.
All real estate $805,553,976
Personal property, including that of corporations 140, 455, 965
Total - 946,009,941
The total was equalized by the State board of equalization to $1,105,100,000.
108 INDUSTRIAL COMMISSION.
The assessed valuation of real property in 1899 was not materially increased
over the above figures, the real estate as assessed being about $825,000,000. and
that of personal property $144,000,000.
Through the efforts of the State board of tax commissioners, the valuations for
1900 were materially increased, the increase being 349,260.941 in the total valua-
tion $180,594,302 on real estate, and $168,666,639 on personalty.
What effect this increase, made somewhat indiscriminately, will have upon the
equality of taxation throughout the State can not yet be determined.
SPECIFIC TAXATION SYSTEM.
The property of most quasi-public corporations within the State comes within
this system, imposing fixed rates of taxation upon gross earnings.
The constitution of the State provides that all specific State taxes, except those
received from the mining companies of the Upper Peninsula, shall be applied to
the payment of the primary-school interest fund of the State.
This primary-school interest fund, so called, is apportioned among the several
townships and cities of the entire State in proportion to the number of children
in each between the ages of 5 and 20 years.
The total specific taxes for 1899 were as follows:
From railroad companies. $1, 091, 526. 39
From river-improvement companies 2, 180. 77
From insurance companies 239, 500. 45
From plank-road companies j 1, 188. 51
From express companies . 13, 680. 56
From telegraph and telephone companies 70, 058. 81
From freight, palace, and sleeping car companies ... 39i 93
From franchise fees . . 6. 441 . 88
Total 1,424,617.30
From the reports of the auditor-general it appears that occasionally a county
having a considerable population, but small amount of taxable property, receives
a larger amount from this primary-school fund than the entire amount of State
tax contributed by such county; but as a rule the amount of the primary-school
fund apportioned to counties constitutes but a small portion of the amounts of
State taxes paid by them.
Prior to 1871 the railroads of Michigan were required to pay a specific tax on
their respective amounts of capital stock paid in.
In 1871 an entirely new system of taxation of railroads was adopted, based upon
earnings instead of capital, earnings being regarded as a more equitable criterion
of value for the purpose of taxation. It was thought that a road that earned
nothing was of little value, whatever it might have cost, while a road with large
earnings was valuable regardless of its cost.
Difficulties of previous systems were disposed of and the State started out upon
a system, which has ever since existed and still continues, of taxation upon gross
earnings.
At first no provision was made in regard to corporations whose roads crossed
the State line; but as necessity arose, in 1873, the law was revised and provision
made for the taxation of a corporation whose line of railroad ' ' lies partly within
and partly without the State," and a method was prescribed for arriving at the
proportionate earnings of such a road.
RAILROAD SPECIFIC-TAX LAW.
Under the existing law passed by the legislature in 1897, increasing the graded
specific-tax rates over those of the previous law, every railroad company and
union railroad station and depot company owning or operating any railroad
situated in whole or in part in Michigan is required, on or before July 1 of each
yjear, to pay to the State treasurer, on a statement of the auditor-general, a specific
tax upon its business computed in the following manner:
Upon a gross income not exceeding $2.000 per mile of road actually operated
within the State, 2 per cent of such income.
Upon an income in excess of $2,000 and not exceeding $4.000 per mile, 3 per
cent thereof.
Upon all such income in excess of $4,000 per mile and not exceeding $6,000 per
mile, 4 per cent thereof.
MICHIGAN CORPOKATION TAXES. 109
Upon all such income in excess of $6,000 per mile and not exceeding 8,000 per
mile, 4i per cent thereof.
Upon all such income in excess of $8,000 per mile, 5 per cent thereof.
In the case of union station and depot companies whose earnings are in excess
of $20,000 per mile the rate on such excess is 10 per cent.
When railroads lie partly within and partly without the State, the gross income
for the purpose of taxation is upon the earnings of the road in Michigan, com-
puted by adding to the income derived from business entirely within the State
such proportion of the income arising from interstate business as the length of the
road over which said interstate business is carried in Michigan bears to the whole
length of the road over which it is carried. While the legality of the tax upon
earnings from interstate commerce has been questioned in discussion in this
State, it has not been tested in the courts, railroads having complied with the law.
The taxes so paid are in lieu of all other taxes, except real estate owned and not
necessary or in use in the proper operation of the road, such estate being subject
to local assessment as other property under the general law.
There is another exception, that of real estate for local assessment for special-
improvement taxes in cities and villages.
Prior to 1897 the graded specific rate of taxation was as follows, there being, as
above set forth, a considerable increase in the law of 1897:
Per cent.
Upon gross earnings not exceeding $2,000 per mile _ . .... 2
Upon excess of $2,000 and not exceeding $4,000 per mile 2|
Upon excess of $4,000 and not exceeding $6,000 per mile 3
Upon excess of $6,000 and not exceeding $8,000 per mile 3|
Upon excess of $8,000 per mile ... . . . 4
The following table shows the amount charged to and paid by the railroads of
the State during the years designated:
1890 .$712,474.21 1895.. $676,115.78
1891 859,645.22 1896 741,389.57
1892 853,790.91 1897 735,964.43
1893 893,801.6111898 . 879,521.90
1894 811,290.14 j 1899 1,091,526.39
It should be borne in mind that these amounts are in lieu of all other taxes, and
represent substantially the total taxation of railways in the State during the
years stated, except special assessments for public improvements in cities and
villages.
VALUE OF RAILROAD PROPERTY.
The State railroad commissioner, in his annual reports for 1897 and 1898, states
the total cost of railways in Michigan to be as follows:
1897:
Wholly or in part within the State $1, 013, 504, 035. 31
Cost of portions within the State _ 291, 074, 216. 78
1898:
Wholly or in part within the State 1,025,741,348.54
Cost of portions within the State 294, 290, 145. 02
Total gross income or receipts from operation in Michigan:
1898 32,047,469.84
1899 35,892,864.22
Operating expenses for 1899 26, 162, 127. 21
Net earnings. ____ 9,730,737.00
Tax about 11 per cent of net earnings.
The reported cost of railroads affords no reliable measure of the actual values
of such property and no proper basis for taxation. It is obvious that the original
cost of such property bears no necessary relation to its present actual value, much
less to its present earning capacity.
A railroad commissioner of this State recently said: " The cash valuation of a
railroad is fixed by the amount of its earnings, continued for a number of years,
regardless of the'cost of construction; in short, the market value of a railroad
depends upon its past, present, and prospective earnings."
Capitalizing, according to the method adopted by the Ohio tax commission in
1893, namely, earning power at 6 per cent, the net earnings being $9,730,737 in 1899,
an exceedingly prosperous year, the actual value of the property producing it
would be 16| times that amount, or $162,178,950, and the rate of taxation thereon
110 INDUSTRIAL COMMISSION.
substantially 6i mills on the dollar. The net earnings of Michigan railroads for
1895 were $5,229,760.93, which amount, according to the above rule, would indicate
a value that year of $87.162,682.16. While the mileage of Michigan railroads is
large, it is not uniformly profitable, nor would it come within as high a grade or
value as that of Ohio railroads, and this method would afford no reliable criterion
of value. The assessed valuation of Ohio railroads under the general-property
tax is less than one-third of the valuation computed by the above method.
TJie assessed valuation of the railroads of Indiana by the State board of tax
commissioners under the unit rule in 1899 was, in round numbers, $153,000.000.
The grade of railroads in Indiana is much higher than that of Michigan rail-
roads, Indiana being traversed in every direction by the great trunk lines: and
while Michigan has a few more miles of road than Indiana, it is hardly probable
that its entire mileage could be fairly appraised at anything like the real value of
the Indiana roads.
The Illinois tax commission in 1886, after careful study of railroad statistics
and much thought given to the average proportion between gross receipts,
expenditures, and capitalized values of railroads, deduced the conclusion that
five times the amount of the gross receipts of a railroad would, for purposes of
taxation, fairly represent the value of its property, and would b* high enough to
compare with other property assessed on a 'basis of full cash value.
Applying this novel rule to Michigan railroads would result in a taxable value
in 1898 of $160,237,345 and in 1899 of $179.464,320.
Inasmuch as considerable controversy has arisen in this State during the past
few years as to the relative amount of taxes paid by the railroads of the State,
compared with the amount paid by other property under the general-property
tax, a few observations upon this subject may not be out of place in this report.
The equalized valuation of real and personal property of the State under the
general-property-tax law. as fixed by the State board of equalization in August,
1896, was $1,105,100,000.
The taxes levied for all purposes in the State, including all specials of every
kind, but excluding all specific taxes, as shown by a careful investigation of the
auditor-general, amounted to $19,500,061.09.
By a system of computation made in the auditor-general's office, in which are
taken into consideration as factors the rate of taxation in the respective counties
of the State, and also the various amounts of property to which these rates apply
in the different counties, the average rate of taxation is shown to be $1.76 on each
$100 of equalized valuation of the year 1896.
We give this more accurate computation for the reason that the computations
generally made, omitting some of the factors above named, give a common rate
of taxation of approximately 3 per cent.
Obviously, in ascertaining an accurate rate of taxation on this valuation in the
State, still other factors should be considered. The equalized valuation of prop-
erty upon which the computation referred to is based is very much less than the
actual cash value of the property assessed under the general law, the cash value
of property assessed being, as we have stated, approximately three times the
assessed valuation.
When in connection with the undervaluation is taken into consideration the
vast amount of property, real and personal, exempt from taxation under the gen-
eral law, and the enormous amount of personal property, both tangible and intangi-
ble, which remains undisclosed and escapes the assessment rolls entirely, it will
be seen that the strictly correct rate of taxation of property under the general
law, as compared with the cash value of property under the specific-tax system,
based upon the total cost of such property or upon net earnings or business, would
be very materially reduced b.elow the rate of $1.76 referred to; in fact, would be
but a small portion thereof.
As we stated elsewhere (see Ohio), it is exceedingly difficult to make strictly
equitable and reliable comparison between two entirely different methods of taxa-
tion, the one based upon real and tangible property, partially valued by estimate
of elective officers, and the other based upon real and intangible property, f up-
valued by self -assessment, based upon actual business and earning power, without
evasion or escape. Could such comparison be reliably made, the necessity for the
adoption of a different method for intangible and corporate property would dis-
appear and the general-property tax would be adequate. It should be remem-
bered that the methods are based upon entirely different principles of taxation,
the one upon property value, the other upon productivity, and it is about as diffi-
cult to apply a like measure to both as to measure water with a yardstick.
It is easy to juggle with intangible and speculative values. Indeed, it is difficult
to avoid juggling in the attempt, commendable though its purpose may be, at
MICHIGAN CORPORATION TAXES. Ill
comparison of the real and tangible with the unreal and intangible for purposes
of taxation. The statistician and theorist should be extremely conservative in the
comparison of one great class of property upon a rule of valuation based upon
productiveness, upon uncertain and intangible elements, with tangible property
under the antiquated and slipshod general property-tax system, if he would avoid
conclusions that are unreliable and misleading. It is obviously difficult, if at all
possible from a scientific standpoint, to frame an adequate rule of comparison
between a rate of taxation on gross earnings and one on property value under the
general property-tax system. The most elaborate attempts usually end in conjec-
ture and an uncertain jumble of figures. A more independent consideration of
a new method for the taxation of intangible or corporate property is essential to
the determination of its adequacy and actual merits.
If the revenues of the State were to be raised from the incomes of persons and
business, there would obviously be no comparison between the rates of taxation
thereby imposed and the valuation of property under the general-property tax.
This is, in a measure, true with respect to gross-earnings tax. The methods are
based upon different principles. In the application of a scientific method of taxa-
tion to a great class of corporate property owners, the end to be attained is their
subjection to a fair share of the burdens of government. To go beyond that is to
place an embargo upon the prosperity of the commonwealth.
Justice and equality require that corporate property be fully and fairly taxed,
but not necessarily by like methods with other property.
The comparisons frequently made, in the investigation. of taxation, between
methods or between results in different States under different systems, when
carefully analyzed, often prove unsound, and in many instances would appear
ludicrous were it not seriously proposed to frame a new system of taxation based
upon such results.
Whether or not, under the present specific-tax law, the railroads of the State
are bearing their portion of the public burdens compared with property assessed
under the general law we do not assume to say, but merely suggest some of the
factors which should be taken into consideration, the dangers to be avoided, and
the methods employed for the purpose of determining the question of equality of
taxation under these different systems.
GEOSS RECEIPTS TAX.
The gross income, as defined by the State railway commissioner and sustained
by the courts, is held to include substantially all the receipts of railroads of
every kind or nature. The amount of gross receipts is fixed by computation
based upon reports of the railroad companies. The law requires railroad com-
panies to make such reports annually, and imposes a penalty for neglect to make
them or for false reports.
The system of taxing gross earnings, as applied to railroads in Michigan, has
been in -force and operation since 1871. It is distinguished from the general prop-
erty tax in that it is based directly upon income. With this basis the rate
of taxation is fixed by law and does not depend upon the changing valua-
tions of assessors or commissions selected under a political system. The specific
tax so fixed can not be evaded. It is uniform. It reaches all property under it
and subjects it to contribution. None can escape it.
RAILROAD REPORTS AND ACCOUNTS.
Soon after the adoption of the specific-tax system in Michigan, as applied to
railroads, the necessity for a correct and uniform system of accounts and reports
for the various railways doing business in the State, as a basis for just and equal
taxation, for wise and judicious legislation, and for other obvious purposes was
recognized.
The importance of this subject in this connection was clearly discerned by the
Hon. W. B. Williams, railway commissioner of Michigan for 1877 to 1883, one
of the ablest and most industrious commissioners the State ever had, who pro-
ceeded to formulate such a system of accounts and reports, and to cooperate with
commissioners in other States to secure its adoption by railways generally.
As the tax upon gross earnings depended upon the reports of railroad companies
to be taxed, the value of any system of reports that might be adopted depended upon
the correctness of the accounts upon which they were to be made. To be of prac-
tical value for the purpose of a taxation basis or any other purpose, it was neces-
sary that they be made up from a comprehensive and complete statement of
112 INDUSTRIAL COMMISSION.
accounts upon the books of such companies, and not from estimates. It was neces-
sary that such accounts be authentic and sufficiently complete in detail to furnish
adequate means of checking and verifying them.
Many of the railroads of the State being parts of continuous lines passing into
and through other States, a system of accounts to be of practical value must be
uniform throughout all the States traversed by such roads.
For the purpose of establishing such a uniform system of reports and accounts,
a convention of railroad commissioners was called, and at an adjourned meeting
at*Saratoga in 1879 the report of a committee on uniform reports, containing sub-
stantially the form of report and accounts previously used in Michigan, was
adopted. The form there laid down was wrought out by commissioners with the
aid of experts in railroad accounting, who had had many years of experience in
keeping accounts of railroad companies and making reports to the States where
they were located, with a view to making them as simple and comprehensive in
their plan as possible, and at the same time supplying the information required.
This system was adopted by the convention, as well as by the officials of several
States, and with such changes as from time to time became desirable has been in
use in Michigan and some adjoining States to the present time.
Accounts are open to public inspection, appear in the public reports of State rail-
road commissioners, supply accurate and reliable information as a basis for
taxation of gross earnings and for all other purposes, and through them is or may
be derived the full benefit of publicity of the business and operation of railroads.
As a remedy for abuse of corporate power or financial combination or manipula-
tion, publicity of reports and accounts of these railroads exists to-day.
REPORT OF THE COMMITTEE OF RAILROAD COMMISSIONERS.
The convention of State railroad commissioners in 1878 appointed a special com-
mittee, consisting of Charles F. Adams, of Massachusetts, W. B. Williams, of
Michigan, and J. H. Oberly, of Illinois, to examine into and report the methods of
taxation as respects railroads and railroad securities then in vogue in the various
States of the Union, as well as in foreign countries, and to report a plan for an
equitable and uniform system for such taxation. The report of this committee,
making special reference to Michigan, is justly celebrated in the literature of tax-
ation; and it is so applicable in its description of the chaotic condition of railroad
taxation to the various States at the present time that I desire to embody it
herein:
' ' Shortly after the last convention of commissioners your committee issued a
circular and accompanying interrogatories in relation to the matter referred to
them for investigation, which were sent to all the State executives and to a large
number of the railroad corporations of the country. Through the courtesy of the
State Department at Washington the representatives of the National Government
at the principal capitals in Europe were also called upon for information on the
rail way -tax systems there in use. As a result some 60 answers were in all received,
covering the various States of the Union, Canada, England, France, Belgium,
Holland, Germany, Russia, Switzerland, and Austria-Hungary. The information
contained in these answers is much of it of great value, especially in the case of
the documents relating to the systems of taxation in use in foreign countries.
These the committee have printed in full as a part of the present report, as the
facts and statements contained in them are not elsewhere to be found in any
easily accessible shape. A compendium of the systems in use in all the States of
the Union has been prepared, and likewise forms a part of this report.
' ; On examining this compendium of State systems in present use in this country
it will at once be observed that they are much more varied than would naturally
be supposed, or perhaps than would have been thought possible. Generally it
may be said that there is no one principle running through the various systems
described; and further, that there is no method of taxation possible to be devised
which is not at this time applied to railroad property in some part of this country.
So far as those now well-recognized principles which should be at the basis of all
systems of taxation are concerned, they would as a rule seem to have been utterly
ignored. In two adjoining States, for instance, with roads belonging to one com-
pany operating in both, will be found on one side of the line a system simple,
direct, equitable, imposing a moderate and fixed burden from which there is no
escape, while on the other side of the line will be met a system which can be said
to be based on nothing more reliable than arbitrary guesswork. In certain
States the railroads are apparently looked upon as a species of windfall, from
which everything which can be exacted in the way of taxation is so much pure
gain. In other States they escape with very slight and wholly disproportionate
MICHIGAN COKPOKATION TAXES. 113
burdens. The franchise tax, the gross and net earnings tax, the personal prop-
erty tax, the realty tax, all are met with indiscriminately applied sometimes by
local boards, sometimes by boards of State equalization, but almost invariably in
utter disregard of any principle.
"A more striking and in some respects discouraging example of general con-
fusion as regards an important matter of fiscal legislation could hardly be
imagined.
" The conclusions reached by the committee as the result of their investiga-
tions can be very briefly stated. The requisites of a correct system of railroad,
as of other taxation, are that it should, in so far as it is possible, be simple, fixed,
proportionate, easily ascertainable, and susceptible of ready levy. Very few of
the systems now in use in this country were found to possess any of these requi-
sites. So far from being fixed, they are, most of them, extremely arbitrary and
fluctuating. Neither are they proportionate, as in some cases the measure of
valuation is the market price of securities; in others, the arbitrary estimates of
appraisers; in yet others, gross receipts, and in others, local assessment. That
the. tax should be almost impossible of ascertainment under these circumstances
does not need to be said. As to being susceptible of ready levy, any tax assessed
on and paid by a railroad corporation is that; but it would appear that a large
portion of the taxes now nominally levied must either be evaded or else are in
the nature of double taxation, for the -securities on which they are assessed are,
in the eye of the law, personal property, assessable at the residence of the owner.
If, therefore, these securities, whether bonds or stock, are taxed to the corpora-
tion in the State where its road is situated, they are as personal property subject
to a further tax in the place of the holder's residence, if he happens to reside in
another State; if such securities are not taxed to the corporations, then, whether
they are taxed at all must depend upon the honesty of the holder, wherever he
lives, or the astuteness of the local taxgatherer. The utmost inducement to
fraud and evasion is thus systematically held out. For the conscientious holder
of stock or bonds there may be no escape from double taxation of the most
oppressive kind, while for the unscrupulous the door for evasion is wide open.
' ' The conclusion at which your committee arrived was that all the requisites
of a sound system were found* in taxes on real property and on gross receipts, and
in no others in fact, that when these were properly imposed no other taxes were
or could be necessary, as nothing would escape untaxed. Under this system the
real estate of the railroad corporations held for corporate use, outside of their
right of way, would be locally assessed exactly in the same way as the real estate
of private persons or of other corporations adjoining it was assessed. There
would be no distinction made in regard to it. It is the ordinary tax on real
property. Beyond that a certain fixed percentage established by law and of gen-
eral application should be assessed on the entire gross earnings of the corpora-
tions, and this should be in lieu of all forms of taxation on what is known as
personal property. Under this system the rolling stock of the corporation would
not be assessable, nor its securities, whether stock or bonds, either indirectly
through the corporation or directly in the hands of those owning them. The
entire burden, be the same more or less, would be imposed in one lump on the
corporation and levied directly. It does not need to be pointed out that this sys-
tem is perfectly simple; that under it taxation is fixed by a general law and not
by local valuations; that it is thoroughly proportionate, inasmuch as the amount
levied depends on the amount of gross receipts; finally, it can be ascertained by
anyone, and can by no possibility be evaded.
' ' The apportionment of a levy on gross receipts among the several States through
which a single railroad may run is, in this country, undoubtedly attended with
much difficulty, and the committee have given careful consideration to the subject.
The conclusion at which they have arrived is that it should be made a matter of
mutual understanding among the States, and that, as the levies must be inde-
pendent, they should be apportioned according to mileage. That is, real estate
owned by each corporation, outside of its right of way, should be locally assessed
where it is situated, without regard to the fact that it belongs to a corporation
and is used for railroad purposes. The vast and costly terminal grounds in New
York, Chicago, and all the other great trade centers, would thus be locally taxed
at those centers, and on the basis of valuation for similar adjoining land there in
use. Real estate in the country, on the other hand, would be taxed at the country
or agricultural valuation. The realty outside of the right of way being thus dis-
posed of for purposes of taxation on fixed principles easily understood, the entire
gross earnings of the corporations should be subject to assessment by each State
through which its road might run in the proportion in which the miles of road in
that State bear to its whole number of miles. The percentage of the levy would
114 INDUSTRIAL COMMISSION.
then be greater or smaller according to the law of the State, but the proportion
of the whole amount upon which the levy was to be made would be fixed and
always easy of ascertainment. The disposition of the tax thus levied, when paid
into the hands of the State authorities whether it should be retained in the State
treasury or distributed among localities, either those through which the road
might run or those in which the holders of its securities reside would be matter
for adjustment by legislation. It could either be retained in the State treasury
orpaid back into the local treasuries or the counties or towns in which the roads
are located on mileage proportions or ratably distributed among all the munici-
palities of the State. It is a tax on transportation, whether of persons or property.
It is very possibly as equitable a method of raising money by taxation as can be
devised. If it could, therefore, once be uniformly and properly adjusted, the dis-
tribution of the results of the tax would present* very few difficulties. All com-
munities, and every part of each community are dependent, more or less directly,
on railroad transportation. A general tax upon it, if properly imposed, would be
felt not unequally by all, and might, perhaps, not unjustly be shared by all. As
will be seen on reference to the accompanying reports, this method of imposing
an indirect tax is not uncommon in Europe. In France, especially, a large rev-
enue, which has amounted to more than $20.000,000 a year, hasbeen thus levied.
This is not, however, properly a railroad tax, but rather a tax collected through
the instrumentality of the railroads, the companies operating them being, in so
far, used as taxgatherers.
" Recurring, however, to the railroad tax proper that is, to the sum collected
from the railroads as their fairly proportionate part of the common burden
where this tax is now levied as an entirety by the State government, the most
usual method of distribution is to divide it among the counties and municipalities
through which each road runs in proportion to the length of it therein. In Massa-
chusetts the tax is paid over to the place of residence of the individual stock-
holder, and any undistributed balance is paid into the treasury of the State. In
Michigan the whole amount of the tax is paid to and retained by the State, being
devoted to special purposes. In Mississippi, where there is a franchise tax, one-
half of it goes to the counties through which the road runs, the balance to the
State. In New Hampshire, again, one-fourth of the tax is paid to the towns
through which the road passes, in proportion to the amount expended in each
town for right of way and taxes. The other three-quarters is divided among the
towns in proportion to the stock owned therein. In this respect, therefore, as in
all others, the existing State systems afford every variety of precedent. The dis-
tribution to be made of a tax after it is collected in no way, however, affects the
proper method of collecting it. It must so largely depend on local exigencies
that no general rule regulating it would seem to be possible.
" Finally, the committee will say, that of all the systems of taxation examined
by them, those in use in England, among the countries of Europe, and in Michigan
and Wisconsin, among the States of the Union, seem to them most intelligent
and in conformity with correct principles. The Michigan and Wisconsin systems
would seem to be especially commendable. The systems in use in many of the
older States, on the contrary, and notably in the States of Massachusetts, New
York, Pennsylvania, and Ohio, are very cumbersome, and present hardly any
features worthy of study or imitation.
"That of Massachusetts, for instance, is based upon no recognized principle,
would admit of evasions in a most obvious way, and is impossible of any general
application. The fundamental idea with it is that the capital stock represents
the property, and that its market value will, therefore, approximately measure it
for purposes of taxation. A heavily-bonded road under this system practically
escapes taxation; and again, where the stock is owned outside of the State in which
the road is situated the tax levied on it inures not to the State of the owner's resi-
dence but to that in which the property is located. Under such a system it
hardly needs to be said that the taxation fluctuates widely in amount, and that,
the amount of debt behind the capital stock being disregarded, the burden bears
no necessary relation to actual earning capacity, whether net or gross. Clumsy
and devoid of scientific merit, as it unquestionably is, however, the Massachusetts
system would seem to be preferable to that still in use in New York, concerning
which the State assessors, in their annual report for 1873, expressed the opinion
that under it there was ' no uniform rule for anyroad in any county, each assessor
being governed entirely by his own views.' In certain towns the railroads appear
to pay about one-third of the entire taxes, while the assessed valuation in 1878
varied from $400 per mile to $100 per rod. The ' difference in the assessment of
the New York Central and Hudson River road, where for all purposes that the
road can be used it is of the same value to the company, is $24,000 per mile. In
MICHIGAN CORPORATION TAXES. 115
short, it is scarcely an exaggeration to say that the assessments are as unlike as
the complexion, temperament, and dispositions of the assessors.' It does not
need to be pointed out that a system such as this, and it is the system in most gen-
eral use, compels the corporations in self-defense to an active participation in
local politics. Indeed, it is not too much to say that as a system it is open to
almost every conceivable objection.
"It does not seem necessary to proceed in the enumeration of States, as the
objections to which the system of each is open will readily suggest themselves to
anyone at all familiar with the principles of correct taxation, on reference to the
accompanying abstract of those systems. It is very apparent that the subject of
railroad taxation is one which, in this country, has as yet received very little mature
consideration. With a view to affording some basis for better legislation, the
committee submit with the accompanying documents, the following form of law,
in which the phraseology of the Michigan statute has been very closely followed.
"C. F. ADAMS, Jr., of Massachusetts,
' W. B. WILLIAMS, of Michigan,
" JNO. H. OBERLY, of Illinois,
" Committee.'"
EXPRESS, TELEGRAPH, AND TELEPHONE COMPANIES.
Prior to 1899 express companies doing business in Michigan were required by
law to procure each year from the State treasurer certificates of license or
authority to do business, and, as a condition precedent to the issuing or renewal
of certificates, to pay into the State treasury a specific tax on the gross amount
received by them within the State for the year previous.
The amount of taxes paid by such companies in 1898 was $2,608.53. In 1898 the
rate was changed from 1 to 5 per cent on gross receipts, and the tax at the new
rate in 1899 was $13,680.56.
The companies doing business under this law within the State were the Adams,
American, Canadian, Dominion, National, Pacific, United States, and Western.
Prior to 1899 every telegraph and telephone line built and operated within the
State was required to furnish the auditor-general 011 or before the first Monday of
July of each year a statement under oath showing the number of miles owned,
operated, or leased, number of separate wires, number of stations, instruments
in use, number of poles, and miles of wire used. Upon receipt of such statement
a board of review, consisting of the auditor-general, State treasurer, and com-
missioner of the land office, assessed such lines at the true cash value thereof. The
rate of tax levied and collected upon such assessment was what such board should
determine to be the average rate of taxes, general, municipal, and local, through-
out the State during the previous year, which rate was ascertained from the rec-
ords of the auditor-general's office. This was payable to the State treasurer in
lieu of all other taxes, State and local.
Under this law the average rate of taxation for 1897 was found by the system
of computation employed to be 3 per cent, and the taxes payable by such com-
panies for the fiscal year ending June 30, 1898, amounted to $60,506.71.
In 1899 the average rate was fixed at 2.08 per cent, and the taxes in 1899 were
$70,058.81.
The telegraph and telephone law (in a test case hereinafter referred to under
the heading -'The Atkinson Law") was held to be unconstitutional by the
supreme court in April, 1899, and in June of that year a new law for the taxation
of express, telegraph, and telephone companies was passed.
By this new law every such company doing business in the State is required to
furnish the auditor-general an annual sworn statement showing the following
facts concerning its operation for the year.
In the case of express companies:
(a) The name and locality.
(6) The amount of capital stock, and amount paid in thereon.
(c) The number of agencies or places of business in the State.
(d) The amount of gross receipts on current business in the State for the pre-
vious year.
(e} The total number of miles over which the company does business in the
State.
In the case of telegraph and telephone lines:
(a) The total number of miles owned, operated, or leased within the State.
(&) The total number of miles in each separate line or division thereof, together
with the number of separate wires thereon, and the counties through which the
line is carried, and in which the business is conducted.
116 INDUSTRIAL COMMISSION.
(c) The total number of telegraph or telephone stations on each separate line,
and the number, of instruments in use therein, together with the number of
stations maintained.
(d ) The average number of poles per mile.
() The number of poles and number of miles of wire used for each exchange or
line.
(/) The amount of gross receipts on the current business in the State during
tile preceding year.
A penalty of $1 ,000 is imposed upon any company failing or neglecting to make
such report or making a false report, and a continued willful violation or
refusal to make such report may be cause for forfeiture of its franchise.
A specific tax is imposed upon the "property and business " of such companies,
operating within the State, " equal to an amount to be computed in the following
manner:"
Upon the gross receipts of such companies derived from business within the
State, 3 per cent thereof. This tax is in lieu of all other taxes upon the properties
, and business of such companies, except real estate not used in the operation of
their business.
Under this law the amount of taxes charged against express companies for the
fiscal year ending June 30^ 1900, was $14,806.82, and against telegraph and tele-
phone companies $44,753.64.
THE ATKINSON LAW OF 1899.
The reform of or change in the existing methods for the taxation of the property
of railroads and other public corporations has been the subject of vigorous political
controversy in this State during the past few years, and the legislature in 1899
passed a new law providing for the assessment and levy of taxes upon the prop-
erty of railroad, express, telegraph, and telephone companies, making a radical
change in the methods of taxation of such property, taking it out of the specific-
tax system and bringing it under the general-property tax.
It provided for the appointment by the governor of a State board of assessors,
consisting of 3 members, who should have access to the books, papers, and accounts
of the departments of State, of counties, townships, and municipalities, with the
power to examine witnesses under oath as to corporate property, and the right to
examine books, papers, and accounts of any corporation owning property to be
assessed by said board. It imposed upon said board the duty to assess all property
in the State of railroad, express, telegraph, and telephone companies.
The board might inspect all the property belonging to such companies for the
purpose of arriving at the true cash value thereof for the purposes of assessment
and taxation; and for the same purpose might consider the reports and returns
of said companies, the value of their stock as listed on the stock exchanges of New
York and Boston, together with such other evidence as it might be able to obtain
bearing upon the true cash value of the property, and make an assessment roll
each year containing a list of all property by it assessed.
The board should then determine the aggregate taxes raised in the whole State
for State, county, and municipal purposes for the current year, exclusive of
special-improvement assessments; and for such purpose local officials were
required to make special returns as the board might require. The board should
determine the average rate of State, county, and municipal taxes throughout the
State by dividing the aggregate taxes for the current year by an aggregate sum
to be determined by adding to the total value of all property assessed under the
act the equalized value of all property assessed in the State.
The board should then tax the property of the several companies as assessed by
it at the average rate of taxation as determined by it, and the amounts so taxed
should be paid to the State treasurer in lieu of all taxes for State and local pur-
poses, not including special-improvement taxes; all such taxes to be applied, as
under the existing specific tax system, to paying the interest on the educational
funds of the State.
Every such company doing business in the State was required to file rigorous
detailed annual statements under path showing, among other things, the character,
location, and officers of the organization; the number, par value, and market value
of the shares of stock; detailed statements of real estate and value thereof; a full
inventory of personal property, including money and credits owned; total value
of real and personal estate outside of Michigan; in the case of railroad, telegraph
and telephone companies, the whole length of their lines and the length of their
lines without and within the State; statement of the entire gross receipts from
business wherever done and the gross receipts in Michigan; in the case of express
MICHIGAN CORPORATION TAXES. 117
companies, the length of lines of rail and water over which they did business, and
the length of said lines without and within the State; and such other facts and
information as the board might require.
It was specially provided that the franchises of the companies should be consid-
ered in determining the value of the property to be assessed, and in case of rail-
road companies owning and operating road partly within and partly without the
State, the board should assess such companies for the fair proportion which their
property in the State bore to their entire property. All such property was to be
assessed at its true cash value, which was denned to mean the usual selling price
at the place where the property might be at the time of assessment, at private sale
and not at forced or auction sale. In ascertaining the value, the earning capacity
of the property might be considered.
After the enactment of this law, known as the " Atkinson law," a test case was
brought before the supreme court of the State under the telegraph and telephone
tax law, which was somewhat similar to the Atkinson law, and that law was held
to be unconstitutional and void, although it had been acquiesced in by the cor-
porations and by the public from the time of its enactment in 1879, on the ground
that being a tax on property, based on assessment, it was not a specific tax, but
an ad valorem or property tax, and was not within the uniform rule of taxation
prescribed by the constitution of the State, for the reason that it was based upon
the average rate of taxation throughout the State, and not the local rate applicable
to other assessed property.
This decision in the case of Pingree v. Auditor-General, April 25, 1899 (120
Mich., 95), was regarded as invalidating the Atkinson law.
The law as to the taxation of telegraph and telephone companies having been
thus invalidated, the legislature enacted another law for the taxation of the prop-
erty and business of express, telegraph, and telephone companies, which has
already been referred to.
INSURANCE COMPANIES.
All insurance companies insuring lives within this State, and not deriving cor-
porate existence from its laws, are required, at the time of filing their annual
reports, to pay to the State treasurer a tax of 2 per cent on all premiums received
from within the State, which specific tax is in lieu of all other taxes in the State.
Plate-glass, accident, live-stock, steam-boiler, and fidelity insurance companies
are required to pay a specific tax of 2 per cent on the gross amotint of premiums
received each year.
All foreign insurance companies, fire, marine, life, and health, pay an annual
specific tax of 3 per cent upon the gross amount of all premiums received from
within the State.
There is no specific tax on insurance corporations organized in Michigan, the
property of such companies being taxed under the general law. The total amounts
of specific taxes derived from insurance companies during the fiscal year ending
June 30, 1898 and 1899, were as follows:
Character of business.
1898.
1899.
Fire insurance companies
$127, 353. 95
$134, 816. 32
Life insurance companies
86, 419. 44
95, 344. 98
5, 379. 29
9, 339. 15
Total specific tax on insurance companies
219, 152. 68
239, 500. 45
RIVER IMPROVEMENT COMPANIES.
Corporations organized for the improvement of river navigation are required
to pay to the treasurer of the State an annual tax at the rate of 1 per cent on the
whole amount of capital paid upon their capital stock, estimated each year upon
the last preceding reports of such corporations, which tax is in lieu of all other
taxes upon their property.
The amount of this tax in 1899 was $2,180.77.
MINING COMPANIES.
Formerly a specific tax for State purposes was imposed upon mining companies,
in addition to the regular tax for local purposes, the rate being, upon copper 75
cents, on iron 1 cent, and on coal one-half cent per ton of product; but this specific
118 INDUSTRIAL COMMISSION.
tax was repealed in 1891, since which time such companies have been subject to
the general law for all taxes.
It is quite generally believed that their property under the general law is very
inadequately taxed.
ROAD COMPANIES.
JPlank and gravel road companies are required to pay to the State treasurer an
annual tax of 2^ per cent of the gross earnings, on or before the first day of July
in each year, in lieu of all other tax upon their property.
Upon such companies taxes were charged in 1898 amounting to $921.63; in
1899,$1,188.51.
FRANCHISE FEES.
Every corporation organized under any general or special law of the State, and
every corporation permitted to transact business in the State, is required to pay
a franchise fee of one-half of 1 mill on each dollar of the authorized capital stock
of such corporation, and a proportionate fee upon any and each subsequent
increase thereof, which fee shall in no case be less than $5.
The amount of franchise fees received by the State under this law in the year
1897 was $32,715.43; in 1898, $22,140.75, and in 1899, $99,511.35.
LIQUOR TAX.
There is a law in Michigan providing for the taxation of the business of manu-
facturing or selling spirituous or intoxicating liquors, or malt, brewed, or vinous
liquors in the State, as follows: Upon the business of selling only brewed or malt
liquors, $500 per annum; upon the business of selling spirituous or intoxicating
liquors at wholesale or retail, $500 per annum; or at wholesale and retail, $800
per annum; upon the business of manufacturing brewed or malt liquors for sale,
$65 per annum; upon the business of manufacturing spirituous or intoxicating
liquors, $800 per annum.
These taxes are paid in the several counties of the State, and the receipts reported
annually to the auditor-general of the State by the county treasurers.
During the year closing December 1, 1896, the aggregate amount of such taxes
paid to the county treasurers was $1,839,960.92: year closing December 1, 1897,
$1,154,998.19; and December 1, 1898. $1,827,667.13.
The above liquor taxes are designated as license fees, and persons paying them
do not thereby secure any immunity from other methods of taxation.
INHERITANCE TAX.
The legislature in 1899 passed an act providing for the taxation of inheritances.
It imposes a tax of 5 per cent upon the clear market value of any property, real or
personal, of the value of $500 or over, when transferred by will or by intestate
laws from any person dying seized or possessed of the property while a resident
of the State; or when the decedent was a nonresident of the State at the time of
his death, if the property is within the State: or when the transfer is of property
made by a resident, or by a nonresident whose property is within the State, by
deed, grant, bargain, sale, or gift, made in contemplation of the death of the
grantor or intended to take effect after death, with the following exception:
When the property passes by such transfer to or for the use of a father,
mother, husband, wife, child, brother, sister, wife or widow of a son or the
husband of a daughter, or to or for the use of any lineal descendent of such
decedent or grantor born in lawful wedlock, such transfer of property is not tax-
able under this act, unless it is personal property of the value of $5,000 or more,
in which case it is taxable at 1 per cent of the clear market value of such property
in excess of $5,000. Provision is made for the collection of such taxes and their
payment into the State treasury and application to payment of interest on the
educational funds as other specific taxes are applied.
The constitutionality of this act has been sustained by the supreme court of the
State in a recent decision.
The law went into effect so recently that the amount of revenues that will be
obtained can not be stated.
ILLINOIS.
The system of taxation which obtains in Illinois is that of the general property
tax which has prevailed since the organization of the State.
The distinguishing feature is the local assessment of all real and personal prop-
erty at a "fair"' cash value in "the county, town, city, or district where it is
usually kept/'
The intent and purpose of the whole system of revenue laws seem to be to bring
all kinds of property, individual or corporate, upon the assessment rolls of the
various local-assessing districts at a uniform rate of taxation for State and local
revenues.
These laws provide for the taxation of corporate property, whether of private
or quasi-public corporations, in the same manner that the property of individuals
is assessed and taxed. That is, all corporations doing business in the State are
subject to assessment and taxation on all their tangible property at the place or
places where the property is located.
The capital stock of all companies and associations incorporated under the laws
of Illinois, except those for purely manufacturing purposes, the mining and sale
of coal, printing or publication of newspapers, or the improving or breeding of
stock, is, however, subject to assessment for its value, to be ascertained by the
State board of equalization, deducting therefrom the assessed value of the tangible
property assessed by local assessors.
The valuation of capital stock in excess of the valuation of tangible property of
corporations is, however, apportioned for taxation among the various local assess-
ment rolls and added to that of the tangible property valuations assessed locally,
so that all assessments, State and local, appear on the local assessment rolls, and
the rates of taxation authorized by the laws are extended upon such valuation.
The taxes extended against the property and capital stock and franchises of
corporations, being thus mingled with those upon the assessed valuation of other
property in that State, are not, as a rule, separately tabulated by the public officials
of the State, and it is therefore difficult to present in a satisfactory manner the
results of the system of taxation as to the property of corporations.
From this general statement it will appear that whatever defects of underval-
uation or omission of property from the assessment rolls exist will extend to all
classes of taxable property.
CONSTITUTIONAL RESTRICTIONS.
The constitution of the State places some limitations upon the power of the
legislature in matters of taxation, declaring that the general assembly shall pro-
vide such revenue as may be needful by levying a tax by valuation, so that every
person and corporation shall pay a tax in proportion to property valuation to be
ascertained by persons selected in such manner as the assembly shall direct, and
not otherwise; and authorizing various occupations, franchises, and privileges to
be taxed in addition.
Property, in the constitution and revenue laws of the State, is held by the courts
to include all values. While under these provisions of the constitution the reve-
nue laws of the State have apparently been framed to bring all species of property
under the general rule laid down, intended to apportion the tax upon the actual
appraised value of all property, the constitution as construed by the courts per-
mits some diversity of methods in the taxation of property and business, and gives
considerable flexibility to the general rule.
For instance, it has been held that it is within the power of the legislature to
exempt property from taxation or to commute the general rate for a fixed sum,
and the exceptional provision in the charter of the Illinois Central Railroad exempt-
ing its property from general taxation upon payment of a certain rate of taxation
fixed by law upon its gross earnings, has been sustained as being within the
restrictions of the constitution. (17 111. Rep., 291.)
119
120 INDUSTRIAL COMMISSION.
LOCAL ASSESSMENT SYSTEM.
The revenue laws of Illinois provide that the following classes of property,
except such as may be exempt by law, shall be assessed and taxed:
First. All real and personal property in the State.
Second. All moneys, credits, bonds or stocks, and other investments, all shares
of stock of incorporated companies, and all other personal property, including
property in transitu, owned or controlled by persons residing in the State.
Third. Shares or capital stock of banks or banking companies doing business in
the State.
Fourth. The capital stock of companies and associations incorporated under the
laws of the State shall be assessed and taxed, except the property for public and
charitable purposes which is exempt from taxation.
The real property subject to taxation, whether owned by individuals or corpora-
tions, is assessed locally where the property is situated, " valued at its fair cash
value, estimated at the price it would bring at a fair voluntary sale." In valuing
any property on which there is a coal or other mine, or stone or other quarry, the
same is valued at such a price as such property, including the mine or quarry,
would sell at a fair voluntary sale for cash.
A recent statute provides that all real property shall be listed and assessed for
the year 1899 and every fourth year thereafter, which assessment shall be known
as the general assessment, and, modified, equalized, or changed, as provided by
law, shall be the assessment upon which taxes shall be levied, and during the
quadrennial period for which the same is made.
PERSONAL PROPERTY.
Personal property subject to taxation is valued as follows:
First. All personal property, except as herein otherwise directed, shall be valued
at the fair cash value.
Second. Every credit for a certain sum shall be valued at a fair cash value.
Third. Annuities and royalties shall be valued at their present total value. %
Fourth. The capital stock of all companies of the State, except those required
to be assessed by local assessors, is valued by a State board of equalization, so as
to determine the fair cash value of such capital stock, including the franchises,
over arid above the assessed value of the tangible property of such companies,
in all cases where the tangible property or capital stock of any corporation is
assessed or taxed in the State. This clause does not apply to capital stock or
shares of banks, and there is a further provision that companies organized for
purely manufacturing purposes, or for the mining and sale of coal, or printing or
publishing of newspapers, or for the improving or breeding of stock, shall be
assessed by local assessors in like manner as the property of individuals is assessed.
LISTING.
The listing system is a distinguishing feature in Illinois taxation. Every person
of full age, being a resident of the State, is required to list all his moneys, credits,
bonds, or stocks, shares of stock of joint stock or other companies (when the
capital stock of such company is not assessed in this State), moneys loaned or
invested, annuities, franchises, royalties, and other personal property, and also
all moneys q,nd other personal property invested, loaned, or controlled as agent or
attorney, or on account of any other person or company, and the moneys deposited
subject to his order, check, or draft, or credits due from or owing by any person
or corporation.
Personal property is listed and assessed in the county, town, city, village, or
district where the owner resides, except such as is specially required to be listed
and assessed otherwise.
The capital stock and franchises of corporations or franchises held by individual
persons, except as otherwise provided, are listed where the place of business is
located.
The property of manufacturers and others in the hands of an agent is listed
where the business of such agent is carried on.
Personal property in transitu is listed and assessed where the owner resides.
The personal property of banks or bankers, brokers, stockjobbers, insurance
companies, hotels, livery stables, saloons, eating houses, merchants, manufactur-
ers, ferries, mining companies, and companies not especially provided for, is listed
and assessed where the business is carried on.
TAXATION IN ILLINOIS. 121
The personal property of gas and coke companies, except the pipes laid down,
is listed and assessed where the principal works are located. Gas mains and
pipes laid in roads, streets, or alleys are held to be personal property, and listed and
assessed in the town, district, city, or village where the same are laid.
The personal property of street railroad, plank road, gravel road, turnpike, or
bridge companies is listed and assessed in the county, town, district, village, or
city where the principal place of business is located. The track, road, or bridge
is held to be personal property and listed where located.
The horses, stages, and other personal property of stage companies or persons
operating stage lines are listed and assessed in the county, town, city, or district
where they are usually kept.
And so with the personal property of express or transportation companies.
A deed of real estate, held as seciirity for the payment of a sum of money, is
regarded as personal property and listed and assessed as credits.
Persons having personal property are required to make out, under oath, a sched-
ule of the numbers, amounts, quantity, and quality of all personal property in
their possession or under their control required to be listed for taxation.
It is the duty of the assessor to determine and fix the fair cash value of all items
of personal property, including all grain on hand. In assessing notes, bonds,
accounts, and moneys he is governed by the rules of uniformity that he adopts in
assessing other personal property.
If any person refuses to make such schedule under oath, the assessor lists his
property according to his best judgment and information, and adds to the value
of such list an amount equal to 50 per cent of such value, and severe penalties are
imposed for making false schedules or refusing or neglecting to make them upon
request.
FORM OF SCHEDULE.
The schedule, when completed by the assessor, contains, in separate columns,
the enumeration of such property and the value thereof.
First. The number of horses, all ages.
Second. The number of cattle, all ages.
Third. The number of mules and asses, all ages.
Fourth. The number of sheep of all ages.
Fifth. The number of hogs of all ages.
Sixth. Every steam engine, including boilers.
Seventh. Every fire or burglar proof safe.
Eighth. Every billiard or other similar table.
Ninth. Every carriage or wagon, of whatever kind.
Tenth. Every watch and clock.
Eleventh. Every sewing or knitting machine.
Twelfth. Every piano forte.
Thirteenth. Every melodeon and organ.
Fourteenth. Every franchise and description thereof.
Fifteenth. Every annuity and royalty and description thereof.
Sixteenth. Every patent right and description.
Seventeenth. Every steamboat, sailing vessel, wharf boat, barge, or other water
craft.
Eighteenth. The value of merchandise on hand.
Nineteenth. The value of material and manufactured articles on hand.
Twentieth. The value of manufacturer's tools, implements, and machinery
(other than boilers and engines, which shall be listed as such).
Twenty-first. The value of agricultural tools, implements, and machinery.
Twenty-second. The value of gold or silver plate and plated ware.
Twenty-third. The value of diamonds and jewelry.
Twenty-fourth. The amount of moneys of bank, banker, broker, or stock
jobber.
Twenty-fifth. The amount of credits of bank, banker, broker, or stock
jobber.
Twenty-sixth. The amount of moneys other than of bank, banker, broker, or
stock jobber.
Twenty-seventh. The amount of credits other than of bank, banker, broker, or
stock jobber.
Twenty-eighth. The amount and value of bonds or stocks.
Twenty-ninth. The amount and value of shares of capital stock of companies
and associations not incorporated by the laws of this State.
Thirtieth. The value of such property such person is required to list as pawn-
broker.
122 INDUSTRIAL COMMISSION.
Thirty-first. The value of property of companies and corporations other than
property hereinbefore enumerated.
Thirty-second. The value of bridge property.
Thirty-third. The value of property of saloons and eating houses.
Thirty-fourth. The value of household or office furniture and property.
Thirty-fifth. The value of investments in real estate and improvements thereon.
Thirty-sixth. The value of all property required to be listed.
DEBTS DEDUCTED FROM CREDITS.
In making up the amounts of credits which any person is required to list for
himself or any other person, company, or corporation he is entitled to deduct
from the gross amount of credits the amount of all bona fide debts, except in the
case of banks or tfrose exercising banking powers or privileges. Such deductions
are verified by the oath of the persons claiming the same.
MUTUAL BUILDING AND LOAN ASSOCIATION STOCK.
Stockholders of these associations, whether organized under the laws of this
State or any other State, list for taxation with the local assessors where they
reside the number of shares of stock owned and the value thereof, which are
assessed and taxed as other personal property.
In determining the value of such stock for the purpose of taxation the value
of the real estate owned by the association is first deducted from its assets, and
such real estate assessed as other real estate.
PROPERTY OF BANKS, BANKERS, BROKERS, AND STOCK JOBBERS.
These persons or corporations are required to make out and furnish the assessor
a sworn statement showing:
First. The amount of money on hand or in transit.
Second. The amount of funds in the hands of other banks or others subject to
draft.
Third. The amount of checks or other cash items not included in the foregoing.
Fourth. The amount of bills receivable, discounted, or purchased, and other
credits.
Fifth. The amount of stocks and bonds of every kind and shares of capital
stock of other companies held as an investment or in any way representing assets.
Sixth. All other property appertaining to said business other than real estate
(which real estate is listed and assessed as other real estate) .
Seventh. The amount of all deposits.
Eighth. The amount of all accounts payable other than current deposit accounts.
Ninth. The amount of bonds and other securities exempt by law from taxation.
The aggregate amount of the first, second, and third items in said statement
is listed as moneys. The amount of the sixth item is listed the same as other
personal property. The aggregate amount of the seventh and eighth items is
deducted from the aggregate amount of the fourth item, and the amount of the
remainder, if any, is listed as credits. The aggregate amount of the ninth item
is deducted from the aggregate amount of the fifth item, and the remainder listed
as bonds and stocks.
PAWNBROKERS.
All property held in pledge or security for money by pawnbrokers is listed and
taxes charged to the pawnbrokers on the fair cash value of such property.
CAPITAL STOCK OF CORPORATIONS AND FRANCHISES OF PERSONS.
Bridge, express, ferry, gravel road, gas, insurance, mining, plank road, stage,
steamboat, street railroad, transportation, turnpike, and other companies incor-
porated under the laws of this State other than banks, and the corporations
required to be assessed by local assessors, in addition to other property listed, are
required to make out and deliver to the assessor a sworn statement setting forth:
First. Name and location.
Second. Amount of capital stock authorized and number of shares.
Third. The amount of capital stock paid up.
Fourth. The market value, or if no market value, then the actual value of the
shares of stock.
ILLINOIS CORPORATION TAXES. 123
Fifth. The total amount of indebtedness, except that for current expenses.
Sixth. The assessed valuation of all tangible property.
Such statements are scheduled by the local assessor and returned to the county
clerk, by him forwarded to the State auditor, and by him laid before the State
board of equalization, which values and assesses such capital stock.
Every person owning or using a franchise granted by any law of the State is
required to list same as personal property, giving the total value thereof.
STATE AND NATIONAL BANKS.
The stockholders in every bank, State and National, located within the State,
are assessed and taxed on the value of their shares of stock therein in the place
where the bank is located and not elsewhere. Such shares are listed and assessed
subject to the restriction that taxation of such shares shall not be at a greater rate
than of any other moneyed capital in the hands of individual citizens of the State
of the place where such bank is located.
In each bank is kept a full and correct list of names and residences of its stock-
holders and number of shares held by each, which list is subject to inspection of
assessors. And it is the duty of the assessor to ascertain and report to the county
clerk a correct list of the names and residences of all stockholders, with the num-
ber and assessed value of all such shares held by each.
The county clerk to whom such returns are made enters the valuations of such
shares on the tax list, and the names of the respective owners of the same, and
computes and extends taxes thereon the same as against the valuation of other
property in the same locality.
For the purpose of collecting such taxes it is the duty of every such bank to
retain so much of every dividend belonging to the stockholders as may be neces-
sary to pay any taxes levied upon their shares, or until it is made to appear to such
bank that such taxes have been paid; and if said taxes shall not be paid the col-
lector of taxes where such bank is located is empowered to sell said shares to pay
the same like other personal property.
RAILROADS.
Every person, company, or corporation owning, operating, or constructing a
railroad in this State is required in the month of May in each year to make out
and file with the county clerks in the respective counties in which the railroad
may be located a statement or schedule, under oath, showing the property held
for right of way and the length of the main and all side and second tracks and
turnoiits in such county and in each city, town, or village through or into which
the railroad may run, describing each tract of land in manner provided by the
law and stating' the value of improvements located on the right of way.
Such right of way, including the superstructure of main, side, or second track
and turnouts and the stations and improvements of such company on such right of
way, is held to be real estate for the purposes of taxation, and denominated " rail-
road track," and is so listed and valued.
The value of such " railroad track " is listed and taxed in the several counties,
towns, villages, districts, and cities in the proportion that the length of main
track in such place bears to the whole length of the road in the State, except that
the value of the side or second track, and of all station houses, depots, machine
shops, or other buildings belonging to the road, is assessed in the county, town,
village, district, or city in which they are located.
The movable property belonging to a railroad company is held to be personal
property, and denominated, for the purpose of taxation, " rolling stock.'' Each
railroad is required to return a list or schedule each year, containing a correct
detailed inventory of all its rolling stock, which must distinctly set forth the
number of locomotives of all classes, passenger cars of all classes, sleeping and
dining cars, express cars, baggage cars, horse cars, and all other kinds of cars.
This " rolling stock " is listed and taxed in the several counties, towns, villages,
districts, and cities in the proportion that the length of the main track used or
operated in the county, town, village, district, or city bears to the whole length
of the line used or operated.
The tools and materials for repairs, and all other personal property of any rail-
road, except "rolling stock," is listed and assessed in the county, town, village,
district, or city where the same may be on the 1st day of May. All real estate,
including the stations and other buildings and structures thereon, other than that
denominated " railroad track, "is listed as lands or lots, as the case may be, where
the same is located.
124 INDUSTRIAL COMMISSION.
The county clerk returns to the assessor of the town or district a copy of the
schedule or list of the real estate other than " railroad track," and such real and
personal property is assessed by the assessor. Such property is treated in all
respects in regard to assessment and equalization the same as other similar prop-
erty belonging to individuals, except that it is treated as property belonging to
railroads, under the terms, "lands/' "lots," and personal property.
At the same time that the lists or schedules above referred to are returned to
the county clerks, each railroad is required to return to the auditor of public
accounts sworn statements or schedules as follows:
First. Of the property denominated "railroad track,'" giving the length of the
main and side or second tracks and turnouts, and showing the proportion in each
county, and the total in the State.
Second. The " rolling stock," giving the length of the main track in each county,
the total in this State, and the entire length of the road.
Third. Showing the number of ties in track per mile; the weight of iron or steel
per yard used in main or side tracks; what joints or chairs are used in track: the
ballasting of road, whether gravel or dirt; the number and quality of buildings
and other structures on "railroad track:" length of time iron in track has been
used, and the length of time road has been built.
Fourth. A statement or schedule showing
(1) The amount of capital authorized and the number of shares into which such
capital stock is divided.
(2) The amount of capital stock paid up.
(3) The market value, or if no market value, then the actual value of the shares
of stock.
(4) The total amount of indebtedness, except for current expenses for operating
the road.
Fifth. The total listed valuation of all its tangible property in this State.
A penalty for failure to make the list or schedule required is imposed.
The auditor lays the statements and schedules required to be returned to him
before the State board of equalization, which assesses the property in manner
above described.
The county clerk enters in books provided for the purpose, under proper head-
ings, the property of all railroads listed for taxation, and enters the valuations as
assessed, corrected, and equalized, and against such valuation extends all taxes
for which said property is liable, and delivers said book to the county collector,
who collects the taxes therein charged against railroad property and pays over
and accounts for the same as in other cases.
The State board of equalization assesses railroad property denominated as
" railroad track " and "rolling stock," and is given power of authority to examine
persons and papers. The amount so determined and assessed is certified by the
auditor to the county clerk of each county, who in like manner distributes the
values so certified by the auditor to the several towns, districts, villages, and cities
in the county entitled to a proportionate value of such "railroad track" and
" rolling stock." The clerk extends taxes against said values the same as against
other property in such towns, districts, villages, and cities.
The aggregate amount of capital stock of railroad companies assessed by said
board is distributed proportionately to the several counties in like manner as
the property denominated "railroad tracks" is distributed, the amount being cer-
tified by the auditor to the county clerks of the proper counties, and by them
extended and distributed as above set forth.
A tabular statement of the amount of taxes charged for collection against the
equalized assessed valuation of railroad property in the State for the year 1898,
taken from reports made to the auditor of public accounts by the county clerks of
the several counties, shows:
Total value of all property, real and personal, assessed by State
board of equalization $76,554,845.00
Total assessed by local assessors - . . 2, 069, 191. 00
Total assessment of railroad property 78, 624, 036. 00
Total amount of State tax 439,177.37
Total amount of county and all other local taxes - 3, 453, 978. 72
Total railroad tax for the year 3,893,156.09
Aggregate of tax per mile of railroad 392. 16
ILLINOIS CORPORATION TAXES. 125
Tiiis assessment of railroad property for 1899 was divided into classes as follows:
Full value.
Assessed
value (one-
fifth) .
Main track
$229, 528, 635
845, 905, 727
Second main track
20 347 850
4 069 570
Side or turn-out track
48 320 500
9 664 100
Buildings on right of way
15, 334, 930
3, 066, 986
Rolling stock
66 528 295
13 305 659
Total
380, 060, 210
76 012 042
Assessed bv local assessors
3 060 632
79, 072, 674
The total assessment per mile of road is $7,652.
To the foregoing taxes must be added those of the Illinois Central taxed under
special charter provisions.
ILLINOIS CENTRAL RAILROAD.
In consideration of the grants, privileges, and franchises conferred upon this
company, it is by its charter required on the first Monday of December and June
of each year to pay into the treasury of the State of Illinois 5 per cent of the
gross or total proceeds, receipts, or income derived from the 6 months then next
preceding, and for the purpose of ascertaining the proceeds an accurate account
must be kept by said company and a copy thereof shall be furnished to the gov-
ernor of the State; the truth of which account must be verified by the affidavits
of the treasurer and secretary for the purpose of verifying and ascertaining the
accuracy of such account, power being given for the examining of the books and
papers, and for the examining under oath of officers, employers, employees of
said company, or other persons.
The stock, property, and assets belonging to said company are required to be listed
by an officer of the company with the auditor of State ," and an annual tax for
State purposes is assessed by the auditor upon all the property and assests of
every kind belonging to said corporation. Whenever the taxes so levied for State
purposes exceed three-fourths of 1 per cent, such excess is deducted from the percent-
age of gross receipts or income required to be paid by said corporation to the State,
and it is exempted from all other taxation of every kind. The revenue arising from
said taxes and the said 5 per cent of the gross receipts is paid into the State treas-
ury in money and applied to the payment of the interest-paying State indebted-
ness; and it is further provided that in case the 5 percent on gross receipts and
the State taxes paid by this corporation do not amount to 7 per cent of the gross
receipts, said company shall pay into the treasury of the State the difference, so
as to make the whole amount paid equal at least to 7 per cent of its gross receipts.
Under this law this railroad company pays 7 per cent of its gross income, and
the amounts paid are as follows:
For six months ending
October 31, 1897 $326,577.69
April 30,1898 322,505.80
649,083.49
TELEGRAPH COMPANIES.
Each telegraph company is required to return to the auditor of public accounts
an annual schedule or statement showing:
1. The amount of capital stock authorized and the number of shares.
2. The amount of capital stock paid up.
3. The market value, or if no market value, then the actual value of the shares.
4. The total amount of all indebtedness, except current expenses for operating
the line.
5. The length of line operated in each county and the total in the State.
6. The total assessed valuation of all its tangible property in the State.
These statements are laid before the State board of equalization, which assesses
the capital stock of each stock company, deducting the assessed value of property
locally taxed. The tax charged on the capital stock is placed in the hands of
126 INDUSTRIAL COMMISSION.
county collectors, in a book provided for that purpose, the same as is required for
railroad property.
The office furniture and other personal property of such companies is listed and
assessed in the county, town, district, village, or city where the same is used or
kept.
The aggregate amount of capital stock of telephone companies assessed by said
board is distributed proportionately among the several counties entitled to a pro-
portionate value of such stock and the tax extended and distributed by the county
clerks to the several towns, etc.
INSURANCE COMPANIES.
Every agent of any insurance company is required to return to the proper
officer of the county, town, or municipality in which the agency is established
annually the amount of net receipts of such agency for the preceding year, which
is entered on the tax list, and is subject to the same rate of taxation that other
personal property is subject to at the place where located, said tax being in lieu
of all town and municipal taxes.
INHERITANCE TAX.
A tax is imposed upon legacies and inheritances passing to husband or wife or
lineal descendants, of $1 on every $100 of the clear market value of such property
received by each person, providing that any estate valued at a less sum than
$20,000 shall not be subject to any such taxes, and the tax is levied only upon the
excess of $20,000, received by each person. In case of the property passing to
nearly related collateral heirs, the tax is $2 on every $100 of the clear market
value of property received by such persons in excess of $2,000.
In all other cases the rate is as follows: On each and every $100 of the clear
market value of property on all estates of $10,000 and less, $3; on all estates of
over $10,000 and not exceeding $20,000, $4; on all estates over $20,000 and not
exceeding $50,000, $5, and on all estate's over $50,000, $6 no tax being imposed
on an estate valued at less than $500.
ASSESSMENT OF PROPERTY.
In counties not under township organization the county treasurer is ex-officio
county assessor, and with the advice and consent of the county board divides his
county into convenient districts and appoints a deputy assessor for each.
In counties under township organization of less than 125,000 inhabitants the
county treasurer is ex-officio ' supervisor of assessments in his county; he must
have a suitable office, in which the assessment books . returned to him are kept,
subject to inspection of all persons, and with the advice and consent of the county
board he appoints necessary deputies and clerks, whose compensation is fixed by the
county board and paid by the county. In such counties where a town assessor
is unable alone to perform all the duties of his office, he may, by the advice and
consent of the town board of auditors, appoint suitable persons to act as deputies.
The compensation of the township assessors is fixed by law as follows:
In townships of not less than 5,000 inhabitants, not less than $5 nor more than
$10 per day, provided that in townships containing more than 15,000 inhabitants
additional compensation can be allowed, the entire compensation not to exceed
$1,000. In townships of less than 5,000 inhabitants they receive not less than
$2.50 nor more than $5 per day.
In counties containing 125,000 or more inhabitants there is a board of assessors
consisting of 5 persons elected, each of whom receives a salary of $3,600 per annum,
which board has power to employ a chief clerk and such other clerical help as
may be necessary, such chief clerk receiving compensation fixed by the board not
exceeding $10 per day. This board has power to appoint as many suitable per-
sons as in its judgment is necessary to act as deputies, whose compensation shall
not exceed $5 per day.
The law provides that personal property shall be valued at its fair cash value,
less such deduction as is allowed by law to be made from credits, which value is
set down in one column to be headed " full value," and one-fifth part shall be set
down in another column headed " assessed value."
Real property is valued at its fair cash value, estimated at the price it would
bring at a voluntary sale in the due course of trade, and one-fifth of this is placed
in another column which is headed " assessed value."
TAXATION IN ILLINOIS. 127
The State board of equalization follows the same method of valuation and
division.
The one-fifth value of all property so ascertained and set down is the assessed
value for all purposes of taxation, limitation of taxation, and limitation of ind
edness prescribed in the constitution or any statute.
This method of valuation and division is presumably to curb borrowing propen-
sities of municipalities, and we are informed that it was a political suggestion for
the purpose of obtaining popular support by allaying suspicion of increased taxa-
tion.
The county clerks in the several counties are required to estimate and deter-
mine the rate per cent upon the proper valuation of the property in the respective
towns, townships, districts, cities, and villages in their counties that will produce
not less than the net amount of the several sums required.
INEQUALITIES AND INIQUITIES IN ASSESSMENT.
If laws would in and of themselves secure full and uniform assessment of
property, and equality and justice in taxation under the general property tax, it
will be seen that these results should obtain in Illinois. The fact is, however,
that no State in the Union exhibits greater inequality, discrimination, and injus-
tice in taxation than Illinois under this system.
The laws are not enforced, each assessor being regarded as " a law unto him-
self." There appears to be the greatest discrimination in the assessment of both
individual and corporate property, while enormous masses of both classes escape
taxation entirely. If there is any uniformity in the assessment of property it is
that of inequality, discrimination, and concealment. Charges not only of laxity
and unfairness, but of venality, against assessors, especially in Chicago and Cook
County, are so general and widespread as to make their truthfulness a matter of
general assumption.
The practice in assessment of property discloses not only competitive under-
valuation, escape, and disregard of all laws and standards by assessors generally
throughout the State, but a continual strife for advantage between those of Chi-
cago and Cook County, where a large proportion of the wealth of the State is cen-
tered, and those in the " other counties of the State," with the result up to date
greatly in favor of the former.
The evils and absurdities to which this system of gross undervaluation and
inequality inevitably leads, are especially well illustrated in Chicago, where it is
said assessed valuations often fall as low as one hundredth of the true value and
bear no apparent relation to any fixed basis.
It is shown that equalized assessed valuation of real estate in Cook County in
1873 was ,$228,399,663, and in 1893, $210,048,322, a decrease of 8.91 per cent: that of
personal property in 1873 was $55,076,340, and in 1893, $39,879,887, a decrease of 27.59.
During the period from 1870 to 1890, the population of Cook County increased
240.58 per cent,- and it is fair to assume that the increase in wealth more than kept
pace with the growth of population.
During the same period the decrease in the assessed valuation of real estate out-
side of Cook County was 39.78 per cent, and that of personalty 54.59 per cent,
although the increase in population was but 24.86 per cent.
It is stated that fifty Chicago concerns, each rated from one to several millions,
were assessed in 1897 at a total of less than $100,000.
Ex-Senator Charles B. Farwell is quoted as saying with respect to the personal-
property assessment of a well-known north-side man, who, from his age and experi-
ence, had to a great extent assumed charge and direction of municipal and public
morals, that he had personally signed and verified a return of $2,600 of personalty,
while his financial agent had invested for him more than $600,000 in mortgages
alone; and of another neighbor that he was connected with a business enterprise
paying at the rate of 6 per cent on an investment of $5,000,000, yet his property
appeared upon the rolls at a valuation of $18,000. " It is such cases as this," Mr.
Farwell said, " that shows the utter futility of the present system."
An ex-corporation attorney of Chicago stated in a public address: " Equal tax-
ation is now impossible. The evil of venality has become a rank scandal in our
municipal governments. The power to assess at one-tenth or one-hundredth of
the cash value is used by assessors to 'touch' property owners." A member of
' the firm of Siegel, Cooper & Co. is quoted as saying " There is one day in the year
when we respectable business men all commit perjury that is the day when we
make returns to the assessor respecting the amount of our property."
From statements of 27 Chicago State banks in 1893 it is shown that the net
taxable credits amounted to $1,058,105.25, while the net credits listed amounted
128 INDUSTRIAL COMMISSION.
to $10,000, a difference of $1,048,105.25. While the taxable money of these banks
was $18,991,771.67, the money listed by all banks of Chicago, exclusive of National
banks, was only $43,925.
Illustrations of similar discrepancies might be shown with reference to the
assessment of other moneys and credits.
It is said that much greater discriminations in the assessment of personalty,
especially that of an intangible character, are made in Cook County than through-
out the rest of the State.
A commission of prominent real estate experts appointed by Mayor Swift,
made a report published in the Chicago Economist, April 25, 1896, relative to all
the real estate in the business district bounded on the east by the lake, on the
north and west by the Chicago River, and on the south by Twelfth street. Exclu-
sive of railroad property and land exempt from taxation, the value of the land
was found to be $337,342,880 and the assessment 7.33 per cent of this. In the
^uburbs the rate is found to be somewhat higher, while in the rest of the State
the rate of assessment is from 25 per cent to 35 per cent of the true value.
In the winter of 1897 a special session of the Illinois general assembly was held
for the purpose of passing a new revenue law, which was intended to remedy
many of the defects in assessment complained of in Chicago, ^ut the new law
does not seem to have reached the root of the evil, as the total assessed valuation
of Cook County was less by $17,623,946 in 1898 than in 1897.
The defects and inconsistencies in the assessment of capital stock and tangible
property of corporations are shown by reports to be equally glaring.
For instance, Chicago street railways are shown to have been assessed in 1896
at 4.70 per cent of the par value of their outstanding obligations and at about
3.23 per cent of their market value.
A voluminous report on taxation was issued by the Imreau of labor statistics of
Illinois in 1894 and 1896, containing a great mass of statistical information upon the
subject which forms the basis of many radical and questionable conclusions, and is
filled with somewhat extravagant and emotional disquisitions of the author upon
nearly every conceivable economic subject. While the contents of this report
must be taken with some degree of allowance, and would hardly rank as authority
in taxation literature, in it is shown by statistics laboriously gathered from vari-
ous sources the utter failure of the Illinois system to attain anything like equal
and just taxation of either individual or corporate property. The report is
declared by the author to furnish " much evidence of criminal discrimination in
the operation of the present revenue system, resulting in some cases in practical
confiscation and in others in virtual exemption from the burdens of government,"
and he adds that " whatever may be the variation in degree the iniquities of the
taxation system of this State are common to all other States and countries of the
civilized world."
Among the principal remedies proposed in the report is that State and local
taxation be completely divorced by confining the source of State revenues to fran-
chises.
ASSESSMENT OF THE CAPITAL STOCK OF CORPORATIONS.
The following is a statement of the equalized value of capital stock over and
above the equalized value of tangible property of corporations other than rail-
way companies for 1899:
Amount of capital stock paid up as reported by companies $202, 470, 405
Full value of capital stock as fixed by State board of equalization _ _ 132, 575, 625
Assessed value of capital stock as fixed by State board of equaliza-
tion (one-fifth) 26, 515, 125
Equalized value of tangible property assessed by local assessors 24, 166, 922
Net assessment of capital stock, being excess of equalized value
of capital stock over tangible property, assessed by local
assessors 2, 348, 203
In 1898 the value of tangible property assessed was only $12,260,575, while the
capital stock in excess of that sum was only $2,433,425.
From this statement it seems clear that the greater portion of the vast amount
of corporate property, tangible and intangible, does not appear on the rolls at all.
The amount of paid-up capital stock of corporations, other than railroad com-
panies, is exceedingly small for such a wealthy industrial State as Illinois com-
pared with that obtained through methods of valuation adopted in other States,
while the full value of such capital stock as fixed by the State board of equaliza-
tion is only about two-thirds of the capital stock value as reported by the compa-
TAXATION IN ILLINOIS. 129
nies. The assessed valuation is one-fifth of the full value as fixed by the board,
while more than nine-tenths of the assessed valuation represents real estate and
tangible property, and less than one-tenth represents the equalized valuation of
all capital stock in excess of the tangible property assessed by local assessors
who see it.
This system would therefore appear to be entirely inadequate for the just and
equal taxation of corporate property, and fails to impose upon such property a
due proportion of the biirdens of government.
The tangible property of corporations is practically the sole basis of their taxa-
tion and this is taxed under the same methods applied to other property, which,
even though all such property were reached and assessed at its cash value, can
hardly be regarded as an adequate measurement of the ability of corporations to
pay.
PERSONAL PROPERTY ASSESSED IN 1899.
Statement of property assessed for the year 1899 in the several counties as returned
to the auditor's office.
Horses.. .. $10,127,085
Cattle 11,350,995
Mules and asses . 957, 769
Sheep 453,729
Hogs 2,285,546
Steam engines and boilers _ _ 1, 345, 255
Fire and burglar proof safes _ . _ 181, 199
Billiard, etc. , tables 40, 546
Carriages and wagons _ 2,791,644
Watches and clocks 594, 872
Sewing and knitting machines. _ _ 583, 966
Pianos 1, 206, 235
Melodeons and organs _ 396, 306
Franchises - 51 , 569
Annuities and royalties 9, 994
Patent rights 45,394
Steamboats, sailing vessels, etc 248, 332
Merchandise 35,494,478
Material and manufactured articles 4, 248, 483
Manufacturers' tools and implements and machinery 3, 895, 314
Agricultural tools and implements and machinery _ . 2, 644, 515
Gold and silver plate and plated ware __ 127, 860
Diamonds and jewelry 367, 418
Moneys of bankers, brokers, etc 3,758,946
Credits of banks, bankers, brokers, etc 3, 474, 848
Moneys of other than bankers, etc _ 17, 742, 210
Credits of other than bankers, etc 26, 541, 451
Bonds and stocks 4, 469, 734
Shares of capital stock of companies not of this State 1 , 607, 690
Pawnbrokers' property
Property of corporations not enumerated _ 3, 625, 081
Bridge property _ 275, 374
Property of saloons and eating houses - - ,
Household and office furniture 11, 533, 445
Investments in real estate and improvements 427, 174
Grain of all kinds . 6,894,768
Shares of stock of State and national banks 10, 330, 797
All other property ... 13,133,831
Total value of personal property 183,526,987
We make this statement to illustrate the detailed classification provided for the
purpose of reaching personal property and bringing it upon the rolls.
Aggregate equalized assessed value of lands in 1899 in the several
?Sunties__ $314,509,322
Equalized assessed value of town and city lots 373, 742, 282
' Assessed value of personal property - 183 , 526, 987
Total property valuation, 1899... 871,778,591
9
130 INDUSTKIAL COMMISSION.
Equalized assessments.
Character of property.
1397.
1898.
Personal property
$117, 402, 907
308,520,973
291, 138, 354
78, 582, 786
4,050,833
SIM, 902, 459
300,211,800
284, 372, 381
76, 554, 845
2. 433, 425
Town and city lots
Raiiroads
Capital stock of corporations
Total
799, 695, 853
778, 474, 910
The total assessed valuation of property in 1886 was $793,563,498.
It is a matter of common knowledge that the actual value of even real estate
and tangible property in such a growing State as Illinois has greatly increased since
1886, while intangible property has been enormously augmented during that period.
Manifestly, this general property-tax system is in effect a tax upon real estate
and tangible property, while intangible forms of property, in which a large portion
of the wealth of the State undoubtedly consists, apparently largely escape direct
taxation under the methods employed. Where large masses oftproperty escape,
in consequence other large classes of property must be excessively taxed.
The assessed valuation of tangible property and capital stock of corporations
of the State except railroads is only about one-third of the assessed valuation of
all the personal property of the State, which clearly indicates that such property
is greatly undervalued as compared with ths assessed valuation of other personal
property. It must be remembered that this is a nourishing and industrial State
full of large and growing cities, and, like other States of its class, a large portion
of the business is conducted by corporations.
The whole system, so far as shown by the reports, clearly illustrates the grave
inconsistencies, inequalities, and injustice which almost inevitably result from
the ineffectual attempt to raise the income of the State by a tax assessed at a uni-
form rate on all the manifold species of property existing to-day; a system pro-
ductive of great injustice unless substantially all property, personal and real,
tangible and intangible, is brought upon the tax rolls.
The practical results of such a system as this are characterized by the Supreme
Court of the United States in the case of the Pacific Express Company v. Seibert,
142 U. S., 351, as follows: "This court has repeatedly laid down the doctrine
that diversity of taxation, both in reference to the amount imposed and the vari-
ous species of property selected, either for bearing its burdens or from being
exempt from them, is not inconsistent with a perfect uniformity and equality of
taxation in the proper sense of these terms; and that a system that imposes the
same tax upon every species of property, irrespective of its nature or condition,
or class, will be destructive of the principle of uniformity and equality of taxa-
tion, and of a just adaptation of property to its burdens."
Some interesting observations may be drawn from the foregoing schedule of
personal property assessed. It is largely made up of assessments of different
of banks, bankers, brokers, etc., is not equal to that of either " horses," " cattle,"
or "household goods " of the State. It may be conclusively assumed that all of
these divisions of property are greatly undervalued in assessment, but it is alto-
gether probable that horses, cattle, and hogs and similar forms of tangible
property are more fully valued and that a much greater portion of such property
is assessed.
Many other inconsistencies are apparent in this schedule. The value of shares
of stock in State and national banks is about equal to the value of horses, while
the value of all moneys, credits, bonds, and stocks is ridiculously low, even allow-
ing for the method provided by statute of assessing at one-fifth actual valuation.
The total assessed value of personal property for 1899 was $183,526,987, about
one-third greater than that of 1896 and 1897, while the valuation of real estate in
1899 was $688,251,604, more than three and two-thirds times that of personal prop-
erty. In Cook County, including the city of Chicago, the following values
appear:
Total assessed value of
Personal property, 1899 $73,611,662
Lands.. 17,164,907
Town and city lots . - - 285,717,467
Total property, 1899 376,494,036
TAXATION IN ILLINOIS. 131
Among the divisions in the schedule of assessed personal property for Cook
County appear the following:
Franchi ses $3, 127
Annuities and royalties 000
Merchandise 24, 234, 073
Moneys of bankers, brokers, etc 652, 426
Credits of bankers, brokers, etc . 1, 919, 433
Moneys of others than bankers, brokers, etc 4, 203, 385
Credits of others than bankers, brokers, etc ^ 7, 875, 889
Bonds and stocks 2, 685, 699
Household and office furniture 4, 387, 139
Shares of stock in State and National banks 5, 719, 183
From these statements it is difficult to escape the conclusion that personalty is
greatly undervalued or escapes taxation as compared with real property, and that
corporate property is even more glaringly undervalued or omitted than personal
property in general.
From the statement of Cook County, it appears that the personal property is
only about one-fifth of the whole property and about one-fourth of the value of
the real estate of that county.
It is shown that the general property tax system of the State as applied to all
species of property is in effect a tax upon real estate and a portion of the tangible
personal property, while the intangible forms of property, in which a large part,
sometimes estimated at one-half, of the wealth consists, successfully evade taxa-
tion of a direct character.
The aggregate amount of taxes charged on the tax books in the year 1897 was:
State taxes.. $5,316,764.08
Local taxes 41,820,326.87
Total.... 47,137,090.95
The average rate of taxation in the several counties, compiled by the State
auditor from the returns received from the various county clerks, was, for 1896,
$4.20 on the $100, and in 1897, $4.41.
Dr. Ely refers to an essay of Dr. Simon N. Patten on the finances of the States
and cities, published in Jena, Germany, in 1878, which deals chiefly with taxa-
tion in Illinois, and which he says reveals a state of things in that Commonwealth
precisely like that described in other States. The assessed valuation of Illinois in
1875 was as follows:
Cattle $80, 000, 000
Railroads 60,000,000
Real estate 780,000,000
All other property 165, 000, 000
Total 1,085,000,000
Real estate and railroads paid 78 per cent of the taxes, cattle 7 per cent, leaving
only 15 per cent for all other property, which is, of course, absurd.
Attention is called to the fact that assessors and collectors of taxes are elected
for 1 year only, by a system of rotation, and that they are devoid of that experi-
ence which is an indispensable condition of a faithful performance of duty. The
fact that one has enjoyed office for a year is regarded as a good reason why some
one else should have a chance. Voters good-naturedly consider a special misfor-
tune which has befallen one of their number, or any special need, as a sufficient
reason why he should be elected, and from motives of pity weak and inefficient
men are elected. This appears, as far as the author's observation has extended,
to be common everywhere in the United States.
Dr. Patten draws the justifiable conclusion that the failure of the system of tax-
ation in Illinois is accounted for by the nature of the system, itself, and that there
must be a change to produce any considerable improvement. The practice of
confining one's self to the one direct tax on the assessed value of property must,
he thinks, be abandoned.
The statements of valuation and taxation we have given from the reports of
public officials indicate that there is little or no improvement in the taxing system
in Illinois since the examination by Dr. Patten.
132 INDUSTRIAL COMMISSION.
ILLINOIS TAX COMMISSION.
In 1885 a tax commission was appointed by Governor Oglesby, which made a
very careful examination of the revenue laws of Illinois, and in 1886 filed its
report recommending some radical changes. The report was written by Milton
Hay, an eminent lawyer of that State, and is entitled to high rank in the literature
of the taxation of American States.
S&ne of the defects set forth and changes recommended are of especial interest
to all interested in the subject of State taxation:
" First. The gross inequality in the assessments of different pieces of property
of the same kind, owned by different individuals in the same community, and of
different kinds of property regardless of ownership; as, for instance, real estate
and personalty, a large proportion of the personalty escaping taxation."
It is alleged that realty of different individuals is assessed from two-thirds or
even the whole of its actual value down to one twenty -fifth of its value, the
owner of one piece paying 5 or 6 per cent of the whole capital invested, while
the owner of another pays one-fourth or one-fifth of 1 per cent, distinctions too
invidious to be meekly borne.
Equally glaring and unjust discriminations are shown as between personal prop-
erty and realty in favor of the former, amounting in some species of that class to
almost total escape from taxation.
The system of equalization dealing with the aggregate assessment of different
classes of property, raising or lowering each class in equal proportion by a fixed
and arbitrary percentage, further discriminates against the higher assessments
and in favor of the lower.
The liability to inequitable assessments is further increased by a system of
undervalution or low-rate assessments. Inequalities that would be so suggestive
as to be almost self -corrective as between full values escape change when frac-
tional value obtains, and the low rating virtually acts as an estoppel of complaint
on the part of the property owner, though rated higher than his neighbor.
It is said that no remedy for this improper valuation seems possible unless some
method be devised for divorcing the collection of State and local revenues.
''Without such a divorcement, no provisions of the law, however stringent,
and no penalties which would be possible or desirable as sanctions of the law,
would produce the desired result."
Hence the revenue system constructed and proposed by the commission is based
upon the separation of State and local taxes.
Another defect pointed out is in the methods employed under the present system
in the assessment of corporate and intangible forms of property.
It is suggested in substance that there are now vast aggregations of capital of
such a nature that their value can hardly be measured by methods applicable to
other kinds of property. That corporate property can not be estimated in like
manner as farm acres, cattle, or a stock of goods. That the separation in such
cases of tangible property from intangible, and the assessment in parts by different
assessors or boards, can not be rationally or successfully made. ' ' The two elements
of value belong together. If torn apart the township assessor deals with a dead
body and the State board with a departed spirit."
Railroad, telegraph, telephone, express, and insurance companies should be
treated for taxation as units, and estimated or valued by some method consistent
with their nature and the extent and complexity of their affairs.
Another defect in the existing system is the want of a competent body having
a general oversight of the entire business of assessment and the collection of
$30,000,000 of annual revenue of the State.
The commission recommends the abolition of the office of township assessor and
the substitution of county assessors, elected for 4 years and to be ineligible for
reelection, with sufficient' pay to command the services of competent and reliable
men, who shall be provided with offices at county seats and accessible there
throughout the year, and who, with deputies throughout the county appointed by
them, shall assess the property of their respective counties.
Also, that better instrumentalities for ascertaining the value of property be pro-
vided, and to that end that each comity be divided into small assessment districts,
and detailed maps, plats, and assessments be kept open for inspection by taxpayers,
so that they can see their own and other assessments.
That adequate means be provided for the correction of any injustice or inequal-
ity that may arise in assessment, and that a competent board of review be
provided in each county.
The commission adheres to the existing system of assessment of corporations
local in character, such as manufacturing, agricultural, or publishing companies,
TAXATION IN ILLINOIS. 133
by local assessors, on the same basis and in the same manner that individuals are
taxed, and also recommends that the capital-stock tax be limited to corporations
of a quasi-public character, and that of such corporations those local in char-
acter, such as street railways, gas companies, etc., be assessed by the county
assessors instead of by a State board.
In regard to the assessment of personal property of individuals, the commission-
ers recommend that schedules b0 required and a substantial penalty be imposed
for false schedules, but that the requirement of the oath to such schedules be
abandoned. They believe such requirement to be " debauching to the conscience
and subversive of the public morals."
To railroad property, they say, the ordinary rules of valuation have little appli-
cation, the true criterion of value and the best basis of taxation being found in
their receipts.
After a careful study of railroad statistics and much attention to the subject
of the average proportion between gross receipts, expenditures, and the capitalized
value of railroads, they deduce the conclusion that a rate of taxation equal to the
average rate throughout the State of Illinois, imposed upon five times the amount
of the gross receipts of a railroad in that State or upon the Illinois portion of the
gross receipts of an interstate road, would be just and more flexible than an arbi-
trary percentage, provided that such rate of taxation should not exceed 5 per cent
of such gross receipts.
It is proposed to determine the average rate of taxation in the State by adding
together all the taxes levied in the State and dividing the amount of the tax by
the total assessed value of all the property in the State.
It is suggested that this rule would be fair and just if all the property in the
State were assessed at its full cash value, as the law requires, but that if in any
portion the assessment should fall below the full value (a result quite possible in
Illinois) the average rate would be increased in proportion, and railroads would be
held to the same rate on full valuation that other property pays on partial valuation;
to guard against which injustice the limitation of 5 per cent of gross receipts is
proposed.
In reviewing this proposed method for the taxation of railroads, the suggestion
occurs that in all cases of divorcement of incompatible or irreconcilable elements
or systems it is always advisable to make the separation complete and avoid any
lingering conflict or misery.
The proposition for the taxation of other quasi-public corporations is as follows:
Telegraph, 82 on each instrument.
Express, 24 per cent of the gross receipts.
Public warehousemen, one third of 1 cent for every bushel of capacity of each
elevator or granary.
The commissioners also recommend certain limitations upon the various classes
of taxes for the protection of " taxpayers from the rapacity of unprincipled tax
consumers."
They finally recommend the appointment by the governor of a State board of
tax commissioners for general supervision of the taxation system of the State.
It is apparent that this commission was more or less influenced and felt some-
what handicapped by the desirability of retaining, so far as practicable, the
machinery of existing laws for taxation so as to avoid friction in bringing about
changes, and to propose only such changes as would not involve changes in the
organic law of the State.
Unfortunately for the State, the legislature as yet has not adopted the changes
recommended by the commission, and any substantial change in the existing sys-
tem appears to be difficult to bring about because of political and sectional consid-
erations, although public opinion seems to be favorably affected by the work and
agitation of such men as composed this commission.
WISCONSIN.
The primary method which obtains in this State for raising the greater portion
of public revenue is the general property tax upon assessed valuations; the greater
portion of the property in the State, real and personal, including general corporate
property, being subject to such direct tax through local assessment.
Few important changes or modifications in the general property-tax system
have been made. There has been no systematic effort to make the system "worse"
by " improving it," as Professor Ely might say.
The other distinctive method of taxation is a system of license fees, so called,
in lieu of taxes by the valuation method. The interests coming wilJhin this method
are chiefly corporations of the class commonly designated as public service or
quasi-public corporations, and include railroad, street-railway, telegraph, tele-
phone, electric light and power, sleeping-car, boom, trust, and guaranty com-
panies, and life, fire, and navigation insurance corporations, which will be con-
sidered separately.
Certain constitutional restrictions are imposed upon the legislature with refer-
ence to the subject of taxation, the principal ones being that it is prohibited from
enacting any but general laws for the assessment or collection of taxes, and that
such laws shall be uniform in their operation throughout the State; and that
"the rule of taxation shall be uniform, and taxes shall be levied upon such
property as the legislature shall prescribe."
Under these constitutional limitations it has been held that the legislature can
not authorize the valuation for taxation of one class of property on a different
basis or ratio to true valuation from that applied to other property in the same
taxing district. But it has also been held that the constitutional requirement of
uniformity is not violated by the taxation of a particular class or kind of property
by a different method from that employed in taxing other property, provided the
law is uniform in its operation throughout the State.
Thus the existing method for the taxation of the property and franchises of
railroads and other corporations, by a fixed percentage of gross earnings paid
wholly to the State in lieu of all other taxes, is constitutional.
GENERAL PROPERTY TAX.
Under the general property-tax system, State taxes, except those raised by
other methods, hereinafter set forth* are levied by legislative enactments, and
apportioned to the several counties according to the value of taxable property
therein, as fixed by the State board of equalization; and these taxes, together with
taxes for county, township, city, and village purposes, are based upon assessments
on real and personal property, in the several local taxing districts, by local assessors
who are elected except when otherwise provided in special city or village char-
ters, the township or ward constituting, as a rule, a single assessment district. In
the general property-tax system, here as elsewhere, the assessment is the founda-
tion for the entire structure.
PROPERTY LIABLE TO ASSESSMENT.
All property in the State not specially exempt by statute is liable to assess-
ment for taxation, real and personal property being for that purpose specifically
and comprehensively defined, the latter including all debts due or to become due
from solvent debtors, however evidenced or secured, and "all goods, wares, mer-
chandise, chattels, or effects of any nature or description having any real or
marketable value."
There are the usual exemptions of public property, the taxation of which would
serve no useful purpose; exemptions in aid of religious, benevolent, industrial,
and other institutions deemed to be beneficial to society; special exemptions
designed to promote certain industries, which include property devoted to the
manufacture of beet sugar for a limited period, property invested in the manu-
facture of oxide of zinc or metallic zinc from native ores, for limited periods,
134
TAXATION IN WISCONSIN. 135
investments in mutual savings funds or building and loan associations, etc.;
exemptions of personal effects regarded as necessities, and exemptions of property
taxed by some method other than directly by property valuation.
ASSESSMENT.
In general, real and personal property are taxed separately in the usual manner.
For the purposes of local taxation a corporation is deemed to be a resident in
the district in which it has its office or place of business.
Shares of stock in banking associations or corporations organized under State
or Federal laws are assessed to the owners at local rates m the district where
the bank is located.
To enable the assessors to assess bank stock to the proper persons, bank officers
are required to furnish them with a statement showing name and residence of
each shareholder and the amount of stock held by him.
As a rule, assessments of real and personal property are made by estimate of the
local assessors, some general statutory provisions being made for the assistance
of the assessors.
It is provided that " the articles of personal property shall as far as practicable be
valued by the assessor upon actual view at their true cash value." The assessor
is not confined to such property as he may discover, but if he has reason to
believe that any taxable has other property liable to taxation, he may increase
the assessment as in his judgment appears to be just and equitable. He has
authority to examine the property owner under oath as to the items and value of
all his personal property liable to taxation, other than money, notes, bonds,
mortgages, and other securities.
In case of his refusal to testify, or in case the assessor should desire further evi-
dence, sworn evidence from others having knowledge of the matter may be taken.
To enable the assessor to determine the amount of money, notes, mortgages, or
other credits or securities for which any person should be assessed, and the amount
of indebtedness to be deducted therefrom, he is required to make a statement
under oath of the average amount of such money, etc., and the average amount
of indebtedness which he may be entitled to deduct for each month of the year
ending May 1, and the net average thus ascertained is assessable for taxation.
No penalties are provided for failure or refusal to perform these duties except
that the assessor is liable to a fine if he accepts the statements as to moneys,
credits, etc. , without its being signed and sworn to, and a property owner who inten-
tionally makes a false statement is liable to a forfeit of $10 for each $100 worth of
taxable property thereby withheld from the knowledge of the assessor.
Valuation of real and personal property, 1898.
Class of property.
Valuation
by local
assessors.
Valuation by
State board.
Total assessed valuation of real estate
$519, 990, 522
$482, 283, 031
Total assessed valuation of personal property
108, 513, 489
117, 716, 969
Total
628 504 Oil
600 000 000
Total town, city, village, and county taxes levied for 1897 $14,818,899.23
State taxes apportioned to counties 2, 241, 427. 55
Total 17,060,326.78
Abstract of assessment rolls, 1898.
Personal property:
Tangible
Horses. :.. $10,575,343
Neat cattle 11, 422, 994
Mules and asses 45, 600
Sheep and lambs . 756,985
Swine 1,406,377
Grain, etc 283,168
Leaf tobacco 68, 197
Private libraries 3 1 , 029
Watches 371,721
Wagons, etc 3, 117, 814
Furniture 166,784
136
INDUSTRIAL COMMISSION.
Personal property Continued.
Tangible Continued .
Pianos, organs, etc _ $1, 974, 169
Saw logs 2,873,944
Timber 419,957
Railroad ties 5, 455
Telegraph poles 15, 085
* Steamboats 531,076
Merchants' and manufacturers' stock 32, 098, 269
Other tangible property ... 10, 562, 221
Total tangible 76,726,188
Intangible
Money.... 7,163,444
Bonds and mortgages 13, 514, 227
Bank stock 7,588,890
Other intangible personal property 3, 520, 740
Total intangible .... 31,787,301
Total personal property 108, 513, 489
Real estate:
City and village lots 261,397,460
Lands 258,593,062
Total real estate 519,990,522
Grand total * 628,504,011
Statement of assessed valuations in Wisconsin from 1854 to 1898.
Year.
Assessed val-
uation of all real
estate.
Assessed val-
uation of per-
sonal property.
Aggregate as-
sessed valuation
of all property.
Equalized
valuation of all
property.
1854
1855
1856
1857
1858
1859
1860
1861
1862
1863
1864
1865
1866
1867
1870
1871
1872
1873
1874
1875
1876
1877
1878
1879
1880
1881
1882
1883
1884
1885
1886
1887
1888
1889
1890
1891
1892
1893
1894
1895
1897
$19, 821, 969. 00
34,668,597.00
48, 692, 747. 00
63,661,609.00
138, 382, 105. 94
138. 929, 806. 96
142, 763, 784. 48
127, 647, 554. 74
128,527,156.19
121, 533, 782. 70
121,101,304.42
121. 455, 306. 97
125, 363, 097. 18
160, 847, 636. 76
146,091,701.00
243, 494, 454. 00
247, 546, 705. 00
252, 745, 793. 00
256,796,026.00
260, 006, 309. 00
264, 690, 375. 00
259, 596, 729. 00
273, 249, 295. 00
274,417,873.00
359, 263, 374. 32
318,175,245.00
335, 932, 572. 00
337, 124, 810. 00
346,252,895.00
364,319,935.00
378, 853, 894. 00
378, 948, 279. 00
399,831,764.00
420, 508, 397. 00
435,202,277.00
443, 948, 601. 00
467,527,974.00
483, 884, 391. 00
498, 639, 922. 00
606, 444, 430. 00
516, 224, 315. 00
518, 525, 693. 48
519, 669, 155. 00
519, 990, 522. 00
$2, 796, 741. 00
4, 172, 164. 00
5, 524, 455. 00
6,256,411.00
23, 525, 533. 76
13, 607, 893. 04
27, 506, 761. 56
24, 092, 610. 44
24,331,861.55
25, 481, 640. 04
31,838,025.10
32,811,313.33
36, 260, 857. 01
50, 824, 841. 71
49, 020, 474. 00
82, 737, 142. 00
79,218,533.00
76, 757, 910. 00
81,201,828.00
80, 613, 943. 00
81, 786, 989. 00
77,827,663.00
79, 566, 340. 00
77,362,481.00
96, 077, 208. 00
88, 127, 940. 00
89, 747, 571. 00
92, 775, 635. 00
100, 507, 690. 00
107, 128, 573. 00
109, 096, 472. 00
111, 153, 504. 00
104, 713, 164. 00
107,829,316.00
103, 164, 010. 00
113,022,341.00
112, 311, 568. 00
107, 120, 453. 00
103, 808, 297. 00
118, 262, 683. 00
116, 474, 813. 00
114, 821, 913. 88
110, 066, 353. 00
108, 513, 489. 00
$22, 618, 710. 00
38, 840, 761. 00
54, 217, 202. 00
69, 918, 020. 00
161,907,639.70
152, 537, 700. 00
170, 270, 546. 04
151, 740, 165. 18
152, 859; 017. 74
147,015,322.74
152, 939, 329. 52
154, 266, 620. 30
161,623,954.19
211,672,478.47
195, 112, 175. 00
326, 231, 596. 00
326, 76-% 238. 00
329, 503, 703. 00
337, 997, 854. 00
340, 620, 252. 00
346, 476, 464. 00
337,424,392.00
352, 815, 635. 00
351,780,354.00
455, 340, 582. 32
406, 303, 185. 00
425, 680, 143. 00
429, 900, 445. 00
446, 770, 585. 00
471,448,508.00
487, 950, 036. 00
490, 101, 7*3. 00
504, 544, 928. 00
528, 337, 713. 00
538, 366, 287. 00
566, 970, 942. 00
579, 839, 542. 00
591. 004, SI I. 00
602, 448, 219. 00
624,707,113.00
632, 680, 710. 00
633, 347, 607. 36
629, 735, 508. 00
628, 504, Oil. 00
$64, 285, 714. 00
87, 500, 000. 00
150,000,000.00
150, 000, 000. 00
175, 000, 000. 00
168, 620, 233. 70
184, 062, 536. 00
180, 984, 454. 38
182, 507, 222. 13
153,071,773.42
152, 652, 752. 00
157, 416, 297. 97
162, 320, 153. 51
196,851,160.97
244, 440, 774. 00
244, 440, 774. 00
455, 900, 800. 00
455, 900, 800. 00
390,454,875.00
390,454,875.00
421,285,359.00
421,285,359.00
423, 596, 290. 00
423,596,290.00
413, 102, 796. 00
438,971,801.00
445, 582, 720. 00
447, 804, 968. 00
456,325,171.00
459, 540, 157. 00
476, 396, 354. 00
488, 139, 614. 00
581,264,749.00
573, 229, 855. 00
577, 092, 815. 00
592,890,719.00
623, 859, 417. 00
654,000,000.00
654, 000, 000. 00
654, 000, 000. 00
603, 473, 526. 50
600,000,000.00
600, 000, 000. 00
600, 000, 000. 00
f
TAXATION IN WISCONS
An analysis of this statement will disclose the character of- -tHe work of assess-
ment and equalization of property in this State coming within the general property-
tax laws. The exceedingly low valuation of all real and personal property in
this large and wealthy State, being but $600,000,000, and the ratio of real to per-
sonal property reveal at a glance the inefficiency and inequality of assessment.
A Wisconsin assessment roll has been described as a " patchwork of arbitrary
undervaluation. "
As illustrations of the gross inequalities in the assessment of personalty, it is
stated by the tax commission of 1898 that 13 counties in the State failed in 1897 to
make any return under the head of average amount of moneys in possession and
on deposit, while the official reports show that there was on deposit in the banks in
those counties the sum of $5,663,861.99.
The total amount assessed under this head in the State that year was $7,163,444,
while the reports of the national, State, and private banks showed the amounts of
-deposits to have been $74,678,795.55.
There were 21 counties that did not return any notes, bonds, or mortgages.
LIQUOR-LICENSE FEES.
Separate provision is made for the granting of licenses for the sale of intoxi-
cating liquors by town and village boards and by the common councils of cities.
The fee which may be charged is in towns ordinarily $100, and in villages and
cities $200 per year, which amounts may be increased to not more than $400 in
towns and not more than $500 in cities and villages by vote of the electors, under
certain conditions and restrictions.
The funds derived from such license fees are directed to be used primarily for
the support of the poor, but in practical working the moneys so derived virtually
go into the general fund of the town, city, or village in which the license is
granted. The following is an incomplete statement of the amounts so raised:
Amount collected in 546 towns and villages in 1897 $584, 748. 70
Amount collected in 100 cities in 1897. 979, 162. 02
Total 1,563,910.72
POLL TAX.
Another source of revenue is a poll tax upon male residents between 21 and 50
years of age, with certain exemptions, amounting to $1.50 per poll each year.
This law is not enforced in all parts of the State, and its repeal is advocated. In
1897, out of 1,137 towns and villages in the State, only 493 made any attempt to
collect poll taxes, and the total amount they collected was $95,871.75. Of the 111
cities only 39 reported any poll tax raised in 1897, and the total amount obtained
was the sum of $12,578.37.
In that year there was not one county in which all the taxpaying districts raised
a poll tax, and there were 8 counties in which there was not a dollar of such tax
collected.
DEFECTS IN THE PROPERTY-VALUATION SYSTEM.
Some valuable lessons may be drawn as to the practical working of the general
property -tax system by reference to defects in that system in operation in Wis-
consin, pointed out by the Wisconsin tax commission in its able and valuable
report of 1898, from which much of the information herein contained is derived.
Under that system the amount of tax which each person is to pay is apportioned
upon the basis of the taxable property which he owns. The assessment is at the
foundation of this taxing system. It is shown that property under local assess-
ment is valued upon widely different bases, but that vast amounts are annually
left off the assessment rolls entirely.
For the purpose of testing the efficacy of assessment laws in this regard, com-
parison is made between the United States census reports of 1890 and the State
census of 1895.
Total true valuation of all property, 1890 $1 , 833, 308, 523
From which was deducted value of railways, telegraphs, tele-
phones, etc 333,308,523
Leaving estimated true value of taxable property 1 , 500, 000, 000
>howing the discrepancy between the true valuation as thereby stated and the
assessed valuation of property assessed locally in 1890 to be substantially
$1,000,000,000.
138 INDUSTRIAL COMMISSION.
It is stated by the commission that on account of this unequal valuation and
omission of property from the assessment rolls, statistics and daily experience
show that the people least able to bear the burden of taxes are often those upon
whose shoulders these burdens are laid most heavily. ''Because the possessions
of the poor man are few and tangible and in plain sight they are all carried into
the assessment roll, while the stocks, bonds, mortgages, and other valuable securi-
ties of the wealthy man for the most part escape the assessor's notice."
^Statistics are produced by the commission showing that about three-fourths of
the live stock owned by the farmers is assessed upon the rolls at about 60 percent of
the total true value as fixed by the State census, and comparison is made between
that class of property and bank deposits, the amount of individual deposits at a
given date being shown as follows:
In the National banks $26,633,453.86
In the State banks _ _ _ 34, 583, 141. 45
In private banks '_'_ 4, 537' 542. 64
Total 55,754,137.95
According to the report of the secretary of state, the totaltassessed value of
money in possession and on deposit on the same date was only $3,032,103, or a
little over 5 per cent of the true value of deposits alone.
It is estimated that the amount of personal property in Wisconsin is fully equal
in value to real estate, yet the amount assessed is only 17 per cent, or about one-
sixth, of the total property assessed and has been steadily decreasing for several
years. Aside from the vast amount of intangible property omitted from the
rolls, it is stated that there are millions of dollars worth of tangible, visible
property which at present escapes taxation through the imperfection and loose-
ness of the laws. The vicious practice of undervaluation and unequal valua-
tion by local assessors is clearly pointed out and severely condemned by this
commission:
' ' The habit of undervaluation is one of such long standing that in most assess-
ment districts sets or series of arbitrary valuations for assessment purposes having
become established, those originating in slight departures from true values
have been changed from time to time, according to the notions of successive
assessors, previous assessments being taken as a guide or standard rather than
actual values, until the whole becomes but a mass of arbitrary figures. Assess-
ment valuations have thus come to be a fact, and are commonly considered and
treated as something apart from and unrelated to actual values.
" The feeling on the part of the assessor that he is bound by no definite rule or
standard begets indifference and carelessness, gives bias or prejudice free play,
and with the easy-going or intentionally dishonest official affords both room
and cover for favoritism and partiality.' The members of the tax commission
have found frequent instances of an almost open and avowed practice of favor-
ing particular interests and 'industries or classes of property by low assessments,
such discrimination being justified upon grounds of supposed public policy. Of
course there are localities where the assessments have for years been made or
supervised by men of character and ability, and in these no glaring inequalities
exist. But in very many instances, perhaps in the majority of cases, the assess-
ment has come to be hardly more than a farce. But this so-called assessment
roll, with a piece of perjury attached in the form of the assessor's oath, is
solemnly accepted as the basis on which citizens are asked, and virtually forced,
to make their contribution to the heavy and constantly increasing burden of
taxation. The perjury documents are also supposed to form the basis of the
county equalization and ultimately the basis for the apportionment of State
taxes. They are, in fact, in most instances discredited and almost wholly dis-
regarded. The legislature itself recognizes their unreliability by directing the
abstracts of assessments to be supplemented by statistics of population and such
other loose data as may be gathered to aid boards of equalization to guess at the
value of taxable property in the various districts.
" The county assessment becomes a disgraceful struggle between the members
of the county board, each striving to help his own district at the expense of the
others. The members of the county board from the towns are often arrayed
against those from the city and whichever side is in the minority immediately
proceeds to make more towns or wards, as the case may be, in order to get more
votes."
" Nor does the evil end with the county assessment. The arbitrary and unre-
liable local assessments, supplemented by the equally unreliable county assessment,
constitute the principal data upon which the State board of equalization must
make its assessment."
TAXATION IN WISCONSIN. 139
Dr. R. T. Ely, in his work on Taxation in American States and Cities, in dis-
cussing taxation in Wisconsin, refers to a statement made to him by a gentleman
of prominence and an officeholder in that State, as follows: "You see in me a
monument of the iniquity of our present system of taxation. When I was a poor
and struggling young man with $500 or $600 worth of personalty, I paid on all
that I had, but now that I really have something I keep still and pay taxes on
only a part of my property. Indeed, when I think about taxation, I feel like
turning anarchist and blowing things up with dynamite."
For the purpose of providing a remedy that would reach the " root of the evil"
and prevent undervaluation of property, the tax commission of 1898 recom-
mended radical changes in the laws of property assessment and a rigid listing of
personal property by owners.
TAXATION OF NOTES, BONDS, MORTGAGES, AND OTHER SECURITIES.
This subject of commanding interest to the people of all States where such
securities are locally taxed under the valuation system is ably discussed by the
Wisconsin tax commission as to its effect in that State. The omission of this
kind of property from assessment is said to be the most noticeable of all defects
in the administration of the tax laws in Wisconsin, and it is shown that such
property largely escapes taxation entirely.
From 1877 to 1897 the aggregate assessed valuation of real estate in Wisconsin
increased from $274.417,883 to $519,990,552, or about 89| per cent. During the same
period the assessed value of personal property increased from $77,362,481 to
$108,513,489, or only about 40i per cent. Assuming that the aggregate true value
of personal property is ordinarily at least equal to that of real estate and keeps
pace with it in a growing Commonwealth, these facts indicate not only that per-
sonal property is very largely withheld in this State, but that the practice is
steadily growing.
In 1897 the total assessed value of money, credits, notes, bonds, and mortgages
in the State was $20,677,671. This amount is about 19i per cent of all personal
property and is only 3J per cent of the assessed value of all real and personal
property.
"The small fraction of this class of property actually assessed is chiefly
owned by persons who have not acquired the art of evasion or whose scruples
will not permit them to evade the law, and those whose situation is such
that their property affairs are for the time being exposed to inspection, as in the
case of estates in the probate court and the like.
"The pernicious custom of undervaluation of all classes of property fosters
and promotes the practice of evasion.
"Again, very large numbers of people regard the taxation of moneys loaned and
full taxation also of the property upon which the loan is secured as double taxa-
tion which they have a moral right to evade. As the property itself can not
ordinarily be hidden, the intangible thing, the mortgage, is kept out of sight if
possible."
MORTGAGES.
Under the system existing in this State a mortgage of real estate is deemed per-
sonal property, and is liable to taxation as such according to its value. The real
estate covered by the mortgage is also liable to taxation according to its value,
without reduction on account of the mortgage.
While no definite data are obtainable from assessment statistics to show the
value of mortgages actually assessed for taxation, it is shown that only a very
small proportion of mortgages liable to taxation in Wisconsin are in fact
assessed.
The commission, after this showing, state that "a considerable number of the
ablest investigators have frankly declared that the direct taxation of intangible
assets as property by the valuation method is wholly impracticable as to those
who seek to evade, and very unjust as to those who do not. But the greater num-
ber of suggestions and demands have been for more stringent laws and more
drastic methods to compel individuals to disclose what they have of this kind of
property, and to compel assessors to discover and assess the same. State legisla-
tures have frequently enacted laws of this character and many States have for
years maintained most rigid systems in this respect, but in no case have we found
that substantial or satisfactory results have been obtained. Professor Ely, in his
work on taxation, speaking of such systems, says: 'It is characteristic of this
system that the more you perfect it the worse you make it.' "
The commission, after discussing the experience of Ohio, New York, California,
and Massachusetts on the taxation of such securities, says: "While fully con-
curring in the conclusion reached in the other States that an attempt to tax
140 INDUSTRIAL COMMISSION.
directly most forms of intangible assets is only partially successful, and that so
far as successful the law operates quite unequally, we are still unable to recom-
mend the repeal of the laws for the taxation of such property at the present time.
Our chief reason for this is the want of a complete substitute meeting our
approval."
The commissioners recommend as a partial substitute an inheritance tax. They
also recommend that the entire administration of the tax laws be placed in the
bands or at least under rigid supervision of capable and disinterested agents of
the State, to give their entire time to official duty, such agents to consist of a
State board or officer and such subordinate officers as may be necessary.
TAXATION OF CORPORATIONS.
Except as otherwise specially provided, corporations pay taxes upon property
valuations in the same way as natural persons, and this applies to foreign corpora-
tions doing business in the State as well as to those organized under the laws of the
State. But stock in such corporations as are required to pay taxes upon their
property in the same manner as individuals is expressly exempted from taxation.
As to all corporations taxed upon property valuation, there ,re no special pro-
visions for a tax on corporate franchises.
Upon organization domestic corporations pay a fee of $25 per thousand dollars
of capital for incorporating if the capital stock is $25.000 or less, and 1 per
thousand in addition for each $1,000 of capital stock over and above $25,000.
Foreign corporations desiring to do business within the State file with the sec-
retary of state an authenticated copy of their articles of association, and pay
therefor a fee of $25. These fees applied to corporations are not regarded as a
franchise tax.
The real property of corporations is required to be taxed in the assessment dis-
trict where located at local rates.
Personal property belonging to foreign corporations is assessed in the assess-
ment district where the agent in charge resides; or if none, wherever such property
is located.
The personal property of domestic corporations is assessed in the district where
the principal office or place of business is located, by local assessors, and is taxed
at local rates.
The legislature, recognizing from the earlier experience of the State the imprac-
ticability of assessing such property in separate parts or the franchises separately,
recently made special provisions as to mains, hydrants, pipes, and other fixtures
and appurtenances of waterworks, gas, and electric light plants not owned or
operated by any municipality. Such property, and all real estate necessarily used
in the operating of such plants, including machinery, corporate franchises, if
operated by a corporation in short, the entire property of such a company is
required to be valued and assessed together as a single item or unit and as personal
property in the assessment district where the principal place of business is located.
Further special provisions are made for the apportionment of such values where
the mains, pipes, poles, wires, etc., of such companies are partly in one and partly
in another taxing district. Such property is taxed at local rates upon such
assessed valuations in the same way as other personal property.
RAILROADS.
In 1854 a statute was passed by which " the legislature committed itself to the
theory of taxing railroads on the basis of gross earnings." This system has since
been adhered to and still prevails, changes in taxation rates having been made
from time to time and railroads classified according to amount of gross earnings
per annum.
The tracks, right of way, depot grounds and buildings, machine shops, rolling
stock, and all other property necessarily used in operating any railroad in this
State, belonging to any railroad company, including pontoon and pile pontoon
railroads, are exempt from taxation for any purpose, except special assessments
for local improvements in cities and villages, such property coming under the
license system. All lands owned or claimed by any such railroad company not
adjoining its track are subject to all taxes.
Every railroad company and every person operating a railroad in the State,
except railroads operated by horse power, is required to make and return to the
State treasurer, upon blanks to be furnished by the treasurer, before the 10th day
of February in each year, a true statement of the gross earnings for the preced-
ing calendar year, of the number of miles of road operated by such company or
WISCONSIN CORPORATION TAXES. 141
person, and the gross earnings per mile per annum during such year. Such state-
ment must be verified by the oath of the secretary or treasurer of the company
or of the person so operating such railroad.
Upon the return of such statement and payment of the license fee hereinafter
stated such company or person is entitled to and receives from the State treasurer
a license to operate such railroad for the calendar year commencing on the 1st
day of January preceding.
The annual license fees required to be paid are as follows:
1. Four per cent of the gross earnings of all railroads, except those operated
on pile and pontoon or pontoon bridges, whose gross earnings equal or exceed $3,000
per annum per mile of operated railroad.
2. Three and one-half per cent of the gross earnings of railroads, except those
operated on pile and pontoon bridges, whose gross earnings equal or exceed $2,500
and less than $3,000 per annum per mile of operated railroad.
3. Three per cent of the gross earnings of all railroads, except those operated
on pile and pontoon or pontoon bridges, whose gross earnings equal or exceed
$2,000 and are less than $2,500 per annum per mile of operated railroad.
4. Five dollars per mile of all operated railroads, except those operated on pile or
pontoon bridges, whose gross earnings equal $1,500 per mile per annum and are
less than $2,000 per annum per mile of operated road, and in addition 2| per cent of
their gross earnings in excess of $1,500 per annum per mile and under $2,000 per
mile per annum.
5. Five dollars per mile of operated railroad by all companies whose gross earn-
ings are less than $1,500 per mile per annum.
6. Two per cent of the gross earnings of all railroads which are operated on
pile and pontoon or pontoon bridges, which gross earnings shall be returned as to
such parts thereof as are within the State.
This license fee is based upon the gross earnings from operation in the State,
including such proportion of earnings from interstate traffic as is calculated to
have been earned within the State.
One-half the license fee is required to be paid at the time the license is issued,
and one-half before the 10th day of August in each year.
The penalty attached for neglect to obtain such license or to pay the fee there-
for, or any part thereof, is declared to be the forfeiture of the sum of $10,000 to
the State, to be recovered by an action brought by the attorney-general therefor,
and the forfeiture of all rights, privileges, and franchises; but such company or
person so neglecting may make such return and pay such license fee upon appli-
cation to the court in which such action to declare the forfeiture is pending, and
upon such terms as such court shall direct.
The blanks furnished by the State treasurer for such statement, and which must
be fully filled out, require the statement of gross receipts to be itemized, showing
receipts separately from passengers, mails, express companies, freight, use of
cars, sleeping-car companies for transportation of sleeping cars, and from all other
sources, specifying the same; also the gross receipts as earned or received each
month, the number of miles in operation on December 31 next preceding, and the
number of miles built and operated in the preceding calendar year.
The money derived from such taxation is paid into the general fund of the
State, and is applied to the general State expenses, thus giving all districts of the
State equal benefit from such taxation by reducing the amount of State taxes,
whether or not such districts are traversed by railroads.
This general distribution of railroad license fees is the cause of some complaint,
because of the amount of such property centered in the cities. A partial answer
is made that railroads are peculiarly subject to the control of the State, derive
their valuable franchises from the State, and at times are vitally dependent upon
the State for protection.
As hereinbefore stated, this method of taxation has been held to be constitutional.
While the method as applied to railroads carrying on interstate commerce can
hardly be conceded by railroad companies to be within the Federal Constitution,
it has been generally acquiesced in as reasonably satisfactory. Indeed, we were
informed by public officials of that State that railroad companies generally pre-
ferred to be taxed by this method, even though the amount of taxes imposed
should be as large or even somewhat larger than under the general property tax,
because of its simplicity, reliability, certainty, and cheapness to both State and
railroads.
From the table compiled by a tax commissioner appointed by the legislature of
Wisconsin in 1898 to investigate and report upon the subject we find that rail-
roads of the first class, the cost of construction of which aggregated $275,013,119,
paid a tax of $1,238,065.14, or about forty-five one-hundredths of 1 per cent of such
cost.
142 INDUSTRIAL COMMISSION.
Roads of the third class, costing $1,051,432, paid a tax of $3,005.81, or about
twenty-eight one-hundredths of 1 per cent of the cost.
Roa'ds of the fourth class, costing $11,506,940, paid a tax of $4,645.32, or about
four and one-third one-hundredths of 1 per cent of the cost.
Roads of the fifth class, costing $15,253,962, paid a tax of $2,487.61, or one and
six-tenths one-hundredths of 1 per cent of the cost.
There are no roads belonging to the second class.
The yield of the railroad taxes for the years 1882-1898 is shown by the following
table:
Fiscal year ending September 30
1882 $586,328.58
1883 683,082.51
1884. 754,269.44
1885 733,195.57
1886 747,870.99
1887 763,994.56
1888 A 1,068,632.96
1889 ..._f 947,772.04
1890 1,008,559.04
1891 1,140,046.64
1892 _ 1.220,674.88
1893 1,156,260.75
1894 1,438,758.66
1895. 1,175,752.52
1896 1,172,793.62
1897 1,265,094.54
1898. 1,247,357.03
The gross earnings of Wisconsin roads for 1898 were $35,191,000 and the net
earnings $12,225,000.
The taxes paid that year were $1,247.357, or about one-tenth of the net earnings.
As stated elsewhere, the cost of this class of property affords no reliable criterion
of its true value. This is illustrated by the business condition of Wisconsin rail-
roads. While some are operated with profit and pay large dividends, others are
not, and some are in the hands of receivers, this class of property being of such
peculiar character, its corporate elements of value so fluctuating and changeable,
that it can hardly be measured by the standards applied to general property. The
true cash value of a railroad can probably be determined only by the result of its
operation for a period of years, regardless of its cost.
In 1899 a determined effort was made in the legislature to change the method
of taxation in the State, and also to increase the amount of taxes or license fees,
but nothing definite in that direction was accomplished.
A statute was enacted creating a State tax commission for the purpose of
investigating the existing system of taxation and reporting the result of such
investigation to the legislature, with recommendations for the improvement of
the system and the equalization of taxes throughout the State.
This commission is now actively engaged in carrying out its important work
and giving special attention to the investigation of the subject of railroad taxation,
with a view to determining whether or not the present system of license fees on
gross earnings should be abolished and the ad valorem method, so called, adopted
for the taxation of railroad property; or, if the present system should be retained,
what method should be adopted to determine the percentage of gross earnings
to be paid which will make the tax equal to the rate of taxation imposed on other
property.
Governor Scofield,in his message to the legislature for 1899, made the following
comments and recommendations as to the operation of the license system:
" I am convinced that, while the license system of taxing certain corporations
now in force is the most practicable method yet evolved, it yet has elements of
unfairness and inequality which might, partially at least, be eliminated.
Our present graded license system of taxing the railroad companies contains some
glaring inconsistencies. We have under this system five classes of roads, the
classification being based upon the earnings per mile. The first class pays 4 per
cent upon its gross earnings. The second class is taxed 3 per cent on its gross
earnings. The fourth class pays $5 per mile and 2| per cent on all earnings over
$1,500 per mile up to $2,000 per mile. The fifth class pays $5 per mile only.
" The report of the railroad commissioner of the State, which will be laid before
you, contains some figures which show the inequalities of this classification. For
instance, the class of roads which pay 4 per cent of their gross earnings pay the
WISCONSIN CORPORATION TAXES.
143
equivalent of a rate of forty-five one-hundredth s of 1 per cent upon the cost of
the road. The third class, which pays 3 per cent of their gross earnings, pays but
twenty-eight one-hundredths of 1 per cent upon the cost. The fourth class pays
but four and one-third one-hundredths of 1 per cent upon the cost, while the fifth
class pays but one and eight-tenths one-hundredths of 1 per cent upon the cost.
" The commissioner's report shows that some of the roads which pay the trifling
sum of $5 per mile in taxes, and from which the aggregate sum received varies
from $60 upward, show in their own reports large earnings, and, in some cases,
that the management of the roads have been able to pay large dividends.
" In view of these very noticeable inconsistencies I recommend that the classi-
fication be abolished entirely and that a uniform license fee upon the gross earn-
ings be charged all roads doing business within the State, regardless of what
their mileage or earnings may be. If the 4 per cent fee upon the gross earnings
which the first-class roads now pay were charged all of the roads, the income of
the State, based upon the returns for the past year, would be largely increased."
In personal conversation with Governor Scofield, who has apparently given the
subject of taxation in Wisconsin very careful thought and study, he highly com-
mended the license system as applied to the taxation of railroads, the tax being
levied by the State for State purposes, stating that he regarded it as the best system
yet devised for the taxation of such property; that, in his opinion, the rail-
roads in Wisconsin paid more taxes according to property value than any other
corporate property in the State; and that he was inclined to the opinion, from the
investigation he had made, that under that system they were paying their full
proportionate share of taxation, apparently having taken into consideration in
reaching that conclusion the fact that real estate is grossly undervalued and
that a vast amount of personal property escapes taxation under the local assess-
ment system.
SLEEPING-CAR COMPANIES.
By an act passed in 1883 sleeping-car companies were required to pay an annual
license fee of 2 per cent of their gross earnings made by the use of such cars
between points within the State during the preceding calendar year.
In 1885 the statute was amended, increasing the amount to 4 per cent of the gross
earnings, which continued to be the rate until the year 1899. The supreme court
of Wisconsin construed the act to mean that under its provisions the companies
were only required to return the gross earnings they derived from the transporta-
tion of passengers from one point to another wholly within the State, and if such
were not the construction of the act it would be unconstitutional, as interfering
and restricting interstate commerce. (State v. Pullman Co., 64 Wis., 99.)
This decision was put to a practical use by some sleeping-car companies by sell-
ing to a passenger desiring transportation between two points within the State a
ticket to some point beyond the State line. This increased mileage was of no
benefit to the passenger, and the sale was not reported in the annual report of
earnings.
The limited amount of earnings so returned and the comparatively small benefit
derived by the State from such taxation is shown by the following table of the
yield of sleeping-car company taxes in the years 1890 to 1898, inclusive:
1890 $1,365.67
1891
894. 32
1895 $503.80
1896 2,031.14
1897 904.75
1898 .. ..- 852.69
1892 1,214.96
1893 1,193.04
1894 ;. 1,223.39
In 1899 an act was passed which provides for an assessment of the actual value
of the property of sleeping-car companies within the State.
By the provision of this act each sleeping-car company, wherever organized or
incorporated, including companies owning dining, buffet, chair, parlor, and palace
cars, is required to file with the State treasurer, during the month of July in
each year, a report under oath for the year ending April 30 next preceding, con-
taining the name of the company, location of principal office, nature and when
organized, officers, chief officer or managing agent in Wisconsin, total amount of
capital stock, number of shares, par value and market value, or, if no market value,
the^actual value of the shares, situation and value of its real estate in Wisconsin
used in the business, location and value of all its real estate outside of Wisconsin
used in the business, total length of lines of railroad over which the cars of such
company were used in Wisconsin and elsewhere, total length of lines over which
the cars of such company were used in Wisconsin, and such other facts or infor-
mation as such company may deem material upon the question of the taxable
value of its property within the State.
144
INDUSTRIAL COMMISSION.
The State board of assessment, consisting of the secretary of State, State treas-
urer, and attorney-general, meets annually and proceeds to assess and levy a tax
upon the property of such sleeping-car companies according to the following
rules, after hearing such testimony and argument as such sleeping-car companies
may offer:
First. It shall find the actual value in money of the entire amount of capital
stock of each sleeping-car company used in its sleeping-car business, and from
that amount it shall deduct the actual value of all real estate used by such com-
pany in its sleeping-car business without the State, and the remainder shall be
taken and considered as the actual value of the capital stock of such company
invested in its sleeping-car business.
Second. The amount so obtained is then divided by the total number of miles
of railroad over which the cars of such sleeping-car company were used, to obtain
the value per mile. The value per mile is then multiplied by the number of miles
over which such cars were run within the State, and the result is taken and con-
sidered as the actual value of the property of such sleeping-car company within
the State of Wisconsin subject to taxation and assessment.
The board thereupon assesses such value and levies a tax thereon for the use
of the State at the average rate of taxation, State and local consolidated, of the
State of Wisconsin, certifying the assessment, rate of levy, and the amount of the
State tax to the State treasurer, who thereupon notifies such company of the same
by registered letter. The sleeping-car company is then given 30 days after the
mailing of such notice within which to pay such tax.
Upon neglect to so pay the tax, a suit may be commenced by the attorney-gen-
eral against such company to collect the same, together with a penalty of 10 per
cent of the total amount of such tax and costs of suit.
Sleeping-car property which is owned by railway companies, and the gross
earnings of which are taxed as a part of the gross earnings of such railway com-
panies, is exempt from taxation under the provisions of the foregoing act.
The result of the operation of this law in 1899 is shown by the following state-
ments:
Items.
Wagner Palace
Car Co.
Pullman Pal-
ace Car Co.
Actual value of entire amount of capital stock
$14, 000, 000
$15, 299, 000
Actual value of real estate used by such company in its business
within the State
4, 000, 000
Actual value of capital stock
10,000,000
15, 299, 000
Total miles of railroad over which the cars of the company were run.
Value per mile
74,000
$135, 135
129, 679
$117, 975
Number of miles within the State
1, 374. 8
1,108
Actual value of property within this State subject to assessment and
taxation .
$185, 783. 60
$130,127.40
Average rate of taxation, State and local consolidated, in the State ..
Total amount of tax
$0. 028152108
$5,230.20
$0. 028152108
$3, 663. 36
FREIGHT-LINE COMPANIES AND EQUIPMENT COMPANIES.
They are required to make the same statement, and the value of their property
is assessed by a similar process and at the same rate as sleeping-car companies.
The results for 1899 were as follows:
Equipment companies or freight lines, 1899.
Items.
Burton Stock
Car Co.
Swift Refrig-
erator Trans-
portation Co.
Kansas Citv
Dressed Beef
Line, Kansas
City Fruit Ex-
press, Kansas
Citv Tank
Line.
Mather Hu-
mane Trans-
portation Co.
Actual value of entire amount of
capital stock .
$57, 014. 50
$900,000.00
$513,550.30
$73, 760. 50
Actual value of real estate used by
such company in its business within
the State
50,000.00
Actual value of capital stock
7, 014. 50
900, 000. 00
513,550.30
73, 760. 50
WISCONSIN CORPOEATION TAXES.
Equipment companies or freight lines, 1899 Continued.
145
Burton Stock
Car Co.
Swift Refrig-
erator Trans-
portation Co.
Kansas City
Dressed Beef
Line, Kansas
City Fruit Ex-
press, Kansas
City Tank
Line.
Mather Hu-
mane Trans-
portation Co.
Total miles of railroad over whic
cars of the company were run
Value per mile
hthe
26, 515, 623
$0. 00026
7,004
$1.82
$0. 028152108
fO.05
180,000
$5.00
8,270
$16,350
$0. 028152108
$460. 29
49, 934, 250
$0.010284
277, 119
$2, 849. 89
$0. 028152108
$80.23
190,200
$0. 3878
5,501
$2, 133. 29
$0.028152108
$60. 06
Number of miles within this State
Actual value of property within this
State subject to assessment and
taxation
Average rate of taxation, State and
local consolidated, in the State
Total amount of tax
Western Re-
frigerator
Line.
Western Re-
frigerator
Transit Co.
Cudahy Mil-
waukee Re-
frigerator
Line.
The Cudahy
Refrigerator
Co.
Union Re-
frigerator
Transit co.
Actual value of entire amount
of capital stock
$33, 448. 19
$80, 000. 00
$59, 100. 00
$100, 000. 00
$200,000.00
Actual value of real estate used
by such company in its busi-
ness within the State
Actual value of capital stock. . .
Total miles of railroad over
which the cars of the com-
T>anv were run
1
33, 448. 19
80, 000. 00
59, 100. 00 100, 000. 00
200, 000. 00
195, 362
$0. 1712
5,653
$967.80
$0. 028152108
$27. 25
195, 362
$0. 4094
5,653
$2,314.34
$0.028152108
$65. 15
6. 096, 481
$0. 009694
275,036
$2,666.20
$0.028152108
$75. 06
21,275,211
$0. 00457
23, 468
$107. 25
$0.028152108
$3.02
195, 362
$1. 0237
5,704
$5,839.18
$0. 028152108
$164. 39
Value per mile
Number of miles within this
State
Actual value of property within
this State subject to assess-
ment and taxation
Average rate of taxation, State
and local consolidated, in the
State
Total amount of tax
EXPRESS COMPANIES.
Prior to the year 1899 the only tax collected from express companies was that
levied upon their tangible property, as upon the property of private persons,
located within the various taxing districts of the State, their intangible property
wholly escaping taxation; but in 1899 an act was passed providing for the assess-
ment of the actual value of their property within the State.
By the provisions of this act any person, or joint stock company, partnership,
association, or corporation, whether organized or incorporated, conveying to,
from, or in the State money or property of any kind by express (not including
railroad or steamship companies engaged in the ordinary transportation business)
is deemed to be an express company.
Each express company is required to file during the month of July in each
year, with the State treasurer, a statement in the form prescribed by him under
oath, showing, with reference to the business of the fiscal year ending June 30
next preceding, the name of the company, its nature, location of principal office,
when and where organized or incorporated, officers, authorized capital stock,
capital stock issued, number of shares, their par and market value, their actual
value; the situation, income, and value in detail of its real estate in Wisconsin;
the total income and cash value of all its real estate situated outside the State, a
full and correct inventory at the true cash value of its personal property, includ-
ing moneys and credits within the State; the true cash value of all its personal
property, including money and credits, outside the State: the whole length and the
names of the railroad lines and water and stage routes over which it did business,
and separately, in detail, the portion of such lines and routes within this State,
and the portion of such routes over navigable waters of the United States within
the State, and such other facts or information as may be material upon the question
of the taxable value of its property within the State.
10
146
INDUSTRIAL COMMISSION.
The State board of assessment, consisting of the secretary of state, State treas-
urer, and the attorney-general, thereupon meets upon the third Wednesday of
August and proceeds to assess and levy the tax upon the property of such express
company after notice to such company of the time of hearing upon such assess-
ment.
After due hearing the board proceeds to determine the true value of its property
according to the following rules:
The actual value in money of the entire amount of capital stock is found.
From the amount so obtained is deducted the actual value of all real estate
situated outside the State and the actual value of personal property not used in
the express business.
The remainder is taken to be the actual value of the capital stock of such com-
pany invested in its business. Such amount is divided by the total number of miles
of railroad, stage, water, and other routes over which the company did business,
and the value per mile so obtained is multiplied by the total number of miles of
route within the State, exclusive of the number of miles of water route over nav-
igable waters of the United States within the State. The result is declared to be
the actual value of the property of such express company subject to taxation.
The board then proceeds to assess and levy a tax thereon f*r the use of the
State, at the average rate of taxation, State and -local, consolidated, of the State.
The tax so assessed and levied is declared to be in lieu of all other taxation.
Failure to file report or to pay the tax is attended by a penalty of 10 per cent of
the amount assessed for taxation, together with the costs of suit brought by the
attorney-general to recover the amount of such tax.
The following reports will show the methods of the State board in the assess-
ment of express companies under the law fixed by the legislature in 1899 and
their results:
Express companies, 1899.
Items.
Adams Ex-
press Co.
American Ex-
press Co. -Na-
tional Express
Co.
Northern Pa-
cific Express
Co.
United States
Express Co.
Western Ex-
press Co.
Actual value in money of en-
tire amount of capital stock.
812,000,000.00
$24, 840, 000. 00
$343, 000. 00
$4, 500, 000. 00
$50, 000. 00
Value of real estate situated
without this State
3, 076, 567. 52
5, 075, 857. 80
735.94
1,011,284 90
Value of personal property
not used in express business.
3, 962, 371. 21
18, 262, 194. 48
981,150.00
Total
7, 038, 938. 73
23, 338, 052. 28
735. 94
1, 992, 434. 00
Actual value of capital stock. .
4, 901, 061. 27
1, 501, 947. 72
342. 264. 06
2,507,565.10
50, 000. 00
Total miles of railroad, stage,
water, and other routes
over which the company
did business
29, 845
41 609.75
5 140
61 367 69
1 820 3
Value per mile
$166 227
$36 096
$66 588
$40 861
-"7 17
Number of miles over which
the company did business
in this State
263
3 154 67
87
2 045 14
381 3
Actual value of the property
of the company subject to
assessment and" taxation in
this State
$43 717.70
$113 871 13
$5 793 18
$83 567 08
$10 474.31
Average rate of taxation,
State and local, consoli-
dated in this State
$0 028152108
$0 028152108
$0 028152108
$0 0028152108
$0 028152108
Total amount of tax
$1,230.75
$3, 205. 71
$163. 09
$2, 352. 59
$294. 87
TELEGRAPH COMPANIES.
Telegraph companies are required to file annually with the State treasurer a
statement, under oath, showing the total number of miles of their telegraph line,
and the number of miles of such line within the State, 4 the number of wires
employed on each division of such line, and the aggregate number of miles of sin-
gle wire operated within the State.
Upon the filing of such report the State treasurer issues to each telegraph com-
pany a license, upon payment of the license fee for State purposes, which is as fol-
lows: For the first wire, $1 per mile; for the second wire, 50 cents per mile; for the
third wire, 25 cents per mile; for the fourth and each additional wire, 20 cents per
mile.
WISCONSIN CORPORATION TAXES.
147
The yield of the tax for the years 1890-1898 was as follows:
1890 ._ $7,775.77
1891 8,691.16
1892 _ 9, 225. 53
1893 9,657.62
1894 9,935.71
1895... $9,999.45
1896 10,817.56
1897 10,684.28
1898 10,882.15
TELEPHONE COMPANIES.
Telephone companies annually make a sworn statement of their gross earnings
for the fiscal year ending December 31, and file the same with the State treasurer,
who thereupon issues to each telephone company an annual license, upon the pay-
ment of the license fee, as follows: If the amount of gross earnings be over
$100,000, 3 per cent of such gross earnings; if under $100,000, 2 per cent, A pen-
alty of $5,000, to be paid the State, together with forfeiture of rights and fran-
chises, follows the neglect to obtain such license.
Such taxation is in lieu of all other taxation, and an additional license fee can
not be imposed by a municipality. (Wisconsin Telephone Company v. Oshkosh,
62Wis.,32.)
The yield of such taxes for the years' 1890-1 898 was as follows:
1895. $9,838.99
1896_ 9,744.64
1897 10,777.14
15,477.59
1890 $4,691.48
1891 5,076.43
1892. 5,520.43
1893 11,705 71
1894 9,716.29
STREET-RAILWAY AND ELECTRIC LIGHT AND POWER COMPANIES.
These companies are required to pay annually to the treasurer of the city or
village from which their franchise is derived a tax upon their gross earnings, as
shown by a sworn statement filed with such treasurer.
The rate of taxation is graduated as follows:
1. Three per cent upon the first $800,000 and 4 per cent upon all amounts of such
receipts over $800,000.
2. Those whose gross cash receipts are less than $800,000 per annum, as follows:
One and one-half per cent on the first $250,000 or less, 2| per cent on all amounts
of such receipts over $250,000. Provision is made for the apportionment of this
license fee between two or more municipalities, based upon the number of miles
of track or wire within each; also where the track extends beyond the limits of
the principal municipality to a town or village, such municipality shall receive 3
portions of such fee to 1 in such town or village. The distinction in apportion-
ment between electric companies and railroad companies is based on the theory
that the former are distinctively local corporations, and that there is less reason
for payment of their license fees into the general funds of the State.
Of the taxes so collected, the State receives 6 per cent, the county 3 per cent, and
the municipalities 91 per cent.
Yield of taxes to State on street railways and electric-light companies, being 6
per cent of the whole:
1896.. $746.73
1897 ... . 697.17
1898 - 4,131.90
GAS AND WATER COMPANIES.
Reference has already been made to the manner in which the property of these
companies is assessed. In addition, we quote the following from the report of the
tax commission of 1898:
'SAfter various unsuccessful attempts in some cities to properly tax some of the
corporations of these classes, and after several decisions of the supreme court
prescribing the legal method, a statute was adopted providing for the taxing of
waterworks companies and gas plants.
" By this method all the land, pipes, appurtenances, and franchises are treated as
personal property and assessed in the district of the principal office of the company,
and the taxes are collected like other taxes on personal property; and where the
property is in more than one municipality the law provides for the apportionment
of the just amount to each.
148 LNDUSTKIAL COMMISSION.
" The statute referred to is based upon the rule expressed by the supreme court
that although all of the property of such corporations, including the franchises,
should be assessed and taxed, the different kinds of property making up the plant
should not be segregated, but should be treated for the purposes of taxation as an
entirety.
" The representatives of several companies of this class stated that they would
prefer to be taxed like some of the other corporations, on the basis of gross earn-
ings, and suggested that even if the percentage were so adjusted that the amount
of taxation were somewhat increased over the amount paid under the present
system they would prefer to bear it, in consideration of greater uniformity and
their consequent ability to anticipate and prepare for the expense and fixed
charges of their business.
" There would seem to be no serious difficulty in arriving at the fair value of this
form of property, and we do not recommend any change."
These are local taxes, and the aggregate amount can not be given.
TRUST, ANNUITY, AND GUARANTY COMPANIES.
These companies pay to the State treasurer an annual license* fee of $300, and
in addition thereto 2 per cent of their net annual income. The whole of such
tax is received by the State, this is in lieu of all taxes except those upon real estate.
The tax paid by loan and trust companies in 1898 was $2,604.10.
BANKS.
No tax is assessed upon the capital of banks, but the stock of each stockholder
is assessed to him at its value, as other taxable property, in the assessment district
where such bank is located. The value of real estate owned by banks is not
deducted from shares.
Upon demand of the assessor the names of the stockholders and the number
of shares held by each are required to be furnished by each bank. But accumu-
lated profits and surplus over and above the capital stock paid in are assessed for
taxation to such bank.
The tax commission of 1898 says that a comparison of the assessed valuation of
bank stock with the total par value, as shown by the official reports in 1897, dis-
closed the fact that the assessors' valuations ranged from nothing at all to over
200 per cent.
The par value of the stock in National, State, and private banks in the summer
of 1897 was $18,141 .689.26. The surplus and undivided profits held by these banks
amounted to $6,073,324, making a total of $24,215,013.26, while the total assessment
of bank stock for the whole State was $7,588,890, or 31 per cent.
Making certain corrections because of assessment of bank stock in one city
under another head, it is made to appear that the assessed valuation of bank stock
is 72 per cent of its par value, and 54 per cent of the sum obtained by adding the
surplus and undivided profits to the par value. The commission says, however,
that there is a great deal of bank stock in the State that pays very small divi-
dends, if any, and is not salable at par.
Notwithstanding this, the tax commission says that there is no form of property
in the State that pays a larger tax relatively than the banks, and they give the
familiar reasons for this statement that full reports being required of bank
officers and the value of the capital stock being easily ascertained by assessors,
shares are generally assessed at a larger proportion of their real value than any
other form of property except, possibly, real estate.
The commission refers to the injustice done to banks in some cities by the fail-
ure of assessors to adopt a uniform method of determining the value of stock, an
evil which it suggests might be remedied by a State board.
TITLE GUARANTY COMPANIES.
Corporations formed for the purpose of insuring or guarantying the title of real
estate are required to pay to the State the same license fees required of fire insur-
ance companies, and such fees are to be in lieu of all other taxes.
BOOM COMPANIES, ETC.
Persons or corporations owning or operating dams, booms, sluiceways, or other
structures in any navigable stream within or forming part of the boundary of the
State for the purpose of booming, driving, or otherwise handling logs and timber
of any kind, having authority so to do under the laws of this State, are required
WISCONSIN CORPORATION TAXES. 149
to pay license fees of 2 per cent of the gross earnings of the business. Where the
property and improvements of such person or company necessary for the transac-
tion of his or its business have been taxed by the town, city, or village where the
same are located, then the amount of such taxes maybe deducted from the license
fee above mentioned.
PLANK AND TOLL ROADS.
Owners of plank and toll roads are required annually to pay to the State a
license fee equal to 3 per cent of the gross earnings of such roads, the same to be
in lieu of all other assessments or taxes. The tax paid by these roads in 1898 was
$683.59.
FIRE AND NAVIGATION INSURANCE COMPANIES.
Companies of these classes, except town, church, and mutual insurance com-
panies in cities and villages, transacting business in Wisconsin are required to pay
to the commissioner of insurance as a license fee " 2 per cent of the amount of
gross income, including cash, notes, receipts, or installment notes taken for pre-
miums and assessments on premium notes received by such company during the
preceding year in this State, as shown by the annual statement of its business
required to be made by law."
They also pay for the benefit of organized fire departments in cities and villages
where they are maintained 2 per cent of the premiums received in such munici-
palities, make certain contributions to the expense of maintaining fire patrols
and fire departments in cities and villages under certain conditions, and pay
various items of fees to the insurance commissioner.
While these exactions are not imposed by the exercise of the taxing power of
the State, but under the police power of the State, they considerably add to the
burdens of such companies, and should be mentioned in this connection. The
amount of this 2 per cent tax in 1898 was $87,029.61.
LIFE INSURANCE COMPANIES.
Under an act of 1899, life insurance companies, excepting fraternal insurance
societies, organized under the laws of the State, not purely assessment companies,
pay to the State treasurer an annual license fee of 1 per cent of their gross income,
excepting therefrom the rents of real estate upon which such company has paid
taxes assessed as upon other real estate similarly situated, and excepting income
from interest on United States bonds.
Such insurance companies organized without the State pay to the State treas-
urer an annual license fee of 1 per cent of all premiums collected from residents
of the State during the preceding calendar year. The entire premiums collected,
including premium notes and dividends paid to the insured, are so taxed.
All other insurance companies except fraternal societies, including assessment
companies, pay to the State treasurer an annual license of $300.
Prior to 1899 life insurance companies paid an annual license fee of $300, and
domestic insurance companies paid in addition 2 per cent of their cash receipts
for premiums. This tax was in lieu of all taxation except on real estate. For-
eign assessment companies paid an annual license fee of $25. Domestic assess-
ment companies pai4 no tax. The amount of taxes from these companies in 1898,
under the old law, was $35,747.19.
CASUALTY COMPANIES.
Casualty companies pay to the commissioner of insurance an annual license fee
of 2 per cent of their gross premiums, which in 1898 amounted to $22,249.27.
SUMMARY.
The total income of the general fund of the State for 1898 was $2,971,140.72.
Of this, $1.429,179.69 was received from license fees, as shown by the following
table:
Licenses.
Railroads $1,247,357.03
Sleeping-car companies
Telegraph companies ... Jjjj ~- Jjj
Telephone companies on
Street-railway companies and electric-light companies -
150 INDUSTRIAL COMMISSION.
Licenses Continued .
Loan and trust companies _ $2, 604. 10
Log driving and boom companies 1, 769. 92
Plank-road companies ._ 683. 59
Insurance companies _ 145, 420. 72
* Total. 1,429,179.69
Of the balance of general fund receipts, amounting to $1,541.961.03, $1,149,300.70
was received by State levies on general property and from special charges and
taxes upon civil actions, $332,660.33 being received from charitable and penal
institutions and from sundry and miscellaneous sources.
REPORT OF THE WISCONSIN STATE TAX COMMISSION.
Since the foregoing report of the Wisconsin tax system was prepared, we have
received the first biennial report of the Wisconsin State tax commission, an able,
conservative, and valuable contribution to the modern literature^of taxation, con-
taining some matter of special interest at this time.
The preliminary work of this commission in 1899 was largely devoted to the
examination of the tax laws in the several States, the publications' of leading econ-
omists and financiers, the reports of tax commissions in different States under
various systems of taxation, and recommendations for improvement in universally
unsatisfactory conditions.
During the year 1900 the commission limited the scope of its original work
largely to ascertaining the actual and assessed values of the different kinds of
taxable property of the State taxed under different systems, for the purpose of
comparing the taxes paid by these several classes and ascertaining the relation
of taxes paid under the general-property tax and under the license system in
vogue in that State, or, in other words, of determining the proportionate burdens
imposed upon different classes of property.
From a careful examination of the reports of sales of real estate and assess-
ments of the same property filed each year by the registers of deeds of the several
counties of the State with the secretary of State, and other data and information
from various sources, the approximate actual value of the taxable real estate of
Wisconsin, based upon a 5-year average of sales, was found by the commission to
be $1,192,867,499, and the total average assessed value for the corresponding 5
years was $518,824,553, and from these two respective sums the average of assessed
value was found to be 43.4 per cent of the aggregate actual value.
At the time of the compilation of real estate sales the commissioners also made
an investigation for the purpose of comparison between agricultural property and
interests represented by railroad and other quasi-public corporations. For this
purpose an attempt to find the actual values of property based upon sales was
made, although they point out the difficulty and complexity of the problem of
making comparison of properties differing so widely in product.
In the compilation of data of farm properties they sought simply to find some
basis for comparison. The method pursued was through inquiry among 6,000
representative farmers fairly distributed throughout the State. A series of ques-
tions was propounded calculated to discover: First, the ratio of expense to gross
income of agriculture; second, what percentage of gross income and income from
operation the farmer pays in taxes; third, what relation the assessment of per-
sonal property, comprising implements and live stock, bears to his total assess-
ment, and, lastly, the opinions of farmers as to the ratio which the assessed value
of their farm real estate bears to the real value of the property. From 1,124
replies, sufficiently clear and reliable to be used for the purpose, in which all but
5 counties of the State were represented, the value of the lands of these farmers
was estimated to be $5,507,036, and the assessment of the same property in 1899
was $2,109,927, being an average ratio of assessment to actual value of 38 per
cent. A smaller number, 954, representing 64 counties, made a statement of the
gross earnings of their farms and the amount of taxes paid upon the assessments
of 1899, showing gross earnings $871,351 and taxes $37,297, or about 4.2 per cent
of gross receipts.
Six hundred and fifty-six farmers, representing 58 counties, gave their gross
income as $687,469, and income less expenses $204,152, the ratio of gross expenses
to gross income being 70.3 per cent. The taxes paid by these 656 farmers averaged
13 per cent of their income from operation or net income. Of the 592 farmers
who reported their assessments on the value of land, implements, and live stock,
TAXATION IN WISCONSIN. 151
the average ratio of assessment to actual value was the same as in the case of
land, 38 per cent, the ratio of assessment to actual value in case of implements
being 23.7 per cent, and in case of live stock 45.2 per cent. Reduced to brief form
these results are as follows:
Per cent.
Ratio of assessed to true value of land 38
Ratio of assessed to actual value of implements ... 28. 7
Ratio of assessed to true value of live stock 45. 2
Percentage of gross earnings paid in taxes _ 4. 2
Percentage of income from operation paid in taxes - 13
Ratio which assessed value of farm implements bears to total assessment of
farmer 3. 46
Ratio which assessed value of live stock bears to real estate of farmers 17.4
While these returns are crude and uncertain as compared with the returns of
manufacturers and kindred industries, the commission expressed the belief that
even on so limited a scale they indicate in some degree the actual conditions.
After all is said, however, the comparison of this farm property upon this basis
with that of manufacturing plants, railroads, and kindred business properties
must be regarded as in a very great degree guesswork against comparative accu-
racy, although for popular use not de\:oid of substantial value.
A similar inquiry among manufacturers showed the average assessed value to
be 37.2 per cent of the actual value in 1900. The results of inquiries concerning
this class of properties were, however, admitted to be very meager and unsatis-
factory.
The representatives of the railroad companies of the State who were invited to
appear before the commission, in presenting their views of the relative burdens
of taxation on different classes of property, presented statistics of data collected
by them in 16 of the 70 counties, showing the average ratio of assessed to true
value of real and personal property of all classes to be 35.5 per cent, or as they
claimed about one-third.
A somewhat similar inquiry by the commission as to business and residence
property showed the assessed valuation to be 57.5 per cent of the actual value, and
that the business property reported upon pays taxes to the amount of 18 per cent
of gross income and 24 per cent of net income.
PERSONAL PROPERTY.
The ratio of the assessed value of personal property in the State, exclusive of
railroad property, to the assessed value of real and personal property was 19.62 per
cent, based upon the assessors' returns for 1898. Referring to the personal prop-
erty, especially that of an intangible character, which escapes the tax rolls, the
commissioners say that in the practical administration of tax laws it is apparent
that calculations must be confined to that actually finding a place upon the rolls.
" Speculation as to how much escapes will not make up the deficiency, nor can it
be contended that the evasion is ground for lessening the just burdens on prop-
erty that can be reached." They come to the conclusion that the ratio of assessed
to real value of personalty on the rolls is substantially the same as in the case of
real estate, 35.5 per cent.
A like inquiry as to the value of merchants' stocks shows the assessed value to
be 45.5 per cent of the actual values, although it is admitted that the actual values
given are, to some extent at least, the mere opinions 01 merchants, and that the
difference may be less than indicated.
These methods, based upon mere opinions, are estimates of owners, and render
results of very doubtful value and reliability as a basis for taxation as compared
with the values of classes of property obtained through more accurate and com-
prehensive methods based upon more certain principles and elements.
It is shown that the banking capital of the State is assessed at 77.7 per cent of
the actual value of the paid-up stock, at 63.1 per cent of the actual value of the
paid-up stock and surplus, and 58 per cent of the actual value of paid-up stock,
surplus, and undivided profits combined.
The report also contains an interesting account of a laborious and painstaking
effort to ascertain the value of the properties of quasi-public corporations of the
State, for the purpose of comparing the burden of taxation thereon under the license
system with that on property of other kinds under the general property tax, and of
determining whether it is advisable to readjust the existing system, or change to
the assessment of the property of corporations upon an ad valorem basis, with a
view to taxing it upon an approximately equal basis with other property.
152 INDUSTRIAL COMMISSION.
With this end in view, a hearing was given to the counsel and representatives of
the railway companies operating within the State and an. opportunity afforded
for the presentation of their views of the questions involved, viz: Whether the
present system of license fees on gross earnings should be abolished and railroad
Property valued and assessed by the ad valorem system or general property tax.
f the ad valorem method is adopted, what mode should be prescribed for the
ascertaining of the value of such property and the proportion it bears to the
value of other taxable property in the State? If the license system is retained,
what mode should be adopted to determine the percentage of gross earnings to be
paid which would make the tax paid equal to the taxation imposed upon other
property?
There was shown to be substantial agreement between counsel for the com-
panies represented upon the following propositions:
1. That the license-fee system is certain, simple, inexpensive, self -executing, and
affords a fairly reasonable method of determining the relative tax obligations of
the different railway properties.
2. That the local assessment of railroad property by men unfamiliar with such
property is expensive, impracticable if not impossible, and works satisfactorily
neither to the public nor to the railway companies.
3. That in case the ad valorem basis is adopted for the taxation of railroad
property, the valuation shall be made by a central authority.
4. That under the existing license-fee system the railroads are now paying their
just and full share of taxes or more.
The commission early in its investigation reached the conclusion that the old
method of local taxation of railroads should not be restored, and eliminated it
from consideration. It then proceeded to consider the ad valorem system admin-
istered by a State board and the license or earnings system, and concluded that
taxation by either method should be imposed upon the* entire property of the cor-
poration according to value or earning capacity, and that no division of the elements
constituting the unit of value or ability to pay should be permitted.
In considering the ad valorem method, the fact was recognized that the " valua-
tion of railroad property at full value and other kinds at one-half value or less,
when the same rate of taxation is laid on both, is so grossly inequitable and
unjust that the constant effort and inclination will be to bring the former down
to the common level, or supposed equality."
It seems to be further assumed that the leveling process must, to a greater or
less extent, depend upon the discretion of the assessing body, and that if complete
and accurate statistics of the true value of all classes of property in the State were
obtained and the board " comprised of able, experienced, and skillful members of
approved integrity, holding a continued tenure of office," the valuation of such
property might be held in proper relation to other classes of property and the
valuation and taxation made with approximate justice and equity, thus clearly
indicating the inherent difficulty and weakness of the ad-valorem system as
applied to this class of property. This result, says the commission, would have
the advantage of preventing fluctuation in the revenue in times of depression or
prosperity, which is one of the objections urged against the earnings system.
Recognizing the obvious advantages of the earnings tax, the commission says
it has been so long established in the State that a change should not be made
unless a better substitute is shown.
The distinguishing defects in the earnings tax, such as fluctuation in earnings
and taxes, its relation to expenditures, and the validity of such a tax on interstate
earnings, are discussed with clearness and intelligence.
The commission industriously attempted to discover some reliable method for
ascertaining the actual value of railroad property in the State, which was deemed
essential to the j ust and adequate taxation of such property under the ad valorem
system, or to determine the rates to be fixed upon gross earnings to make the tax
proportional to the tax imposed upon other property.
It is declared that the argument of railroad counsel failed to point out any
practical method for a reliable valuation. Several methods were suggested by
railroad counsel, none of which were admitted to be even approximately correct,
while one went so far as to contend that there is no criterion for the valuation of
railroad property that can be absolutely relied upon.
The conclusion of all these arguments was that there is no mode of determining
the value of railroad property which can be relied upon. It was contended that
when terminals and facilities of great value at railroad centers, connections,
contracts, and traffic arrangements with other railroads enter into the calcula-
tion, the value of through lines presented a problem so complex as to be incapable
of solution by any method, investigation, research, or exercise of human judgment.
TAXATION IN WISCONSIN. 153
The commission, however, concluded that whatever the difficulties, it was not
wise to delay an honest attempt to find the value of such properties by the best
possible test. It expressed the belief that the distribution of the value of such
property between the States according to mileage in each State is the only prac-
tical method and as nearly accurate as any that could be devised.
In the adoption of a method for determining the value of this class of property,
the commission rejected as unduly expensive the employment of experts to
determine the physical value of the railroads a method employed by the Michigan
tax commission during the past year with results of very questionable worth,
even for the purpose of comparison in taxation. Two principal sources of evi-
dence were obtainable, the first being the reports of railroads containing accounts
of the cost of the roads and equipment, issues of stocks and funded debts, gross
and net earnings, operating expenses, interest and dividends paid, etc.; the second
being to take the market price of the capital stock and funded debt of each road
for a certain period and find the value by the aggregate value of all the stocks
and bonds.
The average market value of the stock and bonds was compiled from the best
and most reliable sources obtainable for periods of 1,3, and 5 years, and the value
of railroad property in Wisconsin, determined by the mileage plan.
The market values ascertained by this method were as follows:
Five-year average '. $217, 995, 718
Three-year average 231,350,451
One-year average 252, 318, 776
Taking the aggregate value of all the taxable real and personal property of the
State as ascertained by the methods hereinbefore set forth and the total taxes
raised for the year 1899, the tax rate upon that valuation, it was found, would have
been 1.1545 per cent. For the purpose of comparsion of the taxes paid by the
owners of real and personal property with that which would fall on railroads
on the ad valorem basis, the commission took the average market price of the
capital stock and debt for the 5-year period. It was then shown that, extending
this illustrative tax upon that basis, the amount of tax would be $2,516,760.56.
Based upon the 3-year average and the 1-year average, the tax would of course be
correspondingly higher.
It was further shown that if, instead of using the average rate referred to, the
aggregate value of real and personal property was added to the aggregate value
of the railroads on the 5-year basis, and the amount of taxes raised from both
classes in 1899, the general taxes and the license taxes, the rate would be 1.102,
and the amount paid by the railroads at that rate would have been $2,402,312.81.
The commission also took into consideration the fact that " a too radical change
might affect the value of the roads and cause the rates charged for traffic to be
increased.'' From these ingenious investigations and comparisons the commis-
sion concluded that it would not be wise to change the existing license-fee system
until it was more thoroughly tested, after so fixing the rates that the tax on gross
earnings would be placed upon a basis equitable in comparison with the tax on
other property.
This general conclusion would appear to be much safer and sounder than the
methods employed in the comparisons. In fact, these methods illustrate, as stated
by the New Jersey commission, "how impracticable it is to compare two things
which are essentially dissimilar; how difficult and unsatisfactory it is to make a
correct and just comparison of two systems of taxation based upon dissimilar
principles." Such comparisons are perhaps useful for general purposes, but
obviously constitute an unsound basis for tax legislation. The principles upon
which the respective methods are based must be the primary consideration, and
the comparative valuation thus obtained secondary.
In pursuing these methods of comparison of the accurate maximum values of
one class of property, including the elements, tangible and intangible, which go
to make up earning capacity, with other classes of property based upon property
estimate and conjecture, it is obvious that liberal allowance must be made
through the judgment and discretion of those conducting the comparisons, and
that numerous elements of doubt and uncertainty are likely to be determined in
favor of classes coming under the general property tax. A reliable authority has
stated, in substance, that the method of arriving at values by capitalizing earn-
ings at a certain percentage (or by market value of bonds and stock) must be
regarded as entirely distinct from the property or valuation method, and for all
practical purposes amounts to a tax upon earnings.
The application to one class of property, peculiar and complex in character, of
a method of valuation which includes not only tangible property values, but such
154 INDUSTRIAL COMMISSION.
intangible elements as franchises, terminal connections, traffic arrangements,
business management, etc., and to other classes the methods employed by the
assessors for ascertaining values of real and personal property in general, can
hardly be regarded by business and industrial interests as affording an approx-
imately reliable basis of comparison or as calculated to deduce sound and logical
conclusions. The soundness and justice of the conclusions reached necessarily
depend very largely upon the good judgment of the commissioners.
Valuations were also placed upon the properties of street railways, telegraph
companies, and telephone companies by somewhat similar methods for like pur-
poses of comparison.
RECOMMENDATIONS OF THE COMMISSION.
In making recommendations the commissioners "have sought to be conserva-
tive, keeping in mind, while seeking remedies for the evils laid bare, that too
radical an effort to bring relief might tend to neutralize the good which would
follow upon an immediate equalization of the tax burden."
The conclusions of the commission may justly be regarded as more sound than
the methods employed for comparison of property values and as reflecting great
credit upon the judgment and discretion of the commission. They recommend as
follows:
MAINTAIN LICENSE-FEE SYSTEM.
That the license-fee system of collecting taxes from certain corporations be
maintained, at least until it be given a test under conditions that will make the
returns received from it more nearly equal to what would be collected from the
same properties on an ad valorem basis.
LICENSE FEE TO BE COLLECTED FROM RAILROADS.
That the annual license fee to be paid by the railroads in lieu of all other taxes
shall be a percentage of the annual gross earnings graded from a minimum of 3
per cent to a maximum of 5-J per cent, the graduation and classification to be as
follows:
Three per cent of the gross earnings of all railroads whose gross earnings do not
exceed $2,000 per mile; the rate thereafter to be increased from the minimum of
3 per cent by adding thereto one-tenth of 1 per cent for each $100 of gross earn-
ings per mile until the gross earnings per mile shall equal $4,500 and the maxi-
mum rate of 5i per cent is reached; and 5| per cent of the gross earnings of all
railroads whose gross earnings per mile are $4,500 and over. Thus, railroads
whose gross earnings are equal to $3,000 per mile will pay 4 per cent; $4,000 per
mile, 5 per cent; $4,500 per mile, or over, 5 per cent.
The railroads in 1900 on the earnings of 1899 paid the sum of $1,546,720.68 on
gross earnings of $39,487,403.67. The above classification on the per cent of the
gross earnings if applied to the gross earnings of the railroads in 1899 will give a
revenue of approximately $2,150,000.
SHALL NOT BE A WAIVER.
That the payment of a license fee on the gross earnings reported to the State
treasurer by the railroads, and the granting of a license to operate the railroad in
the State shall not be a waiver of the right to recover such further sum as inves-
tigation may show ought to have been paid.
REASSESSMENT.
That in case the taxation of railroads under the license fee system shall be
held invalid on grounds not affecting the justice or equity of the tax a State
board shall be designated and empowered to reassess the amount of the license
fee which should have been paid upon the property of the railroad corporations
at the actual value, and to levy a tax thereon for the use of the State.
STREET RAILWAYS AND ELECTRIC LIGHTING AND POWER COMPANIES.
That the annual license fee charged the above-named companies shall be a per-
centage of the gross receipts ranging from a minimum of 3 per cent to a maxi-
mum of 5 per cent, graded and classified as follows: Three per cent of the annual
gross receipts of all companies whose earnings per annum shall not exceed $25, 000;
TAXATION IN WISCONSIN. 155
and thereafter to be increased from the minimum rate of 3 per cent by adding
thereto one-tenth of 1 per cent for each additional $7,500 of gross receipts over
$25,000 until gross receipts of $100.000 are reached, when the rate will be 4 per
cent; and increased from 4 per cent by adding thereto one-tenth of 1 per cent for
each additional $10,000 of gross receipts over $100,000 until annual gross receipts
of $200,000 are reached, when the rate will be 5 per cent; then 5 per cent on the
gross receipts of such companies whose gross receipts per annum shall exceed
$200,000.
TELEPHONE COMPANIES.
That the annual license fee which shall be charged telephone companies shall
be a percentage of the gross receipts, ranging from a minimum of 3 per cent to a
maximum of 5 per cent, graded and classified as follows: Three per cent on the
gross receipts of all telephone companies whose gross receipts per annum shall not
exceed $25,000; the rate thereafter to be increased from the minimum rate of 3
per cent by adding thereto one-tenth of 1 per cent for each additional $7,500 of
gross receipts over $25,000 until gross receipts of $100,000 are reached, when the
rate will be 4 per cent; thereafter to be increased from 4 per cent by adding
thereto one-tenth of 1 per cent for each additional $10,000 of gross receipts over
$100,000 until $200.000 of gross receipts are reached, when the rate will be 5 per
cent; then 5 per cent qn the gross receipts of such companies whose gross receipts
per annum shall exceed $200,000.
TELEGRAPH COMPANIES.
That telegraph companies operating in the State be taxed on the ad valorem
basis, the assessment to be made by a State board the same as in the case of sleep-
ing car, express, freight line, and equipment companies.
EXPRESS COMPANIES.
That Chapter III, laws 1899, be changed so as to more specifically define the
property to be deducted in making the assessment of express companies. The
companies have made the claim that the property " not used in the business of
such express company " should be deducted before making the assessment of their
property. It was contended in the hearings before the State board of assessment
that a large amount of personal property, consisting of stocks, bonds, mortgages,
and other securities constituting the capital of the companies was not used in the
express business. While such property is not actually used in the transportation
business of the companies, it gives strength and credit, which enable them to do
a large amount of business. The State board of assessment being in doubt as to
the right to include such property in the valuation of the express companies, have
allowed such deduction in view of the indefinite provisions of the statute.
FOREIGN CORPORATIONS.
That the statutes prescribing the conditions upon which foreign corporations
are permitted to transact business in this State be amended in important particu-
lars to secure their better regulation, control, and taxation. Such corporations
should at least be compelled to file their charters or articles of incorporation and
pay the same fees as are required of domestic corporations. They should also
make reports of the capital employed within the State, and such other informa-
tion as may be demanded. A reasonable license fee should be imposed on such
corporations for the privilege of exercising the corporate powers and franchises
in carrying on their business within the State.
INHERITANCE OR SUCCESSION TAX.
That a change be made in chapter 355, laws of 1899, which provides for a tax on
inheritances or transfers of personal property. This is generally commended as
a just and wise measure, and reaches for taxation a large volume of intangible
property which would otherwise escape. The act, however, has two provisions
which exempt certain property that ought to pay the inheritance tax. The first
is that part of section 11 which reads as follows:
' There shall be deducted from such valuation an amount equal to the fair
valuation of all personal property over and above $10,000 upon which the testator,
intestate, grantor, vendor, bargainer, or donor has paid the previous year a per-
sonal property tax."
156 INDUSTEIAL COMMISSION.
This provision should be stricken out. The other provision which should also
be stricken out is the last clause of section 19. which reads as follows:
"In case of any transfer of any shares of the capital stock of any corporation
which owns real estate, the proportionate market value of its real estate taxed as
such shall be deducted from the appraised value of any such shares so transferred
and taxed as herein provided."
The real estate of the corporation, the proportionate value of which is to be
deducted from the appraised value of the capital stock, may be situated in this or
other States, so that the clause as it now stands will result in the exemption of
capital stock to a large extent from the payment of the inheritance tax, as nearly
every corporation owns more or less real estate. The increasing volume of this
species of intangible property now escaping ordinary taxation should at least be
subject to the inheritance tax. Section 13 of the law conferring jurisdiction upon
the county court to determine the cash value of the estate, without appointing
appraisers, should be amended so as to provide for notice of the time and place of
hearing, which is essential to the validity of the proceedings.
IOWA.
In this State considerable effort of a conservative character has been made
during recent years to improve the crude and inadequate general property tax
system adopted in an early day, before corporate property had assumed any con-
siderable proportions. The progress of reform in the taxation of property in
corporate and intangible forms and the adoption of more modern methods has,
however, apparently been impeded by the ambiguous constitutional provision
that "the property of all corporations for pecuniary profit shall be subject to
taxation the same as that of individuals; " by the tenacity with which public senti-
ment of the State clings to the idea of taxing such forms in " the same manner,
to the same extent, at the same rates, and for the same purposes " as the property
of individuals, and the apparent reluctance to supplement the general property
tax by the adoption of entirely separate and distinctive methods for the taxation
of special classes of corporate property by uniform State assessments. Consid-
erable progress has, however, been made since the report of the tax commission
in 1893 by the revision of the tax code in 1897, and the good effects of changes
already made will doubtless be conducive to still greater progress in that direction.
The report of the tax commission referred to is a contribution to the literature
of taxation in American States lacking in positive force and virility. It was the
avowed " aim of the commission, next to bringing about a readjustment of the
burdens of taxation, to see that these burdens were not increased." It expresses
the firm belief that the bill proposed by it, if placed upon the statute book,
would accomplish both these reforms; that it would even "have a tendency
actually to lessen the public burdens as to those who now pay taxes."
Thus prepared, " the measure is submitted for the critical consideration of the
people who must furnish the revenues of the State and the counties, and to whom
these revenues belong for disbursement." As an educational source regarding
just, uniform, and progressive taxation, to the people who must "furnish the
revenues," it falls short. The commission seems to follow rather than lead public
sentiment.
Still it would hardly be charitable to conclude that the commissioners proceeded
upon the assumption of the adequacy of the existing system of taxation in that
State . Rather should it be inferred , from the fact that only a portion of the changes
recommended were followed by the legislature in the revision of the tax code in
1897, that they sought what was then attainable in legislation rather than the
framing of correct scientific methods and theories of taxation. Some deficien-
cies in the existing methods and in administration are mildly set forth, but no
positive or radical changes in methods are recommended, the commissioners appar-
ently confining themselves to the better enforcement of the prevailing general
property tax and its adaptation to changing economical conditions.
They, advert to the fact that corporations are multiplying out of all proportion
to the increase of population; that statutory provisions for taxing corporations
in general remain practically unchanged since the time when there were very
few of them in the State, and are so unsatisfactory that assessors in many
cases pay little or no attention to their listing; yet they confine themselves to the
recommendation of a corporation organization tax and aim "to render the man-
ner of listing and assessing corporations clear and unambiguous and so as to
secure from them contributions to the public revenue proportioned in amount to
those supplied by individuals."
No definite recommendations were made or opinions expressed upon the ques-
tion of divorcement of the sources of the State and local revenues, any opinion
for or against such a change being expressly withheld, the bill presented simply
containing alternative provisions in. that regard, resulting in the retention of the
existing method.
The recommendations of the commission in respect to organization tax,
corporation tax, inheritance tax, and other suggestions were followed in part
only by the legislature in the revision of the code, although the laws were con-
157
158 INDUSTRIAL COMMISSION.
siderably altered with respect to assessment of corporations generally. Consid-
erable change was made in the listing and assessment of property and more
stringent methods adopted, which are expected to greatly increase the valuation
and discovery of property for taxation.
Little need be said with respect to the general system in vogue as applied to
real and personal property in general. It is the crude general property tax by local
assessment, through elective local officers, for local, county, and apportioned State
taxes, mingled with the primitive equalization as between townships by county
boards of review and among counties by a state board of equalization.
During the biennial period from July 1, 1897, to June 30, 1899, the State receipts
from county levies were $4.055,767.75; from corporations, viz, insurance, tele-
phone, express, and telegraph, $375.596.57; the remainder of State revenues being
from officers' fees, collateral inheritances, and miscellaneous sources.
We will refer in detail to the provisions for the assessment and taxation of
various classes of corporate property.
ASSESSMENT OF REAL AND PERSONAL PROPERTY.
The executive council, or State board of review, fix the ratfe of taxation for
State revenues upon the valuation of taxable property within the State, the
amount to be expended for general State purposes being fixed by the general
assembly. The rates for ordinary county revenues, support of schools and other
local purposes, are limited by statute. The amounts required within these limi-
tations are levied by the board of supervisors in each county upon the assessed
value of taxable property within the county. The exemptions of property are
liberal, including as usual property for public and charitable purposes as well as
property for family support and farms, young live stock, and teams, utensils, and
other property essential to livelihood.
The board of supervisors constitutes the county board of review, and adjusts
the assessments of the several townships, cities, and towns, and the State execu-
tive council acts as a State board of review for the adjustment of valuations of
the several counties.
In the assessment laws it is especially provided that all property subject to tax-
ation shall be valued at its actual value, meaning its value in the market in the
ordinary course of trade, and assessed for taxation at 25 per cent of such actual
value, the purpose of this unique method of assessment being to avoid the danger
of excessive levies upon a basis of full valuation, there being a constitutional
limitation upon the power to create municipal indebtedness.
The real and personal property of individuals and private corporations is taxa-
ble locally for both State and local purposes. Aside from the liberal statutory
exemptions, it is designed to bring all kinds of property upon the rolls by uni-
form methods and rates, and to accomplish that object there appears to be con-
siderable latitude in the construction of the term " double taxation," the evils of
that injustice being apparently regarded as preferable to the escape of property
from single taxation.
For the purposes of taxation, credits are expressly defined to include "every
claim or demand due or to become due for money, labor, or other valuable thing;
every annuity or sum of money receivable at stated periods and all money or
property of any kind secured by deed, title, mortgage, bond, or otherwise, and
all moneys of every kind, credits, and corporation shares or stock except as
otherwise provided, notes, accounts, contracts, bills of exchange, judgments,
choses in action, liens of any kind, and securities other than those of the United
States."
It has been held that the taxation of a mortgage debt in the hands of a mort-
gagee and also of the property in the hands of the mortgagor does not constitute
double taxation, and that, although the taxation of the property of a corporation
to the corporation and the shares of its stock to the holders thereof may amount
to double taxation, it is not unconstitutional.
The statute provides for a limited and conditional deduction of debts from the
amount of money or credits listed by any person, being limited to the gross
amount of all debts owing in good faith and not formed with a view to decreasing
taxation, and it being specifically provided that no person shall be entitled to any
deduction on account of any indebtedness contracted for the purchase of non-
taxable property. Deductions for debts are made only from moneys and credits.
The bill proposed by the tax commission omitted all provisions for deduction of
indebtedness of any kind, from the amount of moneys and credits, but the legis-
lature did not follow their plan in this respect.
TAXATION IN IOWA. 159
LISTING.
An attempt is made to secure by law a fair and equitable listing of all the tax-
able property of individuals and corporations, the values, however, being fixed
by the assessors. The local assessor is required to list and assess the property of
each taxpayer with his assistance, the owner being required to list his property
under oath subscribed by him and administered by the assessor, refusal to take
which is declared to be a misdemeanor. The assessor is required to fix the value
of property assessed, and at the time it is made, to notify the owner in writing of
the valuation put upon his property, directing him to appear before the board
of review and show why the assessment should be changed if he feels aggrieved.
In case any person refuses to list property the assessor assesses it according to
the best information obtainable, and adds to the taxable valuation 100 per cent.
Any person who knowingly makes a false statement in regard to his taxable
property is declared guilty of perjury.
Each grain, ice, and coal dealer is assessable upon the average amount of capital
used by him in conducting his business, estimated in manner provided.
Provision is made for the listing and assessment of stocks of merchandise by
inventory at the average value of such stocks during the preceding year. This
applies also to corporations engaged principally in mercantile business, such taxa-
tion being in lieu of any tax on corporate shares.
The property of manufacturers which enters into the combination or manufac-
ture of products is listed and assessed in like manner with merchandise as to
average value, the real estate, including machinery, being separately assessed.
Corporations engaged in manufacturing are required to list their real estate, per-
sonal property, moneys, and credits in like manner as required of individuals,
and when so listed and assessed the shares of stock of such corporations are exempt
from taxation in the hands of their owners.
Personalty is listed and assessed each year, and real estate is listed and valued
in each odd-numbered year, buildings erected thereon being assessed in any year.
Although Iowa is distinctively an agricultural State and the property upon the
whole less complex in character than in some of the States reported upon, the
statutes requiring the assessment of property at its full value seem to have been,
under former methods at least, universally ignored. This condition led to the
appointment in 1893 of the special revenue commission to examine the revenue
laws and report necessary and desirable changes; the present tax code, enacted in
1897, following in many respects the recommendations of that commission. The
investigation showed at that time that realty was variously assessed at from 17
per cent to 60 per cent of its true value, averaging 38 per cent; that personalty
was listed at about 36 per cent, a sufficient amount of personalty escaping alto-
gether to bring the latter figure down to 20 per cent. This commission, in the con-
sideration of remedies for the injustice of this varied undervaluation of property,
unanimously opposed the suggestion of a proportionate valuation, as a rule fraught
with evil results and operating in practical operation against the man of small
means. It is claimed that under the provisions of the new code conditions as to
valuation of both real and personal property have improved, and that under the
listing systems in force property is more fully and adequately valued for taxa-
tion. Whether this belief is the proverbial result of the "new broom," or
whether the change will result in permanent improvement, can perhaps be hardly
determined at this time.
MORTGAGES.
Encumbered real estate is assessed to the owner at its taxable value, and mort-
gages are assessed as personal property to the owners thereof at their taxable
value. It has been held by the courts that this practice does not constitute double
taxation.
This subject received special consideration by the tax commission, and the fol-
lowing is their report upon and discussion of the subject:
" The exemption of the mortgaged part of realty from the assessment of such
realty to the holder thereof and listing the value of such mortgaged part to the
holder of the security was among the first suggestions made to members of the
commission . The disc ussions on the sub j ect which have been extensively indulged
in for many years past had, moreover, attracted their attention individually long
before their appointment. Several of the States had enacted the principle into
law, and one (California) had made it a part of the constitution. But the com-
mission is unanimous in the opinion that to adopt the measure would be unwise
and illogical, and, moreover, unsatisfactory to those urging the change, and dam-
aging to the interests whose benefit is contemplated thereby. Under the existing
160 INDUSTEIAL COMMISSION.
law all realty is assessed as such. The commission can conceive of nothing which
will improve this essentially just mode of taxation. Realty can not be hidden,
and its market value is not difficult of estimation. Your commission can not
but think it unwise to withdraw any part of it from the tax list merely because
such part secures an indebtedness. The commission is not unaware of the fact
that the measure in question does not in terms contemplate withdrawing the
property mortgaged from taxation and that it proposes that taxation shall be
brne by the mortgagee of the property. So far as existing mortgages are con-
cerned it amounts to the same thing. Where such mortgages are held in Iowa
the law requires the securities to be listed for taxation, the same as other prop-
erty, and taxes are paid thereon. In respect of obligations held in other States
that are secured by such mortgages, they, of course, can not be reached for taxation
by any enactment made subsequently to the execution of such obligations. Such
legislation would be an impairment of the obligation of a contract.
" The effect, therefore, of adopting the measure proposed would, as to existing
contracts, be simply to release mortgaged realty to the extent of the incumbrance
from all taxation. In respect of contracts made after the adoption of such a
measure, the commission is of the opinion that the fact that the mortgagee must
pay the taxes on the mortgaged part of the realty would havetthe effect of com-
pelling borrowers to pay a higher rate of interest, at least when obtaining money
from beyond the borders of the State.
" The relief of the burdened holders of property is the ostensible object of the
measure. This relief, if any, under existing contracts would be entirely at the
expense of the public revenues. As to future contracts, it would be substantially
neutralized by increased rates of interest.
' ' The man who loans money naturally prefers to pay his taxes where he resides
and where he more directly receives the benefit of its payment and where he may
have some voice in the matter of taxes imposed upon it. All other things being
equal, he will select that field for investment which gives him that privilege, and
which has in it the least element of uncertainty. It is sometimes claimed that he
does not pay taxes at his home upon the investment. The commission knows of
no State or Territory throughout the Republic the laws of which do not contem-
plate the taxation of the credits held by its people, and we have no right to assume
that their laws are not complied with. Moreover, whether such securities are or
are not taxed in other States, the commission thinks it as much as we can do to
reach all assessable property of our own people without raising questions con-
cerning the taxation of those in other States. It is not necessary to discuss the
question as to the State to which the lender is under most obligation, that where
he resides and has perhaps accumulated his money or that which temporarily
affords him an investment. His course will not depend upon the determination
of that question. He is the sole judge as to whether he shall send his money to
this State or another, and the greater favorableness of the conditions will deter-
mine him. Those who to-day are furnishing our people the cheapest money on
their farms have already largely inserted clauses in their mortgages requiring the
borrower to pay any taxes that may be levied upon the obligations secured by
the mortgages, and reserving the option, in the event of the assessment of such
taxes, to declare the whole amount due and collectible at once.
" It is claimed by some that the conditions are such that our needs in this direc-
tion are principally supplied by citizens and corporations of pur own State. This
is not true. Our cheapest money comes largely from the insurance companies
and savings banks of New England, and while our own loan and trust compa-
nies may be the owners, as appears of record, yet they are in fact held by Eastern
investors or by Eastern trust companies to secure the debenture bonds issued by
the local company. One Iowa company, in its recently published report, shows
a larger amount in outstanding debenture bonds and mortgages than is embraced
in the capital of all the banks in the city of Des Moines. The taxation of foreign
mortgages would be the harvest of the local money leaner by reason of advanced
rates.
"Again, what special reason is there why the foreign holder of Iowa mortgages
should be taxed and the farmer exempted more than the wholesale merchant in
the East should be taxed for the amount due him from the local merchant, and a
corresponding exemption made to such local merchant? The wholesale merchant
may not receive interest on his investment, but he has its equivalent in the profits
on its sales. If this rule were applied, how many local merchants would obtain
a credit on their purchases that would allow them to carry their customers to
the extent now possible? Against all deductions for indebtedness there are
other reasons:
"1. The landowner, the man with stock, and the owner of fixed permanent
property, which would include as well corporation stocks, would not have the
opportunities enjoyed by the merchant, the broker, the dealer in grain or
TAXATION IN IOWA. 161
stock, or the speculator or dealer in any of those commodities which are readily
exchangeable, to increase or shift their indebtedness to meet the visit of the
assessor. Merchants could order their supply of goods for six months or a year
in advance, giving their notes without interest therefor, yet using due care that
the goods should not be in stock nor in transit until after the date fixed for
assessment.
' k 2. It would open the door to the creation of all manner of contingent if not
fictitious indebtedness, until much of the property now upon the tax books would
have taken wings in pursuit of the already elusive 'moneys and credits' of the cap-
italist and stock of the farm, which, year by year, is thus steadily declining in its
average assessed value.
" 3. Another reason is that the man doing business largely upon borrowed capi-
tal would, if allowed to deduct his indebtedness, have a decided advantage in the
matter of taxation over his competitor doing business on his own capital. Thus
the tendency would be to multiply indebtedness, to drive out of the State the
capital even of the business man where the assessor could not find it, and cause
him to do business upon his credit, backed, possibly, if necessary, by his untaxed
investments in other States as collateral. If this is regarded as fanciful, it may
be said that it is done to a very considerable extent by shrewd Eastern business
men, and is made a matter of complaint by the tax authorities of other States.
" The commission caused inquiry to be made as to the working of the proposed
measure where it has been enacted into law, and especially in the State of Cali-
fornia, where, as stated before, it is a constitutional provision. The tenor of
advices from that State is to the effect that borrowers pay the taxes on mortgages
through enhanced rates of interest. Some of the letters say that both borrowers
and lenders are satisfied with the status, the former because their assessments are
reduced, the latter because their net returns from the investment are as good
(after paying the taxes) as before the present system was adopted. Other States
which have adopted the measure have considerably modified it, and one has aban-
doned it entirely. In most of these States the parties have directly or indirectly
inserted a stipulation that the borrower shall pay the taxes. The State of Oregon
has given the proposed measure a very thorough trial. In 1882 it was enacted
into law in that State. At the next session of the legislature, however, an act
was passed making valid all contracts by which the borrower agreed to pay the
tax on the debt, even though the latter bore the maximum rate of interest allowed
by law. This agreement is said to be always exacted; as may be well believed,
and the lender paid no tax. Finally, after 10 years' of experience with the law,
the legislature of Oregon, at the instance of the same interests which had
procured its passage originally, has just repealed it, and adopted the plan recom-
mended in this bill, of prohibiting any deduction whatever on account of indebt-
edness.''
VALUATIONS.
The actual value of land in 1899 _ . . . . $1, 204, 932, 766
The actual value of town lots in 1899 . . 373, 520, 290
Actual value of all real estate 1,578,453,056
Exemptions.. 12,077,733
Total .. - 1,566,375,323
Taxable value of real estate (25 per cent) 391 , 618, 831
Actual value of personalty 361,196,017
Taxable value of personalty. . - - 90,299,004
Actual value of vehicles, 1899 5, 326, 332
Actual value of household goods, 1899 2, 418, 553
Actual value of moneys and credits 106, 682, 840
Actual value of corporation stocks 22, 132, 498
Actual value of merchandise 59, 940, 418
Actual value of other personalty _ _ . - - 20 , 404, 40
Personalty other than live stock - - - 216, 905, 047
Actual value live stock 144, 290, 970
Actual value personalty 361, 196, 017
State tax, 1898. . 1,788,175.63
Total State and local taxes ... 18, 807, 090. 93
11
162 INDUSTRIAL COMMISSION.
BANKS.
Private banks or bankers are required to furnish to the local assessor a sworn
statement of the amount of moneys, the actual value of credits, amount of deposits
and bills payable, the actual value of bonds and stocks, and all other property
pertaining to their business.
. Their real estate is specially listed and valued for taxation the same as other
real estate.
The aggregate actual value of moneys and credits, less the amounts of deposits
and debts owing, and the aggregate actual value of bonds and stocks, except such
as may be exempt or otherwise taxed in this State, and all other property per-
taining to the business, is assessed locally at 25 per cent of its actual value.
Shares of stock of National banks are assessed to individual stockholders where
the bank is located, the officers of such banks being required to furnish the assessor
with a list of stockholders and the number of shares owned by each, and to list to
each stockholder the total value 1 of his shares.
Shares of stock of State and savings banks and loan and trust companies are
assessed to such banks and companies and not to the individual stockholders.
To aid the assessor in fixing the value of such shares, these vaujous corporations
are required to furnish him with a verified statement of property, similar to that
required of private banks, together with surplus earnings, and the assessor, from
such statement and such other information as he may obtain, fixes the value of
the stock, taking into account the capital, surplus, and undivided earnings, the
real estate being deducted and assessed separately, as other real estate.
The fact that stock in a National bank is assessed to the shareholder, while sav-
ings banks are taxed upon capital stock and the shares are not taxable to holders,
does not render the tax on National-bank stock to the holders illegal, as in viola-
tion of the Federal statute, providing that the tax on such stock shall be no higher
than that imposed on other moneyed capital, and no greater than on the other
class of banks.
It has been held that the holder of stock in National banks may set-off against
it indebtedness owing by him, based, according to the Iowa statute, on actual
consideration. Whether the owner of shares of stock in a State bank can set-off
debts against the tax on such stock, taxed directly to the bank, does not appear to
be entirely clear.
This class of property is taxed, with local property in general, at local rates, and
under the more strict provisions for obtaining a certain, uniform, full valuation
of such property than in the case of property in general taxed locally, the bur-
den of taxation would appear to be correspondingly greater.
SHARES OF CORPORATION STOCK.
The shares of stock in any corporation organized under the laws of the State
for pecuniary profit, except as otherwise specially provided for, are assessable to
the owners thereof at the place where its principal business is transacted, the
assessment being on the value of such shares on the 1st day of January in each
year. In such cases the amount of capital in real estate is deducted from the
Value of shares, such real estate being assessed as other real estate, and the prop-
erty of such corporations, except real estate situate within the State, is not other-
wise assessed. Verified annual statements are required to be furnished to the
local assessor, showing authorized capital stock and number of shares thereof;
number of shares issued, and par value of each; amount paid into the treasury on
each share, and the total capital paid in; description and value of each tract of
real estate; date, rate per cent, and amount of each dividend declared and amount
of capital on which it was declared; gross and net earnings, respectively, during
thfc year, and amount of surplus; amount of profit added to sinking fund; highest
price of sales of stock between the 1st and 10th days of January of the current
year; highest sales of stock during the preceding year, and average price of sales.
The assessor has the power to fix, arbitrarily, the value of such shares of stock
upon the facts contained in the statements furnished or upon any information
within his possession or that may come to him.
All such corporations are liable for the payment of taxes so assessed to share-
holders, and may recover taxes paid from stockholders, having a lien therefor upon
the stock and unpaid dividends enforceable by sale of the stock.
It is not very clear just what kinds of property are in practice assessed under
these provisions. One officer says in regard to them, ' ' It looks as if the legislature
had provided a way to assess all the property it could think of and then threw in
this section as a drag net to catch anything that might be found."
IOWA CORPORATION TAXES. 163
STOCK OF BUILDING AND LOAN ASSOCIATIONS.
Special provision is made for the assessment and taxation of this class of prop-
erty, the shares of stock in such associations being assessed and taxed to' the
individual holders thereof at their place of residence. When such an association
maintains a reserve, expense, or other fund, the amount thereof is assessed against
the association as other personal property at its place of business.
Each association is required to make the same verified statement as other cor-
porations, and in addition, must state the total amount of reserve or other funds,
and the actual value of its shares of stock.
Each local association is also required to mail annually to the several county
auditors of the State verified statements, showing the name and post-office address
of every stockholder residing in their respective counties, together with the
number and value of shares owned by each person.
The auditor of State is required to send to the various county auditors the name
and post-office address of each stockholder of a foreign association residing in their
respective counties, with the number and value of shares owned by each, as reported
to him by such association in compliance with the law governing such association.
The county auditor in turn furnishes each local assessor with the name of each
stockholder in his district and the number and value of shares owned by him,
which are assessed and taxed with other property at local rates.
TELEGRAPH AND TELEPHONE COMPANIES.
Each telegraph and telephone company is required to furnish to the auditor of
State an annual verified report showing:
1. The total number of miles owned, operated, or leased within the State.
2. The average number of poles per mile and the whole number within the
State.
3. The total number of miles in each separate line and the number of separate
wires thereon.
4. The whole number and value of stations and their value, including furniture.
5. The whole number of instruments on each line and the gross rental charges
per instrument.
6. The gross receipts and operating expenses for the previous year on business
originating and terminating in the State.
7. Other gross receipts and operating expenses.
8. The total capital stock.
9. The number of shares issued and outstanding and the par or face value of
each.
10. The market value of such shares on January 1 preceding, and if they have
no market value, then the actual value.
11. All real estate and other property subject to local taxation within the State.
12. The real estate and improvements thereon owned and taxed outside the State
and the actual value thereof where located.
13. All mortgages upon its property, with dates and amounts thereof.
14. The total length of lines and the total length of lines outside the State.
Such statement is laid before the State executive council, which, if it deems it
insufficient, may require such other or further statement as it may desire. A
penalty of $100 per day is imposed for failure to furnish the required statement.
The executive council is required to determine and fix the actual cash value of
the property of such companies in the State from such statements and other
information obtained, also taking into consideration the value of all property of
such companies, including franchises and the use of the property in connection
with lines outside the State, making such deduction as may be necessary on
account of extra value of property outside the State as compared with the value
of property within the State, including in its valuation property of every kind
real, personal, or mixed and such property is not taxable in any other manner.
Telegraph lines owned and operated by any railway company exclusively for
its business, reported under the law for the taxation of railway property, are
exempted from the above tax.
It will be observed that the rules provided for the assessment of this class of
property on property values are quite general in character, leaving the final val-
uation largely to the judgment and discretion of the assessing officers: the pur-
pose being to subject this .class of property at an ad valorem unit valuation to
taxation equivalent to the taxes imposed upon property in general. It is an
164 INDUSTRIAL COMMISSION.
attempt to adapt the general property tax to this class of property and secure a
full valuation thereof.
The taxable value of this class of property in 1899 was $1,028,845. and amount
of taxes paid about $85,000. This amount was paid under the law then in force,
based upon unit valuation by the executive council, the rate being fixed by the
State council "at the average rate" throughout the State, not including local
taxes on real estate and special assessments, and was paid into the State treasury.
Under the amended law now in force, as above set forth, the taxes on these com-
panies will be greatly increased.
The executive council ascertains the value per mile of the property of each
company by dividing the total value by the number of miles within the State, the
result being deemed to be the actual value of property within the State, the tax-
.able value being one-fourth of the actual value, as in case of other property.
Any company interested has a right to appear before the council and be heard
on the question of valuation of its property for taxation.
The valuation of the property within the State is then apportioned among the
counties in proportion to mileage; the respective amounts are then duly certified
to county auditors, and in turn apportioned to local taxing districts and taxes
collected and disposed of as other taxes on real estate.
It is specifically provided that such property ' ' shall be taxable upon said assess-
ment at the same rates, by the same officers and for the same purposes as the prop-
erty of individuals " within the local taxing districts, and collected at the same
time and manner as other taxes. Property not exclusively used in the business
is taxable as other property, and the shares of capital stock are exempt from other
taxation.
INSURANCE COMPANIES.
In the taxation of insurance companies Iowa has recently taken a distinct
departure from the general property tax prevailing in the general system of taxa-
tion in that State, and may be said to have gone to the opposite extreme.
In the new taxation code, adopted in 1897, a schedule of discriminating or infer-
ential taxes upon insurance companies, based upon gross premiums, was inaugu-
rated. Statements of the business of all companies operating within the State
are required, and taxes upon the gross premiums are paid into the State treasury
at the time of the making of the statements. Under the original law these State
taxes were in lieu of all other taxes, State and local, except on real estate and
special assessments.
Companies organized in foreign countries doing business in Iowa are required
to pay 3 per cent of the gross premiums received for insurance on property or
lives of persons within the State. Companies organized in any State other than
Iowa pay 2i per cent and the rate on companies organized within the State and
on stipulated premium or assessment associations outside the State is 1 per cent.
Upon filing receipts for the payment of taxes they are entitled to certificates of
authority to do business within the State. No deduction on account of any
indebtedness is allowed.
This law imposing differential taxes on insurance companies has attracted con-
siderable attention throughout the country, and seems to have formed a prece-
dent for the introduction of similar measures in the legislatures of other States.
By reason of the precedent established, rather than any excessiveness in these
discriminations, the law was met with positive opposition on the part of foreign
companies, and active steps have been taken to test its validity.
Soon after the enactment of the law a Swiss company, through the minister to
this country, protested to the Secretary of State at Washington against the law,
alleging that the law was in contravention of treaty stipulations guaranteeing to
Swiss companies the privileges granted to domestic companies. The protest was
submitted to the governor of Iowa, but the attorney-general of the State held in
an opinion that the law did not violate any treaty agreement of the Federal Gov-
ernment, and the matter in this instance has proceeded no farther.
Taxes were paid under formal protest by foreign companies generally, and a
test case brought in the courts, in which the validity of the discrimination was
sustained by the local and supreme courts, it being held that the State was acting
fully within its constitutional rights in placing a discriminating tax on foreign
insurance companies.
Another company in 1899 sought to enjoin the State treasurer from collecting
the tax under this law, and the constitutionality of the act was positively affirmed
IOWA CORPORATION TAXES. 165
in a decision by Judge Shiras in the case of Manchester Fire Insurance Company
et al. v. John Herriott, treasurer (91 Fed. Rep., 711).
In this case it was declared that the burden was not a tax imposed upon the
tangible property of companies, but, in the form of a tax imposed as a condition
upon their right to continue in business in Iowa, was within the right and power
of the State to impose.
It was held further that the State in the adoption of this law was not exercising
its right to subject property or persons within the State to taxation, thereby
becoming subject to the provisions of the State constitution requiring equality in
the burdens imposed; but was exercising its right to prescribe the terms upon
which foreign corporations might be allowed to do or continue business within
the State, and that it was not for the courts to question the expediency or justice
of the conditions imposed. This case, so far as we know, has not been appealed.
The expediency of the law, however, has been the subject of some controversy
in the State. In his biennial report of 1899 the State treasurer, discussing this
law, says:
" But granting that it is within the power of the State to discriminate in plac-
ing tax burdens upon corporations doing business within our borders, is it a wise
policy for Iowa to pursue? Does it promote the best interests of the Deople? Such
discriminations against foreign corporations I do not believe are beneficial. They
inevitably engender retaliations against our State companies in other States that
may seriously embarrass their operations and progress outside of Iowa, and they
tend to produce a condition of things within our own borders that may work great
detriment to our home companies. The insurance of business, property, or life,
if it is a good thing, and no one nowadays doubts it, should be encouraged and
promoted by the State by all proper means, and discriminations such as Iowa has
inaugurated do not in my opinion promote the best interests either of our home
companies or of the insuring public. Iowa should emulate the broader policy of
New T ork and Massachusetts and treat all companies as nearly as may be alike.
"This present statute with its discrimination against foreign companies was
passed for the purpose of obtaining increased revenues from such companies not
to ' make war ' on them or to drive them out of the State, as generally charged by
the Eastern press. As such, the act only passed the senate by 1 vote. There was
no local ill-feeling against such companies. The home companies opposed the
passage of the act as vigorously as the foreign companies. But while passed as a
revenue measure, the additional taxes received are insignificant compared with
the great harm that may come from such discrimination. I urge the restoration
of the old uniform rate on United States and foreign companies or the assessment
of the same rate on other State companies now imposed on foreign."
The constitutionality of this law taxing insurance companies was attacked from
another standpoint, the clause providing that taxes paid thereunder *| shall be in
full of all taxes, State and local, against such corporations or associations, except
taxes on real estate and special assessments;" and in a test case it was held by the
supreme court that under the constitutional provision requiring that corpora-
tions shall be taxed "the same" as individuals the legislature could not prevent
counties and cities of the State from listing their property and assessing them for
taxation. The decision of the court followed the railroad cases decided during
the sixties and seventies, and affected the taxation of telegraph, telephone, and
express companies. The decision, it will be seen, renders it exceedingly difficult,
if not impossible, under present constitutional limitations, to tax corporations
in Iowa exclusively for State purposes according to modern methods of assess-
ment in vogue in the more advanced States.
As a result of this decision, the legislature in 1900 passed new laws for the
taxation of telegraph, telephone, and express companies, as set forth under those
heads, providing for their assessment by the State tax. board or board of review,
and for the certification of their valuation to the local authorities, apportioning
said valuation among the local taxing districts according to mileage, as in the
case of railroads.
The decision referred to apparently bars exclusive State taxes on corporations.
This case is of great importance as affecting the progress of corporate taxation
in Iowa, and the separation of State and local taxes. While the expediency of
the discriminating rates may be justly questioned, the method unquestionably
contains sound and progressive features, the principal one being the substitution
of a fixed and definite tax from which there is no escape, imposed by the State
upon companies whose business extends throughout the State, for the antiquated
method of assessing such companies through local authorities. The taxes paid
under this law in 1898 and 1899 exceeded the taxes for the previous 2 years
166 INDUSTRIAL COMMISSION.
under the former law by 857,902; the amount of taxes during the last years
being shown by the following table;
Class.
1898.
1899.
Iowa companies
$15 639 18
$17 892 48
Stipulated assessment associations
1,419.91
1 769 05
United States companies
112 213 72
119 9 07 05
Foreign companies
18 268 21
18 058 49
Grand total
147 541 02
156 927 07
Presumably to avoid the consequences of the aforesaid decision, at the 1900 ses-
sion of the legislature the provisions of the insurance-tax law applying to com-
panies organized within the State were amended, and it is now provided, with
reference to domestic companies, that the shares of stock of every such corpora-
tion having capital stock shall be assessed in manner provided for the assessment
of shares of corporate stock in general, but assessed to the owners thereof at the
place where the principal business is transacted, upon the value of shares based
upon sworn statements, the corporation being liable for the payment of the tax;
and also that the corporation shall pay a tax upon gross premiums, as provided in
the amended law, and that such shares of stock shall not be otherwise assessed.
The law further provides that all other domestic companies except corporations
with capital stock, county mutuals, and fraternal beneficiary associations not
organized for pecuniary profit, shall furnish the local assessors with detailed
statements of their business and property, and value thereof, including surplus,
guaranty, and reserve funds, and the assessors thereupon shall assess against each
such company the value of all personal property, together with the actual value of
each parcel of real estate in the assessment districts, all of which is to be assessed
at the same rate and for the same purposes as the property of individuals, the
taxable value being 25 per cent of the actual value.
Provision is made for the deduction of debts and liabilities of such companies
from their moneys and credits.
The amended law further provides that every insurance company organized
under the laws of Iowa, not including county mutuals and fraternal" beneficiary
associations not organized for pecuniary profit, shall pay annually to the State
treasurer a sum equivalent to 1 per cent of the gross receipts from premiums,
assessment fees, and promissory obligations required by insurance contracts
received during the preceding year, after deducting the amounts actually paid for
losses matured, endowment dividends to policy holders, and the increase in the
amount of the reserve funds provided, whereupon the auditor of state issues the
annual certificate.
RAILROADS.
In this State it is sought to bring the property of railway companies within the
general property-tax system and apply thereto the general principle of equality of
taxation for all property, taxing it upon the same basis as the property of indi-
viduals. Assessments are made on estimated property values, and there is no
franchise tax or tax on receipts.
The assessment of all property of each railway company is made by the State
executive council, except real estate not used in its operation and railway bridges
across the Mississippi and Missouri rivers, and grain elevators, which are subject
to assessment and taxation on the same basis as the property of individuals in the
several counties where located.
For the purpose of such assessment, each corporation is required to furnish the
council annual verified statements showing in detail
First. The whole number of miles of railway owned, operated, or leased within
and without the State.
Second. The whole number of miles within the State, showing the number of
miles of track in each county.
Third. A detailed statement showing the amount of real estate owned or used
in the operation thereof in each county within the State for all purposes, and the
estimated value thereof, in such manner as maybe required by the council.
Fourth. A complete statement of the cost and actual present value of all build-
ings owned within the State not otherwise assessed.
Fifth. The total number of ties per mile used on all tracks within the State.
IOWA CORPORATION TAXES. 167
Sixth. The weight of rails per yard in main line, double track, and sidetracks.
Seventh. The number of miles of telegraph lines within the State.
Eighth. The total number of engines and cars of all kinds in use on its line, and
sleeping cars owned by it, and the number of each class within the State, each
class to be valued separately.
Ninth. Any and all other movable property owned within the State.
Tenth. The gross earnings of the entire road and the gross earnings in the State.
Eleventh. The operating expenses of the entire road and the necessary expenses
within the State.
Twelfth. The net earnings of the entire road and the net earnings within the
State.
It is specifically provided that operating expenses reported shall not include any
payments for interest or discount, or construction of new tracks and other perma-
nent improvements, for new equipment except replacement, for reducing bonded
or permanent debt, nor any other item not fairly or reasonably chargeable as such
in railway accounts, it being apparently intended that net earnings shall be a
factor in determining property values. It is provided that such property shall be
valued at its actual value and assessments made upon the taxable value that is,
25 per cent of actual value of the entire railway within the State, including right
of way, roadbed, bridges, culverts, rolling stock, depots, station grounds, shops,
buildings, gravel beds, and all other property, real and personal, exclusively used
in the operation of such road.
The council is commanded to take into consideration the gross earnings per
mile for the previous year and any and all other matters necessary to enable it to
make a just and equitable assessment of such property, and if a part of any rail-
way is outside the State, then, in estimating the value of its rolling stock and
movable property, the proportion which the business of that part within the State
bears to the business without the State is taken into consideration.
The executive council, after determining the whole value, transmits to the
county auditor of each county through and into which any railway may extend
a statement showing the length of main track within the county and the assessed
value per mile of the same, as fixed by a ratable distribution per mile of the
assessed valuation of the whole property of the company.
The county board of supervisors thereupon causes such statement to be entered
in its minute book, and enters therein an order stating the length of the main
track, and the assessed value of each railway lying in each city, town, township,
or lesser taxing district in the county through or into which said railway extends,
as fixed by the council, which constitutes the taxable value thereof for taxing
purposes, and the taxes when collected by the county treasurer are disposed of as
other taxes.
"All such railway property shall be taxable upon said assessment at the same
rate, by the same officers and* for the same purposes as the property of individuals
within such counties, cities, towns, townships, and lesser taxing districts."
Each railway company is also required to show in its annual statement the
number of sleeping and dining cars not owned by it but used in operation in
the State during each month of the year, the value of each car so used, and the
number of miles each month said cars have been run on such road within the
State and the total number of miles run within and without the State.
The council assesses for taxation the average number of cars so used each
month, and the assessed value of said cars shall bear the same proportion to the
entire value thereof that the monthly average number of miles such cars have
run within the State bears to the monthly average within and without the State.
Such valuation is required to be in the same ratio as that of property of individuals,
and is added to the assessed value of the general property of the company. It will
be observed that the assessed valuation is based on total car mileage and not upon
varying passenger traffic.
This law does not specifically exempt shares of stock in railroad companies from
taxation in the hands of owners residing within the State, but in practice such
shares do not seem to be assessed to the individual owners.
The assessed valuation of 9,236 miles of railway in Iowa for the year 1899 was
$46,008,510, being an average assessed value of $4,891 per mile of road. The
assessed value being 25 per cent of the actual value as fixed by the assessing board,
it follows that the full valuation so fixed for 1899 was $184,034,040.
The total amount of taxes paid by the railways of the State in 1899 was $1,424,-
134.04, making the rate on the actual value $0.774 on each $100.
The gross earnings for 1899 were $49,549,679.77, the operating expenses $34,028,-
678.63, making the net earnings $15,521.001.14, the taxes paid being substantially
2.87 per cent of the gross earnings, and more than 9 per cent of the net earnings.
168 HSTDUSTKIAL COMMISSION.
Capitalizing on the basis of net earnings at 6 per cent, as is sometimes done, to
obtain a rough estimate of the actual value of such property, the value of Iowa
roads would be .$259,449,382.
The total assessed value of sleeping-car lines taxed by the method above
described in 1899 was $183,183, these lines being taxed at local rates upon that
aggregate valuation.
Formerly, from 1862 to 1872, Iowa taxed railroads on " gross earnings," levying
a flat rate thereon. The legislature changed the plan adopting the present method
of assessment at " actual value." This has apparently had a demoralizing effect
and resulted in grave discriminations and injustice in the taxation of railroad
property, and charges of favoritism and corruption are freely made against those
in whom from time to time is vested the " discretionary power " to fix railroad
valuations for taxation.
The present State treasurer in a pamphlet recently published vigorously sets
forth the evils of the present system and the injustice resulting to both railways
and the public.
He says in substance that there is neither sense nor system in the assessment of
railroads in Iowa, ' chaos " being the only ' descriptive in Webster applicable; "
that by reason of the ' discretionary power " lodged in the executive council rail-
road assessments in Iowa have become a serious danger to the public welfare;
that because of its perversion, corruption of the most serious character has
crept into party politics; that railroads are compelled to take part in politics and
seek to control the taxation machinery. He cites numerous instances of grievous
discrimination in the assessment of railroads in favor of the great lines that are
influential in politics. For instance, the Crooked Creek Railway is compelled by
the executive council to pay on $233 for every $100 of gross earnings, while the
Northwestern pays on only $72. " In other words, the weaker road is assessed
3 times higher than the richest and most powerful trunk line in the State. " Again,
in actual taxes the Great Western has been compelled to pay $21.50 for every
$100 of its net earnings, while its great competitor, the Northwestern, has been
required to pay only $8.40 of each $100 of its net income.
Other glaring instances of favoritism and inequalities in railroad assessments
are set forth, showing the utter lack of plan and uniform procedure in that regard.
The treasurer declares the only remedy to be a definite rule fixed by legislation
for assessing railroads from which there can be no deviation. " If the council
is to have charge, its ' discretionary power ' should be reduced to a minimum or
abolished." The same yardstick should be applied to all roads.
The writer then says that the easiest method for securing equality of assess-
ment is the flat rate or the fixed charge on earnings or income, or on the property
of railroads.
" For obvious reasons the flat rate on gross earnings, business, or property can
be most readily assessed. There is no trouble about deductions or debts, and it
can not be evaded. Material objections can be made because this method ignores
the expense account of roads or their varying earning capacities. But the cer-
tainty and uniformity of the taxable basis make this method decidedly preferable
to the present Iowa practice. There would be no abuse of discretionary power
no favoritism under this method."
He also views with some favor the taxation of such corporations on the basis
of the market value of stock and bonds, as in Connecticut, regarding it as an
improvement upon the existing system.
He clearly sets forth the inherent weakness of a method that seeks to adapt the
general property tax to this class of property, viz: The necessity of vesting in
officials " discretionary power" with respect to adjustment of property valuation
or rate of taxation in order to secure " equal " and "uniform " taxation, invari-
ably resulting in actual practice in unequal taxation.
WATER AND GAS WORKS, ELECTRIC PLANTS, STREET RAILWAYS.
The real and personal property of these companies is listed and assessed in the
assessment districts where the same is located. Where such property, except the
capital stock, is situated partly within and partly without the limits of a city or
town, such portions are assessed separately, the portion within the said city or
town being assessed there and the other portion assessed in the districts where
located. The actual value of capital stock over and above that of the property
listed and taxed as above described is assessed and taxed to the owners thereof at
the place where the principal business is located, as other shares of corporation
stock hereinbefore referred to.
IOWA CORPORATION TAXES. 169
EXPRESS COMPANIES.
Up to 1900 the tangible property of these companies was assessed and taxed in
like manner as other tangible property was assessed and taxed in the local dis-
tricts where the same was located.
An additional tax was imposed upon the receipts of these companies, each com-
pany being required to deliver to the auditor of State annual verified statements
showing the entire receipts for business done within the State, of each agent
doing business in the State, including its proportion of gross receipts for business
done in connection with other companies, such statement to contain an abstract
of the amount received in each county and the total amount for all the counties,
a penalty of $100 for each day delay after a fixed date in rendering such accurate
statement being imposed and such delinquent companies being prohibited from
carrying on business until such statement is made. Each company was required
to pay into the State treasury at the time of making such statement the sum of $1
on each $100 of such receipts. The yield of this special State tax was as follows:
Year.
Receipts.
Tax.
1898 . . .
$392 579 84
$3 925 80
1899
412 693 91
8 253 91
A new method for the assessment and taxation of express companies was
enacted by the legislature of the State in April, 1900, and is now in force, although
no results are as yet obtainable. Each company is now required to file with the
State auditor an annual verified statement showing
First. The name and character of the company.
Second. The principal place of business, locality of principal office, and names
and address of principal officers.
Third. The total capital stock (a) authorized; (6) issued.
Fourth. The number of shares of stock issued and outstanding.
Fifth. The market value of shares on January 1 preceding, and if no market
value, then the actual value, and in case no shares of stock have been issued the
market or actual value of the capital thereof.
Sixth. The real estate and personal property owned and subject to local taxa-
tion within the State, and location and actual value thereof in the county, town-
ship, or district where the same is assessed for local taxation.
Seventh. The specific real estate, with improvements thereon, and all bonds,
mortgages, and other personal property owned and situated outside the State and
used exclusively outside the conduct of the business, with a specific description of
all bonds, mortgages, and other personal property and the cash value thereof, the
purposes for which used and where kept, and each piece of real estate, where
located, the purposes for which used, and actual value thereof in the locality
where situated.
Eighth. All mortgages upon the whole or any part of its property, with dates
and amounts thereof.
Ninth. Total length of lines or routes over which it transports; the total length
of such lines outside the State; the length within each of the counties, townships,
and assessment districts in the State.
Also to make such further statement as the auditor may require. Such state-
ment and other information is placed before the members of the executive coun-
cil, who value and assess the property from such statements and such other
information as they may obtain, being empowered to bring before them the
agents or officers of such company, with such books, papers, or statements as they
may require, and compel the attendance of witnesses.
Any company may, upon written application, appear before such council and
be heard in the matter of valuation of its property for taxation.
The executive council ascertains the actual value of the entire property pwned
by such company, taking the aggregate market value of its shares of stock, and
in case the property is encumbered by mortgage, adding to the market value of
stock or capital the market or cash value of such mortgages. The council then
proceeds to determine the value of the property within the State by deducting
proportionate values of property without the State, and from the entire actual
value of property within the State so ascertained deducts the actual value of real
estate and of personalty not used exclusively in the conduct of business within
the State and which is subject to local taxation.
170 INDUSTRIAL COMMISSION.
The value per mile is then determined by dividing the whole value as above
obtained by the number of miles within the State. One-fourth of the actual
value thus determined is the assessed or taxable value, in the same ratio as the
property of individuals.
This assessed valuation is apportioned among the several counties in proportion
to the mileage and certified to the county auditors. This is in turn apportioned
to and taxes collected by the various local taxing districts "at the same rates,
by, the same officers, and for the same purposes as the property of individuals
within such counties, townships, or assessment districts," and the property so
included and the shares of stock are not otherwise taxed.
COLLATERAL INHERITANCE TAX.
All property of every kind within the jurisdiction of the State, passing by will
or the statutes of inheritance of any State, or by deed, grant, sale, or gift made
or intended to take effect after the death of the grantor or donor, to any person
in trust or otherwise, other than the father, mother, husband, wife, or lineal
descendants of a decedent, or charitable, educational, or religious societies within
the State, is subjected to a tax of 5 per cent of its value in excess of $1,000 after
payment of debts. This tax is for the use of the State.
Yield of the lax.
1898.. . $22,650.75
1899 _ - 28,264.99
TEXAS.
The distinguishing features of the taxation system in this comparatively new
State are the general property tax applied to the property of individuals and cor-
porations, the general law providing for an ad valorem tax on all real and per-
sonal property in the State; a poll tax, an occupation tax, and special taxes on
gross receipts of certain classes of corporations.
The constitution of this State provides that taxation shall be equal and uniform.
All property in the State except that which is exempt, whether owned by natural
persons or corporations, shall be taxed in proportion to its value, to be ascertained
as provided by law; the legislature may impose a poll tax, occupation taxes
both upon natural persons and corporations, and may tax incomes. Limitations
are by law placed upon the amounts that can be levied for State and various local
purposes.
The legislature levies the tax for general State and school purposes, the com-
missioners' court of each county levies the county tax, and the city or town coun-
cil that for cities and towns.
The assessment of all taxable property is made by elective county assessors
required to seek out the owners of taxable property in their respective counties
and obtain lists of the taxable property, the taxpayer being required to sign an
affidavit that he has rendered a complete, full, and true list of all his property
subject to taxation, but not to make oath to its value. The valuation, therefore,
is in practice fixed by the assessors, with the usual results that property, instead
of being valued as required by law, at its " full and true value," is unequally val-
ued and undervalued. There is no systematic plan in use for the valuation and
equalization of property for taxation, and in this respect " inequality is the rule
and equality and uniformity the exception. The wealthy and influential prop-
erty owner pays the least in proportion to what he possesses, and the small holder
of property pays the most."
The tendency there as elsewhere is for assessors and taxpayers to connive in
various ways to secure assessments at a portion of the true value of property, in
order that the local district may avoid payment of a just proportion of the State
tax.
Common control or supervision of State taxation is impossible under the present
constitution, which commits to the commissioners' courts of the respective coun-
ties the supervision of values for taxation. There being no central or supervisory
power for the enforcement of uniform valuations, the result is a distinct valuation
of the same classes of property in each county in the State and inevitable inequal-
ity and undervaluation.
REAL ESTATE.
Under the system that has grown up under the present constitution, adopted
when nearly all property consisted of land, that class of property is still the
principal object of taxation and is said to bear an unjust proportion of tax bur-
dens. Aside from the great inequalities in the taxation of land in local districts,
it is shown that a much larger proportion of its total value is assessed for taxa-
tion for State and local puposes than in the case of personal property.
A comparison is made by the tax commission of 1899 in its distinguished report,
illustrating this discrimination according to the census of 1890. The value of
real estate in Texas was then $1,220.417,771, and that of personal property
$885,158,995, a total of $2,105,576,776. The taxable value of land assessed for that
year was $378,752,718, to which is added the value of town lots, $145,524,497, to
give the total taxable value, $524,277,210.
The assessed value of all other property in that year, including railroads, was
$257,834,673, or a total assessed value of all property of $782,111,883, against the
real valuation as shown.
This leads the commission to say that " Land has borne and is bearing the
burden of taxation in Texas, as it probably is throughout the country. It bears
about double as much in this State on the dollar of its real value as personal
171
172 INDUSTKIAL COMMISSION.
property." And again: " But as all prosperity depends, primarily, on the success-
ful cultivation of the soil and the harvesting of its productions, it ought to be
the purpose to relieve it from a greater tax burden than that which other prop-
erty, equally or more productive, bears. With this end in view, we have for-
mulated provisions which it is believed will compel other property in the State
to contribute its fair proportion of taxes. If light taxes be con'ducive to the
acquirement of any particular kind of property, then Texas, above all other
things, should by this policy encourage every citizen to own a home. The own-
ership of a home gives stability and permanency to our citizenship; encourages a
love and pride of State and country; is a bulwark of safety and protection to
our institutions and to all the people, and the surest and safest way to lasting
prosperity."
PERSONAL PROPERTY.
The system of taxation, framed with a view to making land the principal source
of revenue, seems to be, under the conditions that have developed, especially
conducive to inadequate taxation of personal property. The tax commission of
1899, in the discussion of this subject, contrasts the energy with which the Federal
revenue laws are enforced by the revenue collectors, and in thecourts when need
be, with the universal laxity in the enforcement of State revenue laws in Texas,
describing the method in vogue in that State as follows: "In our State the
assessment and collection of the revenue is confided to officers who are chosen
every 2 years, and the owner of personal property is not always pressed to
know if he has any he has not listed. He signs the affidavit in a perfunctory
manner and that ends the inquiry. The law taxes the property that has been
sent beyond the State or county for the evasion of taxation, but such property is
rarely reached. The man with thousands of dollars in the bank sends his clerk
to render his property and tells him to render $5,000 in money when he may have
50 and probably 100,000. Or maybe he will ask for a draft on New York for his
deposit with the bank a few days before the 1st of January. This he will put
into his pocket and keep there until January 1 has passed, and thus this particular
property, though subject to taxation under the law, is not listed."
It is shown that the tax levied against personal property in 1898 was only
24.39 per cent of the ad valorem State tax assessed for general revenue and school
purposes, and including railroad, telegraph, telephone, and street railroads was
only 32 per cent, or less than one-third the whole amount, and that real estate,
including in the term " acres and town lots," paid 68 per cent. " It is an admitted
fact," the commission says, " that money at interest, stock, mortgages, as well as
other forms of personal property, escape taxation in this State to an extent that
is alarming."
The commission urges that more stringent laws be enacted and energetically
enforced compelling such property to yield to taxation, and says that "if a time
should come when it is admitted that this can not be done, the State should evolve
another system, and look in another direction for revenue for the carrying on of
the machinery of the State government." As indicating the low tax rates in
Texas, even under present conditions, we note the suggestion of the commission
that if equality in values and full rendition of property for taxation could be
obtained, the tax rate for State purposes would be lowered, even under the present
system, to such a sum as to be almost unnoticeable. That if all property were
to respond to its full value, a tax rate of 2 cents on the $100 would be ample for
all the needs of the State for general State and school purposes.
Money at interest and other credits over and above the amount which a taxpayer
pays interest for, and all other debts due over and above his own indebtedness, are
taxable.
The tax commission recommended to the legislature the omission of this right
of deduction on the ground that it is a convenient loophole for escape from pay-
ment of just taxes, operates unfairly against those who have no credits from
which to deduct their debts, the condition of most taxpayers, and is the " unfair-
est provision in our tax laws."
To the money lender it is said to amount almost to exemption from taxation.
The commission says that the amount of real estate and chattel mortgages in the
State will probably reach $250,000,000, and the amount of credits rendered for
taxation will not exceed 6 per cent of that amount, being in 1898 $13,318,920.
MORTGAGES.
The taxation of credits, and especially those secured by real-estate mortgages in
Texas as in other States, is a subject of commanding interest and importance.
Under the laws of Texas, credits in whatever form are subject to taxation
as other property in general, but no special provision is made by law for the
TAXATION IN TEXAS.
173
recovery and rendition for taxation of notes secured by mortgage, the assessment
of such property depending upon the independent action of each local assessor.
Consequently very few credits of this character are reached. The amount of
credits rendered for taxation in 1898 was 13,318,920 and in 1900 $16,103,802.
What portion of these respective amounts represented real-estate mortgages can
not be given, but it is probably small. In 1890 real-estate mortgages in force in
the State amounted to $93,864,178, and the amount has undoubtedly greatly
increased since that time.
The tax commission devised a special method for the rendition and assessment
of this class of securities, based upon the public records of such securities, and
making it unlawful for persons loaning money on such security to require the
person borrowing to pay the tax thereon, such requirement to be usury and
subject to the usury laws of the State. The commission, reviewing the methods
for taxation of mortgages in other States and the arguments for and against such
taxation, advocates the taxation of such securities in Texas the same as other
property.
POLL TAX.
A poll tax of $1.50 is imposed by the State upon every male citizen between the
ages of 21 and 60 years, $1 of which goes to the available school fund and 50 cents
to the general revenue of the State. The collection of this tax seems to be some-
what difficult, and a considerable proportion of the assessed poll tax is not paid.
In 1898 the poll tax assessed was $773,487.24, and the amount actually collected
was $520, 753. 13.
TAX ON OCCUPATIONS.
The tax on occupations, or privilege tax, is a distinctive and apparently popular
feature in the Texas system of taxation, and although the stringent laws provided
in regard to it are imperfectly enforced, about one- third of the State's revenue is
derived from this source. It is a kind of indirect tax upon the people of the State
for the purposes of revenue, regulation of business, and promotion of the public
welfare, and is quite generally imposed upon occupations and business.
The law provides that there shall be levied on and collected from every person,
firm, company, or association of persons, an annual tax on every occupation or
separate establishment as shown by the following list:
Table of occupations taxed.
Series.
Occupation.
Specifications.
Tax.
Amount
paid year
ending
Apr. 30,
1900.
1
Alley, nine or ten pin
Or other alley or like device
$100.00
$5, 400. 00
2
Auctioneers
10 00
540 00
3
4
Bankers or brokers
Baseball park
Or dealers in exchange, stocks, bonds,
warrents, etc.
In citv of 5 000 inhabitants or more
50.00
25.00
9, 962. 50
5
Beer dealer
Selling malt liquor exclusively
50 00
87 400 00
6
Billiard, pool, or other table.
Each table . . ...
20.00
11,200.00
7
Cigarette dealer
In addition to anv other tax
10 00
3 790 00
8
Circus . . .
Admission fee, including reserved seat, $1 .
250.00
250.00
9
do
Admission fee including reserved seat, 75
200.00
600.00
10
do
cents.
Admission fee, including reserved seat, 50
100.00
700.00
11
Cockpit
cents.
50 00
300. 00
12
Commission
Selling on
10.00
2, 390. 00
13
do
Selling on samples in city of over 10,000
50.00
14
do
inhabitants.
Selling on samples in city of 10,000 inhabi-
25.00
25.00
15
Concert
tants or less.
Each performance
2.00
1, 564. 00
16
10 00
2, 830. 00
17
18
Cotton factor, broker, or
commission merchant,
do
In city of 10,000 inhabitants or more
In citv of less than 10,000 inhabitants
35.00
18.00
1,330.00
180.00
19
Cotton-seed products
Wholesale dealer
25.00
150. 00
20
Dentist
5.00
2, 015. 00
21
22
Eiectric-light company
do
In city of 10,000 inhabitants or more
In citv of less than 10,000 inhabitants
35.00
20.00
490.00
1,140.00
23
Exhibition, acrobatic feats,
menagerie, waxworks,
museum, or side show.
Each performance or exhibition
10.00
150. 00
174
INDUSTRIAL COMMISSION.
Table of occupations taxed Continued.
Series.
Occupation.
Specifications.
Tax.
Amount
paid year
ending
Apr. 30,
1900.
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61'
62
63
64
65
66
Exhibition by vender of
medicine, belts, or other
articles.
Exhibition by sleight of
hand or legerdemain.
Exhibition, stereos c o p i c
views.
Exhibition, waxworks,
menagerie or exhibition
of any kind.
Fights between animals
Flying jenny or hobby-
horses or like device.
Fortune teller, clairvoyant;
or mesmerist.
Gas company
$50.00
25 00
$100.00
Each performance
Panorama or view shows of pictures,
statuary, or other works of art through
stereoscopic or magnifying lenses.
Each day
10.00
10.00
500.00
230.00
430.00
Each performance
State tax pavable in each county
15.00
10.00
35.00
20.00
50.00
25.00
2.00
50.00
30.00
20.00
10.00
50.00
5.00
2.00
5.00
10.00
5.00
36.00
660.00
370. 00
525.00
90.00
200.00
50.00
1,038.00
150.00
do
In citv of 10,000 inhabitants or more
In city of less than 10,000 inhabitants
Capacity of over 100,000 bushels
do
Grain elevator
do
Capacity from 50,000 to 100,000 bushels
Each let for hire not connected with liv-
ery stable.
In citv of 20 000 inhabitants or more
Hacks, wagons, buggies,
etc.
Ice dealer
do
In city of 10,000 and less than 20,000 in-
habitants.
In city of 5,000 and less than 10,000 inhabi-
tants.
In city less than 5,000 inhabitants
do
60. 00
120. 00
. 2, 750. 00
3, 325. 00
16.00
2,100.00
550.00
10, 020. 00
do
Insurance agent, general
adjuster or agent.
Insurance agent local
Insurance agent, industrial.
Land agent
If not attorneys
Laundrv steam
Lawyer or conveyancer.
Lightning rods dealers in
Lightning rods, canvassers
for.
Liquor dealer retail
100 00
Selling 1 gallon or less
300.00
300.00
200.00
.30
150.00
50.00
100.00
300.00
250.00
200.00
150.00
125.00
60.00
25.00
20.00
12.00
6.00
3.00
100.00
573, 900. 00
12, 900. 00
1,600.00
2,667.90
1, 200. 00
400.00
300.00
900.00
1, 500. 00
4,200.00
4, 050. 00
13, 375. 00
16,740.00
14, 700. 00
12, 680. 00
19,980.00
21,063.00
34, 530. 00
Liquor dealer, wholesale...
Liquor dealer in local op-
tion district.
Liverv or feed stable
Selling 1 gallon or over
Selling 1 quart or less on prescription of
regular practicing physician.
Each stall and each vehicle
Loan agent
From every person, firm, or association
of person's loaning money as agent or
agents of any corporation, firm, or asso-
ciation in this State or out of it an
annual tax of $150 for the State for the
principal office, and county tax of $15
from each agent for each county in
which he may do business, and no addi-
tional occupation tax shall be levied
bv any county, city, or town in this
State.
Traveling
Medical specialist, oculist,
surgeon, or physician.
Medicine, patent or other . .
Merchants:
First-class
Traveling vendor
Purchasing $750,000 or over annually
Purchasing $500,000 and less than $750,000
annually.
Purchasing $250,000 and less than $500,000
annually.
Purchasing $150,000 and less than $250,000
annually.
Purchasing $50,000 and less than $150,000
annually.
Purchasing $25,000 and less than $50,000
annually.
Purchasing $15,000 and less than $25,000
annually.
Purchasing $10,000 and less than $15,000
annually.
Purchasing $5,000 and less than $10,000
annually.
Purchasing $2,000 and less than $5,000 an-
nually.
Purchasing less than $3,000 annually
Second-class
Third-class
Fourth-class
Fifth-class
Sixth-class
Seventh-class
Eighth- class
Ninth-class
Tenth-class
Eleventh-class
Selling bankrupt stocks,
etc.
TEXAS CORPORATION TAXES.
Table of occupations taxed Continued.
175
Series.
Occupation.
Specifications. r
Tax.
Amount
paid year
ending
Apr. 30,
1900.
67
68
Merchants Continued.
Selling bankrupt stocks,
etc.
do
After first month for each month
If business is to continue 6 months for
$20.00
10 00
69
Pawnbroker
each month, in addition to the $100 for
the first month.
150 00
$4 800 00
70
Peddlers:
Foot . . .
State tax payable in each county
5 00
1 890 00
71
1 horse or 1 pair of oxen.
...do...
7 50
1 642 50
72
2 horses or 2 pair of
. . .do.
10 00
8 150 00
73
oxen.
Boat, sail or other
...do...
10 00
10 00
74
Clocks, agricultural
do
250 00
75
implements, stoves,
ranges, vehicles,
washing machines,
and churns.
Phonograph, electric bat-
25 00
275 00
76
tery, graphophone, kine-
toscope, cinematograph,
etc.
Photograph, or other such
10 00
3 180 00
77
gallery.
Pool seller
For each day pools are sold
5 00
1 225 00
78
Race track
One mile or mnrft in length
100 00
15 00
79
do
Less than 1 mile in length
50 00
50 00
80
81
Racks knife, cane, or doll,
or other like device.
Sewing-machine dealer
Upon which rings are pitched or balls
thrown.
25.00
15 00
750. 00
735 00
82
Ship broker or ship agent
10 00
140 00
83
Shooting gallery
State tax payable in each county
30.00
240 00
84
Skating rink
25 00
25 00
85
Street railroads
Each mile
2.00
344.58
86
87
Theater, each day
do
In city of more than 10,000 inhabitants. . .
In city over 5 000 and not over 10 000 in-
5.00
4 00
15.00
88
do.
habitants.
In citv over 3 000 and not over 5 000 in-
3 00
3.00
89
do
habitants.
In city over 1,500 and not over 3,000 in-
2.00
76.00
90
do
habitants.
In city of 1 500 inhabitants or less
1 00
281 00
91
do
If paid annually ....
25.00
1, 250. 00
92
Toll bridge
7 00
14 00
93
Wagon yards
5 00
935 00
94
Waterworks
In city of 40 000 inhabitants or more
35.00
140.00
95
do
In city of less than 10 000 inhabitants
2(i 00
820. 00
Total
918, 982. 48
In 1898 the State collected from this source $941,701.08; of which amount whole-
sale and retail liquor dealers paid $559,600, beer dealers $95,550, the remainder,
$286,551, being paid by other occupations taxed. While the administration of
this law does not appear to be thorough or systematic, the form of taxation seems
to be generally satisfactory. The tax is payable to local collectors.
The property owned by those subject to occupation tax as above set forth is, of
course, within the fixed limitations of the law, subject to ad valorem taxes on
valuations for State, county, and municipal purposes.
CORPORATIONS.
The real and personal property of substantially all classes of corporations is
assessed for taxation in the several local taxing districts, the same as other prop-
erty, and subject to the same inequalities and discriminations in practice. This
is required by the general law framed in accordance with constitutional limita-
tions which render modification in the general property tax, and its administration
as applied to corporations, peculiarly difficult.
Various special forms of taxation have, however, been adopted and applied to
different classes of corporations which will be noted, the gross receipts tax appear-
ing to be favored. Owners of shares of stock in a corporation which is required
to list or return its capital and property for taxation are, generally speaking, not
required to return such shares.
176 INDUSTRIAL COMMISSION.
RAILROADS.
The method of taxing railroads in this State is the general property tax, pure
and simple, supplemented by an additional tax on gross receipts.
The constitution provides that all railroad property lying or being within the
limits of any incorporated city or town within the State, shall bear its propor-
tionate share of municipal taxation, and further, that such property shall be
assessed and taxes collected in the several counties in which said property is sit-
uated, including so much of the roadbed and fixtures as shall be in each county.
In accord with these constitutional restrictions the law provides that every
railroad company shall deliver annually to the assessor of each county and incor-
porated town or city a sworn statement of the real estate owned and the length
and value per mile of the railroad, including the right of way, roadbed, super-
structures, depots and grounds, shops, fixtures, and all personal property except
rolling stock, all of which is listed in the county where situated.
The rolling stock is rendered in the county of the principal office of the company
valued and equalized by the county commissioners' court in such county and
returned to the State comptroller who apportions the value thereof to each county
according to mileage of road. This valuation of rolling stock is then assessed by
local assessors with the other property of the road.
Lately an attempt has been made to include something of franchise values with
the values of property above referred to.
There appears to be no uniform method among assessors for the assessment of
railroad property, each acting independently upon his own discretion. Such prop-
erty is said to be rendered at whatever the local assessor will accept, and assessed
at whatever the commissioners' court will agree to, the averages per mile for
different roads ranging, in 1898, from $2,818 to $1 3,000, and usually at a portion only
of its property value, and for much less than its value based upon stock and bonds.
There is no State board of equalization, and valuations of different roads are
very unequal, and those of the same road vary greatly in the different counties.
As in the case of individuals under the property tax, each corporation strives for
low assessments and corporations do not seem to object to this inequality.
The tax commission framed a bill providing for the assessment of railroad prop-
erty upon the basis of the market value of stock and bonds, that being regarded
as a fair measure of value as laid down by the United States Supreme Court, to
be made by local assessors as required by the constitution, according to mileage
within their respective counties. This the commission thought would be an
improvement upon the present guesswork at property valuations, the constitu-
tional provisions depriving the legislature of authority to create a State board
for that purpose. The bill proposed, although considered at the last session of
the legislature, was not adopted.
This property tax is supplemented by a State tax of 1 per cent upon the gross
receipts from passenger traffic within the State, called an occupation tax. The
tax commission recommended an extension of the gross receipts tax to freight as
well as passenger traffic.
In 1898 the 9,540 miles of railway with rolling stock in Texas were assessed at
$71,031,235, or an average of $7,445 per mile.
On this valuation this property paid to the State in taxes the following amounts:
General State tax, 20 cents on the $100 _ $142, 062. 47
State school tax, 18 cents on the $100 127,855.22
One per cent of passenger earnings _ _ _ 47, 004. 37
Total to State 316,922.06
Adding to this the amount of county taxes at the average rate of 60 cents on
each $100, amounting to $426,187.41, gives approximately the amount of taxes paid
by the railroads of the State in 1898, $743,108.47.
In 1900 the number of miles was 9,784, and the total assessed value, including
rolling stock, was $81,298,283, being an average of $8,308 per mile.
The total passenger earnings for year ending August 31, 1900, were $5,717,344
and the occupation tax thereon $57,173.44.
EXPRESS COMPANIES.
The special tax imposed on express companies is li per cent of the gross
receipts from business arising and terminating within the State, which is the
only tax they pay, except an ad valorem tax on a small amount of personal prop-
erty, such as horses, vehicles, and office furniture taxed locally.
The tax on gross receipts paid by these companies to the State in 1898 was
$11,833.31 and in 1900 $13,936.38.
TEXAS COEPOEATION TAXES. 177
OTHER SPECIAL TAXES.
Steamboat and stage companies are subject to a tax of 1 per cent on passenger
earnings.
Sleeping car companies pay the highest gross receipts tax in the State, being 2|
percent on such receipts on business done within the State. They paid in 1898
$3,862.25, and in 1900 $4,573.51. They also pay to the State a tax of one-fourth
of 1 per cent on the value of their capital stock in use in the State, based upon
reports to the State comptroller of total capital stock, from which is deducted the
value of all property other than rolling stock, which is valued according to the
proportion of miles operated over within the State to total mileage.
Telegraph companies are taxed 1 cent on each full-rate message, and one-half
cent on each half -rate message originating and terminating in the State. This
tax was, in 1898, $7,695.67, and in 1900, $7,285.83.
Telephone companies are taxed 25 cents per annum on each instrument in
actual use, this tax amounting in 1898 to $2,485.75 and 1900 to $5,499.35.
Insurance companies life, fire, marine, accident, and other insurance compa-
nies are taxed 011 gross receipts from business done within the State. Each life
insurance company and each life and accident insurance company pays 2 per cent
on gross premium receipts, and each fire insurance company one-half of 1 per cent
on gross premium receipts; each marine, health, live stock, guarantee, or accident
insurance company pays 1 per cent on gross premium receipts.
The tax in 1898 was $100,613.61, and in 1900, $115,455.97.
Street car companies pay an occupation tax of $2 on each mile of track.
Gas companies pay an occupation tax of $35 in cities over 10,000, and in smaller
towns $20, and the same rate is imposed on electric light and water companies.
In 1898 electric light companies paid $1,861, gas companies $306, and water
companies $1,065.
The tax commission proposed the substitution of a tax of one-half of 1 per cent
on the gross receipts of these companies for the occupation taxes referred to, and
the extension of the gross receipts tax to some other classes of business.
The taxation of gross receipts is not a new form of taxation in this State, and
seemed to be favored by the tax commission.
The various corporations and classes of business paying special taxes as above
stated also pay an ad valorem tax locally upon property.
BANKS.
The law for the taxation of the property of banks appears to be loosely admin-
istered. The method of listing and assessing such property is for the local assessor
to require from the bank a list of the shareholders and the number of shares
owned by each. The real estate is assessed to the bank and the shares to the
individual holders thereof. Complaint is made that shares are not assessed at
their true value, as the law requires, but as a rule the value of real estate when
added to the assessed value of the shares of stock amounts to from about 50 to 75
cents on the dollar of the par value of the paid up capital, the average being,
according to the judgment of the tax commission, about 65 cents on the dollar of
the par value of the stock. It would therefore appear that through this laxity
and discretion on the part of assessors they have practically attained a degree of
justice toward banks as compared with other property that is exceptional in the
administration of the general property tax in American States.
The law relating to the listing and assessing of national banks requires a sworn
list of stockholders, with the name and residence of each. Shareholders are also
required to render shares of stock owned by them at their actual value. This pro-
vision is not complied with as a rule, and the law points out no effective method for
the ascertainment by the local assessor of the actual value, the matter being left to
his estimate. The result is, with regard to all kinds of banks, that, as in the case
of other kinds of property, but a portion of the value of property and assets is
rendered for taxation. When assessed this property is taxed as other local and
personal property. The tax commission gave this subject careful consideration,
and proposed and formulated a law to provide a way by which the assessing offi-
cer could ascertain the full and true value of this class of property, but no
legislative action has yet been taken upon it.
That assessors fail to reach and assess the large sums of money deposited in
banks and held by taxable citizens is vigorously set forth in the report of the tax
commission, which gives the amount of individual deposits in the National
banks of Texas, as shown by the reports made to the controller of the currency,
12
178 INDUSTRIAL COMMISSION.
June 30, 1899, as $44,564,956.54, and in December, 1897, $41,328,131.81, while the
money rendered for taxation in 1898 by individuals in the entire State was only
$5,864,416. This does not take into consideration the deposits with the 167 private
banks and bankers in the State, so that "it is safe to say that not one dollar of
money out of ten in Texas is listed for taxation."
The resources of some of the national banks in some of the cities of the State
exceed the total valuation for taxes of personal property in the counties where
Budh cities are located.
There are instances, it is said, of the rendition of money for taxation at 50 cents
on the dollar which have been accepted and approved by the commissioners'
court after due discussion of the question. This is referred to by the tax com-
mission as strongly illustrating the inequalities of valuation for taxation in the
State.
The commissioners proposed laws providing for discovery and valuation of such
property for taxation, and said:
' ' If those who have money and wealth and good dividend-paying securities can
be reached for taxation, there will be no trouble about the other property holders
coming up with their share of the debt of highest obligation."
They also cite the phillipic of ex-President Harrison against the evasions and
frauds of holders of intangible securities. The commission, however, seem to
fail to grasp the fact that the defects referred to and remedial difficulties are
inherent in the general property tax system.
INCORPORATION AND FRANCHISE TAXES.
Every domestic corporation chartered before the passage of the recent franchise
act is required to pay to the Secretary of State an annual franchise tax of $10, and
every such corporation chartered after the passage of this act is required to pay
$10 on incorporation, and in each succeeding year an amount graduating as
follows:
When capital stock is
Between $50,000 and $100,000 $20
Between $100,000 and $200,000 ... 30
Over $200,000 50
Foreign corporations authorized to do business prior to the passage of a recent
act are annually required to pay $25 when their capital stock is $25,000 or less,
and $100 when their capital stock is between $25,000 and $100,000. All foreign
corporations authorized to do business in the State after the passage of this act
are required to pay an annual franchise tax of $50 when that capital stock does
not exceed $100,000, and in addition thereto a tax of $1 on every $10,000 of capital
stock in excess of $100,000, but not exceeding $1,000,000.
SUPPLEMENTARY REPORT
ON THE
TAXATION OF CORPORATIONS IN MICHIGAN.
[Prepared under the direction of the Industrial Commission by GEORGE CLAP-
PERTON, expert agent.
Since the report on taxation in Michigan was prepared there have been some
important developments in the experience of that State which are of special inter-
est wherever taxation reform commands attention.
Michigan may be said to be passing through a transition period in taxation, or,
as it has been designated, " an epidemic of equal taxation."'
The work of the State board of tax commissioners during the year 1900, in
increasing the valuations of real and personal property taxed under the general
law of the State, has been referred to. The total increase in such property valu-
ations in 1900 over 1899 was $349,260,941, the increase of realty valuation being
$180,594,302, and of personalty $168,666,639. The increase in property valuations
both real and personal in 1900 over those of 1896 was $212,450,028. This increase
is in property coming under the general property tax, and assessed and valued
by the usual methods.
According to the report of the State board of tax commissioners for 1900, just
issued, the total assessed valuation of property, real and personal, under the gen-
eral law, was $1,317,450,028, divided as follows:
Real estate $1,006,453,013
Personalty 310,997,015
The manner in which this materially increased assessment was distributed is shown
by the following table:
Classes of property.
1899.
1900.
Real estate, whole State
$825, 858, 711
$1, 006, 453, 013
Real estate of 1 202 corporations .
61,882,911
133, 808, 918
Real estate of 67 mining 1 corporations
52,142 063
120,261,072
Personal property, whole State
142, 330, 376
310, 997, 015
Personal property of 1,202 corporations
20, 670, 101
52,111,867
Personal property of 67 mining corporations
4,060 894
11,396,028
Total real and personal property, whole State
968, 189, 087
1,317,450,028
Real and personal property of 1 202 corporations
82, 553, 012
185, 920, 785
Real and personal property of 67 mining corporations
56, 202, 964
135, 717, 994
An examination of the assessed valuation of property in the cities of the State for
the years 1899 and 1900 discloses the fact that the increase in the value of real estate
in such cities for 1900 over 1899 was $45,347,232, while the increase in personalty was
$87,309,936, making a total increase of valuation in the 78 cities of the State of
$132,657,168. A further comparison shows that for the year 1900 the percentage of
increase in the assessed valuations of real estate in 1900 over that of 1899 was 22,
while that of personal property was 119.
The total taxes for 1900 upon these property valuations under the general law
were $20,380,532.86, or $111,503.31 less than in 1899; the sum of $15,380,063.88
being derived from real estate, and $5,000,468.98 from personalty. The percentage
of this total tax derived from real estate was 75.465, and from personalty 24.536,
and the average rate of taxation per $1 ,000 of assessed valuations was substantially
$15.47.
179
180 INDUSTRIAL COMMISSION.
The percentages of total taxes derived from real estate are shown to be 85.336
in 1891). and 75,405 in 1900, and from personal property 14.664 in 1899, and 24.536 in
1900. The rate of taxation is shown to be $21.165 in 1899, and $15.47 in 1900 on
each $1,000 of valuation, presumably ascertained by the same methods of com-
putation. It will be remembered that it was shown in the original report for
this State that the rate of taxation ascertained by the method of computation
employed in the auditor-general's office in 1896 was substantially $17.60 per $1,000
of valuation.
The increase in enrollment and assessment of intangible personalty, such as
money, mortgages, bonds, stock, etc., by the State board in 1900 over previous
years was very great, especially in the cities. These increased assessments were
marked by great inequality. As a result of such increase there is general com-
plaint and denunciation of the laws and methods employed by the commissioners
on the part of the owners of such property, which had theretofore largely escaped
taxation. It is contended on their part that there is great inequality and dis-
crimination in the discovery and assessment of this class of property; that the
portions of such property found and enrolled were, because of excessive valua-
tions as compared with other property, and taxation at local rates, disproportion-
ately and excessively taxed; and that in consequence capital arid capitalists are
removing from the State to an alarming extent, and that the course pursued by
the commissioners under present laws in this regard, if continued, will seriously
jeopardize the business and prosperity of the State.
On the other hand, it is claimed by the board that inasmuch as the year 1900
was the beginning of its work in this direction, it was necessarily imperfect and
incomplete, resulting in more or less inequality; but that if it is permitted to
continue its work in respect to assessment and valuation of property under the
general law, it will be able with additional knowledge and experience to subject
a much larger portion of property to assessment, and secure greater equality in
valuations, so that there will eventually be such increased assessment and correct
valuations as will so reduce the rates of taxation on all property that none will
be excessively burdened.
There appears, however, to be a growing sentiment among the people, in view
of this experience and more careful consideration of the subject, in favor of a
greater restriction of the general property tax, and the adoption of special
methods of taxation for intangible personalty and some other forms of property.
The theory and purpose of the State board of tax commissioners, according to
the report for 1900, seems to be to " improve " the general property tax and sub-
ject all forms of property taxed under the general law to assessment at full cash
value and uniform rates; and the board expresses considerable confidence in its
ability to eventually perform that task.
CONSTITUTIONAL AMENDMENTS.
The provisions and fate of the so-called Atkinson bill providing for the taxation
of railroads and other quasi-public corporations have been referred to in detail.
The act was practically declared unconstitutional, because in some of its provi-
sions it was in violation of the principle of uniformity applicable to all property
taxed under the general law. This bill was the favorite measure of Governor
Pingree, whose conception of equal taxation, to which his administration was
positively committed, appeared to be a universal property tax at uniform valua-
tion and uniform rates; and he had, against bitter opposition, directed all the
force and energy of his administration for years to secure its enactment. When
the bill which had characterized his administration was thus held unconstitu-
tional, he determined to legalize the method of taxation it provided by special
constitutional provision. To this end he convened the State legislature in special
session a few days before the general election of 1900, for the avowed purpose of
submitting to a vote of the people amendments to the constitution permitting the
''enactment of laws that will provide for the equal taxation of all property by an
assessment of the same at its actual cash value." Convened at such a time, the
legislature, in view of existing political exigencies and the general sentiment that
had been created among the people of the State in favor of the abstract principle
of " equal taxation," hastily and without due consideration submitted to popular
vote the amendments embodying the demands of the governor, which were car-
ried by a large majority of the votes cast upon them. These amendments main-
tain the legislature's authority to provide for specific taxes on corporations, and
also vest in that body authority to provide for the assessment of the property of
corporations at its true cash value by a State board and for levying taxes thereon,
and expressly direct " that the legislature shall provide a uniform rule of taxa-
-UNIVERSITY
MICHIGAN CORPORATION TAXI$|. " 181
tion for such property as shall be assessed by a State board of assessors, and the
rate of taxation upon such property shall be the rate which the State board of
assessors shall ascertain and determine is the average rate levied upon other
property upon which ad valorem taxes are assessed for State, county, township,
school, and municipal purposes." The governor, evidently construing the adop-
tion of these amendments to be an expression of the popular will in favor of the
abolition of the specific tax system in vogue, and the extension of the general
property tax in modified form to corporations paying specific taxes, again con-
vened the legislature in special session in December, 1900, and directed all the
force and pressure of the executive toward the enactment of laws that should
embody the alternative method prescribed for the taxation of railroad, express,
telegraph, and telephone companies. The legislature, however, not being in
accord with the views of the governor and being averse to hasty legislation upon
so important a subject, refused to enact such laws, deferring action upon the
subject until the then incoming legislature should convene in regular session
under a new administration.
Thus the administration of Governor Pingree, committed to the cause of " equal
taxation" through one uniform tax on property values, ended without achieving
any practical results in State legislation upon the subject. It succeeded, how-
ever, in securing the adoption of the restrictive constitutional amendments
referred to, which give the legislature power to extend the general property tax
to quasi-public corporations through "uniform valuation" and "average" rates
of taxation; but these amendments are regarded by many intelligent people of the
State as likely to impede modern and progressive legislation upon the subject of
taxation and delay progress toward the attainment of t; equal taxation" in fact.
The legislature of 1901, in session at this writing, have under consideration
several bills providing, through various methods, for the substitution of an ad
valorem tax for the existing specific tax upon the earnings of railroads and other
quasi-public corporations. While there is a strong popular sentiment throughout
the State in favor of such ad valorem taxes, there is also positive and intelligent
opposition to a change in the existing specific tax method.
Through years of agitation equal taxation has become a " paramount issue " in
Michigan, the people of the State being divided thereon into 2 opposing forces,
one contending for one rule and one method of taxation applied to all property as
essential to equal and uniform taxation, the other contending for diversified
methods adapted to special forms of wealth as essential to the attainment of the
desired result, and insisting that the methods proposed for the extended applica-
tion of the general property tax would be conducive to unequal taxation in prac-
tice. While there is no division upon the abstract principle of equal taxation,
there is active conflict as to the methods for the attainment of the desired result.
VALUATION OF MICHIGAN RAILROADS.
The act creating a board of State tax commissioners declared one of the duties
of that board to be " to inquire into and ascertain the valuation of the property
of corporations paying specific taxes, and to ascertain the actual rate of taxation,
as based upon the valuation of said properties, that is paid by said corporations,"
in order to determine whether such property pays upon its true value a rate equal
to the rate paid by property taxed under the general law. By virtue of this
authority the board has undertaken to secure an accurate appraisement of the
property of railroad, telephone, telegraph, and express companies in the State.
Prof. M. E. Cooley, of the engineering faculty of the University of Michigan, was
employed to supervise the work of valuing the "tangible property" of these cor-
porations, and Prof. Henry C. Adams, of the same university, to determine the
value of their "immaterial" or "intangible" property. Each of these men was
provided with an able corps of expert assistants, most of whom were civil engi-
neers, graduated from engineering colleges or technical schools, some 15 institu-
tions being represented in this, perhaps, the most elaborate attempt to determine
property values of railroads, etc., ever made. Prof. M. E. Cooley, M. Am. Soc.
M. E., as appraiser, was the head of the entire force, and the principal other mem-
bers of the staff were Henry E. Riggs, M. Am. Soc. C. E., of Toledo, Ohio, chief
inspector in charge of civil engineeing; T. H. Hinchman, jr., M. Am. Soc. M. E.,
Detroit, chief inspector in charge of mechanical engineering: D. Farrand Henry,
M. Am. Soc. C. E., Detroit, chief inspector of plank roads and river improvement
companies; William S. Conant, M. Am. Soc. M. E., Detroit, chief inspector of tele-
graphs; William J. Rice, New York, chief inspector of telephones; Herbert C.
Sadler, M. Inst. Nav. Arch, and Marine Engrs., chief inspector of vessel proper-
ties; F. G. Susimihl, of Michigan, architect.
182
INDUSTKIAL COMMISSION.
The final settleinen 'of various questions and knotty points which arose in
formulating the basis for the valuation of certain items, together with a review
of the methods and final results, was entrusted to a special board of review, com-
posed of Messrs. Octave Chanute, of Chicago; Charles Hansel, of New York;
Prof. Charles E. Greene, of Ann Arbor, and Col. G. W. Vaughn, of Chicago, all
of whom are members of the American Society of Civil Engineers, and, not having
been engaged in the detail work, were presumably able to take a broad view of
theinatters submitted to them.
While the detailed report of these appraisements has not yet been published,
we are able from information obtained to present the general result of the work
with respect to railroad property. The work of appraisement covered a period of
5 months, being commenced in September, 1900, with 54 men. In October there
were 88 men employed, in November 111, in December 98, and in January, 1901, 51.
The total cost of the appraisement was about $57,000.
The method adopted for determining the value of the " physical property " of a
railroad was to estimate by special "field inspection" the value of the separate
items of property composing it, which when combined were assumed to constitute
the true value of its entire property. The appraisers first determined the "cost
of reproduction " of the various constituent parts of the propetty of a railroad,
such reproduction value representing what it would cost to build a road of
entirely new materials and labor where the road exists, even to the extent of cov-
ering the cost of surveys, right of way, legal expenses, interest, etc., as shown
by the following summary form, and then by suitable reductions the "present
value " was determined, taking into consideration the depreciation of the elements
due to wear:
SUMMARY.
MICHIGAN RAILROAD APPRAISAL.
Mileage.
Main line
Branches
Spurs and sidings
Railroad No. . Gage . Value of physical properties .
Costofrepro- Present
duction. value.
1. Engineering (4 per cent items 2 to 25, inclusive, and 33)
2. Right of way and station grounds
3. Real estate
4. Grading
5. Tunnels
6. Bridges, trestles, and culverts
7. Ties (cross and switch ties) I.
8. Rails
9. Track fastenings ! .
10. Frogs, switches, and crossings j .
11. Ballast
12. Track laying and surfacing .
13. Fencing
14. Crossings, cattle guards, and signs
15. Interlocking and signal apparatus I .
16. Telegraph, (30) telephones I .
17. Station buildings and fixtures
18. Shops, roundhouses, and turntables
19. Shop machinery and tools
20. Water stations
21. Fuel stations I .
22. Grain elevators
23. Warehouses
24. Docks and wharves
25. Miscellaneous structures
26. Locomotives
27. Passenger equipment
28. Freight equipment
29. Miscellaneous equipment
31. Ferries and steamships
32. Electric plant
33. Terminals
34. Legal expenses (0.5 per cent items 2 to 25, inclusive, and 33)
35. Interest (3 per cent items 1 to 34, inclusive)
qfi MiqppllflTiPmKj PYnpnop* /Organization, 1.5 per cent
ses ' (Contingencies, 10 per cent
Total cost of construction and equipment
37. Stores and supplies .'
MICHIGAN CORPORATION TAXES. 183
The investigations of this "physical property " required the appraisers to cover
57,000 square miles of Michigan territory and traverse 10.000 miles of railway
track, every mile of which was actually inspected, as were the engines, car shops,
machinery, and other physical property.
The valuation gave, in the first place, the estimated value of each item as new
work, material, or equipment, each item, however, being given a percentage mark
for " condition representing the relation which the actual existing value bears to
the estimated value for renewal or replacement." In estimating the cost of the
individual items the market price or an average price for a term of years was
used, according to circumstances, but no attempt was made to ascertain or use the
actual cost price paid by the railways.
The values of real estate and rights of way were, we understand, determined
largely by estimate based upon such information as the appraisers were able to
obtain.
It will be seen that the criterion of values adopted was the present cost of the
various constituent parts with estimated reductions for depreciation, and includ-
ing various estimated expenses that might be incurred in procuring and putting
them into combined operation as a railroad.
It is claimed by railroad managers and owners, who as a class have ceased to
regard this method as affording a reliable criterion of the value of a railroad, that
"the value of such separate items of property, the combination of which consti-
tute a railroad do not necessarily or even prima-facie represent the actual value
of the combination, the railroad as a single entity."
It is said that the great variation in the mileage, cost of construction, and the
avails of operation discredit such methods of valuation for business purposes and
render them unreliable for purposes of taxation. It is argued that the constitu-
ent elements of a railroad possess little stable value when disassociated from their
earning capacity in combined operation as a unit.
While the State board of tax commissioners apparently regards this laborious
appraisement as forming a reliable basis of valuation for taxation, or at least as
a basis of comparison with the taxation of other forms of property, railroad men
seem to reject such methods and regard the results as unreliable for any purpose.
Even though this elaborate appraisement of the physical values of constituent
parts of a railroad property should be accepted as a reliable basis of valuation for
purposes of taxation, another difficulty arises in the minds of taxpayers as to the
practical attainment of " equal taxation " in the failure of local assessors to value
all other forms of property with the same degree of skill and accuracy.
Thus, while the appraisement may justly be regarded as the most elaborate
attempt ever made to ascertain the actual value of railroad property, of great
importance for many purposes and perhaps of great benefit in the solution of the
problem of equal taxation of such property with property in general, its practical
value and reliability for purposes of taxation are still matters of conjecture and
dispute in the State where the appraisal was made.
NONPHYSICAL PROPERTY.
In connection with this value of physical property is taken what Professor
Adams has designated as the '" nonphysical" property. In his preliminary report
he indicates some of the elements of this nonphysical property of a railroad, as
follows:
" It is submitted that this nonphysical or immaterial element is not a simple
commercial element, but includes, among other things, the following:
"1. It includes the franchise
"a. To be a corporation.
" b. To use public property and employ public authority for corporate ends.
"2. It includes the possession of traffic not exposed to competition, as, for exam-
ple, local traffic.
' k 3. It includes the possession of traffic held by established connections, although
exposed to competition, as, for example, through traffic that is secured because
the line in question is a link in a through route.
"4. It includes the benefit of economies made possible by increased density of
traffic.
"5. It includes a value on account of the organization and vitality of the indus-
tries served by the corporation as well as of the organization and vitality of the
industry which renders the service; this value consequently is, in part, of the
nature of an unearned increment to the corporation."
Upon this theoretical and ingenious classification, Professor Adams proceeds to
work out the " immaterial " or " intangible " values of the railroad property of the
184 INDUSTRIAL COMMISSION.
State, which, together with the "physical" values determined by Professor
Cooley, are assumed by the State board of tax commissioners to represent the
actual value of railroad property for purposes of taxation. The classification
and methods pursued by Professor Adams in this regard are unique, and have
created intense interest and discussion throughout the State. These processes
receive the emphatic commendation of those who favor the application of one
uniform rule of valuation and one uniform rate of taxation to all property, and
advocate an increased tax upon quasi-public corporations through the ad valorem
method. They contend that all these elements possess value to their owners and
should be taxed upon an equality with other property.
On the other hand, while the classification referred to would naturally excite
interest and criticism among representatives of railroads under any circumstances,
when the proposition is made to include such elements as a basis of valuation
upon which to levy taxes at the same rates applied to other property under the
general property tax system, the effect upon such interests is somewhat start-
ling, and provokes severe inspection and criticism. It is declared that such ele-
ments as "benefit of economies made possible by increased density of traffic,"
" organization and vitality of the industry which renders the service," or in other
words, industry, ability, and thrift, are equally applicable to many other kinds of
business and income, producing property of corporations and natural persons; but
that the suggestion that they be included in their valuation for taxation has never
been made and would not and could not be considered or tolerated at all. Such
classification of " nonphysical" values in connection with the crude general prop-
erty tax rates is regarded by men of experience in railway management as imprac-
tical and a basis for extortionate taxation. It is contended that the fallacy of
including these various elements of nonphysical value, which, if based on any-
thing, are based upon earning power as a basis of taxation, rather than the earn-
ings themselves, is apparent: that as a basis of comparison with other property
valuations under the prevailing system, it is misleading and unfair; and as a basis
for " equal taxation," delusive and inequitable.
There is clearly considerable force to these criticisms and arguments. Mr. Adams
himself says that ' ' the task of appraising railway properties undertaken by this
commission is akin to, if not identical with, the revaluation of railway securities,
should this become necessary for reorganization or for transfer." While this state-
ment may be received in justification of the classification of elements of nonphys-
ical values, such classification may be regarded as a practical demonstration of the
futility of comparing an earnings tax with the general property tax, and of the
attempt to subject all modern forms of property to one uniform tax upon value.
Mr. Adams, although faithfully trying to perform the difficult task undertaken
by the State commission under the direction of the law, recognizes earning power
of a corporation of this character as ' ' undoubtedly the basis of all valuation of
corporate properties," and that "it is the income account from which this earn-
ing power can be determined."
After constructing this unique classification of "nonphysical" values and sus-
taining their existence by reference to the practice of corporations with respect
to revaluation, and rules of courts in certain instances; discarding statements of
assets and liabilities, cost of property, and par or market value of stocks and bonds
as unsatisfactory for the purpose of the commission, and recognizing earning
power as shown by railroad accounting as an acceptable basis for appraisal of such
values, Professor Adams formulates a rule " for the appraisal of the immaterial
values of railway properties," or what he terms " the capitalization of corporate
organization and business opportunity," as follows:
"1. Begin with gross earnings from operation, deduct therefrom the aggregate
of operating expenses, and the remainder may be termed the 'income from oper-
ation.' To this should be added ' income of corporate investments,' giving a sum
which may be termed ' total income,' and which represents the amount at the dis-
posal of the corporation for the support of its capital and for the determination
of its annual surplus.
"2. Deduct from the above amount, that is to say, ' total income,' as an annuity
properly chargeable to capital, a certain per cent of the appraised value of the
physical properties.
" 3. From this amount should be deducted rents paid for the lease of property
operated and permanent improvements charged directly to income. The remain-
der wo aid represent the surplus from the gross earnings from the year's operations,
and for the purpose of this investigation may be accepted as an annuity which,
capitalized at a certain rate of interest, gives the true value of immaterial
properties.
MICHIGAN CORPORATION TAXES. 185
"7. To obviate the criticism that both gross and net earnings vary from year
to year, it is suggested that in place of a single year's income account, the average
income account of a period of 10 years be accepted as the basis of computation.
The reason for accepting a period of 10 years is that under existing commercial
conditions it is likely that the corporation whose property is appraised would
during that period pass through years of both prosperity and adversity.
"8. It will be observed that the above rule fails to appraise the speculative
element in railway property. While this element doubtless affects the price
of corporate stocks and corporate bonds, it is not entirely clear that it should
influence appraisals for the purpose of taxation. Should, however, the commis-
sion desire to compute the present worth of property, as resting upon expectations
in the future as well as upon earnings in the past, the pertinency of the above
rule would not thereby be impaired. This is true because the speculative value
of properties must, from the nature of the case, be a modification of their value
computed upon the basis of their earning capacity."
We are advised that the " certain per cent" referred to as a basis of capitaliza-
tion in the foregoing rule was 4 per cent, that being regarded as a proper crite-
rion for the purpose for which it is employed.
While it is possible that this theoretical method applied to all income-producing
property and business of corporations and natural persons throughout the State
might evolve " equal taxation," we apprehend that the suggestion of such a uni-
versal application would not commend itself to general public esteem. Certainly
its rigid application as a basis of valuation to one class of property upon which
is to be levied the " average rate " of taxation, while all other property is assessed
under the general property tax, would result in taxation unequal in the extreme.
When this complicated and expensive process is followed out, the fact remains
that a tax based upon such valuations is nothing more or less than a tax upon
income, and its use would transform the general property tax, with respect to
one class of property, from a mere inefficient and inadequate method to a system
of extortionate taxation sanctioned by law.
Its modification with a view to the attainment of approximate equality would
obviously require the vesting of discretion and power of adjustment as to rates
or valuation in a board, and involve continued contention; in short, would con-
tinue the fundamental defects of the property tax which progressive thought and
legislation is seeking to escape. If adopted, it would apparently be a distinct
departure from correct principles.
RAILROAD VALUES.
The result of the foregoing appraisment of physical and nonphysical values is
shown as follows:
Cost of reproduction, all elements new, by Professor Cooley $201, 013, 081
Cost of reproduction, allowing for depreciation, by Professor Cooley . 164, 812, 230
Value of nonphysical elements, by Professor Adams 35, 988, 632
Total value of physical and nonphysical elements 200, 800, 862
The compilation of these novel reports in their detailed forms will occupy 7
volumes.
APPRAISAL BASED ON EARNING POWER.
Besides the appraisals of Professor Cooley and Professor Adams, another ap-
graisal of the values of railroad properties in Michigan was prepared by Robert
. Oakinan, one of the State tax commissioners in 1900. The values of the former
were absolute, no attention being paid to the conditions of operation or prosperity
of the roads. Mr. Oakman's values were based chiefly upon the principle of earn-
ing power, due regard being given to such elements as advantage and disadvan-
tage of location, quality, quantity, market facilities, environment, and other
conditions, which, while not susceptible of separate valuations, are considered as
means of fixing the true value of a property as an entirety. Due regard was also
given to gross earnings, expenses, stock values, bonded debts, etc.
Mr. Oakinan says in his report that the board " has found that in the markets
of the world these properties have a value which is measured mainly by the income
which they will produce. The commercial world, when it desires to invest in stock
and bonds issued by these corporations, informs itself about the earning capacity
of the properties on which they are based. All its searchlights are directed upon
their earning power. Why should not the State do likewise? "
186 INDUSTRIAL COMMISSION.
He also points out clearly that the State board in the valuation of these prop-
erties has followed the mandate of the law to ascertain their actual cash value.
The following comparison of taxes based upon Mr. Oakman's valuations is
made:
Specific taxes paid on railroad earnings in 1899, $1,240,730.90, showing a rate of
taxation based upon cash valuations of $6.652 per $1,000.
Taxes that would have been paid under the average rate of 1899, $21.13 per
$1,000, $3,940,985.57.
Taxes that would have been paid under average rate of 1900, $15.47, $2,885,331.13.
What the average rate of taxation might be in case all the property in the State
were as completely valued by the method applied to railroad property is signifi-
cantly omitted.
Commenting upon the work of the commission in his report, Mr. Oakman says:
" If railroad property is to be assessed and taxed at cash value at the average
rate, and not specifically, it would, in my opinion, be unfair to allow exemptions
or deductions of other property in the State. It must be remembered that restric-
tions of rates and fares of transportation companies operates as a tax. Hence all
exemptions of other property creates an excess as against those incapable of
shifting the burden. When exemptions are made or deductions allowed the total
of such exemptions or deductions is thrown upon property which is not exempt.
" I wish to say that months before any law taxing railroads on an ad valorem
basis could take effect there would be ample time in which to give, these appraisals
a thorough review, to the end that railroad properties would be assessed and taxed
' in the same manner and to the same extent ' as other properties paying taxes
under the general tax laws of the Commonwealth."
Earning power is the keynote of his valuation.
In the manner thus briefly set forth Mr. Oakman estimates the cash value of
the railroad properties of the State to be $186,511,385.34.
The following comments on " fixing valuations " are taken from his report:
" Having in mind the necessity for the specific examination of the roads, it may
be stated that the valuation of the railroad property operated within the State
found by capitalizing at 6 per cent the net earnings of the revenue-producing
roads, figured upon the system herein referred to, and computing the earning
power of the roads showing deficits in operation in their reports on the basis of
the average ratio of expense to income for all the roads within the State, say
73.79 per cent, will reach the sum of $186,511,385. while the valuation of the same
property computed throughout on a capitalization of 6 per cent upon net earn-
ings, based upon the said average, 73. 79 per cent of expense to income, will amount
to $172,154,412. It is probable that an examination of the accounting method of
the roads as suggested, and a further investigation as to location, traffic arrange-
ments, terminals, connections, and other elements that go to make value, would
result in a material increase, or perhaps some decrease in special cases, of the
valuations which appear in the appendix."
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