REPORT OF THE JOINT LEGISLATIVE COMMITTEE ON TAXATION OF THE STATE OF, NEW YORK TRANSMITTED TO THE LEGISLATURE FEBRUARY 14, 1916 ALBANY J. B. LYON COMPANY, PRINTERS 1916 DOCUMENTS DEFT. REPORT OF THE JOINT LEGISLATIVE COMMITTEE ON TAXATION OF THE STATE OF NEW YORK TRANSMITTED TO THE LEGISLATURE FEBRUARY 14, 1916 ALBANY J. B. LYON COMPANY, PRINTERS 1916 '*' * **' I DOCUMENTS DEFT. CONTENTS Introduction PAGE Joint resolution establishing a Committee 2 Problems facing the Committee 3 General scope of the Committee's investigation 4 Procedure of the Committee 5 Part I. The Revenue Situation 9 CHAPTER I. THE STATE 9 1 CHAPTER II. UP STATE CITIES -. 11 NEW YORK CITY 13 CHAPTER III. THE TOWNS 20 Part II. The New York System of Taxation 21 CHAPTER I. PECULIAR FEATURES OF THE NEW YORK TAX LAW 21 CHAPTER II. THE FAULTS OP THE NEW YORK SYSTEM OF TAXATION . 23 CHAPTER III. WHY THE PRESENT SYSTEM CANNOT BE RELIED UPON FOR THE ADDITIONAL NEEDED REVENUE 26 Part III. The Failure of the Personal Property Tax 31 CHAPTER I 31 History of Tax in Europe 31 Failure in the United States 32 Report of the Commission of Taxation, Massachusetts, 1908 .... 32 Report of Maryland Commission, 1888 35 Report of Kentucky Special Commission, 1912 36 Report of Virginia Tax Commission, 1911 37 Report of National Tax Association, Vol. IV 37 Summary of reports of New York Commissions 38 Report of 1872 39 Report of 1893 40 Report of 1900 40 Report of 1907 40 CHAPTER II. CAUSES OF THE FAILURE OF THE PERSONAL PROPERTY TAX 41 CHAPTER III. INJUSTICE OF THE PERSONAL PROPERTY TAX 43 As between tangible and intangible personalty 44 As between the poor and the wealthy 44 Concerning widows and orphans and trust estates 45 As between farmers and owners of other forms of wealth 47 Comparison of taxes on manufacturing and farms in California. 48 Table showing comparison of aggregates and percentages of investments in manufactures and agriculture in Minnesota ... 50 Injustice as between various types and classes of enterprise .... 54 [iii] 679528 CONTENTS PAGE Part IV. Failure of the Personal Property Tax in New York 55 CHAPTER I. GENERAL SCOPE OF THE COMMITTEE'S INVESTIGATION. 55 CHAPTER II. PERSONAL INVESTIGATION IN THE Six COUNTIES 59 CHAPTER III. DECLINE IN THE PERSONAL PROPERTY ASSESSMENT IN NEW YORK STATE 66 CHAPTER TV*. PERSONAL PROPERTY ASSESSMENT IN NEW YORK CITY. 68 CHAPTER V. PERSONAL PROPERTY ASSESSMENT IN OTHER CITIES AND TOWNS 69 CITIES 69 TOWNS 71 Part V. Failure of Section 12 (Introduction) 73 CHAPTER I. WHAT SECTION 12 Is 73 CHAPTER II. IMPOSSIBILITY OF ENFORCING SECTION 12 77 CHAPTER III. INVESTIGATION OF 2,500 CORPORATIONS 81 CHAPTER IV. INVESTIGATION OF THE COMMITTEE BY MEANS OF VOL- UNTARY RETURNS OF GENERAL BUSINESS CORPORA- TIONS 88 CHAPTER V. FURTHER INVESTIGATION OF THE WORKING OF SECTION 12 THROUGH THE MEANS OF VOLUNTARY RETURNS OF CORPORATIONS 91 CHAPTER VI. How CORPORATIONS ESCAPE THE PERSONAL PROPERTY TAX IN NEW YORK STATE 92 LEGAL MEANS OF ESCAPING TAXATION 96 CHAPTER VII. WHY CORPORATIONS ARE IMPELLED TO EVADE PER- SONAL PROPERTY TAX 101 Part VI. Taxation of Foreign Corporations. 103 The law regarding the taxation of personal property of foreign corporations 103 Failure of the law 109 Investigation of country records 109 Testimony concerning failure of the personal property tax in regard to foreign corporations Ill Why foreign corporations should make a substantial contribution to the support of State and local government 113 Part VII. New York System of Taxing Manufactures 117 CHAPTER I. STATE TAX 117 CHAPTER II. LOCAL TAXATION OF MANUFACTURING CORPORATIONS .. 118 CHAPTER III. NEW YORK MANUFACTURING INDUSTRY AS A TAXABLE BASE 119 CHAPTER IV. YIELD IN NEW YORK 126 CHAPTER V. YIELD OF NEW YORK MANUFACTURING CORPORATIONS UNDER THE FEDERAL INCOME TAX 129 CHAPTER VI. NEW YORK COMPARED WITH OTHER STATES : . . . 130 CHAPTER VII. SUMMARY AND CONCLUSIONS CONCERNING THE TAXA- TION OF MANUFACTURING CORPORATIONS 133 Part VIII. Section 182.. . 137 CONTENTS v PAGE Part IX. The Listing System 143 Report of Oregon Special Tax Commission 144 Report of 1906 Washington Commission 144 Report of New York Special Tax Commission, 1907 144 Drastic laws to secure disclosures have always failed 145 Report of Ohio Commission, 1893 147 Report of Kentucky Special Tax Commission, 1914 ^. 148 Part X. Miscellaneous Business Taxes 149 Part XI. Some Forms of Corporate Taxation Found in Other States. . . . 151 The franchise tax based on the par value of capital stock, such as is found in New Jersey 151 The capital stock tax, such as is found in Pennsylvania 151 The corporate excess tax 153 The Wisconsin Income Tax 155 Part XII. Substitutes for the Personal Property Tax 161 CHAPTER I. THE ABILITY, OB PRESUMPTIVE INCOME, TAX 161 Habitation Tax 161 Occupation Tax 164 Salaries Tax 165 Objections to Ability Tax 167 CHAPTEB II. THE CLASSIFIED PROPERTY TAX 168 CHAPTER III. THE Low RATE OF INTANGIBLES . 170 Arguments for the low rate on intangible property 171 Criticism of the above arguments 172 Pennsylvania low rate on intangibles 172 Results of Pennsylvania experience with 4-mill tax 173 Tax upon corporate loan 174 Conclusions concerning the Pennsylvania low rate on intangibles. 174 The experiment of Maryland with the low rate on tangibles 175 Results of Maryland's experience with the low rate on intan- gibles 176 Where Maryland law has failed 177 Conclusions concerning the Maryland low rate on intangibles. 177 Connecticut's experience with the low rate on intangibles 178 Fiscal results of the tax on choses in action 179 Minnesota's experience with the three-mill tax on intangibles. . . . 180 Conclusions as to the Minnesota tax 181 General conclusions concerning the low rate on intangibles 181 CHAPTER IV. THE INCOME TAX 184 Experience in the United States of America 185 Wisconsin Income Tax 186 General characterization of the tax 186 What is taxable under the Wisconsin income tax 188 What is not taxable 188 Definition of income ; 189 Income of individuals exempted from taxation 189 Rates of Wisconsin income tax 189 Administration 192 Advantages of the income tax , . , 195 vi CONTENTS PAGB Conclusion 206 General conclusions 206 Inheritance tax 207 Apportionment of excise and automobile tax 210 Federal and State subjects of taxation 210 Income Tax Bill 215 Appendices 235 STATE OF NEW YORK No. 26 IN SENATE February 14, 1916 Report of the Joint Legislative Committee on Taxation INTRODUCTION The taxation of personal property in the State of New York has presented a serious problem for the last fifty years. Prior to 1852, because of the low rate, the burden of the tax does not seem to have been seriously felt, nor the inequalities which have since arisen in its administration to have existed. However, in 1872, the rate for state and local purposes had risen to three per cent and the defects and injustice of the taxation of personal property at the general property rate became more and more ap- parent. The situation resulted in the appointment of the Com- mission of 1872, which was one of the first of the many com- missions that have investigated and reported on this trouble- some problem. This problem still remains unsolved. During the last thirty years the State has developed a system of special taxes imposing specific taxes upon certain classes of personal property and businesses, withdrawing them thereby out from under the personal property tax. Thus, banks, trust companies, mortgages and motor vehicles are all free from the local personal property tax and are taxable under special laws. But, except for these particular classes, the great mass of personal property in the State is still taxed locally at the same rate as real estate, and under the same rule as existed a half century ago. This was the situation when, in the year 1911, the Legislature enacted what is known as the Secured Debt Law, under the terms of which certain classes of securities, to wit, bonds, notes, debts secured by mortgage of real property situated in any State or country other than New York, or secured by the deposit of 2 : STATE OF NEW YORK securities under a deed of trust, or any bonds, debentures or notes not payable within a year from their date of issue, were, upon the payment of a tax of one-half of one per cent, exempt from all taxation during the life of the security. The law was, broadly speaking, modeled on the Mortgage Recording Tax Law, but there is this fundamental difference between the taxation of so-called secured debts and of mortgages: the tax on mort- gages is paid by the borrower, whereas the holder pays the tax on secured debts. The Secured Debt Law cannot, strictly construed, be considered a tax measure, for the payment of one-half of one per cent upon a security which may run for fifty years is so light a charge as to amount to little more than a registration fee. The purpose of the law was to exempt, rather than to tax, and unless the general policy of the State can be said to contemplate the relieving from taxation of the great and increasing accumu- lations of wealth represented by securities, credits and other forms of intangible property, this purpose must have run counter to our general policy. The law was not only disappointing as a revenue producer, but in the opinion of many constituted an unfair discrimination in favor of the holders of a particular class of property. The justness of this opinion, and the belief that it represented the sentiment of the majority of the people of the State, led the Legislature in 1915 to repal the Secured Debt Law. Various measures were introduced as substitutes, which contemplated sweeping reforms in the taxation of personal property, and which involved drastic efforts to reach securities and other intangibles. The Legislature, however, felt that the time at its disposal was sufficient neither for a careful study of so important a sub- ject nor for an adequate disposition thereof. It adopted, there- fore, a measure of a temporary character, under the terms of which secured debts, upon the payment of three-quarters of one per cent, could obtain exemption from the personal property tax for a period of five years ; and by joint resolution appointed this Committee to study the subject and to report at the next session of the Legislature. The joint resolution reads as follows : " Eesolved (if the Assembly concur), That a joint legisla- tive committee is hereby constituted consisting of three senators, to be appointed by the president of the senate, JOINT LEGISLATIVE COMMITTEE ON TAXATION 3 and five members of the assembly, to be appointed by the speaker of the assembly, to examine the laws of this state and of other states and countries relating to taxation; to investigate generally in respect of systems and methods of taxation, particularly with regard to the best methods of equitably and effectually reaching all property which should be subjected to taxation and avoiding conflicts and duplica- tion of taxation on the same property; and to prepare the needed legislation to carry such methods into effect in this State. " Resolved, That such committee be hereby authorized to sit at Albany or elsewhere within the state, to choose a chair- man from among its own members, to employ a secretary and counsel and such other assistants as may be needed, to take testimony, subpoena witnesses and compel the production of books, documents and papers, and otherwise have all the powers of a legislative committee. " Resolved, That such committee, on or before February first, nineteen hundred and sixteen, report the results of its investigation to the legislature, together with such pro- posed legislative measures as it deems advisable to carry its recommendations into effect. " Resolved, That the expense of such committee, not ex- ceeding fifteen thousand dollars, be payable from the contin- gent fund of the legislature upon the certificate of the chair- man of such committee." In view of the misapprehension which has existed in some quarters as to our functions, we desire to state what we believe those functions to be. The Committee does not understand that it was appointed with a view to developing new sources of revenue for the purposes of the State government, but rather to investi- gate the relative burden borne today by different classes of prop- erty and persons; to devise ways and means of doing away with such inequalities as exist, more particularly in so far as the personal property tax is concerned, both in its application to indi- viduals and to corporations ; and to present to the Legislature such a plan as in its judgment will tend to equalize present, as well as future, tax burdens, by the establishment of a broader tax base and a fairer distribution of those burdens. The reasons which 4 STATE OF NEW YOKE led to the creation of this Committee and the terms of the Reso- lution under which it is created, seem to make this entirely clear. The study of the relative burdens borne by the different classes of property and taxpayers necessarily involved an examination of the financial condition of the State, cities and other localities, while the determination of the best remedies called for a careful study of the tax systems of foreign countries and other American States, and more particularly of the recent reforms which have taken place in many of the latter. The time available to the Committee rendered it impossible to make a complete analysis of all the classes involved. Such investigation would have required the study of (a) Public service corporations, including railways, car companies, telegraph and telephone companies, rapid transit companies, gas, electric light, water and power companies; (b) Financial corporations, including commercial banks, trust companies, savings banks, fire, life and miscellaneous insurance companies; (c) General business corporations, including manufactur- ing companies, mercantile companies and miscellaneous companies. The time required by similar investigations in other states for example: Virginia, one and a half years; Connecticut, two years ; Kentucky, one and a half years ; California, two years - made it clear that it would be impossible for the Committee to undertake the complete task and at the same time to report by February 1, 1916. The CcymTnit.tp.ft felt justified, therefore, in postponing for further consideration if the Legislature deems this to be desirable (a) the taxation of public service corpo- rations, (b) the taxation of financial corporations, etc. The Committee devoted its attention to (a) An investigation of the personal property tax, the causes of its failure, and possible remedies or substitutes, involving a study of systems tried elsewhere ; (b) The reform of the taxation of general business cor- porations, including mercantile, manufacturing and miscel- laneous, involving a study of the principal methods of taxing general business corporations in the principal States of the Union ; JOINT LEGISLATIVE COMMITTEE ON TAXATION 5 (c) The revenue to be derived from any new methods of taxation, including (1) The yield of the various substitutes for the personal property tax, such as the 'Classified Property Tax, the Habita- tion, Occupation and Salary Taxes, the Income Tax and Miscellaneous Business Taxes ; (2) The yield of a tax on manufacturing, mercantile and general business corporations, according to methods used in other States. PROCEDURE OF THE COMMITTEE The Committee met for the purpose of organization in Albany on July 9, 1915. Senator Ogden L. Mills was elected Chairman; Assemblyman Frank B. Thorn was elected Vice-Chairman ; Assemblyman H. Edmund Machold was elected Secretary; Charles R. Hotaling was elected Sergeant-at-Arms and William R. Weed was chosen Clerk to the Committee. At a subsequent meeting Bronson Winthrop, Esq., was selected as Counsel-in- Chief, and Walter Lindner, Esq., Henry M. Powell, Esq., and Robert C. Gumming, Esq., were selected as Associate Counsel to the Committee. Professor H. A. E. Chandler was selected as Tax Expert and Advisor to the Committee. Upon the resignation of Frank B. Thorn, Assemblyman William W. Chace was ap- pointed by the Speaker as a member of the Committee and Assemblyman Edward A. Everett was elected Vice-Chairman. The Committee established an office at 9 East 84th street, New York City. The chairman collected all of the important and more recent reports of the special tax commissions appointed in the different states of the Union, and the annual and special reports of the various tax commissions in other states, together with such works as would enable the Committee to familiarize itself with the tax systems of European countries. Letters requesting their advice and suggestion were written to the leading tax experts throughout the country, and to the boards of supervisors, to the boards of assessors of the cities of the State, to the county treasurers, to the mayors of the cities of the State, to the State Grange, to the boards of trade and chambers of 6 STATE OF NEW YORK commerce and merchants' associations throughout the State, to all individuals interested in the subject of taxation in the State and to those who had attended the various New York State Con- ferences. Numerous conferences have been held with tax experts in New York and neighboring states. In addition, specific ques- tionaires were sent to every county and to every city in the State, for the purpose of obtaining information as to the workings of the personal property tax. This was supplemented in six coun- ties by personal investigations. A questionaire was sent to 500 of the leading foreign and domestic corporations doing business in the State, requesting such information as would enable the Committee to determine what property of those corporations was actually liable to personal property taxation and what taxes were actually being paid. In this particular field the Committee received great assistance from the Associated Manufacturers and Merchants Association of the State. The Committee held public hearings in New York City during the month of October, at which city and State officials, real estate owners, representatives of the Merchants Association, of the Chamber of Commerce, of various taxpayers', and civic associa- tions, of the Savings Bank Association, of the Investment Bank- ers Association, leading business men and experts on taxation, presented their views. At the conclusion of these hearings and prior to the hearings held up-State, the Committee issued a state- ment which contained a brief summary of the evidence presented to the Committee, together with the three principal plans which had been suggested as substitutes for the personal property tax, and invited criticism and suggestions on the part of the public. This statement was sent to the various chambers of commerce and boards of trade throughout the State, to the State Grange, and to all the newspapers of the State, with the request that it be published. During the latter part of November and the early part of December, hearings were held in Syracuse, Kochester -and Buffalo, at which the city and county officials, the Secretary of the State Grange, the representatives of the chambers of commerce, the Committee of the Associated Manufacturers and Merchants of JOINT LEGISLATIVE COMMITTEE ON TAXATION 7 the State, real estate owners and operators, leading merchants and business men, and Francis M. Lamon, Secretary, Northern New York Development League, were heard. The Committee returned to New York where a brief hearing was held, at which Professor Bullock of Harvard University presented his views to the Committee and explained the tax situa- tion in Massachusetts, and Professor Adams, formerly of the University of Wisconsin and a former tax commissioner of the State of Wisconsin, described the workings of the Wisconsin income tax, and presented his views on the New York situation. At this hearing resolutions were presented on behalf of the Merchants Association, the Committee on Taxation of the New York Chamber of Commerce, and the Special Committee on Taxation appointed by the Mayor of the City of New York, endorsing the income tax as a substitute for the personal prop- erty tax. The Committee desires to acknowledge the assistance it has received, more particularly from Professor E. R. A. Seligman of Columbia University, Professor T. S. Adams of Cornell Uni- versity, Hon. Lawson Purdy, President of the Department of Taxes and Assessments of New York City, Alfred E. Holcomb, Esq., Treasurer, National Tax Association, Professor Charles J. Bullock of Harvard University, and A. C. Pleydell, Esq., of the New York Tax Reform Association. The Committee desires also to acknowledge the assistance which it has derived from the cordial co-operation of the Special Committee on Taxation appointed by the mayor of the city of New York; of the Com- mittee on Co-operation consisting of representatives of the various real estate associations, the Trust Company Association, the Sav- ings Bank Association, the Association of Insurance Presidents, the Merchants' Association and of the New York 'Chamber of Commerce; of the Associated Manufacturers and Merchants As- sociation of the State of New York ; of the Rochester Chamber of Commerce and of the press of the State, which has been of ma- terial aid in presenting to the people the various plans suggested as substitutes for the personal property tax, and in keeping the public in touch with the work of the Committee. 8 STATE OF NEW YORK The Chairman acknowledges the very great assistance he has re- ceived from Professor H. A. E. Chandler in the preparation of this report. Mr. Chandler has been in constant touch with the work of the Committee, has had charge of much of the original in- vestigation 'and has made valuable contributions to the writing of the report itself. PART I THE REVENUE SITUATION The success or failure of the personal property tax is directly connected with the rate of the tax. Given a very low rate, it can be administered more or less satisfactorily and with comparative fairness and equality. Thus when, as in 1852, the rate in this State for both State and local purposes was but 7 mills on the dollar, there was little or no complaint. But let the rate rise to 1% or 2 per cent, and the inequalities and injustice become well-nigh unbearable. Experience has conclusively shown that a personal property tax at a 2 per cent rate is bound to be an absolute and complete failure, and to the extent that it does succeed, grossly unjust. It is pertinent, therefore, to examine the rates in New York State and to determine the likelihood of an increase or decrease by an examination of the financial situation of the State and of the localities. In so far as the latter are concerned, we have con- fined our investigation for the most part to the cities, because it is in the cities principally that we find the largest aggregates of wealth in the form of personal property, and because, broadly speaking, it is in the cities that the tax problem is most acute. CHAPTER I THE STATE The average tax rate in the 'State for the year 1914 was .018995 or approximately $1.90 per $100 of valuation. In the cities the tax rate ran in the year 1914 from .0166 in Geneva to .0655 in Port Jervis. These figures do not include a direct State tax, and yet the steady increase in the cost of State government and the probability that the present indirect sources of revenue have reached approxi- mately their maximum yield, suggest that the direct State tax may well become a permanent part of our revenue system. The expenditures for the general purposes of -State government, exclusive of interest on the canal and highway debts and of the free school fund and sinking and trust funds, have increased from $7,163,831.18 in 1885 to $42,408,488.24 in 1914, or an increase 10 STATE OF NEW YORK of nearly 500 per cent in thirty years. In the meanwhile the population of the State has increased 82 per cent and the assessed value of. real and personal property liable to taxation 274 per cent The per capita cost of government has risen from $2.47 in 1895 to $5.41 in 1914, or an increase of 235 per cent during a period when the population of the State increased but 53 per cent. From 1903 to the present time the net debt of New York State, over and above all sinking funds, has increased from $7,400,000 to over $148,051,000. The funded debt outstanding today is over $186,000,000, and in the last election the people authorized an additional indebtedness of $27,000,000. Thus the per capita net State debt has arisen from 94 cents in 1903 to $15.04 in 1915. The total appropriations for the general purposes of govern- ment, including sinking fund contributions, aggregate for the last five years $263,149,265.50, and exclusive of sinking fund contribu- tions, $225,244,800.77 ; while the income from sources other than the direct State tax aggregates but $211,049,892.59. For the last five years the appropriations for the general expenses of government, exclusive of sinking fund charges, have averaged in round numbers $45,048,960, and including sinking fund con- tributions, $52,629,853.10. The yield of the indirect taxes and of sources other than the direct State tax, has averaged in round numbers but $42,209,978.51 for the last five years. The Comptroller estimates that the debt service for the next five years will cost as follows : 1916-1917 $12,576,684 42 1917-1918 13,155,718 05 1918-1919 13,734,751 68 1919-1920 14,313,785 31 1920-1921 14,892,818 94 To this must be added increased maintenance charges for the State highways and the Barge canal, which, when both are com- pleted, will represent an increase per annum of $2,740,000. Under these circumstances it is hard to escape the conclusion that, unless new indirect sources be devised, a direct State tax for the purposes of the debt service at least must be included in estimating future local rates, even assuming that the most rigid economy be practiced. JOINT LEGISLATIVE COMMITTEE ON TAXATION 11 That such economy is highly desirable is not open to dispute, and yet in estimating possible reductions in future expenditures for State purposes, it is well to remember that many new func- tions have been assumed by the State government under a policy demanded by the people, a policy which calls not only for in- creased service, but for service of a better quality. Thus, for instance, greater opportunities for education are offered today than ever before; large sums are annually appropriated for the encouragement of agriculture and for the development of scien- tific farming; there has been a large increase in the number of those confined in our penal and correctional institutions and State hospitals, at the same time the construction and reconstruction of hospitals, prisons and other public buildings is paid from current income; huge sums have been voted by the people for the acqui- sition of Palisades Park and for the construction of thousands of miles of improved highways and of a barge canal, the latter two of which add materially to the annual financial burden, not only for interest and amortization charges but for maintenance and repair. Unless, therefore, the people of the State desire a com- plete change of public policy, and are prepared to limit the activities of government, there is little likelihood, with the grow- ing population and with the increased complexities of modern life, of any material decrease, no matter what administrative economies may be effected. This is borne out by the experience of other states and of the Federal government and of all foreign countries that have accepted modern democratic reforms with the new demands which they make upon government. The cost of the Federal government for thirty years prior to 1908 increased nearly 400 per cent, while the population increased but 84 per cent. The average cost of government of all of the states of the Union increased 105.9 per cent from 1903 to 1913, according to the Federal Census, while the population of the states rose only 20 per cent. CHAPTER II THE CITIES Turning now to the cities, we find a similar situation. The cost of government and the bonded indebtedness of almost every city in the State have risen steadily year by year. In the Ap- 12 STATE OF NEW YOIIK pendix will be found tables showing the per capita bonded in- debtedness, the per capita municipal taxes on property, and the per capita expenditures for municipal purposes of the cities of the State in the year 1913, giving the same figures in the case of the 16 principal cities for the years 1902 to 1913. These summaries show that the per capita indebtedness of cities having over 30,000 inhabitants, excluding Amsterdam and Niagara Falls, averaged in 1890, $21.35; in 1902, $47.-05 ; in 1913, $59.82, or an increase in 1913 over 1890 of 180.15 per cent. In Amsterdam the per capita indebtedness decreased 14.5 per cent from 1902 to 1913, and in Niagara Falls increased from 1902 to 1913, 29.2 per cent. In Albany., Auburn, Binghamton, Buffalo, Elmira, Eochester, Schenectady, Syracuse, Troy, Utica and Yonkers, the per capita municipal taxes on property averaged in 1913, $14.64; in 1902, $10.79, or an increase for 1913 over 1902 of 35.72 per cent. The per capita expenditures for muni- cipal purposes for these same cities averaged in 1902, $18.49 and in 1913, $25.11, showing an increase for 1913 over 1902 of 35.81 percent. A careful study of the tables unquestionably shows that there has been a marked upward tendency in practically all of the cities, a tendency so universal that it cannot be fairly attributed to governmental extravagance. In our judgment the explanation will be found in the fact that the increased expenditures have been incurred in response to the demands of the citizens of the localities for better service and for the assumption by the muni- cipal government of duties unthought of by previous generations. Indeed, this was the almost unanimous opinion of those who ap- peared before us. There are but few cities in the State that in recent years have not improved their lighting systems, repaved their streets, constructed new sewers, built school buildings of the most modern type, and in general undertaken a comprehensive \ system of public improvements which, however desirable they may be, and however they may add to the comfort and enjoy- ment of the inhabitants, necessarily mean an increased bur- den to the taxpayers. As a result, the tax rate is so high as to preclude the effective administration of the personal property tax, and the full weight of the increase has fallen on the owners . JOINT LEGISLATIVE COMMITTEE ON TAXATION 13 real estate. Without, at this time, discussing the equities of the situation as between the owners of real and of personal property, it is fair to say that, with the possible exception of the City of New York, in most cases the increase in value of real estate has, to a great extent, taken care of these increased taxes. This is still the case as far as we can ascertain in the majority of the up-state cities, but if the cost of government continues to increase during the next decade at the rate that it has in the last, these cities will unquestionably face as serious a situation as now confronts the owners of real estate in the City of New York, unless in the meanwhile some measure can be devised to compel the owners of personal property to contribute their share. The increase in the debt of the City of New York since Decem- ber 31, 1905, is shown in the following table: Gross Funded Debt (exclud- Dec. 31, 1905 Dec. 31, 1915 Increase ing General Fund Bonds) $565, 056, 512 $1, 155, 479, 156 $590, 422, 643' Net Funded Debt (held by the public) 424, 675, 900 979, 750, 749 555, 074, 848 Amount of Gross Funded Debt which is self-sus- taining (not included in computation cf debt limit) 27,113,879 322,525,502 295,411,623 This net increase of $590,000,000 in the gross funded debt is due principally to the initiation and construction of the new dual subway, the Catskill Water Supply System, and exten- sions to the city's other systems of water supply. The bonds issued during this decade on account of the new subway amount to $112,500,000, and on account of the construction and exten- sions of the city's greater water supply system $182,910,000; the amount issued for dock development during this same period has been $64,150,000, making a total of $359,560,000 for rev- enue producing purposes. In addition, there were issued $27,- 500,000 of assessment bonds which will be redeemed from the assessments collected. The other large items of increase in the city debt -are $84,250,000 for streets, sewers and the elimination of grade crossings; $79,850,000 for public buildings; $73,450,000 for schools, libraries and sites, and $45,300,000 mainly for bridges crossing the East river so that the four boroughs 14 STATE OF NEW YORK be physically connected and the Greater City become one city in fact. During the ten years under review, the city has redeemed $135,000,000 of its funded debt. The city debt, however, will not increase in any such ratio during the next decade. The adoption of the " pay-as-you-go " policy and the determination of the present city administration to curtail new authorizations of corporate stock as evidenced by the authorizations of 1914 and 1915 have already checked the growth of the city's debt. The average annual authorizations and allotments of corporate stock throughout the 10-year period, 1906 to 1915, for revenue and non-revenue producing purposes are shown below : AVERAGE ANNUAL AUTHORIZATIONS OF CORPORATE STOCK Distribution Administration Period Amount McClellan 4 yrs. $102, 417, 114 63 Gaynor 4 yrs. 87, 951, 998 46 Mitchel, 1914... 1 yr. 14,594,67048 Revenue Producing $51,663,423 62 56,311,014 23 5, 636, 583 30 Non-Revenue Producing $50,753,691 01 31, 640, 984 23 8,958,087 18 Mitchel, 1915... 1 yr. 11,585,98169 3,545,07056 8,040,91113 Administration Period McClellan 4 yrs. Gaynor 4 yrs. Mitchel, 1914... 1 yr. Mitchel, 1915... 1 yr. AVERAGE ANNUAL ALLOTMENTS OF CORPORATE STOCK Distribution Revenue Non-Revenue Amount Producing Producing $64, 871, 366 72 $23, 978, 468 18 $40, 892, 898 54 79, 164, 221 21 42, 575, 322 26 36, 588, 898 95 62, 234, 689 52 40, 823, 620 55 21, 411, 068 97 57, 226, 931 38 40, 378, 105 56 16, 848, 825 82 The 1916 budget, excluding the direct State tax, is $198,981,- 155.81, a net decrease of $8,630.71 below the budget for 1915, and an increase of $82,175,655.44 above the 1906 budget. The budget for 1916, including the direct State tax of $13,975,021.73 is an increase of $96,150,687.17 over 1906. The two following tables show in summary form the budget for 1906 and 1916 and the city's population, together with the amount and percentage of increase : JOINT LEGISLATIVE COMMITTEE ON TAXATION 15 BUDGET Item No. 1906 1916 1 Expenses of city government, exclud- ing charitable institutions $53', 240, 226 84 $78, 075, 306 43 2 Education 23, 938, 006 69 41, 107, 19& 32 3 Charitable institutions 3, 456, 056 44 5, 483, 875 00 4 Total City Government $80, 634, 289 97 $124,666,37975 5 Total County Government 4, 151, 360 50 7, 101, 565 95 6 Debt service 31,116,20721 63,213,21011 7 Tax deficiencies 4, 000, 000 00 8 Direct State Tax.. 903,632 69 13,975,021 73 9 Grand Total $116, 805, 490 37 $212, 956, 177 54 Population 10 Population 4, 166, 556 5, 742, 999 COMPARISON 1916 WITH 1906 Increase Item Average Annual No. Amount Per cent Per cent 1 $24,835,07959 46.647 4.665 2 17,169,19163 71.724 7.172 3 2,027,81856 58.674 5.867 $44,032,08978 . 54.607 5.461 5 2,950,20545 71.066 7.107 6 32,097,00290 103.152 10.315 7 4,000,00000 13,071,38904 1446.538 144.654 $96,150,68717 82.316 8.232 Population 10 1,576,443 37.836 3.784 The above tables show that the average annual increase in the total expense of city government has been 8.23 per cent, whereas the average annual increase in population has 'been 3.784 per cent. The average annual increase in the expense of city government would more nearly approximate or possibly be even less than the average annual increase in population were it not for the fact that until recent years, commencing about 1910, many of the current maintenance charges of city government were not paid from the tax budget but from the proceeds of the sale of corporate stock. The budgets from 1910 to 1916 inclusive, contain appro- 16 STATE OF NEW YOKK priations in substantial amounts for a number of debts which formerly were not included in the annual tax budget. The chief example is the Department of Docks. Prior to the year 1910, all annual maintenance charges for that department were charges against corporate stock. In order to correct this unsound method of financing, the first appropriation in the tax budget for the department was made in the 1910 budget in the amount of $2,821,932, and the amount in the 1916 budget for this depart- ment is $1,501,549. Although the cost of administrative departments under the jurisdiction of the Mayor and the Board of Estimate for 1916 has been decreased by $3,125,904.29 since 1914, the total of the budget has increased, and according to the testimony of the Mayor and the Comptroller of the city before this Committee, will con- tinue to increase principally on account of the adoption of the " pay-as-you-go " policy. The Comptroller estimates that the budget for the next three years will be approximately as follows : 1917 $204,439,623 1918 207,233,298 1919 221,299,848 Mayor Mitchel's estimates are' somewhat higher. He estimates- that the city will have to raise, exclusive of the direct State tax, for the purpose of interest on serial bonds, redemption of serial bonds and the quota of public improvements, and beginning with 1918 interest on subway bonds, the following amounts, which are additional to its present budget of $198,989,786.52 for 1915: 1917 $10,137,000 1918 19,400,000 1919 34,719,000 1920 34,554,000 Bearing In mind that New York City realty is assessed at practi- cally full value, if to this burden be added a direct State tax, there is no question that the tax rate will 'soar to a height rarely known in this country. The consequences of this no man can fore- see, but, in any event, they cannot with safety be minimized or brushed aside. It is only fair to say that the estimated increase will not be due to any increase in the general cost of administra- tion, but will result principally from the adoption of what is- JOISTT LEGISLATIVE COMMITTEE ON TAXATION 17 known as the " pay-as-you-go " policy a method recently adopted as a more scientific and proper way of financing public improve- ments. The testimony of the experts in many lines of trade and com- merce all points unmistakably to the fact that this great and increasing burden has been borne largely by one class of in- dividuals, to wit, the real estate owners and their tenants. When- ever the real estate owner is able to shift the tax to the tenant, it falls with the greatest weight on those least able to pay, because of the fact that a much larger percentage of their income is paid for rent by the poor than by the rich. If, on the other hand, the owner of real estate is unable to shift the tax, the new burden may amount to a decrease of his income, and therefore to a fall in the capital value of the real estate. At the New York hearings it was the opinion of those most familiar with real estate in ]STew York City that this class of property was overtaxed, that its value was in danger of being seriously impaired, and that the situation, generally speaking, was critical. For example, Mr. Alfred Marling testified: " I can say without any hesitation, based on my 38 years ex- perience as a real estate broker, appraiser and manager in this city, that real estate is down on its back, and it cannot stand any more burden absolutely none. There is no doubt whatever on that point in my mind. (Q) If these new taxes were imposed, what would be the effect? (A) Trouble, distress of all sorts. It would be practically confiscation to the poor property owner. He is gasping, breathless, now. (Q) You consider the situation serious? (A) I certainly do." The facts and figures submitted by the real estate men are interesting and significant: it was shown that the tax levy for 1915 upon real estate, including land, buildings, special fran- chises and real estate of corporations, amounted to 77 per cent of the 1915 budget, while personal property paid but 3.3 per cent. One group of 11 parcels of real estate paid 30 per cent of net income in taxes. Another group of seven paid 41 per cent in taxes. The average percentage of net income paid in taxes by the entire Astor estate in Manhattan was in 1885, 29.3 per cent ; 1904, 31.6 per cent ; 1909, 30 per cent and 1914, 3*. per cent. 18 STATE OF NEW YORK Their property in Manhattan represents an assessed value of over fifty million dollars, and consists of parcels located all over the borough, and used for all kinds of purposes, from business to residential. An investigation made by Mr. Stewart Browne, who appeared before the Committee, shows that 400 parcels paid 30 per cent more in taxes than ten years ago, while rentals decreased 25 per cent. The same gentleman estimates that the aggregate net income received on improved property in Manhattan does not exceed 3% per cent on assessed valuations and 4% per cent in outlying boroughs. Equally significant was the testimony with reference to the borough of Brooklyn. We quote from the testimony of Mr. William M. Greve: " We have taken into consideration 133 dwelling houses, 49 flats, 88 stores and flats, and 7 stores, for the period of 6 years. Our net return is 4.2 per cent. Of our net return we pay 36 per cent', in taxes ; that is the average tax paid. On dwellings it runs from 31 per cent, in 1909, 32 per cent, in 1910, and in 1911 when the valuations or assessments were increased we paid 60 per cent. It would run in the 6 years on dwellings from 31 to 40 per cent.; on flats it has run from 28 to 39 per cent; on stores and flats it has run from 29 to 38 per cent; and on stores it has decreased, according to our holdings, but that it attributed to the fact that we owned one very large piece of real estate that the rental was more than doubled after the expiration of an old time lease. But I think it is fair to say that in the six years the increase in taxes of the net has been at least 10 per cent." All the real estate experts agree that real property is to-day paying all that it can possibly afford ; that additional taxes could not be shifted to the tenants, who are to-day paying all that they can; that an increase, therefore must come out of the capital value of real estate ; that such an increase would necessarily wipe out the equities of thousands of owners and might precipitate a panic. In so far as mortgages are concerned, it is well to remember that the insurance companies, savings banks, etc., whose investments represent largely the savings of the poorer classes, are the largest investors in real estate mortgages. The mortgages held by sav- JOINT LEGISLATIVE COMMITTEE ON TAXATION 19 ings banki aggregate $1,017,493,000 out of a total investment of $1,739,000,000, or 53 per cent, and there are no less than 3,450,000 depositors in the savings banks of the State. Mr. Pulleyn, representing the Savings Banks Association, testi- fied as follows : u Any increase upon real estate holdings in the city of New York, probably in the State of New York, beyond the present figures, would tend to reduce the equities in the investment of $1,017,000,000 of real estate loans that are held at the present time by savings banks. We have seen the indication in the last year in the depression of real estate. We have seen the hand- writing on the wall. We believe, those of us who look at the real estate investment as seriously as savings banks must, that this increase of assessed valuation and increased rate is hurting us very, very seriously hurting our investment. u Q. That is to say, putting it plainly, it is reducing the margin of equity? A. It is reducing the equity in each one of our loans, and will continue to reduce the equity, because whilst there is an increase of a few mills in taxes, it means quite a per- centage on the face of the loan. " Q. There is a point beyond which of course you cannot go ? A. Yes. " Q. A point beyond which your borrowers cannot go, in realiz- ing the increase of taxation out of rents, is there not? A. Exactly. " Q. You feel that that point is very nearly reached ? A. Since there are two ways we have to look at it One is this. In the reappraisal of our investment loans in real estate we take as a basis income. Our income is reduced. It reduces values and when values are reduced, we come under the law of the State which says savings banks shall not lend any more than 60 per cent, of the price value. " Q. Then you have got to call for a scaling down of loans ? A. We have got to call for a scaling down of loans, which we have been unable to do. We are able, of course, to call, but the owners are unable to meet the demand." From the great volume of testimony presented to the Com- mittee with reference to New York Citv. the following conclu- sions may be drawn: 20 STATE OF NEW YORK (1) That real estate is paying* the bulk of the taxes and that personal property, comparatively speaking, is escaping almost entirely. (2) That material increases have taken place in the past dec- ade in the city's bonded indebtedness, the annual tax budget and the tax rate. (3) That in view of the new "pay-as-you-go" policy, adopted by the present city administration, there is likely to be a further material increase during the next few years in the total budgets (due to the increased appropriations for retarding and reducing the city's debt) and consequently material increase in the tax rate. (4) That from the standpoint of equity, real estate alone should not bear the full weight of increased taxes, and that if such a plan is attempted, serious consequences may ensue. (5) That so far as New York City is concerned, therefore, it is imperative that the tax base be broadened so as to include that property and those persons that are not contributing to-day in proportion to their ability to pay taxes. CHAPTER III THE TOWNS As already stated, the Committee's investigation of rural con- ditions was by no means as thorough or as complete as that of the cities. We are in a position to say, however, that, generally speaking, in rural districts the assessed value of real property is higher and nearer to true value than it was a few years ago; that the xate at which it is taxed is higher, and that personal property, in so far as taxation is concerned, has almost ceased to exist. Nor is there any likelihood of there being any material change in either one of these respects. Our conclusion, then, as to the entire State is, that the tax rate is altogether too high to permit the successful taxation of personal property at the general property rate, and that the future financial needs of the State and of its subdivisions, are such as to deny the hope that the tax rate can be reduced to the point where such taxation becomes comparatively successful or even possible. PART II THE NEW YORK SYSTEM OF TAXATION CHAPTER I PECULIAR FEATURES OF THE NEW YORK TAX LAW The New York tax system contain several peculiar features that differentiate it in a striking manner from nearly every other tax system in the United States. Several of these peculiari- ties are of special interest because they are unquestionably account- able for some of the weakest spots in the present tax law. (1) In the first place the theory of intrastate situs of tangible personalty is quite different in New York from that of most other States, and this difference results in much unfairness, not only between different classes of individuals, but also between different communities within the State. In most states there has been a tendency more and more to tax tangible personal property of residents where located ; but in New York State all tangible as well as intangible personalty is taxable only at the legal domicile of the owner, whether it be an individual or a domestic corpo- ration. The extent to which this peculiarity is responsible for tax evasion will be pointed out in the following chapter dealing with the faults of the New York system. (2) The second peculiarity of the New York system is found in the debt exemption feature. The custom as to the exemption of debts varies in different states. In some states the taxpayer is permitted to deduct only certain debts from credits; in other states all debts may be deducted from credits. In most states the deduction of debt feature under the general property tax is troublesome. In New York State, however, the debt deduction difficulty is accentuated because of the peculiar privilege which permits the total deduction of all debts not simply from credits, but from all personalty. In the next chapter will be pointed out how this privilege enables corporations to escape from personal property taxation. The whole question of debt deduction, whether limited to credits or not, presents one of the insuperable difficul- ties of the present property tax. 22 STATE OF NEW YOEK (3) The third peculiarity is that public service corporation franchises, or so-called " special franchises/ 7 are treated as real estate. This whole question of special franchises is a large one, deserving treatment at another time. This feature, of course, is not responsible for the failure of the personal property tax. (4) The fourth peculiar feature is found in the absence of the so-called listing system. New York is the only state in the Union that has not had a complete listing system. It is true that corpo- rations are theoretically required by law to render a complete list of all property subject to taxation, but as a matter of fact the law is a dead letter. New York, however, never has had, even in theory, the rule that individuals should list their personalty, tangible and intangible, for purposes of taxation. To this, peculiarity a few tax reformers with a little knowledge of ex- perience in other states, have attributed the failure of the personal property tax. It can be said, however, without fear of contra- diction that no one acquainted with the results of the listing system in other states has the slightest confidence in this con- tention. The uniform experience of other states has been that the listing system, even with drastic attempts at enforcement and heavy penalties, has failed absolutely to secure an enforcement of the personal property tax. Indeed, it might be added that were the listing system successful in enforcing this unjust tax, it would to that degree achieve a most regrettable success. It is not be- lieved that this peculiarity in the New York law is in any consider- able way responsible for the present inequities. (5) The next peculiarity which is of considerable importance grows out of the phraseology of the New York law. In most states the law declares all property, read and personal, subject to taxation. It then defines real property, and defines personalty as all property not included in real estate. The New York law, after declaring all property, real and personal, subject to taxation, proceeded to define personalty, not in the usual way, but through the method of enumerating the various types of property included within the term. For some reason, good-will was not included in the enumeration, and the courts have declared it to be untax- able. As will be explained in full in the next chapter, this peculiarity has rendered it impossible to reach a large part of the JOINT LEGISLATIVE COMMITTEE ON TAXATION 23 earning power of some of the wealthiest corporations in the State. (6) The New York system of taxing corporations is the most complex of its kind in the United States. In the case of certain types of corporations, the aggregate tax burden is split up into so many different taxes levied at varying rates and upon different bases, that it has been impossible to determine the relative burden borne by various classes of wealth. In regard to the taxation of general business corporations, the law is especially complex and confused. It has been called the most illogical corporation law in America. It is so ambiguous that it baffles the best tax at- torneys in the State, and in many cases it is utterly impossible for the corporation that wishes to pay its full share to know what that share is. It is an interesting fact that under this law many cor- porations, through their inability to understand it, have actually paid more taxes than they were liable for. (7) The last peculiarity of the tax law to be mentioned here is section 12, covering the taxation of the personal property of corporations. This feature is dealt with at some length in the chapter covering the failure of the corporation personal property tax. It is sufficient here to say that there is yet to be found in this State one man, either among the tax officials or the corpora- tions taxed, to commend the law. While it has proved practically unenforceable all over the State, it has been a source of great annoyance to corporate business in general. CHAPTER II THE FAULTS OF THE NEW YORK SYSTEM OF TAXATION In the previous chapter it was pointed out that many of the features which differentiate the New York system from those of other states constitute not only its peculiarities, but also its faults. The faults of the system, however, are not limited to its peculiari- ties. New York, like every other state in the Union, has suffered the same inequities that arise from the outgrown general property tax. (1) The most conspicuous defect, therefore, of the New York system is found in the utter failure of that part of the personal property tax that is still left under the general property system. 24 STATE OF NEW YOKK While it must be admitted that New York has in part reformed her personal property tax through the substitution of her system of special taxes, and to this extent is better off than many of her sister states, nevertheless, it is doubtful whether in any other State in the Union that part of the personal property tax still left under a general property scheme is a more lamentable failure than in New York. And this statement is applicable with rein- forced emphasis both to the personalty of individuals and to the personalty of corporations. For the details of this failure, the reader is referred to Part IV of this report. It is sufficient here to conclude with the statement that all familiar with the New York system of taxation, however they may disagree as to the correct reform, are unanimous in the conclusion that the present personal property tax should be eradicated from our system as soon as possible. (2) The second great fault in the New York system of tax- ation is to be found in its lack of adequate provisions for the ad- ministration of the tax law. As is well known to all those in- formed upon tax matters, the present law was designed to deal with conditions that no longer exist. The framers of the law lived in a world different from our own. They designed a law to deal with a simple society in which most property was tan- gible and in which ability to pay was roughly measured by the amount of tangible property owned by each. It was designed for business units of local scope. Since that time has come the great revolution in American industry, and with it the great state-wide and nation-wide corporation. Any system which leaves in the hands of the local assessor the assessment of that part of nation-wide business enterprises that happens to be located in, or to traverse his little district is, of course, nothing short of mediaeval. All authorities agree that so long as we leave the assessment of the personalty of great corporations in the hands of the local assessor, we must remain in the dark ages of taxation. In the matter of administration, New York can make no claim to leadership in taxation. For a number of years, while New York was developing her system of special taxes, this State was looked to for guidance in tax reform. That time is past and JOINT LEGISLATIVE COMMITTEE ON TAXATION 25 many states have progressed far beyond New York. Upon this point there seems to appear no difference of opinion among the authorities on taxation either in this or other states. All agree that the next reforms in taxation must come in the form of im- proved and more centralized administration. In whatever direc- tion reform in the 'New York system of taxation shall come, it is clear beyond the shadow of a doubt that to be successful it must be accompanied by improved administration. (3) The next most striking fault of the -New York system is to be found in its peculiar form of intrastate situs of personal property. This peculiar feature has been explained in the pre- vious chapter. It remains here to illustrate how subversive it is of all equity as between localities, and to what extent tax eva- sion is possible under this theory. Personal property, both tangible and intangible, is taxable under the New York law only at the legal domicile of the owner. This principle works with especial unfairness with regard to business men generally, whether carrying on their business as in- dividuals or as a partnership or in corporate form. An individual merchant residing in the town of Brighton, Monroe county, may own and operate a large store in the city of Rochester. Or that same mercantile business may be incorporated and the corporation may select the town of Esopus as its principal place of business, though the latter town has no connection whatever with the busi- ness. In either one of the instances mentioned, it would be im- possible under the law for the city of Kochester to tax either the individual merchant or the corporation on the large stock of goods carried by the store in the city of Rochester, while it is highly improbable that any considerable tax would be paid either to the town of Brighton or to the town of Esopus. In other words, the locality that supplies lire and police protection, as well as other advantages, is required to yield the right to tax the property so protected to other localities supplying none of these protections, while the individual merchant or the corporation doing business and actually residing in the city of Rochester, to continue our illustration, is obliged to meet, in so far as local trade is con- cerned, the competition of a rival who is free from all the taxa- tion on personal property. 26 STATE OF NEW YORK This peculiarity of the New York law is such a prolific source of tax evasion that considerable attention will be given to it in those sections of this report dealing with the failure of section 12. (4) The next important fault of the New York system is found in the needless complexity and ambiguity of the method of taxing corporations both for State purposes and for local pur- poses. As this phase has been briefly touched upon in the pre- vious chapter, and as it will be elaborated to some extent in a special section of this report, we shall only mention here that it comprises a very acute fault which demands immediate and radi- cal reform. (5) The last important fault to be dwelt upon in this chapter, because of its far-reaching consequences, deserves special atten- tion. It may be summed up in one statement that not only do large groups of wealth escape taxation entirely, but many in- dividuals most able to pay taxes and enjoying great privileges within the State cannot be reached under the present law. The effect of this evasion has both important direct and indirect results. The direct effect is that in escaping their fair share, these sources transfer their share of the burden to those already heavily taxed. The indirect effect, which is perhaps of greatest importance, is that the knowledge of this wide-spread evasion sows discontent and in many cases dishonesty in the minds of those who would otherwise be willing to pay their full share. From the results of a wide investigation, it appears beyond doubt that the average person, both individual and corporation, would be will- ing to pay his fair share of taxes, were the burdens more equitably and evenly distributed. CHAPTER III WHY THE PRESENT SYSTEM CANNOT BE RELIED UPON FOR ADDI- TIONAL NEEDED REVENUE To anyone familiar with the working of the general property tax in New York State, it is inconceivable that the communities of the State should continue to raise additional revenue by increasing year after year the rate of the direct tax. There are not less than four important reasons why it would be inequitable as well as unwise from the point of view of the stability of certain lines of business to place additional burdens upon that property bearing the general property rate. JOINT LEGISLATIVE COMMITTEE ON TAXATION 27 (1) In the first place, a horizontal raise always accentuates existing inequalities. The existing inequalities of the present system are altogether too great to permit any degree of accentua- tion. This fact would be true were the horizontal raise applied to all taxes, but under our system, the situation is even worse because a horizontal raise is always limited to only part of the taxable base. Under our system of special taxes, a large number of sources have been taken out from under the general property tax. Included in this part of the tax base are banks, trust companies, insurance companies, savings banks, mortgages, etc. The rates upon them are fixed and remain the same every year regardless of the rise in the cost of government. This system throws upon the remaining sources, viz., real estate and that small part of personalty that is actually reached, a burden which in many cases is already too heavy to bear. Much can be said in favor of our special taxes and in no place does this report suggest the return to a general property system. It must be admitted, however, that when the bank and trust com- panies those forms of wealth which according to the returns of the internal revenue department yield the largest profits of any American business when these are unaffected by the increased cost of government, it is unfair to continue to heap burdens upon that wealth coming under the general property rate. Of course all lines of business in so far as they own real estate are reached by the general, property rate. However, many of those branches which are most able to pay have a small propor- tion of their capital invested in real estate. The large element of intangible personalty which represents such an important part of the earnings of American business is not reached by an in- creased tax rate under our present system. (2) The second reason why the present system should not be relied upon for additional revenue is, that great masses of wealth are now escaping, in part or in whole, from paying their fair share of taxation; and furthermore, that these sources cannot be reached under the present system. And in this connection it should be noted and emphasized that the present high rates of the general property tax are due principally not to the unusually great expenditures of money in the State of New York nor to 28 STATE OF NEW YORK great extravagance, but to the fact that so much wealth is totally- escaping from taxation. In other words, the part which escapes has loaded its burden upon the part that is caught. Were the people of New York once aroused to the full extent of evasions under the present law, another year could not pass without an important tax reform. What are the principal sources that are now escaping? We have already mentioned intangible personalty. Under this term is grouped the greatest earning power, and therefore, the greatest ability to pay taxes in America. And yet under our present law it is impossible to reach an important part of this wealth. It is a well-known fact that the more complex our business world grows, the larger the amount of income that is not directly derived from real property. Our present law is based upon the theory that earning power is fairly represented by property and especially real property. However, a superficial knowledge of business of today discloses the fact that quite the contrary is true. As a result of this inconsistency between the law and the fact, we have permitted an important part of our well-to-do citizens to grow up and enjoy large incomes, and therefore large tax-paying ability, without actually requiring them to bear their share of the burden. Another fruitful source of tax evasion is found among those wealthy citizens of New York who shift their legal residence for the purpose of evading taxes. While they may not be reached under our present law, they represent a large taxpaying ability which ought to be reached and which could be reached under other forms of taxation suggested in the latter part of this report. A still more important source that escapes almost all taxation is that of foreign corporations doing large amounts of business in the State of New York. It is argued by some that foreign cor- porations ought not to be taxed to any extent in this State. How- ever, a careful study discloses the fact that most of these corpo- rations are foreign only in name, and that in reality they are domestic corporations with many of their plants located in the State. In fact, many of these foreign corporations now own and control property located in this State which formerly was owned and controlled by domestic corporations. In other words, large groups of wealth legally and fairly subject to taxation in the JOINT LEGISLATIVE COMMITTEE ox TAXATION 29 State of New York have been by virtue of a legal fiction trans- ferred to another jurisdiction. This is a subject of greater importance for New York State than for any other State in the Union. In addition to the above, there are several other groups of wealth that are escaping from paying their fair share. Space does not permit the discussion of these in detail. In summarizing, however, it is sufficient to say that were proper and thoroughly possible means taken for reaching the sources which now escape, it would not be necessary to consider the doubtful results of increasing present rates. Present rates would not be increased; they would be decreased materially. (3) The final reason why we cannot rely upon the general property tax for additional revenue lies in the fact that any con- siderable increase would threaten to disturb important business conditions. In this connection the real estate situation in New York City and other localities is already such as to cause appre- hension. This statement should not be misunderstood. Much confusion has been injected into the discussion by the exaggerated claims of the real estate men, on the one hand, and of a group of radical social reformers, on the other. It should be noted that nothing but confusion can result from talking of real estate in the aggregate. In some localities certain sections of the real estate field are in a very prosperous condition and any reasonable in- crease in the tax rate would be taken care of by the normal increase in the value of property. In such cases comprising possibly one-third of the entire State, it is foolish to speak of the unbearable burden of the general property tax. This condition represents important parts of the city of New York. On the other hand, there are large sections of the city of New York, as well as parts of the State at large, where an increase in the tax rate might constitute nothing short of confiscation. Indeed, the present high rates upon real estate have already, through the reduction of net income, actually destroyed capital value. In proof of this fact we have abundant evidence. In a large number of cases the value of the real estate has not increased as the tax rates increased. Indeed, in many cases while the tax rates have increased, the actual value of the property has 30 STATE OF NEW YORK decreased. And, moreover, this has taken place during a period when the tax officers have been pushing the assessed value nearer and nearer to the market value. They have, in fact, actually pushed the assessed value beyond the market value in some cases. The cases presented as sworn testimony at the New York City hearings of the Joint Legislative Committee serve to illustrate how inequitably the present general property rate bears upon real estate. And it should be carefully noted here what great varieties of tax-paying ability are grouped under the term " real estate owners." Our single-tax friends are fond of talking of certain well-known wealthy New York families and give the impression that most of New York real estate is monopolized by the few rich holders. It is greatly to be regretted that they have created a false impression by centering public attention, not upon the nor- mal condition, but upon the unusual and abnormal. A careful examination of the real estate situation, not only in the State at large, but in New York City itself, will disclose a surprising number of small holders of real estate, who depend upon the income from this property for living. In many in- stances the head of the family before dying has invested his earnings in real estate in the hope that either the increased value or the increased earning of the property would be sufficient to take care of his wife and partly educate his children. Cases are now frequent in which those who owned the property pay out a large part or nearly all of the income in taxes. The situation of the small salaried man who desires to own his own home is even more serious, in fact the high rates constitute a positive deter- rent to home building. In summarizing, therefore, it should be clearly borne in mind that the injustice of the present system lies not in the fact that it bears heavily on all real estate owners, but rather in the fact that it fails to discriminate and sometimes bears with such crushing force upon those who are least able * pay. PART III THE FAILURE OF THE PERSONAL PROPERTY TAX CHAPTER I HISTORY OF TAX IN EUROPE We would like, did space permit, to trace the history of the personal property tax from mediaeval times down to the present day; to show how it was once in use in practically every country in Europe ; how, as the earlier and simple economic structure gave way to modern complex development, its weakness and defects became apparent, so that one by one these countries abandoned it until to-day Switzerland is the only country in Europe where the general property tax still remains. \Ve cannot do better in this connection than to quote briefly from Seligman's Essays on Taxa- tion, page 61 : " Historically, the property tax was once well-nigh universal. Far from being an original idea which the Americans instinctively adopted, it is found in all early societies whose economic condi- tions were similar to those of the American colonies. It was the first crude attempt to attain a semblance of equity, and it at first responded roughly to the demands of democratic justice. In a community mainly agricultural, the property tax was not unsuited to the social conditions. But as soon as commercial and industrial considerations came to the foreground in national or municipal life, the property tax decayed, became a shadow of its former self and, while professing to be a tax on all property, ulti- mately turned into a tax on real property. The disparity be- tween facts and appearances, between practice and theory, almost everywhere became so evident and engendered such misery, that the property tax was gradually relegated to a subordinate position in the fiscal system, and was at last completely abolished. All attempts to stem the current and to prolong the tax by a more stringent administration had no effect but that of injurious reac- tion on the morale of the community. America is to-day the only great nation deaf to the warnings of history. But it is fast near ing the stage where it, too, will have to submit to the inevitable." 32 STATE OF NEW YORK FAILURE IN THE UNITED STATES The personal property tax has had a fair trial in nearly every State in the Union, and has everywhere proved a failure. This is the practically unanimous verdict of the many able commis- sions that have made a careful study of the tax in the various states. To quote from all of these reports, however impressive the evidence would be, would be merely cumulative. We give therefore, but brief extracts from five of the most important, which may fairly be said to be typical and representative. REPORT OF THE COMMISSION ON TAXATION, MASSACHUSETTS, 1908, Pages 22-24, 25, 26-28, 33-34 " This method of taxation is frequently described as peculiarly American and democratic, and it is supposed to be a method which, if fully carried out, would oblige every man to contribute to the support of public charges in proportion to his ability to pay. But, as a matter of fact, the system is neither distinctively Ameri- can nor democratic, and it is admitted that, however excellent the intent of the law, the practical result has never been that all citizens do contribute in proportion to their ability to bear the charges of government. " The general property tax was once in nearly universal use in Europe, and was brought to Massachusetts by the early settlers, who merely introduced here a system with which they had been familiar in the country from which they came. In England, as in most other countries of Europe, the principal form of direct taxation had long been a general levy upon property. In the seventeenth century this tax was known as the subsidy, and in practical operation produced the same results as followed its in- troduction in the 2sTew World. Personal property always man- aged to escape taxation in whole or in part, so that complaints about the inequality and injustice of the system were almost as common as they are in Massachusetts in our own time. In 1592 one writer stated that not more than five men in London were assessed upon goods exceeding 200, and in 1601 Sir Walter Ealeigh complained that l The poor man pays as much as the rich/ About the middle of the seventeenth century the subsidy became so unsatisfactory that it was replaced by a new tax, JOINT LEGISLATIVE COMMITTEE ON TAXATION 33 known as the monthly assessment, which was, however, but the same thing under another name. The immediate result of the change was a somewhat more complete assessment of property; but before long personalty began to evade taxation as before; so that in 1692 the monthly assessment was abolished, and re- placed by a new tax designed to reach the true yearly value of all lands, tenements, offices and personal estates. This new tax was but another property tax in a somewhat different form, and it soon fared as badly as its predecessors. During the eighteenth century personal property disappeared from the assessment rolls as rapidly as ever before, so that by 1798 over nine-tenths of the levy fell upon real estate, and less than one-tenth upon offices and personal estate. By this time, in fact, the tax had generally come to.be known as the ' land tax.' In some towns, we are told, the whole tax was assessed upon land and houses and personal estates wholly escaped. " In 1798 an act was passed by which the land tax became virtually a fixed charge upon the land, and since that time no further attempt has been made in England to levy a general property tax. The national revenues are now derived from an income tax, taxes on inheritances and the usual indirect taxes; while local revenues are drawn chiefly from a tax levied upon occupiers of land, houses and trade premises. "And in most of the other countries of Europe the result has been the same. * * * " It is equally erroneous to call the general property tax a dem- ocratic form of taxation. It is not found in such ultra-demo- cratic communities as the Australasian States; nor, with the ex- ception of Switzerland, is it found in those countries of Europe in which democratic ideas have taken deepest root. It was brought to America from England in the seventeenth century, when democracy existed neither in the mother country nor the colonies, and has been fastened upon us rather by historical acci- dent than because of its inherently democratic qualities. * * ' The history of the general property tax in Massachusetts is not materially different from its history in other States. From 1651 to the present date complaints that personal property evades taxation are met at every hand. During the last thirty-five years 2 34 STATE OF NEW YORK four commissions or special committees, exclusive of the present, have heen appointed to study the question ; and their reports dis- close the fact that the taxation of intangible property is the weakest point in the entire system. There is reason to believe that the administration of the law by Massachusetts assessors has been considerably better than the administration of the laws of many other States. The taxation of intangible property has not been such a complete farce with us as it has been elsewhere ; yet we find no one who supposes that we are now taxing more than 10 or 20 per cent, of the money, credits and securities taxable under our present law. After careful study of the subject, our commission is forced to the same conclusion that was reached by the commission of 1897, which we reproduce here: " e It is obvious, however, that this method of taxation en- counters, as to intangible property, exceptional and indeed al- most insuperable difficulties. There are no such external indi- cations of taxable liability as appear in the case of live stock, vessels, stock in trade or machinery. General repute as to the possession of large means, or a mode of life indicating an ample income, do not necessarily signify any thing as to taxable securi- ties. The investments of a person of means may be in real es- tate within or without the State, or in Massachusetts stocks or mortgages, or in bonds of the United States. An ample income, indicated by general expenditure, may be derived either from such sources already taxed or not taxable, or from trade and pro- fession, or from taxable securities, these last two being taxable, but 'taxable at very different rates. The assessors hence must rely on their knowledge and judgment in estimating the taxable property of this form. In a great and complicated society, with a mass of investments ramifying in all directions the assessors are here confronted with a task which the best of them could not execute satisfactorily. Even the most capable, most experienced and most conscientious assessors could not have sufficient knowl- edge and judgment. But only average capacity can be expected; experience is often lacking; and, even for conscientious assessors, the temptations to laxity are in many cases irresistible. Conse- quently, the taxation of this form of property is in high degree uncertain, irregular and unsatisfactory. It rests mainly on guess- JOINT LEGISLATIVE COMMITTEE ON TAXATION 35 work; it is blind, and therefore unequal. Here is its greatest evil, though not its only evil. It is haphazard in its practical working, and hence demoralizing alike to taxpayers and to tax officials.' " KEPORT OF MARYLAND COMMISSION, 1888, PAGES 101, 103, 151 " The truth is, the existing system is so radically had, that the more you improve it the worse it becomes. This lies in the nature of things and nothing any Legislature can do can alter this condition of things. Experience and reason alike teach this, and in my opinion place it beyond controversy for all those who have eyes to see what it passing about them every day of their lives." ( The reason why our present system of taxation does not operate satisfactorily can be stated in a word; although it is on the face of it fair and simple, it is found in practice to be an impracticable theory, for a large portion of property escapes tax- ation, and that the property of those best able to bear the burdens of government, namely, the wealthy residents of cities. On the one hand, it is impossible to find this property, and to force men to make returns under oath, results invariably in perjury and demoralization, without discovery of property; on the other hand, federal laws over which our States and municipalities have no control, enable many to escape taxation by investments, often temporary, in federal bonds, exempt from taxation. " Personal property is sometimes discovered in its entirety, but it is then nearly always the property of the comparatively helpless, namely, widows and orphans, whose possessions are a matter of public record. Less often a burden is imposed upon the conscientious. Thus, I happen to know of one wealthy town >f a few thousand inhabitants, where three men of conscientious sonvictions with regard to a man's duty to the commonwealth, pay taxes on their personalty, although they have as good an op- portunity to escape as others. This state of things naturally produces dissatisfaction on the part of farmers and other hard working people, who feel that personalty ought to bear a share of the burden of taxation. On this account they suggest various :hings, like taxation of mortgages, and a more vigorous search 36 STATE OF NEW YORK for hidden property. Their aim, as I have said, is commendable, but to attempt to reach the desired goal by direct means, under existing laws, or any laws which do not imply a change of the system of taxation, is as Utopian as the dream of the most radi- cal socialist. If we desire to accomplish a purpose we must use means adequate to the end in view. * " Another aspect of this case is presented by the facts of com- petition in business. Those who escape the payment of a fair share of business taxes have an advantage in business which en- ables them to undersell their competitors, and when a business man sees ruin staring him in the face because his dishonest neighbor makes false returns and pays taxes on only a fractional part of his property, the temptation to do likewise is almost irresistible, except for moral heroes, and moral heroism cannot be made the basis of governmental action." KEPORT OF KENTUCKY SPECIAL COMMISSION, 1912, PAGES 83-84 " In 1904 the total roll was $630,795,464, and monies, credits and securities were assessed at $68,829,446, or 10.9 per cent. " In 1911 the total roll was $846,450,020, and monies, credits and securities were assessed at $83,468,030, or 9.8 per cent. " In 1906 the ratio was 10.8 per cent. " In 1907 the ratio was 11.5 per cent. " In 1908 the ratio was 10.1 per cent. " In 1910 the ratio was 9.5 per cent. " As we said in our preliminary report : The State of Kentucky received more revenue for the year 1912 from its dogs than it did from all the bonds, monies and stocks in the State." " When finally we note that money, credits and securities taxed in 1910, the year of the census, were $79,000,000 or only $34 per capita, the necessity for further research seems to disappear. " Nobody can seriously maintain that all monies, credits and securities are taxed or any substantial part. " In the opinion of the Commission, the present methods of taxing money and credits are ineffective in producing revenue and highly unjust in their operation on individual taxpayers. They constitute one of the gravest problems connected with our JOINT LEGISLATIVE COMMITTEE ON TAXATION 37 system of taxation, and until they are changed our tax laws will remain vitally and fundamentally defective." REPORT OF VIRGINIA TAX COMMISSION, 1911, PAGES 69-70 ' To summarize, it has appeared that inequalities and under- valuations of every sort appear in our taxation of personal property. How extensive these are can only be surmised; how iniquitous they are can merely be imagined. Viewing the situ- ation as a whole, the writer believes that it would be better to remove the tax on personal property altogether and seek other sources of revenue, than to perpetuate the frauds, inequalities and undervaluations which now encumber the administration of our tax laws. "A law which permits these things is unquestionably a failure, and it behooves those interested in the problem to ascertain why and wherein the law has broken down. Examination has shown that the failure of the property tax in Virginia may be traced to four things. These are, first, the attempted enforcement of a law under industrial conditions which render it inoperative of necessity and invalidate the theory upon which it is based; second, the failure of many commissioners of the revenue to en- force the existing laws; third, certain defects in the law which make deceit and injustice easy; fourth, the growth of a feeling among our people that there is nothing dishonorable or discredit- able in ( dodging taxes.' ' REPORT or NATIONAL TAX ASSOCIATION, VOL. IV, PAGES 309^- 310 " To sum up, your Committee finds : ' That the general property tax system has broken down ; ' That it has not been more successful under strict administra- tion than where the administration is lax; 1 That in the States where its administration has been the most stringent, the tendency of public opinion and legislation is not towards still more stringent administration, but towards a mod- ification of the system; ( That the same tendency is evident in the States where the administration has been more lax ; 38 STATE OF NEW YORK " That the States which have modified or abandoned the gen- eral property tax show no intention of returning to it ; " That in the States where the general property tax is required by constitutional provisions, there is a growing demand for the repeal of such provisions. " We conclude, therefore, that the failure of the general prop- erty tax is due to the inherent defects of the theory ; " That even measurably fair and effective administration is unattainable; and that all attempts to strengthen such adminis- tration serve simply to accentuate and to prolong the inequalities and unjust operation of the system." SUMMARY OF REPORTS OF NEW YORK COMMISSIONS The New York authorities are all to the same effect. "A more unequal, unjust, and partial system for taxation could not well be devised.' 7 (First Annual Report of the State As- sessors, 1860, p. 12.) " The defects of our system are too glaring and operate too oppressively to be longer tolerated." (Comptroller's Report, 1859.) " The burdens are so heavy and inequalities so gross as almost to paralyze and dishearten the people." (Assessor's Report, 1873, p. 3.) " The absolute inefficiency of the old rickety statutes passed in a bygone generation is patent to all." (Assessors' Report, 1877, p. 5.) " The hope of obtaining satisfactory results from the present broken, shattered, leaky laws, in vain." (Report Association of Taxes and Assessments, 1876, p. 52.) " The system is a farce, sham, humbug." (Assessors' Report of 1879, p. 23.) ' The present result is a travesty upon our taxing system, which aims to be equal and just." (Comptroller's Report, 1889, p. 34.) The general property tax is a reproach to the State, an out- rage upon the people, a disgrace to the civilization of the Nine- teenth Century, and worthy only of an age of mental and moral darkness and degradation when " the only equal rights were those of the equal robber." (Comptroller's Report, 1889, p. 34.) JOINT LEGISLATIVE COMMITTEE ON TAXATION 39 The above quotations from the ^ew York reports are taken from Seligman's Essays in Taxation. REPORT OF 1872 The report of the Commission of 1872, of which Mr. David A. W T e!ls was chairman, was one of the ablest tax reports ever writ- ten. We, therefore, quote from it at some length : " In the case of New York, no one, either officials or citizens, is satisfied with the existing system or its administration ; and so apparent, moreover, are its defects, that the necessity of reform is almost universally acknowledged. But the Commissioners, who have made the system a matter of special study and inquiry, go further, and unqualifiedly assert that, as it exists to-day it is more imperfect in theory and defective in administration than almost any system that has ever existed, and that its longer recog- nition and continuance is alike prejudicial to the material interest of the State and the morality of its people." Real property being visible and tangible, presents no inherent difficulty in the way of assessment, and the system might be rea- sonably supposed to work with some degree of uniformity and equality, yet they found it impossible to find any two contiguous towns, cities or counties in which the valuation of real estate approximates in any degree to uniformity. "It is evident that the law in this respect has become a dead letter and wholly inoperative. The attempts to tax personal property under the same system are infinitely more farcical and disgraceful." The reasons for the failure are as follows: In the first place, a large part of personal property " is incor- poreal and invisible, easy of transfer and concealment, not ad- mitting of valuation by comparison with any common standard, and the situs or locality of which for purposes of assessment and taxation, involves some of the oldest, most controverted and yet unsettled questions of law. * * * It is obvious, therefore, that the law contemplates the doing of an act * * which cannot be done without the fullest co-operation through com- munication of information, of the taxpayer himself; and yet for the imparting of which the two most powerful influences that can 40 STATE OF NEW YORK control human action, viz., love of gain and the desire to avoid publicity in respect to one's private affairs, co-operate to oppose." REPORT OF 1893 The taxation of personal property is " unsatisfactory and un- just, and if no better plan of administration be devised and carried into effect than that now in existence, it is idle and worse than useless to attempt the taxation of personalty, however ob- jectionable the alternative." (Report of Counsel to Revise the Tax Laws of the State of New York, 1893.) REPORT or 1900 The Joint Committee on Taxation for the year 1900 likewise found that the personal property tax was a failure, and did not believe any reform would remedy the situation unless the listing system were adopted. This, however, the committee was unwilling to recommend. It found that while the first returns were ap- parently good under the listing system, it eventually drove capital out of the State. REPORT OF 1907 " The principal difficulty connected with our system of local revenue is the taxation of personal property. * * It is a universally accepted maxim that direct taxation of the citizen should be nearly as possible in proportion to his ability to pay. The actual situation in New York involves in practice the very inverse of this principle." As a result of its study the committee concluded : " (1) That there has been gradual and steady increase in the value of real and personal property ; " (2) That personal property escapes paying its share of the burden ; "(3) That the greater the amount of personal property placed on the rolls, the larger the cancellations or reductions ; " (4) That the burden falls heaviest on the residents of our State and the smaller taxpayer ; " (5) That the nonresidents have almost ceased to pnv taxes; " (6) That the collection of the personal property tax has be- come more and more difficult." JOINT LEGISLATIVE COMMITTEE ON TAXATION 41 CHAPTER II CAUSES OF THE FAILURE OF THE PERSONAL PROPERTY TAX Briefly stated, the objections to the personal property tax and the reasons for its failure are as follows : (1) Inequality of assessments. (a) As between towns. It is notorious, and the facts to be submitted later will show beyond question, that in some towns personal property is assessed at something like true values, whereas in others no attempt whatsoever is made to reach the personal property of either corporations or individuals, or if it is reached, it is assessed at a value insignificant as compared with true value. This has a tendency to produce throughout the State " isles of safety " or residential districts desirable from a tax standpoint for both individuals and corporations who, by establishing a nominal residence, and by the payment of a small or nominal tax, in one town, are enabled to escape their proportion of the taxes in the town in which they actually reside. Thus, the one town is enabled to increase its tax base and lower its rate, while the other is deprived of large amounts of taxable property and is obliged to tax that which remains within its juristiction at a higher rate. (b) As between citizens of the same town. The system is practically one of self -assessment, under which the dishonest man who is willing to swear off his taxes, does so at the expense of the honest man whose conscience does not permit him to do so. (2) The personal property tax at a general property rate, let us say 2 per cent, is confiscatory and an actual incentive to dis- honesty. Two per cent is the equivalent of 50 per cent of the income of a 4 per cent bond, and no country in the world in normal times has or can successfully impose a 50 per cent income tax. The taxpayer will not submit to it, particularly when he knows that thousands of fellow citizens, in many cases with in- comes much larger than his own, are actually evading its payment. (3) The theory underlying the general property tax is that both real and personal property should be taxed at the same rate and on the same basis. Without at this time discussing the sound- ness of this particular theory, as a matter of practice, real estate bears practically the entire burden, while personal property, 42 STATE OF NEW YORK though theoretically liable, fails to contribute its share to the support of government. (4) The deduction of debts invites fraud and evasion, yet not to allow deduction of debts is in some cases double taxation. As has been said, " Individuals should be taxed on what they own, . not on what they owe." This, of course, is not true in the case of many corporations that obtain most of their working capital by issuing bonds. (5) The personal property tax is unequal as between different grades of property. It falls with equal weight upon unproductive property, on property yielding comparatively small income, and on property bringing in a very large return. (6) Under modern conditions, property no longer represents the true test of ability to pay. In a simple agricultural com- munity, where personalty is for the most part tangible and visible, property furnishes a fairly equal measure of a man's ability to contribute to the support of government ; but under modern busi- ness development this is by no means the case. Take the case of the merchant with a large turnover and a comparatively low profit. His ability to pay taxes is by no means the equal of that of the merchant with a small stock of goods, a rapid turnover and large profits; yet under the personal property tax the former rather than the latter will pay the larger tax. Take the case of the manufacturer. The one may own a very large plant with complicated, expensive machinery, and the necessities of his business may require him to carry a large inventory. He may earn but a small return on his investment. Another manufacturer in another line may have a smaller plant, much less valuable ma- chinery, a comparatively light inventory, and yet because of the nature of his business may have a greater income. Here again the ability of the latter to contribute is greater than that of the former, yet the former under the personal property tax pays the heavier share. As between individuals, the lawyer earning $50,000 a year pays nothing on the taxable ability represented by these large earnings, while the widow or the retired busi- ness man or wage-earner with $500 a year derived from accumu- lated savings of $10,000 is compelled to turn over $200 of it to the tax gatherer. The investor who makes an unwise invest- ment from which he gets little or no return pays as much as the JOINT LEGISLATIVE COMMITTEE ON TAXATION 43 fortunate individual enjoying fat dividends; the man with a large unearned income and extravagant habits gets off scotfree, while the thrifty one who in spite of a lower earning capacity and less ability to pay taxes manages to lay something aside is taxed on the evidences of his thrift. (7) Personal property under modern conditions consists for the most part of securities, credits and other intangibles, easy of concealment and which cannot be discovered without the co-operation of the taxpayer himself, a co-operation which the taxpayer declines to furnish, and which experience has demon- strated cannot be compelled. Moreover, the large accumulations of wealth in form of intangibles are usually concentrated in the great cities under conditions which make it well-nigh impossible for the assessors to locate the owners a complete change from the conditions under which the personal property tax was adopted, when life was simple, wealth fairly equally distributed, when people lived in villages or small towns, and when each man knew not only what his neighbor owned, but what property of his was assessed. Even in so far as tangible personalty is concerned, con- sider the difficulty which confronts the average assessor who may be required to assess accurately anything from a Rembrandt pic- ture to a large modern industrial plant. The fact is that, at the wages paid which in many instances do not exceed three dollars a day it is impossible to obtain any man with a sufficient accumulation of knowledge to enable him to deal successfully with a field so wide as to include within its range practically every form of property found in a complicated society. (8) The great number of exempt securities makes it possible for the wise investor lawfully to escape personal property taxation, leaving the tax to fall on those not sufficiently fortunately situated to obtain wise legal advice and on those ignorant of the law. CHAPTER III INJUSTICE OF THE PERSONAL PROPERTY TAX All semblance of justice and equity has long since left the personal property tax, which has been suffered to remain on our statute books because of the widespread apathy and ignorance of the public in regard to taxation, and because of the fact that it has not, generally speaking, been enforced. 44 STATE OF NEW YORK (1) As Between Tangible and Intangible Personalty. Tangible property can be seen; intangible property cannot be seen. Tax assessors find it comparatively easy, therefore, to discover tangible property, while they have the greatest difficulty in locating in- tangible property. Everywhere the result is the same not only is a much larger proportion of tangible property reached for the purposes of taxation, but that proportion reached bears a much higher rate of taxation as a result of the escape of intangibles. The inequity is further accentuated by the fact that those most able to pay have their wealth largely invested in intangibles and that those least able to pay have their wealth largely invested in tangibles. The magnitude of this' injustice will appear as we examine the effect of this tax upon the rich as compared to the poor, upon the widows and orphans, upon the farmers as compared with owners of other forms of wealth and upon the struggling business as compared to the well-established business. In every case the inequity increases with the inability of the particular classes to bear taxes. 2. As Between the Poor and the Wealthy. Not only do the poor and those in only moderate circumstances have their wealth invested in easily seen and easily taxed tangibles, but the kind of tangible personalty in which the poor man invests his money, whether it be in his household effects or in his small business, is of such nature that the ordinary tax assessor is familiar with it and can therefore assess at well-nigh its true value. This is true as well of the tangible personalty that makes up the small business concern as of the tangible personalty included in the household goods and other personal effects. In the case of the wealthy man, however, the case is a very different one. Not only is a large part of his wealth ordinarily invested in intangibles, but much of his tangible personalty, whether that of his personal ef- fects or that of his business, is of a kind that the ordinary assessor (in his daily life) is unfamiliar with, and it is also of a kind that is difficult of valuation. This is true not only of the wealthy individual but of the wealthy corporation as well. In regard to the former, the valuation of such property as jewelry, works of art, books, etc., require a knowledge and skill not possessed by the average assessor. In regard to the rich corpo- JOINT LEGISLATIVE COMMITTEE ON TAXATION 45 rations, such as mercantile corporations, carrying large stocks of fine fabrics, jewelry, etc., and those manufacturing corporations having machinery of great value as well as large stocks of products in the process of manufacture, the experience of forty-eight states of the Union discloses with unmistakable clearness that the average assessor does not and cannot assess these subjects with any degree of fairness. When we come to investment in securities, a large investor usually has the knowledge, or can obtain such advice, as will enable him to invest in tax-exempt securities, while the small investors, particularly women, are apt, through ignorance, to invest in taxable bonds. 3. Concerning Widows and Orphans and Trust Estates. If there is one group of property which should escape with reasonable taxation, it would seem to be that property the income from which is set aside for the .support and education of those who have been deprived through death of the head of the family, viz., the widows and the orphans. When the chief bread-winner dies, a record of his property must be filed in the probate court, where it is easily accessible to the tax assessors. Here it is caught and taxed, while similar property held by others is untaxed. Were it taxed at only a fair rate, it would still be questionable whether this property ought not to be partially exempt. However, it is not taxed at a fair rate, but at a rate which makes the personal prop- erty tax in this case one of the most barbarous to be found in any country. Cases are frequent where as high as 25 to 50 per cent of the total income set aside for the support of widows and orphans is taken by this tax. How serious the situation is was well ex- emplified by investigation made by one of the witnesses who ap- peared before the Committee. He stated that he found that in one county (not in the State of New York) the roll showed that about 20 to 25 per cent of the personal property taxes were paid by women. It will, of course, be readily agreed that women do not own anything like 25 per cent, of personal property in any state. Another witness told us of a woman whose husband had died leav- ing an estate all invested in 4 per cent bonds. The woman was assessed by !N"ew York City's Tax Department for the full value of the bonds. There was no possibility of getting the tax re- 46 STATE OF NEW YORK duced. Counsel advised her to change her investments, but she refused to do that because her husband had made them, so she was obliged to leave the city and change her residence. A simple example will illustrate how this tax works. Assume that a prudent head of a family had been able to save $15,000 which had been invested in municipal bonds yielding four per cent. The annual income to the widow would be $600. At a tax rate of 2 per cent, on the value of this personal property, the widow would be compelled to surrender $300 to the tax authorities or one-half of her total income. In some localities tax rates have risen as high as three or four per cent, and cases are not unknown where, had the tax law been enforced, the widow would have been deprived of her entire income. Indeed, cases are known where the tax has not only absorbed all of the income, but has compelled the owner to pay an additional amount. In the 1915 New York Tax Conference, Mr. Lawson Purdy cited such a case. Before the December, 1915, hearings of the Joint Legislative Committee on Taxation, Professor Charles J. Bullock of Harvard University testified that cases of such gross injustice amounting to the taking of from one-third to one-half of the income of widows and orphans were not infrequent where the general property rate was applied to personalty. Upon this point, the Report of the Massachusetts Tax 'Commission for 1908 speaks as follows: " The situation is made worse by the fact that the local tax rates throughout the country are so high that they take from the holder of good securities an excessive proportion of his income. According to the United .States census, the average rate levied upon property assessed for local taxation in the United States in 1902 was about 2 per cent, of the capital value thereof, or as tax rates are usually reckoned in Massachusetts, $20 on each $1,000 of the assessed valuation. In many places real estate was so far undervalued that a tax of 2 per cent, upon the assessed value may not have amounted to more than 1 per cent, or even one- half of one per cent, of the true value of the property. But per- sonal property, if returned for taxation, must be valued usually at its true cash value; and it is clear that a tax rate of 2 per cent, may take from the holder one-third or one-half of his in- come. Under such circumstances few persons can or will make JOINT LEGISLATIVE COMMITTEE ON TAXATION 47 returns of their personal estates ; and the usual result is that this property is taxed by the method of arbitrary estimate, or ' doomage ? . When returns are made they come usually from trustees and executors of small estates, who cannot easily evade the law, and have less inducement to do so. Thus it comes about that the mx on personal property bears with exceptional severity upon widows and orphans, the most helpless class in the commu- nity, and is most easily evaded by the rich and powerful, who can best afford to pay it. Instances have come to the attention of members of the present Commission in which widows are paying upon small estates taxes that take as much as 40 or 50 per cent, of the income; whereas in the same communities men whose tax- able property would probably amount to millions are paying a few hundred dollars of personal taxes upon merely nominal assess- ments. These conditions are not peculiar to Massachusetts, they have been repeatedly disclosed by the reports of tax com- missions in other States; and among students of American taxa- tion it has become a mere truism that our present taxes upon personal property actually fall upon the taxpayers in inverse proportion to their ability to pay." 4. As Between Farms and Oilier Forms of Wealth. That the farmers bear a disproportionate share of taxation is gen- erally known and accepted by most of the informed throughout the United States. It is not generally known by the farmers or the public at large, however, to what an extreme degree this dis- proportion is carried. It is, of course, well known that most of a farmer's personalty is in a tangible form, and that it cannot be hidden from the tax assessor. Wherever the law is enforced the farmers' machinery and implements, his stock and other tan- gibles not; only pay a much higher rate than their share, but a rate out of all proportion to the earning power of such property. This disproportionate rate is, of course, largely made up of that part of the tax burden that is evaded by other forms of wealth. The full significance of this inequity cannot be grasped without comparing the rates upon agricultural property and in- come with that of the other principal industries of the State. A study of California in this regard is of much value to New York. A few years ago a very careful investigation was made 48 STATE OF NEW YORK of the relative tax burdens borne by the various classes of wealth in California, and the results of this investigation were set forth in the 1906 California Tax report. Most of the statistics given immediately below are either copied from that report or represent computations based upon the data there set forth. The following table taken from page 68 of this report is a comparative statement of manufacturing industries and agriculture in respect to the capital investment, percentage of total capital value invested in realty and personalty, and percentage of each taxed: COMPARISON OP TAXES ON MANUFACTURING AND FARMS IN CALFORNIA Percentage of total capital Aggregates Manufac- Agricul- Manufactures Agriculture tures ture Capital total $205, 395, 025 $796, 527, 955 100.0 100.0 Land 34, 735, 416 \ 630, 444, 960 16.9 79.0 Buildings 22, 562, 385 77, 468, 000 11.0 9.7 Machinery, resp. imple- ments 62, 440, 759 21,311,670 30.4 2.7 Other assets 85,656,465 67, 303, 325 41.7 8.5 Assessed value 63, 500, 000 474, 731, 497 31.0 65.0 Taxes 1, 049, 932 9, 030, 000 .51 1.14 Gross produce 302, 874, 761 131, 690, 606 147.0 16.5 Net product 52, 172, 862 91, 419, 866 25.4 11.5 Taxes of gross .346 6.86 Taxes of net product 2.01 9.88 This table discloses some very interesting facts; and these facts are of considerable interest to New York, because they illustrate a condition in California very similar to the one now prevailing in New York 'State. At least this is true in so far as they illustrate the inequity existing between farm property and that of other forms of wealth. It should be remembered, how- ever, that the actual inequity as between these two forms of wealth is probably greater in New York than in California. The above table shows that while agriculture pays 6.86 per cent of its gross product in taxes, manufactures pay only .34 per cent or one-third of 1 per cent. In other words, measured in terms of gross product, the tax burden upon agriculture was about twenty times as heavy as that upon manufactures. In terms of net product, the disproportion, though not so extreme, is still very large. The table shows that while manufacturers pay JOINT LEGISLATIVE COMMITTEE ON TAXATION 49 2.01 per cent of net products in taxes, agriculture pays 9.88 per cent in taxes. In other words, the tax burden measured in terms of net product is nearly five times upon agriculture what it is upon manufacture. It should be noted here that this statement is based upon the assumption that manufactures pay approximately 2 per cent of net income in California. This rate is probably higher than that borne by manufactures in New York State. Statistics such as those gathered by the Federal Census indicate that the proportion borne by manufactures in New York is less. These facts are brought out in more detail in part VIII of this report which deals with the taxation of manufacturing corporations. The following table summarizes the tax burdens borne by Cali- fornia farms : Per cent of taxes to true value 1 . 14 Per cent of taxes to gross returns 6.86 Per cent of taxes to net returns, including farmer's own compensation and certain expenses 9 . 88 The following tabulation compares the percentage of tax paid by farms and manufactures : Ratio of farm taxes to manufac* Farms Manufactures turing taxes Percentage paid on capital value 1.14% 1/2 of 1% 3 to 1 Percentage paid on gross income 7.00% 1/3 of 1% 20 to 1 Percentage paid on net income 10.00% 2 % 5 to 1 In regard to the comparative burdens borne by various kinds of wealth in New York State, no study similar to that of Cali- fornia has been made with the same degree of care and thorough- ness. The New York problem is much more complex than that of California. The multiplicity of corporation taxes at varying rates and upon different bases makes the difficulties of a similar study for New York almost insurmountable. We have, however, sufficient data to justify a rough comparison between New York and California and between New York and states like Minnesota and Michigan that have also made studies similar to that of California. These comparisons all indicate that the disparity as between agriculture and other forms of wealth is even greater in New York. An examination of Minnesota's experience is pertinent. The 50 STATE OF NEW YORK following facts are gathered from the experience of Minnesota as it appears in the 1908 Report of the State Tax Commission of Minnesota (pp. 54-5) : " The special commission on revenue and taxation of 1906 ap- pointed by the governor of California declared that the per- centage of taxes to the gross products for manufactures in that state was .346, or about one-third of 1 per cent; for agriculture the relation of taxes to total product was 6.86 per cent. On the net product of manufactures the commission found the relation of taxes to be 2.01 per cent, and for agriculture 9.88 per cent. The basis of these figures is the United States census of 1900. Applying the same methods and the same data to Minnesota, a somewhat different result is obtained. Expressed in the terms of product, the percentages of taxes to the returns secured from manufacturing and agriculture are as follows : " Taxes to gross product Manufacturing 3223% Agriculture 4.7200% " Taxes to net product Manufacturing 2 . 0480% Agriculture 6 . 8850% " TABLE SHOWING COMPARISON OF AGGREGATES AND PERCENTAGES OF INVEST- MENTS IN MANUFACTURES AND AGRICULTURE IN MINNESOTA Aggregates Percentages Capital Items Land Manufactures $29, 548, 954 Agriculture Manufactures $559,301,900 17.810 110,220,415 11.980 30,099,230 22.886 89,063,097 47.324 Agriculture 70.90 13.97 3.83 11.30 Buildings . 19, 850 136 Machinery 37, 953, 943 Other assets 78 479 213 Total capital $165, 832, 246 $788, 684, 642 100 . 00 100 . 00 " The assessed value of manufactures was $32,509,514, and of agriculture $299,567,765. Reduced to percentages, the rela- tion of the assessment of manufactures to capital was 19.6 per cent, and of agriculture, 37.9 per cent. The manufactures paid $846,570 in taxes and agriculture $7,609,021; in other words, .51 per cent and .96 per cent, respectively, of their capital values. The gross product of the manufacturers of the State amounted to $262,655,881, or 158.3 per cent of the capital in- vested in manufactures, and the agricultural product was $161,- 217,304, or 20.4 per cent of the capital invested. In the case of the net product, the manufactures of the state earned $41,318,- JOINT LEGISLATIVE COMMITTEE ON TAXATION 51 363, or 24.9 per cent on their capital, and agricultural interests $111,050,884, or 14.08 per cent. " Manufacturers pay a little more than 2 per cent on their net product, and farmers pay more than three and one-third times as much as when measured on the same basis; and on the basis of gross product the farmer pays more than eleven and one-half times the amount turned in by the manufacturer for taxes. On a net income basis the manufacturer pays 2 per cent of it for taxes, but the farmer pays nearly 7 per cent of his net income, which includes the benefits he receives from his garden, poultry, etc. And, further, the farmer's net income includes his reward for management as well as interest return. These items make the difference still more marked. " These are eloquent figures. While the commission is not ready to accept them in their full meaning as conclusive, they do show clearly the general situation." The experience of Michigan is also of much value, although the disparity between farms and manufactures is probably not so great as it is in the State of New York. The following table is taken from the 1911 " Report of the Commission of Inquiry Into Taxation of Michigan" (page 9). It gives the rate of taxes per thousand of actual value for farms, banks, residence, railroads, manufacturing corporations, public service corporations and mines. It also gives a comparison of the value and taxes paid by each of these classes except residences : Values Taxes Rate per $1.000 City real estate $14.85 Farms $1, 000, 000, 000 $10, 000, 000 10.00 Banks and trust companies .... 75, 000, 000 1, 250, 000 17.00 Railroads 212, 000, 000 4, 378, 000 20.65 Sleeping car, express, car loaning and telephone and telegraph companies 24, 000, 000 493, 000 20.67 Manufactures 750, 000, 000 3, 938, 000 5.31 Mines 250, 000, 000 1, 750, 000 7.00 Electric railway, power, heat, light and gas companies 130, 000, 000 900, 000 7.00 An examination of this table discloses the fact that manufac- tures bear the lowest rate of taxation of any class of wealth in Michigan, this rate being about one-fifth of that of the public service corporations, about one-half that of farm property and 52 STATE OF NEW YORK about one-third that of city real estate. This table is of value in so far as it throws light upon the disproportion of the tax burden. It should be clearly borne in mind, however, that the dispro- portion between manufactures and farms is very much less than in either California or New York. In view of the great inequality as between the actual assess- ment of farmers and manufacturers, it is of considerable interest to know whether any compensation is found in the difference in their tax-paying ability. The following quotation from page 66 of the 1906 California Report is very clear upon this point: " The same facts may be exhibited in another way. After allowing $2,446,238 for the average annual increase in value of farm property and taking 6 per cent as interest on the value of farm property, the census estimates that the 145,801 persons en- gaged in agriculture earned an average of $499.70 in 1899. The 113,155 persons engaged in manufactures earned an average of $870. " It would seem, then, that from the per capita earnings manu- facturers could afford to pay nearly 75 per cent more taxes than could the farmers. As a matter of fact, however, the farmers pay 10 per cent of their net earnings and manufacturers only 2 per cent of their net earnings." The present personal property tax works a severe hardship upon the property of farmers, irrespective of whether the tax is rigidly enforced or not. If the tax is actually enforced upon the personalty of farmers it obviously lays a highly dispropor- tionate burden upon that part of the farmer's wealth. In an- swer to this statement it is often said that the personal property tax does not discriminate against the farmer inasmuch as the average assessor does not actually assess any considerable amount of the tangible personalty found upon farms. It is true that to the extent that an individual farmer is underassessed by the local tax officer he escapes a certain part of a highly dispropor- tionate burden. It is utterly fallacious, however, to infer that in escaping to this extent the farmer is freed from the inequities of the personal property tax. The greatest injustice to the farmer arises from the indirect results of the almost complete failure of the general property tax as applied to personalty in general. When practically one-half of the tax base escapes in JOINT LEGISLATIVE COMMITTEE ON TAXATION 53 the form of personalty, the rate upon the remaining half must be double what the rate would be, were it levied uniformly upon the entire base. To the extent, therefore, that anyone's wealth is composed of real estate, to just that extent does he bear an in- creased disproportionate share of the tax burden. A reference to the above tables from the California report is illuminating at this point. The first table shows that 79 per cent of the total value of agriculture is invested in land and that 88.7 per cent is invested in land and buildings. Manufactures, on the other hand, have invested in land only 16.9 per cent of total capital and only 27.9 per cent in land and buildings. Per- sonalty of manufactures makes up 72.1 per cent, of which not less than 50 per cent is intangible. The significance of these figures must not be overlooked. They show not only that that part of the fair share of personalty escaping taxation is borne to a very large degree by agriculture, but that that particular bur- den is partly accounted for by the failure of the assessors to reach the very large per cent of the capital of manufacturing and other corporations that is represented by personalty. It must not be understood that manufactures represent the only group of wealth that shoves off part of its tax burden upon the farmer. The manufacturing industry has been used for pur- poses of illustration, and did space permit, it could be shown that other business corporations as well as some of the public service and financial corporations fail to bear a tax burden proportion- ately as heavy as that of agriculture. In answer to the above arguments it is often said that the farmer suffers no injustice because as his tax burden increases, the value of his land increases. Wherever the increase in value of his land assumes the form of the so-called " unearned incre- ment ", this fact may be true in those particular cases in which the increment is as large as the tax increase. In those cases, how- ever, where the increased value of the farm has been due to the labor and capital investment of the farmer, it cannot be truth- fully said that the increased value " takes care of " the increase in the tax burden. In any case where the property has not in- creased in value, the increased burden is a heavy one. In summing up the case of the farmer, the evidence is well nigh overwhelming that the general property tax in so far as it 54: STATE OF NEW YORK pertains to personalty, directly or indirectly, imposes on him an increasingly disproportionate burden. 5. Injustice as Between Various Types and Classes of Enter- prises. As the personal property tax is now levied in New York, it constitutes not only a serious impediment to the development of some businesses, but a constant annoyance to many branches of business. It is unjust as between various units of business and types of corporations. It is unjust as between mercantile and manufacturing corporations and it is unfair to corporations within the same group. The extreme to which this unfairness is carried is illustrated by the ridiculous differences in the per- centage of personalty assessment to total assessment in the same counties. In the same type of business, the ratio of personalty to realty sometimes varies from 1 to 2, to 1 to 75. In the same town the personalty of manufactures escapes while the personalty of mercantile corporations is assessed. Moreover, local mercan- tile corporations are taxed upon personalty, while foreign corpor- ations, doing large business next door and carrying large stocks of personalty, are taxed neither in the locality nor at their domicile. The unfairness as between manufacturing corporations of nearby competing towns is often very great. In fact the present investigation discloses the fact that in general throughout the State of New York the personal property tax bears to business the relation of an unmitigated nuisance. Were the law fully enforced, it would drive business out of New York ; with present sporadic enforcement it falls with inequality and injustice. 6. As Between the Various Counties in New York State. Reference to the comparative statistical tables in the Appendix will show with what wide difference personalty is actually assessed in the different counties of the State. When the direct State tax is levied, the inequalities in the assessment of real estate are partly remedied by equalization. With personalty, however, all inequalities remain, because the board of equalization does not equalize personal property, but accepts the returns of the various counties. Thus the more efficient the personal property tax is levied in any county, the higher the percentage of the direct State tax that county is required to pay. In other words, the present law penalizes every county in proportion to its efficiency in enforcing the law. PART IV FAILURE OF THE PERSONAL PROPERTY TAX IN NEW YORK One of the main purposes for which this Joint Legislative Com- mittee on Taxation was appointed was to seek out that property which is now escaping and to recommend changes that would equalize the tax burden by broadening the base. For many years it has been the belief of a large number of tax- payers that the weakest point in our present system is the per- sonal property tax; and this applies both to the individuals and the corporations. For that reason the Committee early deter- mined to make a most careful investigation into the working of the personal property tax. CHAPTER I GENERAL SCOPE OF THE COMMITTEE'S INVESTIGATION At one time or another the Committee has attempted to investi- gate by every known method the success or failure of the personal property tax. In this investigation the Committee approached the subject by not less than eleven different avenues, as follows : (1) An investigation of the assessment of the personal prop- erty tax in the sixty-two counties of the State by means of cor- respondence with local officers, such as the clerks of the board of supervisors, county treasurers, etc. (2) An investigation of the same subject by means of inspect- ing the records on file in the office of the State Board of Tax Commissioners. (3) An investigation in which investigators were sent into a selected list of counties to examine the records in the offices of the town and county collectors, assessors, etc., as well as the records, so far as certificates of incorporation were concerned, filed in the county recorders' offices. (4) An examination of data gathered by an employee of the State Board of Tax Commissioners in regard to the assessment of corporations in a particular county under Section 12. (5) An examination of data furnished by a member of the 56 STATE OF NEW YORK Constitutional Convention in regard to the assessment of the per- sonal property of corporations under Section 12 in another county that had been called to the Committee's attention. (6) An investigation of the records of the Commissioners of Taxes and Assessments of the City of New York for the years 1908, 1909, 1910, 1911, 1912, 1913 and 1914, containing data as to the following points : (a) The tentative personal property assessment of resi- dent personal, estates, corporations resident and corporations nonresident. (b) The amounts cancelled. (c) The amount retained on the final assessment rolls. (7) An examination of three reports prepared within recent years upon the same subject. (8) An investigation into the amount of personal property taxes paid by some two hundred corporations selected at random, information concerning which could not be found in Moody's Manual, Poor's Manual and elsewhere. (9) An investigation into the personal property tax paid by another list of some 250 corporations selected at random by means of statements furnished by the corporations themselves. (10) An examination of the Federal Census Eeports as to the relative percentages of personal property tax collected in New York and other states. (11) An examination of data filed by the State Comptroller and the State Board of Tax Commissioners as to the relative increase and decrease of personal property tax and other taxes, and as to the effect of the method of reaching certain forms of personalty by means of specific taxes upon the yield of that part of the personal property tax assessed at the general property rate. In the first place, the Committee attempted, through the local officers, viz., the clerks of the boards of supervisors, clerks of the county treasurers, etc., to obtain information concerning the success of the personal property tax in the sixty-two counties of the State. At the time of this investigation letters were sent to one or more of these local officers in every one of the counties, and an effort was made at different times to obtain information upon some twelve or fifteen points that might be used in one way or JOINT LEGISLATIVE COMMITTEE ON TAXATION 57 another as a basis for an estimate of the success or failure of the personal property tax. The results of the Committee's effort along this line of investigation, after repeated attempts, were very dis- couraging. Some of the local officers attempted by every means to assist the Committee in this investigation, and the Committee is indebted especially to the officers in a number of localities for considerable work and some valuable material. In the hope of obtaining more complete information in regard to the amount of personal property tax collected from resident natural persons, resident corporations, nonresident natural per- sons and nonresident corporations, the Committee investigated the statistical information which is filed in the Department of Statistics of the State Board of Tax Commissioners. 'Section 61 of the Tax Law provides as follows : " Statement of valuation to be forwarded to state board of tax commissioners. The clerk of each board of supervisors shall, on or before the second Monday in December, transmit to the state board of tax commissioners in the form to be prescribed by such state board of tax commissioners a certificate or return of the aggregate assessed and equalized valuation of the real and personal estate in each tax district as the valuation of such real estate has been corrected by such board, and the amount of tax assessed thereon for town, city, school, county and state pur- poses. Also the aggregate assessed valuation of personal prop- erty classified as follows : " 1. Property of resident natural persons assessed pursuant to section twenty-one. " 2. Property held by agents, trustees, guardians, executors or administrators, assessed pursuant to sections eight and thirty-three. " 3. Property of domestic corporations assessed pursuant to section twelve. " 4. Property of nonresident natural persons assessed pursuant to subdivision one of section seven. " 5. Property of nonresident natural persons assessed pursu- ant to subdivision two of section seven. " 6. Property of foreign corporations assessed pursuant to sec- tion seven. 58 STATE OF NEW YORK " In the City of New York such report shall be made by the department of taxes and assessments. " The state board of tax commissioners shall certify to the comptroller, on his request, before the thirty-first of December in each year, such extracts or items, from the returns above men- tioned, as he may desire." Were this law followed, the Committee would be able to obtain a mass of valuable data for purposes of investigating the degree of success of the personal property tax in New York State. For the purposes of this investigation, the Committee's expert went through the records in the Bureau of Statistics of the State Board of Tax Commissioners at Albany. Of the sixty-two counties of the State, it was found that with the exception of four or five counties, none of them filed the complete information required by section 61 of the Tax Law. Of the six groups of informa- tion required by section 61, most of the counties failed to file in complete form most of the information required under subdi- vision 1. A few of the counties filled out sporadically the informa- tion required under subdivision 2. Unfortunately, nearly all of the counties failed to file the information required under subdi- vision 3. Inasmuch as the information required under subdivi- sion 3 relates to domestic corporations assessed pursuant to sec- tion 12, it was impossible to obtain the very data which was neces- sary for purposes of investigating the most important phase of the personal property tax in New York State. The information called for by subdivisions 4 and 5 was also lacking in more than 80 per cent of the counties. It was particularly unfortunate that this data was lacking. One of the important conclusions reached by the Special Tax Commission of 1906, was : (1) That the burden falls heaviest upon the residents of our own State, and principally upon the small taxpayer. (2) That nonresidents find it easier to escape taxation and have almost ceased to pay any tax. The failure of the local officers to return the information re- quired under subdivisions 4 and 5 rendered it impossible in this particular branch of the investigation to determine to what degree the conditions set forth by the 1906 Committee were still true. The data concerning the assessment of the property of foreign JOINT LEGISLATIVE COMMITTEE ON TAXATION 59 corporations required to be filed by subdivision 6 of section 61, is also lacking from all but a very few of the reports filed with the Tax Commission. While from these records in themselves it would be impossible to conclude that foreign corporations escape their fair share to a large degree, yet the absence of this data, together with other information obtained, establishes a fair pre- sumption that the foreign corporations are not assessed for per- sonal property in most of the localities. Failing to obtain sufficient data for the purposes of anything like a complete investigation of the personal property tax in New York State, the Committee next resorted to the method of personal investigation. CHAPTER II PERSONAL INVESTIGATION IN THE SIX COUNTIES For the purposes of this report, the names of the counties are not given but are designated as " County A," " B," " C," " D," " E " and " F." The reason for this designation appears as fol- lows : In the time at the disposal of the Committee it was obvi- ously impossible to investigate by means of personal visits the enforcement of the personal property tax in all of the counties. Out of the sixty-two counties it was found possible to send an investigator into only six. Inasmuch as the investigation in these counties disclosed the fact that many of the local officials were not assessing personal property of corporations according to the law, it seemed unfair to give the names of the counties and towns. Were these six counties the only offenders against the law, it might be wise to publish the fact. But inasmuch as they were selected as representative counties, and inasmuch as the practice of the local officers is in all probability no worse in these six counties and the towns contained therein than in the rest of the State at large, it seems only fair to use them as typical of the State without sing- ling them out from the other counties. In justice to the truth, it ought to be said that the six counties discussed below, notwith- standing their deficiencies, actually came nearer to enforcing the law than some other counties which were not investigated by this method. County A. County A contains a large mercantile and manu- facturing city and seven towns, in most of which exist important 60 STATE OF NEW YOEK corporations claiming some town of the county as its principal place of business. An examination of the statistics gathered in this county reveals three striking facts. (1) There is the greatest inequality in the assessment of corporations as between the various localities within the county. (2) Considerable inequality exists as between mercantile and manufacturing corporations, most mercantile corporations being taxed, most manufacturing corporations escaping in whole or in part. (3) The ratio of the real property to personal property varies greatly throughout the county. The facts in regard to this county may be summarized as fol- lows: In one locality every mercantile corporation listed as paying real estate, also pays a personal property tax. (We have no way of determining whether or not the corporations pay all that they ought to pay under section 12.) Nearly every corporation claiming this town as the principal place of business, pays some- thing under section 12. In striking contrast to this locality stand the other seven towns of the county. Some of them contain large and important mercantile or manufacturing corporations. However, not a single one assesses a dollar's worth of personal property to manufactur- ing or mercantile corporations. These seven towns contain eleven mercantile corporations and fifty-seven manufacturing corporations listed as paying real property tax. All of these cor- porations, except fifteen, claim as their principal place of busi- ness one of the towns within the county, and therefore should pay personal property taxes at such place. As' to the exact extent of the evasion of the personal property tax by corporations in the county as a whole, it is very difficult to determine. There is no way by which the Committee, in the time at its disposal, could ascertain exactly what each corporation should pay, or how many corporations were liable for taxation under the law. The following figures, however, indicate that the evasion of the tax is widespread throughout the county. An examination of the certificates of incorporation filed in the JOINT LEGISLATIVE COMMITTEE ON TAXATION 61 county clerk's office discloses the fact that only about one corpo- ration in ten claiming some town in this county as its principal place of business, pays any personal property tax. Mne hundred and eighty-two certificates of incorporation were on file with the county clerk. This number includes those corporations that are alive and claim some town in the county as the principal place of business. A large number of these corporations are doubtless practically dead for business purposes, and would have little or no personal property subject to taxation. Of the 982, the in- vestigator estimated that about 400 were actually alive and carry- ing on business, and that the remainder, viz., about 582, though legally alive, are practically dead so far as liability for personal property taxes is concerned. While these figures cannot be relied upon to determine the actual extent to which corporations escape from the personal property tax in County A, still they establish a strong presump- tion that the personal property tax is evaded by a great many corporations that ought to pay it. Conclusions as to County A. (1) It is fair to assume that a large number of corporations, through one means pr another, escape paying their fair share of the personal property tax. (2) It is definitely determined that the greatest inequality exists as between towns. (3) It is definitely determined that in most of the towns of this county no attempt whatever is made to assess the personal property tax upon corporations known to be subject to that tax. County B. In County B the investigator obtained a complete list of all corporations paying taxes of any kind. He did not obtain a list of all corporations claiming County B as principal place of business. The generalizations contained herein are based upon the corporations listed upon the assessors' rolls for either real or personal property tax. Of the fifty-two manufacturing corporations listed upon the assessors' rolls, forty-four claim some town in County B as principal place of business. Of the forty- four manufacturing corporations claiming County B as prin- cipal place of business, only eight pay any personal property tax, and thirty-six pay no personal property tax of any kind. Of the 62 STATE OF NEW YORK twelve towns in the county, ten contain manufacturing corpora- tions claiming those towns as their principal places of business. Of the ten towns, however, only two assess personal property to any corporation. Eight towns containing corporations claiming the town as the principal place of business fail to assess any personal property whatever. The ratio of personal property as- sessed to manufacturing corporations in this county to real prop- erty assessed to manufacturing corporations, is about 1 to 75. In the case of the mercantile corporations in County B, the fail- ure to assess the personal property tax seems to be less flagrant than in the case of the manufacturing corporations. So far as the list could be completed, the facts are as follows : Of the twenty-two mercantile corporations claiming County B as principal place of business, nine pay a personal property tax upon some small amount. Thirteen pay no personal property tax. The ratio between the personal property tax paid and the real property tax is about 1 to 13 for mercantile corporations. This ratio, however, is misrepresentative of the actual assessment. As explained above, some of the mercantile corporations paying personal property tax own no real estate, and therefore in includ- ing the amounts of personal property tax paid by such corpora- tions we obtain a ratio of the aggregate personal property tax to the aggregate real property tax, which is higher than the actual assessment of personal property warrants. In summarizing the investigation of County B, the following conclusions stand out : (1) In most of the localities of the county no effort whatever is made to. assess personal property of manufacturing corporations. (2) Mercantile corporations, although assessed more regularly than manufacturing, are greatly under-assessed. (3) The total assessment of personal property, the situs of which is located in the county, is ridiculously low as compared with the total of real property assessment. County C. The investigation of the assessment of the per- sonal property tax of general business corporations in County C disclosed the following facts : Forty manufacturing corporations claiming some town in County C as principal place of business are assessed upon per- sonal property to the value of $206,800, and upon real property JOINT LEGISLATIVE COMMITTEE ON TAXATION 63 to the value of $945,500. The total amount of taxes collected from these corporations was $31,945.45. Of the forty manufacturing corporations claiming some town in County C as the principal place of business, twenty-seven pay a personal property tax and thirteen pay no personal property tax. The ratio of the assessed valuation of corporation personal property to the assessed valuation of corporation realty located in the principal place of business is about 1 to 41/2. Fifty-five mercantile corporations claim some town in County C as their principal place of business. Of the fifty-five, all but six pay a personal property tax. Of the fifty-five, only seventeen pay real property tax. It is assumed that the remaining thirty- eight rent the premises occupied and own no real estate. The ratio of personalty assessment to realty assessment is about 1 to 41/9. In other words, seventeen corporations paying real estate tax actually pay four and one-half times as much tax as the forty- nine pay upon the personalty tax. The ratio of personalty to realty under these conditions is quite unreliable. Summary of County C. In summarizing the results of the investigation in County C, the following points stand out : (1) In County C the officials reach a very much larger pro- portion of both the mercantile and manufacturing corporations than are reached in Counties A and B described above. (2) As between mercantile and manufacturing corporations, no great discrepancy appears in County C. It should be added, however, that the report on County C is limited to one large manufacturing city. Had this county a large number of small manufacturing towns, as in the case of Counties A and B, we might expect to find the same failure to assess the tax in the smaller towns. County D. County D, located in the central part of the State, contains one of the largest cities in the State, with a great many mercantile and manufacturing corporations. The statistics gath- ered cover all of the manufacturing and mercantile corpora- tions listed on the tax assessors' books in the principal localities. They do not include the corporations in six small places, most of which contain no corporations. That part of the data lacking 64 STATE OF NEW YORK would probably not amount to over 5 per cent of the total num- ber of corporations doing business in this county. Of 240 manufacturing corporations actually engaged in busi- ness and claiming County D as principal place of business, 167 paid personal property taxes in the year 1914, and 73 paid no personal property taxes. Of the 150 mercantile corporations claiming County D as principal place of business, 100 paid personal property taxes and 50 paid no personal property tax. From the sources available to the investigator, it was impossi- ble to determine how much personal property tax should have been paid under the law by most of the corporations. It is be- lieved, however, that not only a considerable number of corpora- tions claiming this county as principal place of business pay less than they ought to, but also that a large number of corporations claiming this -county as principal place of business paid no per- sonal property 5 tax whatever. The records appear to be very unreliable. Thirty-four mercan- tile corporations out of 160 doing business in one of the cities have no principal place of business on record in the office of the Secretary of State. Notwithstanding this fact, most of them are paying, a personal property tax in County D. The data collected by the investigator in this county is not of much value for the purposes of determining the extent of the evasion of the personal property tax. It is of value, however, as evidence of the slipshod way in which the records of corporations are kept in this State. County E. County E contains one of the smaller but princi- pal manufacturing cities of the State. This county contains four cities and towns that include mercantile or manufacturing corporations of importance. Of the four localities, only one assesses personal property tax to corporations. Of the eighteen mercantile corporations claiming principal place of business in County E, eleven pay personal property tax and seven do not. Of the forty-one manufacturing corporations claiming County E ,as principal place of business, nineteen pay personal property tax, while twenty-two pay no personal property tax. JOINT LEGISLATIVE COMMITTEE ON TAXATION 65 From the sources wliich were available to the investigator, it was impossible to determine in the case of most of the corpora- tions whether or not they were paying the full amount for which they were liable under the law. In the few cases where the in- vestigator was able to obtain sufficient data, it was found that about one-half of them paid considerably less than they should have paid. So much of the necessary data, however, was lacking, that it is impossible to make any very positive generalizations. The evidence brought to light, however, would seem to indicate that here, as in the other counties, only a very weak attempt is made to assess the personal property of corporations. Another rough method of ascertaining the inequality of assess- ing personal property as between towns within the county and as between counties, is to compare the ratios of personal property assessment to real property assessment. This is not an accurate method of measuring, and probably in no individual case does the ratio between personal property assessment .and real property assessment express the correct ratio between personal property legally subject to the tax and the real property assessment. The limitations of this method are a3 follows : (1) In some localities there may be a very large percentage of personal property listed for taxation, not because the law is rigorously enforced, but because a larger percentage of the prop- erty in the community is in the name of corporations claiming the locality in question as the principal place of business, while the corporations may have real estate in the form of plants situ- ated in surrounding towns. In this case the apparent high per- centage which the personalty would bear to the realty in the given locality would not indicate necessarily a rigorous enforcement of the law. The facts might be found to be just the opposite. (2) On the other hand, in another locality where there might be a number of plants owned by corporations claiming an out- side town as principal place of business, the ratio of personalty to realty would necessarily be very low, for the reason that the realty of the corporations would be assessed where located, while the personalty located in those towns could not be assessed there. In this case a rigorous assessment of the personal property actually liable to taxation might still show upon the records a very low 66 STATE OF NEW YORK ratio between the personal, property assessed and the real property assessed. Notwithstanding the limitations of this method, we can still gain some very interesting information as to the assessment of personal property in New York State. In our investigation of the five counties we find that the ratio of personal property assessed to real property assessed varies all the way from 1 to 4 to 1 to 75. In one case within the same county we find the ratio of personal property assessed to vary almost as widely as indicated above. In two; counties situated in the same part of the State, each of which has a fair proportion of manufacturing, it is found that in one county where most of the corporations taxed, either for realty or personalty, claim some town in the county as the principal place of business, the ratio of personalty to realty in one city of the first county is 1 to 10, while the ratio for the county as a whole is about 1 to 25. In the other county in which most of the corporations taxed upon realty claim some town in the county as the principal place of business, the ratio of personal property assessment to real prop- erty assessment of manufacturing corporations is only about 1 to 75. While it cannot be said, of course, that the inequality in the assessment of the personal property tax is accurately represented by the above difference in, ratios, it is clear that after discounting for all possible variations growing out of reasons indicated above, still the actual inequality of assessment must be very great. In the case of the mercantile corporations the actual inequality is likely to be much greater than is indicated by the ratio of per- sonal property assessment and real property assessment. Many mercantile corporations rent their premises and are subject to no real property tax of any kind. In those localities having a large proportion of their corporate investment in mercantile corpora- tions, the ratio of personalty to realty ought to be very high. CHAPTER III DECLINE IN THE PERSONAL PROPERTY ASSESSMENT IN NEW YORK STATE Another telling piece of evidence as to the failure of the per- sonal property tax in New York is found in the records of the Federal Census and the annual reports of the State Board of Tax JOINT LEGISLATIVE COMMITTEE ON TAXATION 67 Commissioners. These reports contain the records of the per- centage of the assessment of personal property to the total assess- ment for every county of the State from 1840 to 1914. In Appendix A-IV-I will be found the details of these percentages. We give immediately following a brief analysis of this appendix. Appendix A-IV-I includes a statement of the percentage of the assessment of personal property to the total assessment for each county of the State for the years 1840, 1845, 1850, 1855, 1860, 1866, 1870, 1875, 1880, 1885, 1890, 1895 and 1900; (2) includes the same data for the years 1 1903, 1904, 1905, 1906, 1907, 1908, 1909, 1910, 1911, 1912, 1913 and 1914. This table shows that there has been a steady decrease in the percentage of assessed personal property to the total assessment from 1866 down to 1914. This percentage has decreased in practically every one of the sixty-two counties. For the State as a whole it has decreased from 25.5 per cent in 1866 to 3.77 per cent in 1914. During this same period the actual ratio of total personal property in the State to total real property has un- doubtedly increased greatly. It is conceded by all experts that the total amount of personal property probably exceeds that of real property. In examining this table three questions may be asked : (1) Has the percentage of personal property in the State to eal property in the State declined since 1866 ? (2) Has the percentage of taxable personal property to tax- ible real property declined since 1866 ? (3) During recent years the State has segregated certain forms of personal property, such as bank shares, mortgages, vehi- cles, etc., and has devised new special forms of taxation to cover ;hese classes. Has the apparent decline in the percentage of per- jonal property assessed to the total assessment been due to the :*act that these special forms of personalty have been taken out Tom under the general property tax ? In reply to the first question: It is well known that since 1866 he ratio of personal property to real property has increased ffiormously. This is borne out by the best statistical evidence hat we have. As to what is the exact ratio between the two at he present time it is impossible to say. Various estimates have 68 STATE OF NEW YORK been made, some authorities claiming that the personal property is now about three and one-half times as great as real property. Practically all agree that the total amount of personal property is now at least equal to the total amount of real property. In answer to the second question, it also may be said that not- withstanding all exemptions in the State of New York the per- centage of taxable personal property to taxable real property has increased to a marked degree since 1866. In answer to the third question, it must be admitted that in taking away from the general property tax mortgages, bank shares, etc., the amount of personal property actually liable to taxation under the general property tax has been diminished. The table referred to, however, shows that the ratio of assessed personal property to total assessment steadily decreased without regard to the years when these special forms of taxation were introduced. In other words, while the segregation of these forms of personalty did reduce for the time being the actual amount of personalty liable to taxation, it had practically no effect upon the percentage of personalty to reality that was assessed. To summarize: During the last fifty years the ratio of per- sonal property to real property has greatly increased, the ratio of taxable personalty to taxable realty has greatly increased, and the ratio of personalty taxable under the general property tax to the total assessment under the general property tax has in- creased. The actual assessment on the other hand has decreased from 25% per cent to 3.77 per cent. CHAPTER IV PERSONAL PROPERTY ASSESSMENT IN NEW YORK CITY Taking up the personal property assessments in rather more detailed form, we will first consider the situation in New York City from 1907 to 1914, and then take up the personal property assessment as we found it in the other cities and towns through- out the State. The complete New York City figures will be found in Appendix A-V. The tables show that (1) There has been a large decline in the tentative assessments placed on the roll; JOINT LEGISLATIVE COMMITTEE ON TAXATION 69 (2) There has been a sharp decline in the final assessment retained on the roll; (3) That there has been a very large increase in the percent age retained, as compared with the original tentative assessment Thus we find that the tentative assessment in Manhattan for the year 1907 was $2,525,084,325 ; that the final assessment was $432,654,158, or 17.1 per cent of the orginal assessment, was retained. In 1914 in Manhattan the tentative assessment was $622,825,820. The final assessment was $287,768,270, or 46.2 per cent of the original assessment. In Brooklyn, in 1907, the tentative assessment amounted to $444,188,425, and the final assessment was $92,866,547, or 20.9 3er cent of the original assessment. In 1914 the tentative as- sessment amounted to $117,426,950, while the final assessment amounted to $39,296,065, or 33.4 per cent of the original assess ment. A similar situation was found to exist in the other boroughs. These figures would seem to indicate that in spite of a greater efficiency on the party of the tax commissioners, as indicated by the percentage retained on the tax rolls, there is, nevertheless, a constantly decreasing amount of personal property actually reached for taxation. CHAPTER V OTHER CITIES AND TOWNS In 1911 Mr. Lawson Purdy presented to the New York State Conference on Taxation the results of his study of the working ;>f the personal property tax in cities and towns of the State Following the lines of his investigation, we have made a further study, and for purposes of comparison have used the identical groupings that he used. Our statistics, which, of course, are brought down to date, completely corroborate his findings. The details of our investigation will be found in Appendix A VI, Arranging all of the fifty-three cities of the State outside the City of New York according to the proportion which their per- sonal property assessment bears to their total assessment In two cities personal assessment was less than 1 per cent. In five cities personal assessment ranged from 1 to 3 per cent. In five cities personal assessment ranged from 4 to 6 per cent 70 STATE OF NEW YORK In ten cities personal assessment ranged from 6 to 8 per cent. In seven cities personal assessment ranged from 8 to 11 per cent. In twelve cities personal assessment ranged from 11 to 13 per cent. In five cities personal assessment ranged from 13 to 18 per cent. In three cities personal assessment ranged from 18 to 20 per cent. In three cities personal assessment ranged from 20 to 21 per cent. In one city personal assessment is greater than 21 per cent. The average per cent of personal assessment to total assess- ment for the fifty-three cities is 7.8 per cent. It must be re- membered that this is the tentative assessment. If we compare the assessments in some of these cities with the assessments in others, the inequalities of the personal property tax become plainly evident. ' Thus, taking Buffalo, Lackawanna, Tonawanda, Niagara Falls, Port Jervis, Kensselaer, Mt. Vernon, New Eochelle, Dunkirk and Lockport on the one hand, and Hudson, Utica, Geneva and Ogdensburg on the other, we find that the ten cities first named have a population of 592,751. Assessed value of real estate $485,267,340. Assessed value of personal prop- erty $30,970,429. Four Cities Population 114,215 Eeal estate $66,554,338 Personal property 15,025,612 The ten cities have approximately five times the population of the four; nearly eight times the real estate value, but only a trifle more than twice the value of the personal property. Omit now Buffalo, Dunkirk and Lockport, and the remaining seven compare with the group of four as follows : Seven Cities Population 133,345 Real estate $135,328,812 Personal property 3,133,893 JOINT LEGISLATIVE COMMITTEE ON TAXATION 71 Four Cities Population 114,215 Keal estate $66,554,338 Personal property 15,025,612 The personal assessment in the seven cities is 2.17 per cent of the total assessment, while the personal assessment in the four cities is 18.54 per cent of the total assessment. The per capita assessment of personal property in the four cities is $131.55, and in the seven cities it averages $24.14 and ranges from $7.88 in Lackawanna to $54.48 in Port Jervis. The per capita assess- ment of personal property in the other five is a follows: New Kochelle $10 21 Mt. Vernon 11 12 Rensselaer 15 97 Niagara Falls 38 02 Tonawanda . 52 00 Dunkirk, New Rochelle and Lockport, the three of the original ten cities omitted in the last comparison, have a population of 64,058, a real estate valuation of $51,722,154 and a personal assessment of $2,032,070. Per capita personal assessment, $31.72. Towns. Now let us see what the report shows us as to the conditions of the towns. There are 934 town, and the assessed value of their personal and real property is approximately equal to that of the fifty-three cities : 53 Cities Real estate $1,585,978,451 Personal property 137,505,796 Total assessed value of property 1,723,484,247 934 Towns Real estate $1,536,809,551 Personal property 84,730,979 Total assessed value of property 1,621,540,530 72 STATE OF ISTsw YORK Arranging the 934 towns according to the assessed value of per- sonal property, we have the following : Number Assessed value of personal property of towns Assessed value of personal property $0.00 77 Greater than '$0.00 but less than $1,000 38 From $1,000 to $5,000 136 From $5,000 to $25,000 , 258 From $25,000 to $100,000 213 Over $100,000 212 934 Some of the towns in the first class are Green Island, West Al- mond, Willing, Kirkwood, Binghamton, Olean, Arkwright, etc. The towns of Hamilton and Washington counties, respectively, are relatively most numerous here. Upon examining in greater detail the range of the personal assessments of the towns in the second class, we have : Beekman, $50; Thurston, $100; Ulster, $150; Greenville, $200 ; Richford and Hartsville, $300 each ; about 10 from $300 to $500 and about 20 from $500 to $600. Upon closer examina- tion of the last class, we have the following interesting results : About 75 towns show personal assessments ranging from $100,000 to $200,000; about 55 towns from $200,000 to $500,000; about 37 towns from $500,000 to $1,000,000; and only 6 towns of the 934 show an assessment greater than $1,000,000. These honored six are: Elizabethtown, Batavia, Hempstead, North Hempstead, Oyster Bay, and last but not least, Greenburg (Westchester county), with the greatest assessment of all, $3,225,040. Assuming the rate to be 2 per cent, 509 towns, or 54 per cent of the total number, get anywhere from nothing to a maximum of $500 from the personal property tax; 22 per cent get $2,000 or less, while but 22% per cent get over $2,000. In the language of Mr. Purdy : " What's the use ? " PART V FAILURE OF SECTION 12 INTRODUCTION We shall divide the discussion of section 12 into the following five divisions: (1) a statement of the law; (2) the impossibility of enforcing the law; (3) the results of the Committee's investi- gations into the working of the law; (4) the principal means whereby corporations are enabled to escape taxation upon their personal property; (5) why corporations are impelled to evade personal property tax. CHAPTER I The taxation of the personal property of corporations for local purposes is covered by section 12 of the Tax Law, which reads as follows : " The capital stock of every company liable to taxation, except such part of it as shall have been excepted in the assessment-roll or shall be exempt by law, together with its surplus profits or reserve funds exceeding ten per centum of its capital, after deducting the assessed value of its real estate, and all shares of stock in other corporations actually owned 'by such company, which are taxable on their capital stock under the laws of this State, shall be assessed at its actual value." As is pointed out elsewhere, this law has proved wholly unin- telligible, not only to the tax assessors, but to the tax attorneys and, in part, to the courts themselves. It is, therefore, impos- sible to understand the law without recourse to the court decisions. For purposes of this report, little can be gained, however, by a discussion of these decisions. It is sufficient to state that several attempts have been made by the various taxing boards to inter- pret the law as modified by the court decisions in such language as can be understood by the average tax assessor. The State Board of Tax Commissioners has made the following rule : " From the total assets of the corporation (including full value of real estate and personalty) and both taxable and 74 STATE OF NEW YORK te^ ;? ' non-taxable property, deduct the value of the stock belonging to the State, property exempt, non-taxable property (includ- ing shares of stock of other corporations, patent rights and good will), assessed value of the corporation's real estate, debts of the corporation, and surplus, if any, up to ten per centum of the capital." The most careful attempt to explain the law has been made by the commissioners of taxes and assessments of the City of New York. The following blank schedule is used by the department of taxes and assessments of the City of New York, not for the pur- poses of original assessment but for purposes of reassessment in those cases where the corporation objects to the original assess- ment. This interpretation of section 12, as well as the blank form, have been followed closely by several of the large cities of the State: The (Please state full name of the corporation), a corporation organized under the laws of the State of New York, claiming to be aggrieved by the assessed valuation of its property for the year 1906, makes application by the undersigned, one of the officers of the said corporation, to have the same revised and corrected. Dated, October 1, 1915. STATE THE VALUE OF THE FOLLOWING ITEMS Assets All assets must be scheduled, whether located in the State of New York, or elsewhere, including deposits in banks and debts due from nonresidents. 1. Heal estate $ 2. Machinery, plant, office, furniture and fixtures other than real estate. .-...., 3. Goods, wares and merchandise 4. All other tangible personal property. (This does not include mortgages or credits. ) 5. Cash on hand and on deposit 6. Debts due from solvent debtors. (This includes bonds and all credits, also " secured debts.") JOINT LEGISLATIVE COMMITTEE ON TAXATION 75 7. Shares of stock of other corporations. ....... $ 8. Value at which patent rights, copyrights, trade- marks, good will and franchises were taken in payment for capital stock 9. The aggregate of the above assets, 10. Property exempt by law which ^ includes. Deductions Except the items numbered 12, 15, 17 and 18, the value of every item to be deducted must be the sum at which it is included in the above statement of assets. U. S. Bonds, K Y. State and Municipal Bonds ... $ N. Y. Mortgages recorded on or after July 1, 1906, and mortgages on which a registration tax has been paid since May 13, 1907, also " secured debts." (This includes only mortgages and " se- cured debts " owned by the corporation) ....... $ Goods imported by above corporation from for- eign countries on hand in unbroken original packages $ 11. Value at which patent rights, copyrights, trademarks, goodwill and franchises were taken in payment for capital stock. ....... $ 12. So much of the surplus, if any, as shall not exceed ten per centum of the par value of the shares of stock issued $ 13. Shares of stock of other corporations actually owned by the above corporation which are taxable upon their capital stock. ......... $ 76 STATE OF NEW YORK 14. Tangible personal property having a perma- nent situs outside of this State, specifying its nature and location. (This does not include bonds, notes, evidences of debt of any kind, currency, deposits in banks, bills receivable, or any other intangible prop- erty.) 15. The assessed value of the corporation's real estate in this State, including its special franchises. Give Section or Ward and Lot Numbers if in the City of New York 16. Eeal estate outside of this State, specifying its location 17. Indebtedness secured by the corporation's bond and mortgage on real property to which corporation now holds title 18. All other indebtedness of the cor- poration not contracted or in curred in the purchase of non- taxable property or securities, or for the purpose of evading taxa- tion. (The amount owing for goods imported by above corpo- ration from foreign countries on hand in unbroken packages and the capital stock of the corpora- Bonds not secured by mortgage of real estate. Notes .... Open ac- counts . tion must not be included. Itemized as follows : 19. The aggregate of the items set down in answer to questions 10 to 18 inclusive J Additional Information Required a. Total par value of capital stock issued . $ b. Rate of last dividend Date c. Amount of surplus, if any, as shown by the books ...... $ d. Amount of indebtedness for above imported goods; this amount is not included in No. 18 but is an addition thereto. . .... $ JOINT LEGISLATIVE COMMITTEE ON TAXATION 77 Gross assets as shown by answer to question 9 .... $ Aggregate of deductions from gross assets as shown by answer to question 19 $ Subtract the deductions from the above assets. . . . Add " secured debts " upon which no registration tax has been paid . The result is the CAPITAL STOCK LIABLE TO TAX- ATION . The principal office or the place of transacting the Financial Business of the said corporation is situated in the Borough of Manhattan, in the City of New York, at !NTo. . . street. CHAPTER II IMPOSSIBILITY OF ENFORCING SECTION 12. In order to understand how utterly impossible is the present system of taxing corporations upon their personal property, it is important to know wherein the law is unenforceable. In the first place, it is framed in such ambiguous terms as to be thoroughly obscure to the mind of the average assessors. It has been called the most ambiguous and unintelligible tax statute in the United States. Without recourse to court decisions it is im- possible to have much idea as to what the law means and these court decisions are not known or understood by the average as- sessor in the State. Indeed, there are very few tax attorneys who pretend to understand the law. . Moreover, we may go fur- ther iand say that the courts themselves have frankly stated that they were in doublt as to what was intended by the language of the law. The 2Tew York Court of Appeals, in the case of The People ex rel. v. Commissioners of Taxes, 95 "N. Y. 554, stated the following: " There is a most extraordinary confusion of ideas in the section * * * ." And again : " Its interpretation has met some difficulty of solution by the very bungling and confused manner in which the statutes, are worded/ 7 78 STATE OF NEW YORK In the hearings of the Joint Legislative Committee on Taxa- tion, held in New York City in November, 1915, there appeared many competent witnesses who testified as to the confusion of this law. In every case the witnesses testified that the law was so ambiguous as to be utterly impossible of enforcement. In the second place, were the law understandable, it would be impossible for the assessors to obtain adequate information for its enforcement. The sections 27, 28 and 29 of the Tax Law attempt to provide means of obtaining this information. Section, 27 reads as follows : " The president or other proper officer of every moneyed or stock corporation deriving an income or profit from its capital or otherwise shall, on or before June fifteenth, de- liver to one of the assessors of the tax district in which the company is liable to be taxed and, if such tax district is in a county embracing a portion of the forest preserve, to the comptroller of the state, a written statement specifying: " 1. The real property, if any, owned by such company, the tax district in which the same is situated and, unless a rail- road corporation, the sums actually paid therefor. " 2. The capital stock actuaHy paid in and secured to be paid in, excepting therefrom the sums paid for real property and the amount of such capital stock held by the State and by any incorporated literary or charitable institution, and u 3. The tax district in which the principal office of the company is situated or in case it has no principal office, the tax district in which its operations are carried on. " Such statement shall be verified by the officer making the same to the effect that it is in all respects just and true. If such statement is not made within twenty days after the fifteenth day of June, or is insufficient, evasive or defective, the assessors may compel the corporation to make a proper statement by mandamus." It is, however, the unanimous opinion of those having to do with the enforcement of section 12 that section 27 is well-nigh useless. While it requires corporations to file certain definite information, this is not the information that is needed for pur- poses of determining the taxable personalty of the corporations JOINT LEGISLATIVE COMMITTEE ON TAXATION 79 under section 12. As pointed out in another chapter of this report, in order to assess the personalty of corporations with any degree of intelligence, it is necessary to obtain detailed informa- tion upon no less than twenty-seven principal items of the corpora- tion's financial affairs. The assessor cannot obtain information in regard to these items directly from the corporations, nor can he obtain the information, in most cases, from any public source. An examination of Moody's Manual and of Poor's Manual dis- closes the fact that not one corporation in ten publishes a balance sheet containing any of the necessary information, and very few publish adequate data. In the third place, many assessors have no means of knowing when; a corporation is taxable in their districts. Section 29 of the Tax Law attempts to provide these means. It reads as follows: " Between the first and fifteenth days of June in each year the county clerk in each county of the State, except- ing counties containing a city of the second class and coun- ties wholly situate within the corporate limits of a city, shall prepare from the records in his office and mail to each of the town clerks in his said county, a certified statement contain- ing the names of every stock corporation, whose certificate of incorporation has been filed with him since his last pre- ceding annual statements to said several town clerks, whose principal business office or chief place of business is desig- nated in its certificate of incorporation as being in such town or in any village or hamlet therein, together with the fact of such designation and the names and addresses of the directors of each such corporation so far as said county clerk can discover the same from the certificate of incorporation or from the lastest certificate of election of directors of such corporation filed in his office. Each town clerk receiving such statement shall forthwith file the same in his office and mail a notice of such filing to each of the assessors of his town." The Committee's investigation, however, disclosed the fact that this section is in many localities a dead letter. "No compensa- tion is allowed for this work, with the usual result that the local clerks do not carry out the directions of the statute. 80 STATE OF NEW YORK In the fourth place, even though the law were clear beyond mistake, and even though all necessary information could be obtained with the greatest facility, and even if the assessors were always informed as to the local taxability of any corporation, it would be utterly futile to expect the average tax official to assess the personal property of corporations. This is especially true of manufacturing corporations. The appraisal of a manufacturing plant is a highly technical job. It involves not only wide train- ing in accounting and some engineering, but also a special knowl- edge of the particular branch of business to be appraised. Even a rough estimate of the value of a manufacturing plant involves a thorough understanding of principles of depreciation and ob- solescence. When we add to this the difficulty of assessing large stocks of raw materials and of goods in the process of manufac- ture, as well as finished products, it is seen how utterly hopeless it is to expect an untrained local assessor even to approximate the value of such property. The comparative ease with which the average corporation can keep from the average tax assessor the knowledge necessary to a correct assessment is illustrated by the difficulty which the Committee had in investigating some 2,500 corporations liable to taxation in the State of New York. The Committee had much greater facilities for obtaining correct information than the average assessor. In attempting to deter- mine how much personal property should be assessed to these corporations the Committee had access to Moody's Manual of Corporations, to Poor's Manual, and to several other sources. It employed statisticians and accountants who were trained to do just this sort of work. In the end, however, it had the greatest difficulty in obtaining the necessary information, and was able to obtain sufficient data concerning only about one hundred of these corporations. Even after carefully sifting the doubtful cases, it was still doubtful whether the Committee was able to obtain anything more than a very rough estimate of the amount of per- sonalty taxable to these corporations under the law. In order to do full justice to corporations they were given the benefit of the doubt in every case. While this is the fair thins; to do for purposes of investigation, it would not be the fair thing to mittee is convinced that it is a comparatively easy thing for most do for purposes of taxation. In view of its experience, the Com- JOINT LEGISLATIVE COMMITTEE ON TAXATION 81 corporations to keep from the assessor the data necessary to any- thing like a complete assessment. In this respect the New York assessor is in a situation in no way different from that of the other states of the Union that still adhere to the outworn, mediaeval system of local assessment of corporate personalty. The utter fatuity of this system is borne out by overwhelming evidence in every state in the Union. Wherever anything like scientific ap- praisal and assessment of corporation property has been accom- plished, it has been necessary to break away from the local assess- ment. In concluding this paragraph, it is sufficient to say that every tax authority in the United States agrees that it is utterly hopeless and impossible to assess under a corporation tax law such as that now prescribed by section 12 of the New York law. CHAPTER III THE COMMITTEE'S INVESTIGATION OF SECTION 12 In order to obtain a measure of the practical workings of sec- tion 12, the Committee undertook several investigations, the results of which are given below. Investigation of Some 2,500 Corporations. The names of some 2,500 general business corporations actually doing business in the State of New York were obtained. This list was largely made up of domestic corporations, and included mercantile, manu- facturing and other general business corporations. It did not in any case include public service corporations, moneyed corpo- rations or philanthropic and non-stock corporations. The list was selected entirely at random. Some of the names were ob- tained by investigators, who went through the city directories, telephone directories, etc., of various counties. Some of the names were obtained by an assistant who went through Moody's Manual, selecting domestic corporations, without any knowledge as to the purpose for which the names of the corporations were to be used. In ascertaining whether or not the corporations in question were paying all of the personal property tax on which they were 82 STATE OF NEW YORK liable under section 12, the following routine of procedure was followed : (1) An attempt was made to obtain from Moody's Manual or Poor's Manual a copy of the general balance sheet of the cor- poration, with such other detail as to capitalization, bonded indebtedness, etc., as was necessary to determine what the cor- poration should pay. (2) From the Secretary of State's office, or from the county clerk's office, information was obtained as to what town was claimed by the corporation as the principal place of business. (3) An inquiry was sent to the local taxing officer as to the amount of personal property tax paid by the given corporation. Of the some 2,500 corporations, it was possible to locate the names of only about 300 in the corporation manuals. Of the 300, it was necessary after a study of the data recorded to dis- card the names of about 200 corporations. In the case of the latter, either the balance sheet was wholly missing or the report lacked some of the details that were absolutely essential, even to a rough estimate of the amount of personal property which these corporations should pay under section 12. Of the remaining 100 names of corporations listed in the corporation manuals, a care- ful study was made of their balance sheets, and an attempt was made to estimate the amount of personal property which each should pay according to law. An examination of the New York City blank form given above, which contains some 19 principal headings and several sub- headings, will indicate with what difficulty the Committee was able to determine the amount of personal property tax which should be paid by any given corporation. In order to estimate with approximate accuracy the amount of personal property sub- ject to taxation, it is necessary to have quite correct informa- tion in regard to items 10, 11, 12, 13 and 14. From the balance sheets and other data obtained from the corporation man- uals, it was found very difficult to determine in any given case the amount which should be set opposite items Nos. 10, 12, 13 and 14. Wherever in any case doubt existed, the benefit of the doubt was given to the corporation. From the financial state- ments of the corporations it was often impossible to determine JOINT LEGISLATIVE COMMITTEE ON TAXATION 83 what percentage of securities held by the corporation should be allowed under item 10. Wherever securities were so listed, a deduction was allowed of the total amount. In regard to item No. 11, it was always impossible to deter- mine what percentage of the value of patent rights, copyrights, trade mark, good will, etc., listed in the general balance sheets of the corporation, was taken in payment for capital stock. Although the value of patent rights, good will, etc., in some cor- porations amounted to as high as two-thirds of their total assets, they were in every case deducted in whole from the taxable assets. In regard to item 13, it was impossible to determine from the financial statements obtained what percentage of the shares of stock of other corporations actually owned by the corporation were taxable upon their capital stock. In every case the corpora- tion was given the benefit of the doubt, and it was assumed that the total amount of shares of stock so held had been taxed else- where and were therefore exempted. Without fairly accurate knowledge of the information called for under item 14, it would be impossible to approximate the amount of personal property in any given case which should be assessed under section 12. It was impossible for the Committee to obtain access to any source that revealed this information, and it therefore resorted to the following four methods of determining the amount of tan- gible personal property having a permanent situs in the State: (1) Where details were given as to the total capacity or out- put of manufacturing plants of a given corporation, in addition to the details of the capacity or output of each plant, it was assumed that the tangible personal property located within the State would bear about the same ratio to the total tangible per- sonal property as the capacity or output of the plants within the State bore to the total capacity or output of all the plants. (2) Where the details of the acreage of the various plants were stated, it was assumed that the amount of tangible personal property within the State would bear about the same ratio to the total tangible personal property as the acreage of plants within the State bore to the total acreage of plants. (3) In the case of mercantile corporations, information was obtained from the Comptroller's office as to the proportion of 84 STATE OF NEW YORK total assets subject to taxation under section 182. This propor- tion of assets was assumed to represent roughly the proportion of tangible personalty situated within the State. (4) In the case of other corporations whose business was known to be done largely in the State of New York, an arbitrary but conservative estimate was made of the proportion of business that was done in this State ; and in the case of such corporations, it was assumed that the percentage of tangible personalty situa- ted in New York would be approximately the same as the per- centage of total business carried on in New York. The results of this investigation will be found in the tabulation given in Appendix D-I. We give below a list of twenty-five corporations taken from Appendix D-I. This group is not selected but includes the names of those corporations about which we were able to obtain data sufficiently complete. The list is as follows : Amount Amount of actual of taxable assessment under Designation of Corporation personalty section 12 A2 $4, 000, 000 $100, 000 A4 2, 100, 000 1,800 A5 8, 541, 000 750, 000 B3 352, 877 B9 1,634,913 C2 350, 524 C3 3,759.361 25. 000 Co 85, 573 150, 000 El 332, 108 E2 5,758,831 E3 1, 000, 000 F2 1, 033, 691 G2 42, 850, 000 1, 100, 000 G3 1,066,714 G6 497, 000 8,000 G7 887,112 G8 78, 356 LI 3,512,752 Ml 9, 608, 055 1,200,000 Nl 1, 027, 488 N9 445,865 S2 301,105 5.000 S3 998. 906 Wl 300, 502 Total . , $90, 522, 733 $3, 339, 800 JOINT LEGISLATIVE COMMITTEE ON TAXATION 85 The summary of this list is as follows: Total number of corporations listed 24 Total taxable personalty $90,522,733 Aggregate actual assessment 3,339,800 Percentage of taxable personalty actually paid. ... 3.46% Percentage of taxable personalty legally liable but evaded 9G . 54% Further comment on the above is unnecessary. Important as these results are in disclosing the failure of the personal property tax of corporations, they do not disclose the full significance of that failure. In the first place, corporations are permitted through the peculiar features of the New York Tax Law to escape by thoroughly legal means from paying taxes upon an important portion of their personalty that yields large returns. This investigation, however, attempted to determine not what corporations should pay fairly, but only what they should pay under the generous New York Tax Law. The results dis- closed the fact that even after reducing, through the peculiarities of the law, the amount of taxable personalty to as low as one-fifth or less of the actual personalty owned, the larger part of this one- fifth is usually evaded. Furthermore, reference to the other in- vestigations of the Committee, carried on by means of voluntary returns from general business corporations, shows that the volun- tary reports of the corporations disclosed the failure of the law to a greater degree than the original investigation of the Com- mittee. In order to understand, not only to what extent the law is evaded, but also how the result is very unequal even where the tax law is enforced we may examine the facts in regard to a few of these corporations. Corporation A-4: Has an authorized capitalization of $10,000,000 and capital stock outstanding of $3,000,000. No bonded debt. This corporation has its actual place of business and its only factory located on Long Island, but claims as its principal place of business a little town up in the northwestern part of the State. Its total assets are $3,651,524. 86 STATE OF NEW YORK A careful analysis of its balance sheet results in the conclusion that the minimum amount of personal property, after making all possible deductions according to the law, is $742,630. This cor- poration actually paid upon an assessed value of $1,800. In this case the estimate was less than one-fourth of 1 per cent of the minimum amount taxable under the law. Corporation A-5: A large manufacturing corporation located in the centre of the State, claiming as its principal place of business the city in which its largest plants are located. It is capitalized for $50,000,000 and has a bonded debt of approximately $7,729,000. Its total assets amount to over $73,000,000. After deducting all possible deductions and giving the corporation the benefit of the doubt in every case, there is left $3,655,291 of taxable personal property. A reasonable estimate of this corporation's taxable personalty would be several times this amount, but in order to give the cor- poration the benefit of every doubt the figure given was selected. This corporation pays personal property tax upon the estimate of $750,000, or an amount which is only about 20 per cent of the lowest possible amount subject to section 12. Corporation A-8: A paper manufacturing company with all of its mills located in New York. Capital stock $350,000. No bonded indebtedness. Pays dividends upon its 6 per cent preferred regularly and 20 per cent upon the common stock. Pays no personal property tax. Corporation B-l : An important corporation manufacturing optical goods. Cap- ital stock, $600,000. No bonded indebtedness. Pays a personal property tax upon assessment of $175,000. Impossible to obtain sufficient data to determine whether corporation pays tax upon its total taxable personal property. However, this company would appear to be one of the exceptions, in that it probably pays all that it ought to. Corporation B-5: A large shoe manufacturing company. Capital stock $9,900,- 000. Notes payable $2,336,000. Surplus $285,739. Total as- JOINT LEGISLATIVE COMMITTEE ON TAXATION 87 sets over $12,000,000. Good will, etc., about $5,000,000. Under present law apparently no taxable personalty. Here is a con- spicuous case illustrating the inadequacy of the present property tax. A large corporation of great wealth with personalty to the extent of $5,000,000 that would be taxable in other states. In New York, however, the corporation can escape without paying any personal property tax, although it enjoys a large income. Corporation B-7: A manufacturing corporation located in the northwestern part of the State. Capital stock, $1,150,000. No bonded debt. Divi- dends on preferred paid regularly. Dividends on common not reported. This corporation pays upon a total personal property assessment of $25,000. From the corporation manuals and other material at the service of the Committee sufficient details cannot be obtained to determine how large the personal property, assess- ment should have been made. Corporation B-8 : A large furnace company with capital stock of $1,160,000. No bonded debt. Preferred dividends are paid regularly, and com- mon dividends are also paid but not made public. Net earnings average nearly 20 per cent of the total capitalization. Corporation paid taxes upon personal property assessed at $50,000. Here is another case of a large corporation making unusually large divi- dends with a personal property assessment that is insignificant as compared with its total assets and capitalization. Corporation B-10: A by-products company. Capital stock $4,000,000, bonded indebtedness $2,000,000, and total assets of $6,738,000. Under the present law allowing deduction of bonded debt from person- alty the corporation has no personal property liable to taxation. Were the New York Law similar to that of most states, there would be a large item of personalty liable to taxation. 88 STATE OF NEW YOK CHAPTER IV INVESTIGATION OF THE COMMITTEE BY MEANS OF VOLUNTARY RETURNS OF GENERAL BUSINESS CORPORATIONS Another plan of investigating the working of section 12 fol- lowed by the Committee was by means of voluntary returns from general business corporations. For the purpose of this investi- gation the Commitee obtained the names of some 300 representa- tive general business corporations and requested them to fill out a blank form prepared by the Committee. Of the 300 to whom this blank was sent, only a small per- centage made returns, and in many cases the returns were incom- plete. The Committee discarded the too incomplete returns and based its conclusions upon only those complete or nearly complete. In this connection it should be stated that in every case the Com- mittee accepted the returns of the corporation without question. While, for purposes of drawing conclusions, it was unfortunate that a large number of returns could not be obtained, yet it is believed that the data received does not underestimate the failure of section 12. It is only reasonable to assume that those corpora- tions voluntarily returning a statement of their taxable base would be made up of the least offenders under the law. In as- suming, therefore, that the data is typical of the situation we are giving the corporations the benefit of the doubt. In examining the data returned, it is nothing short of surpris- ing to find how completely the personal property tax of corpora- tions has broken down. An examination of Appendix D-IV, which contains a tabulation of the facts gathered from these re- turns, discloses two facts: that a large number of corporations escape from paying taxes upon a large part of their personal property through the bonded debt means or the good will means. But entirely apart from this, it will be noted that most of the corporations there listed also escape from paying taxes, if not entirely, at least upon a large part of their taxable personal prop- erty. The summary of the results brought out by this computa- tion is as follows : Of the fifteen corporations included in the list, six do not pay any personal property tax whatever. These six, however, have a total capital stock outstanding of $19,719,200, and, according to JOINT LEGISLATIVE COMMITTEE ON TAXATION 89 their own statements, have a total capital stock liable to taxation of $4,962,003.19. The remaining nine corporations, acec/rding to their own statements, have an aggregate capital stock liable to taxation of $3,019,851.75, and pay on an actual assessment of $1,303,405.50. For the whole group the percentage of capital stock liable to taxation actually assessed varies from O 1 per cent to 121.2 per cent. An examination of the last column of the tabulation in the ap- pendix will explain in part why many of these corporations own- ing millions of personal property are actually liable for such a small percentage under the Tax Law. While the column entitled " Actual assessment, percentage of taxable personalty " will not explain why the system fails so completely, it shows unmistakably what an almost complete farce is this personal property tax of corporations. The following typical cases serve to illustrate this point further: Take, for example, Corporation SS-2, with an outstanding capital of $10,000,000, paying dividends to the amount of $600,000 a year, or at the rate of 6 per cent. This corporation is not assessed for a dollar's worth of personal property and pays no taxes. Corporation AA-1 : This corporation has outstanding capital of $900,000. Total assets, $1,326.617.98. Good will, $50-0,000. Total deductions allowed under section 12, $837,124.58. Personal property liable to taxation, $489,493.40. This corporation pays no personal property tax. Corporation AA-2: This corporation is a manufacturer of engines and boilers. It has a total outstanding stock of $700,000. Total assets, $741,622. Total deductions allowed under the law, $143,005. Personal property liable to taxation under section 12, $598,617. The cor- poration was assessed for $250,650 personal property. This assessment was equal to less than one-half of the taxable personal property. It is, however, unusual for corporations to be assessed up to as much as one-half of their taxable personalty. This case constitutes an exception to the general rule. 90 STATE OF NEW YORK Corporation BB-1: This corporation has total assets of $2,249,655.05 and a capital stock issued of $500,000, The total deductions permitted under the law are $1,521,205.49. The amount of taxable personalty is $628,449.56. This corporation pays no personal property tax. Corporation BB-2: This corporation has an issued capital stock of $7,000,000, a surplus of over $2,500,000, and annual net earnings varying from $860,000 to $1,700,000. It pays upon personal property assessed at $393,220. This corporation has an annual interest charge of over $500,000 upon bonded indebtedness, or in other words has a bonded -indebtedness of approximately $9,000,000. Here is another case where a corporation with a large amount of personal property is allowed to escape with a very small assess- ment as the result of the peculiarity in the New York law which permits deduction of total indebtedness from personal property. Corporation CC-1 : This corporation has capital stock of $150,000 and total assets of $609,346. It pays interest upon bonded indebtedness of $6,315, or in other words has a bonded indebtedness of an average of $500,000. It pays a personal property tax of $374, which at a 2 per cent rate of taxation represents an assessment of $18,700. After allowing for all legal deductions it still has taxable per- sonalty of $58,204. It pays, therefore, a tax upon less than one-third of its taxable personalty. Were it not for the bonded indebtedness the taxable personalty would be several times as great. Corporation GG-1: This corporation is capitalized for $383,600, and has total assets of $1,035,298.52. It has taxable personal property of $695,945, and pays a personal property tax of $106.07. It actually paid upon an assessment of $4,925.28. This assess- ment was less than 1 per cent of its actual taxable personal property. JOINT LEGISLATIVE COMMITTEE ON TAXATION 91 Corporation HH-1 : This corporation has capital stock of $800,000 and assets of $757,763. It has taxable personalty to the value uf $325,954, and was assessed upon only $45,000. This is a clear case of under assessment, but this assessment represents a much higher proportion of actual taxable personalty than the ordinary assess- ment. Corporation LL-1 : This corporation has a capital stock of $1,600,000 and total assets of nearly $2,400,000. After making all deductions per- mitted under the law it still has taxable personal property to the value of over $1,000,000. It pays no personal property tax of any kind. CHAPTER V INVESTIGATION OF THE WORKING OF SECTION 12 THROUGH THE MEANS OF VOLUNTARY RETURNS OF CORPORATIONS For the data used in this investigation, the Committee is in- debted to the Associated Manufacturers and Merchants Associa- tion of New York. At the request of the Committee the associa- tion undertook to gather from all of the important manufacturers within the State the necessary data. In this way the Committee received sworn statements from thirty-four of the more important business corporations in the State. In appendix D-Y will be found a tabulation of the more important data obtained from these statements. It is not necessary to go into much detail in explain- ing this data. It speaks for itself. The important point to note is, that in so far as it bears upon the failure of section 12, it coin- cides very closely with the results of the other investigations of the Committee. Moreover, it bears out completely the conclusions of the Committee that have been based upon the other investiga- tions. An examination of a few of these returns will serve to confirm our statements. For example, corporation 'No. 252, according to its own state- ment, is liable under section 12 for an assessment of $57,022.20, but was actually assessed for only $1,780. Corporation No. 424 was actually liable, according to its own statement, for a personal property assessment of $785,138.11. It was assessed upon $200,043. 92 STATE OF NEW YORK A still more flagrant case is No. 444. This corporation, accord- ing to its own statement, should have paid taxes upon an assess- ment of $1,232,502.60, and it was actually assessed upon only $59,427. Corporation No. 467 was liable to assessment for $2,071,- 665.76, and was not assessed for personal property. Corporation No. 449 was liable to assessment for over a mil- lion dollars, and paid no personal property tax. Corporation No. 546 was liable to assessment upon $1,830,860, and paid on $15,096.50. On the other hand, there are several cases in which corpora- tions have paid all that they were liable for. The table illustrates, therefore, not only that these corporations as a group are ridicu- lously under-assessed, but that there is an utter lack of uniformity as to the percentage at which the various corporations are as- sessed, some of them being assessed from nothing to ten per cent of their taxable personalty, while others are assessed for one hun- dred per cent. CHAPTER VI HOW CORPORATIONS ESCAPE THE PERSONAL PROPERTY TAX IN NEW YORK STATE In the attempt to construct a scientific and at the same time a thoroughly practical method of reaching that great body of cor- porate wealth that now escapes taxation, the first step is to take notice of the means whereby the present system permits this escape. Under the New York Tax Law there are no less than five important ways through which corporations may escape their fair share of the tax burden. If any system for successfully reaching corporate wealth is to be devised, it must take into account all these methods of evasion. Some of these methods may be classed as illegal, but the means by which the larger part of corporate personalty escapes its fair share may be called thoroughly legal. In other words, the present evasion is due not to the disposition of the corporations to evade the legal requirements of the statute, but to their effort to evade through the legal channels a system of taxation which, if actually enforced, would impose great hardship upon them. This possibility of evasion is not limited to the present system, but is to be found to a more or less extent with some other systems that have been proposed. For purposes of con- JOINT LEGISLATIVE COMMITTEE ON TAXATION 93 structive reform it is therefore of utmost importance that we con- sider the means whereby corporations may escape their fair bur- den of personal property taxation. In the first place, the corporation may escape part of its per- sonal property taxation by taking advantage of that feature of the New York Tax Law which permits a corporation to select as its principal place of business any locality in the State. This locality may be where it transacts an important part of its business, or it may be a little obscure place, far removed from the site of any of its business. Owing to another peculiar feature of the New York Law which makes the situs of all personal property for purposes of taxation the principal place of business, the corporation may limit the power of taxing its personalty to the one small locality which it selects as the legal principal place of business. It may have large stocks of goods in the principal cities of the State and enjoy fire protection, police protection, etc., without distributing one cent to the maintenance of the government of those cities. It may have large amount of tangible personal property located in cities where the cost of government is very high, and by trans- ferring its principal place of business to some little obscure town where the expenses of government are very low, it may escape with a very low rate of taxation. More than that, it may, and very often docs, escape without paying any personal property tax in any place. In our investigation of the assessment of the personal property of several hundred corporations, we found a number of cases in which corporations claimed particular towns as principal place of business, while the tax officers were ignorant of the fact and had never assessed them. For the purpose of evading their fair share in the localities where they actually carry on their business and have their tangi- ble assets located, corporations have been accustomed to select cer- tain localities. These localities are notorious either for the low tax rate or for their willingness to assess the corporations only at a nominal amount. Through this means many cities have been deprived of a large amount of their legitimate tax base. The extent of this evil is well borne out both by the testimony of the witnesses before the hearings of the Joint Legislature Com- mittee on Taxation and by numerous investigations. The results 94 STATE OF NEW YORK of the investigation are set forth in the appendix of this report. Appendix D-II and D-III bear upon this point. Appendix D-II contains a list of corporations in a single town that was presented to the New York Constitutional Convention of 1915 from data furnished by the office of the State Board of Tax Commissioners. The summary of this table is as follows: 1. Number of corporations 51 2. Aggregate capital stock $33,257,370 3. Aggregate assessment , 60,700 4. Percentage of aggregate assessment to aggre- gate capital stock . 18% or less than one-fifth of one per cent. While the percentage of assessment to capital stock of any particular corporation does not necessarily reflect the degree of evasion with accuracy, yet in the aggregate the comparison is highly significant. The most interesting fact is that very few, if indeed any, of these corporations, do any business in the town of Esopus. Appendix D-III contains a list of corporations that claim the town of Washington, county of Dutchess, as the principal place of business. The summary of this table is as follows : 1. Number of corporations 43 2. Aggregate of capital stock $52,302,000 3. Aggregate assessment 477,500 4. Aggregate assessment as per cent of aggre- gate capital stock 0.91% or less than one per cent. The conclusions from this table coincide at every point with those of every other piece of evidence presented to the Committee, namely, that corporations select as " principal place of business " towns in which they actually do no business for the purpose of evading the personal property tax. The testimony of the various tax officials, including the Chair- man of the State Board of Tax Commissioners, is completely cor- roborative of the Committee's investigation. Chairman Saxe tes- tified that this evil was of widespread importance. He stated that conditions similar to those of Esopus and Dutchess county JOINT LEGISLATIVE COMMITTEE ON TAXATION 95 " obtains in a great many of the so-called desirable taxing dis- tricts, where these corporations locate their principal place of business. You will find in that Esopus list, so-called, a large number of New York city corporations, paying no tax here, and paying a very nominal tax up there, for the privilege of escaping taxation down here." Mr. Joseph C. Wilson, President of the Board of Assessors of the City of Rochester, testified that the City of Rochester loses millions of dollars of taxable base through the custom of corpora- tions to transfer their so-called principal place of business. He testified that many large corporations having their plants and tangible personalty located in the large cities, transfer their so- called principal place of business to one of the smaller towns for the reason that the towns do not assess them, as high in many cases as the cities. Furthermore, he testified that " the town assessors do not know that they [corporations] are located there and they escape without any tax whatever." At the New York hearings, one of the former city comptrollers testified to the same effect. He testified that there are hundreds of corporations incorporated up-state for the purpose of evading taxes which should be paid in New York City. Furthermore, he said, " I am one of them I am entitled to do it under the law, but it is not fair." As to availing himself of the opportunity to escape taxation, he said : " I have two offices in Esopus a tin box in each I know I do it every chance I get, and I suppose every other man does the same thing." A second reason why corporations escape their personal pro- perty tax is found in the failure of the local assessors to assess. As has been pointed out in the previous chapter, this is partly due to the ambiguity of the law and partly due to the fact that the law provides no method for successfully checking up under- assessments. The important point to be considered here, how- ever, is the wide extent to which corporations escape taxation through local favoritism. This is due not necessarily to the dis- honesty of any particular group of tax assessors, but rather to the fact that the system of locally assessing corporate property is one which proves too great a test for human nature, and this statement is as true of every other state in the Union as it is of New York 06 STATE OF NEW YORK State. For thus locally favoring the corporations the assessor is not to be blamed. In so doing he undoubtedly in most cases acts in harmony with the wishes of the community. The com- munities are eager to obtain factories and other corporate invest- ment in their localities, and know that low rates will furnish an inducement to a corporation to locate in their town. This evil is inherent in any system of taxation that provides for the local assessment of corporate personal property, and it can be rectified only by changing the system completely. Legal Means of Escaping Taxation. The most important means by which corporations escape taxation are to be found in two recognized institutions of the New York tax system. To this extent the evasion is accomplished by thoroughly legal means. These means are through New York's peculiar system of deduc- ting indebtedness and of exempting, through omission, good will. In a large number of states of the Union, corporations are per- mitted to deduct debts from credits, but in New York State cor- porations are permitted to deduct total indebtedness from per- sonal property. As a result of this provision it is possible for corporations to create a large bonded indebtedness, and thus to escape entirely from taxation upon personal property. Especially in the cases of those corporations having large amounts of valu- able personal property, these means of evading the personal prop- erty tax have been used. The extent to which this evasion is accomplished was brought out by the Committee's investigation into the relation between the amount of bonded indebtedness and outstanding capital stock of a large number of important New York corporations. In the appendix will be found two tables illustrating this statement. Appendix D-YI contains a tabulation of the bonded indebted- ness and capital stock outstanding of 36 representative domestic manufacturing corporations that were selected at random. Appen- dix D-VI-2 contains a list of 36 domestic mercantile and miscel- laneous corporations that were selected for the purpose of illus- trating the large bonded indebtedness. Appendix D-VI-1 may be said to be representative of manufacturing corporations as a group. Appendix D-VI cannot be said to be representative in- asmuch as those corporations were selected that had the largest bonded indebtedness. However, bot v tables illustrate what a JOINT LEGISLATIVE COMMITTEE ON TAXATION 97 large portion of the possible personal property tax base of cor- porations is lost to New York State through these provisions. The amount of taxable base so lost runs up into many hundreds of million dollars annually. This one feature alone deprives the ]STew York personal property tax on corporations of all semblance of justice. The following is a summary of Appendix D-VI-1 : Number of corporations 36 Aggregate bonded debt $161,697,896 Aggregate capital stock outstanding 311,952,286 Bonded debt as per cent, of capital stock 51.8% The following is a summary of Appendix D-VI-2 : Number of corporations 38 Aggregate bonded debt $118,069,207 Aggregate capital stock outstanding 143,191,753 Bonded debt as per cent, of capital stock 82 . 4-% The question naturally arises why the framers of the Tax Law have enacted a provision containing such a large loophole. The question was answered by Professor Seligman at the hearings of the Joint Legislative Committee, as follows: " The whole system of personal property taxes arose be- for there were corporations; and when corporations de- veloped, about the middle of the century, they first began on a large scale in this State, they [legislators] simply slapped that section [debt-deduction section] because they thought it would solve the problem, and they did not realize that the situation was an entirely new one. We therefore go along in the old way, being one of the very few American states which still retain their primitive method of assessing corporations locally." The fallacy of the deduction of bonded indebtedness from personal property is evident to anyone who is familiar with modern corporation finance. Legally, to be sure, funded debt is iebt, but economically it is nothing of the kind. Economically |> 98 STATE OF NEW YORK it is a means of obtaining capital. This fact is recognized by all authorities upon corporation finance and is recognized in the accounting. Bonded indebtedness is but a part of the capitaliza- tion of the corporation, and in the average corporation accounting system, is included with capital stock under the general term of capitalization. A bonded debt is not looked upon by the cor- poration as a handicap, but as an advantage. While it is legally a debt of the corporation and occupies the position of a fixed charge, it is economically a part of the capitalization which provides the revenues of the corporation. Just as the capital stock, through a fiction of accounting, is a liability of the corpo- ration, so the bonded investment, through a legal fiction, is called a debt of the company. The corporation, however, looks upon the debt not as a disadvantage, but as an advantage, and the ques- tion which faces the corporation often is not whether there should be a debt, but as to the proper proportions of the capital which should be obtained through means of bonds and stock. It is clear, therefore, that no sound reason exists for the deduction of bonded indebtedness from personal property. The bonded indebtedness instead of decreasing the earning power of the corporation, in- creases it, and thus, instead of decreasing the ability of the corpo- ration to pay taxes, increases the ability. This fact has been recognized by the best tax commissions that have investigated the taxation of personal property of corporations in other states, and is also recognized by authorities on corporation finance. Another important intangible element that represents large earning power and therefore large ability to pay, is often grouped in the corporation balance sheet under the designation " good will." This item entirely escapes from taxation under the un- usual section of the New York Tax Law pertaining to personal property. In most states good will is not specifically designated for purposes of taxation, but is, however, taxable by implication under the general term " personal property." New York State, however, departs from the usual custom. In designating what personal property is taxable, New York State enumerates those items that are included in the term " personal property." Prob- ably through oversight the term " good will " was omitted from this enumeration. The courts, however, have decided that good will is not taxable under the New York Tax Law. JOINT LEGISLATIVE COMMITTEE ON TAXATION 99 The unreasonableness of this omission comes out clearly when we consider what the element of good will stands for in the modern corporation. The relation of good will to earning power, and therefore to taxpaying ability, is very clear. In many corpora- tions it represents nothing more than the capitalization of that part of the earning power which is not derived from tangible assets. To the extent that this is incorporated in patents and copyrights, it is of course not taxable legally under the general property tax. Economically, however, it represents taxpaying ability. But entirely apart from that portion of the good will which represents copyrights and patents, the remainder, especially in mercantile corporations, represents, in many cases, a large amount of the real earning power of the corporation. Indeed, it is cus- tomary in many corporations, after apportioning to their tangible assets a part of their income at a reasonable rate of interest, to capitalize the remainder of the income and designate it as good will. In some corporations it is becoming the custom to write off good will. This does not, however, destroy the earning capacity, but only covers it up in a different form. In either case, this intangible asset represents the best taxpaying ability of the corporation. This system deals with various types of corporations very un- fairly. Wherever the law is enforced, those corporations, the nature of the business of which requires a heavy investment in tangible personalty, are subject to a very heavy tax. Those cor- porations, on the other hand, the nature of whose business re- quires a very small investment in tangible assets, escape with almost no tax. For purposes of illustrating this, the Committee compiled a selected list of important domestic corporations having large earn- ing capacity as compared with their tangible assets. This tabula- tion is included in Appendix D-VIII, and contains a statement of the value of the capital stock outstanding, the total assets, and the value of the good will. The value of the good will was taken from the balance sheets of the corporations, as published in Mjoody's or Poor's Manual. In several cases it was found im- possible to determine precisely what proportion of the total assets 100 STATE OF NEW YOKK was made up of good will. In making up their balance sheets some corporations have the habit of grouping one or more items under the term good will. Very often patents, trade-marks, etc., are grouped under this heading. In come of these cases therefore it cannot be said that the total amount set opposite the term good will represents personalty that could be reached for purposes of taxation under any general property system. In most cases, how- ever, it is represented largely by intangible personalty that could be reached were the New York law altered so as to include good will within taxable personalty. And in almost every case it repre- sents a just source of taxation. Reference to Appendix D-VII will show that the 35 corporations there listed have an aggregate good will valued at $287,651,371, while the total aggregate assets of these corporations is only $497,327,898, and the capital stock is $405,569,070. The aggregate good will is 70.9 per cent of the capital stock outstanding and 57.8 per cent of the total assets. A few examples will serve for illustration: (1) The F. W. Company, possessing total assets of about $74,- 000,000, is absolutely untaxable in New York to the extent of $50,000,000. And yet this $50,000,000 represents little more than the capitalization, at a reasonable rate of return, of the very large earnings of one of the most prosperous of New York corporations. (2) Another example is that of X. Y. Z., with a good will valued at $15,000,000 out of a total asset of a little over $21,000,000. (3) Another prominent case is that of P. C. & Co., with total assets of less than $22,000,000, $18,000,000 of which is listed as good will. In conclusion, it should be pointed out that this intangible wealth can best be reached not by a general property tax, nor, indeed, by a classified property tax (for a certain portion of it cannot be reached by either), but by a tax levied according to earning capacity or net income. JOINT LEGISLATIVE COMMITTEE ON TAXATION 101 CHAPTER VH WHY CORPORATIONS ARE IMPELLED TO EVADE PERSONAL PROP- ERTY TAX In another portion of this report it has been pointed out that a large proportion of the corporations doing business in the State of J^ew York succeed in one way or another in evading entirely or almost entirely their personal property tax. In some cases this is done by making an arrangement with the local assessor whereby the corporation agrees to choose the domicile of that local assessor as ita principal place of business, providing the corpora- tion shall be greatly under assessed. In another case it is ac- complished by secrecy and deceit. In many cases it is accom- plished through a technicality of the law, and in a large number of cases it is accomplishel by legally evading the intent of the law through the means of large bonded indebtedness. The purpose of this paragraph is not to dwell upon the evasions of the law, but to point out the fact that only through evasion can the corporations avoid much injustice in matters of taxation. The present personal property tax law as applied to corporations is one of the most illogical, unenforced and unjust laws that has ever been put upon the American statute books. Were it honestly enforced many corporations would either be forced to leave the State or be forced into bankruptcy. This is especially true in the case of many manufacturing and mercantile corporations. In the case of these types of corporations, the nature of the business of which requires the carrying of a large stock of raw material and partly finished products, or a large stock of finished products, the enforcement of the personal property tax would result in not only great injustice to the corporation but in great injury to the State itself. The present personal property tax of twenty mills is equivalent to an income tax of from 25 to 40 per cent, upon that proportion of the assets embodied in personal property. Were this tax enforced those corporations whose assets were largely made up not of fixed capital but of current assets would be stimu- lated to remove from the State as soon as possible. Those corpora- tions whose assets were largely of specialized and fixed character and thus lacked a ready market would be forced to remain within the State, but in remaining within the State they would be forced STATE OF NEW YORK to compete upon unequal terms with corporations in other states. It is needless to say that new capital would not invest in the State of New York under such unfavorable conditions. Another most unfair aspect of the present personal property tax law is that when enforced it bears with great inequity upon those corporations that are struggling to keep upon their feet. A per- sonal property tax which amounts to 40 per cent, of the income may be paid by a corporation enjoying a, fairly large income, but a tax of this size when imposed upon a corporation that is strug- gling to get upon its feet would mean in some cases ruin. In the latter case it would result not in taking 40 per cent, of income, because there would be no income, but the taking of capital value. In looking up the financial condition of a large number of corporations in the State of New York for the purpose of ascer- taining whether or not corporations were paying the personal property tax according to the present tax law, the Committee found a number of corporations that were approaching dangerously near to bankruptcy. In some of these cases the corporations were forced to carry a large stock of tangible personalty. Had a gen- eral property tax been rigidly enforced upon the later, and had the corporations been unable to evade the law according to some of the well-known methods in this State, some of these particular cor- porations might have been forced to the wall. In considering, therefore, the extent to which the corporations are enabled to, and do, evade the personal property tax, it should always be borne in mind that the corporations are evading a most unjust tax, and moreover it should be borne in mind that the State has imposed upon the corporations in many cases the necessity either of evading this tax, or moving from the State, or going into bankruptcy. The unescapable conclusion is not that the tax should be rigidly enforced but that it is all wrong, out of date, palpably unjust, and should be supplanted by a fair system. PART VI TAXATION OF FOREIGN CORPORATIONS In no other state of the Union do foreign corporations consti- tute such a large proportion of the legitimate tax base as in New York State, and jet it is doubtful if in any other state of the Union these corporations bear such a small proportion of their fair tax burden. The problem of the foreign corporation is of such large importance that the subject calls for a thorough ex- amination. We shall deal with this subject under the following four heads : (1) The law regarding the taxation of the personal property of foreign corporations. (2) The failure of the law. (3) Why foreign corporations in New York should contribute substantially to both State and local government. (4) Foreign corporations as a tax base present yield and potential yield. THE LAW REGARDING THE TAXATION OF PERSONAL PROPERTY OF FOREIGN CORPORATIONS Section 7, subdivision 1, of the New York Tax Law, which applies to foreign corporations, reads as follows: " Nonresidents of the State doing business in the State, either as principals or partners, shall be taxed on the capital invested in such business, as personal property, at the place where such business is carried on, to the same extent as if they were residents of the State." The intrastate situs of foreign corporations, for purposes of assessment for taxation, is only at the principal place of business. (Bay State Shoe and LeatJi. Co. v. McLean, 80 N. Y. 254.) The principal place of business may not necessarily be where the cor- poration carries on its actual business or the larger amount of its business, but at the place named in its certificate filed under sec- tion 16 of the General Corporation Law as its principal place within the State. (Armstrong Cork Co. v. Barker, 157 N. Y. 159.) 104 STATE OF NEW YOEK In the matter of the taxation of foreign corporations, as in so many other sections of the Tax Law dealing with corporations, the exact meaning of the law is uncertain. It is impossible to know what property of foreign corporations is taxable and under what conditions such property is taxable, without referring to the court decisions. These decisions have cleared up the matter to some extent, but still leave considerable doubt as to several im- portant points. In 1915 the Department of Taxes and Assess- ments of the City of New York issued a pamphlet entitled " Memorandum of Examinations on Applications for Correction of Personal Assessments." This pamphlet contains the best short summary of the essential. points affecting the taxation of foreign corporations that has_ appeard. The following brief summary consists largely of extracts from this pamphlet. Recurring to section 7, subdivision 1, of the Tax Law, the question arises as to when capital is invested in New York, and as to when foreign corporations may be said to be doing business within the State. In regard to the question as to when capital is invested, the following may be said. If a, nonresident actually has capital invested in business in the State of New York, the amount of such capital is to be determined by the same rules as would apply to the resident if the resident owned no property other than such capital and had no debts other than debts arising out of the conduct of such business. To determine the amount of the assessment, the aggregate of taxable personal property must be ascertained, and from that amount must be deducted such debts as were incurred in the purchase of such taxable personal property and such debts as affect and lessen the value of the thing subject to taxation, viz., the capital invested here. (Heeler- Jones- Jew ell Milling Co. v. Barker, 147 N. Y. 31.) Section 6 of the Tax Law reads as follows : "All real and personal property subject to taxation shall be assessed at the full value thereof, provided, however, that the owner of personal property shall be allowed a deduction from the full value of his taxable personal property to the ex- tent of the just debts owing by him but no such deduction shall be allowed by reason of the indebtedness of the owner JOINT LEGISLATIVE COMMITTEE ON TAXATION 105 contracted or incurred in the purchase of nontaxable prop- erty or securities owned by him or held for his benefit, nor for or on account of any indirect liability as surety, guarantor, indorser or otherwise, nor for or on account of any debt or liability contracted or incurred for the purpose of evading taxation." The prohibition of this section against the deduction of debts incurred for nontaxable property or securities is applicable to the debts of a nonresident. In regard to what constitutes " doing business in the State " the following may be said. If a nonresident corporation is to be subjected to taxation on its capital invested in business in this State, the business must be continuous and permanent and not transitory. No general rule can be given that will make it pos- sible to determine in every case when a business is a permanent one and when it is temporary. It is necessary to examine the nature of the business as well as the intention of the nonresident. The following summary is quoted verbatim from the pamphlet referred to: " The decisions of the courts in particular cases have been somewhat in conflict, but in recent years they have limited the character of a business which may be regarded as perma- nent and continuous. " The law was enacted in 1855, and shortly thereafter in 1861 the case of Parker Mills v. Commissioners of Taxes was decided. (23 1ST. Y. 242.) An extract from the opinion in this case recites the facts as follows : " ' It had a depot and agent in the city of ISTew York, to whom it transmitted nails for sale. Its only business within this State consisted in making such sales, the proceeds of which were remitted at once to the corporation in Massa- chusetts, and where sales were upon credit, the securities received were sent to the corporation for collection. It ap- peared by the testimony of the agent that the sales amounted to about $300,000, and that the value of the nails which he then had in store was $10,00'0. 7 " Nothing is said in this opinion as to whethei or not the 106 STATE OF NEW YORK Parker Mills had a bank account in New York. It is certain that they carried a large stock of goods continuously and per- manently in the city of New York. Nevertheless, it was held that the Parker Mills did not have capital invested in business in the State of New York subject to assessment pur- suant to section 7 of the Tax Law. " On the other hand, a case decided in 1903 on a similar state of fact held that there was capital invested in business in this State. (Dumnd-Ruel v. Wells, 41 Misc. 145 ; affd., 92 App. Div. 622, without opinion.) Durand-Ruel had a stock of pictures of the average value of $75,000. They maintained a continuous bank account here sufficient to pay current expenses, consisting of salaries, rents and import duties. As paintings are sold they are re- placed by new ones. They leased an entire building for $20,000 a year, reserving one floor for themselves, and sub- letting the remainder. " In two recent decisions the fact that a foreign corpora- tion had no bank account in its own name in New York seems to have been an important if not a determining factor in holding that these corporations did not have capital in- vested in business subject to taxation. In one of the cases mentioned, the Tower case, the facts appear from the follow- ing extract from the opinion of the Appellate Division : " ' The relator is a foreign corporation organized under the laws of the State of Maine, in which State it has its principal place of business. Its plant is located in Massa- chusetts, where it carries on the business of manufacturing water-proof clothing. It maintains and had maintained a salesroom in the city of New York for the past five or six years, and at the time of the levying of the assessment had goods on hand at its place of business in the city of New York of the value of $13,490, and the average value of the stock kept on hand in such place of business was about $8,000. The store which it occupies is on the ground floor of 35 Howard street, is about 28 feet wide by 100 feet in depth. In connection with the business it has a manager, JOINT LEGISLATIVE COMMITTEE ON TAXATION 107 two salesmen, a typewriter and a bill and shipping clerk. It keeps no bank account in the city of New York and all checks, drafts and other payments for goods sold are remit- ted to Boston for deposit. The manager draws a draft upon the relator in Massachusetts upon an average of once a week for money sufficient to pay the expenses connected with the business, although some money, the proceeds of the business, is kept in the safe at its place of business here and is used to pay running expenses. This sum is never very large. The goods which are shipped to the New York house are mainly reshipped and distributed to various parts of the country, although above one-tenth of the goods received are sold in the city of New York; it sometimes runs above that per- centage. Much of the larger proportion of the goods received are reshipped to points outside the State of New York/ (98 App. Div. 82; affd., 182 K Y. 533.) " The second case was that of A. Leschen & Sons, which was decided by Judge 0' Gorman, on the authority of the Tower case, and the assessment was canceled. The following facts appear from the petition: " ' Leschen & Sons was a foreign corporation organized under the laws of the State of Missouri. Its business was to manufacture wire rope, and its plant was in- the State of Missouri. It had a branch office at 90' West street, in the borough of Manhattan, city of New York, for which it paid $7,000 a year. It had maintained an office in the city of New York continuously for over seven years, and in 1902 had made application to the Comptroller of the State of New York for the usual certificate to do business under the Gen- eral Corporations Law. It maintained a storage room where goods were kept on hand continuously, the average amount being about $14,000. The New York office was advertised as a branch office on the bill heads and office stationery. The majority of the sales orders filled from, stock in New York were sent direct to the main office in St. Louis, but in many cases goods were sold directly from stock in New York, and the proceeds of the sales were received in New York. 108 STATE OF XEW YORK Checks were mailed to the main office in St. Louis, but cash was retained to pay current expenses, and any balance de- posited in the personal account of the manager who remitted checks for these balances to the main office.' " The opinion was printed in the New York Law Journal on February 14, 1910. "A consideration of the Tower, Parker Mills, and Leshcen cases seems to make it clear that there must be a stock of goods kept in E"ew York continuously, and there must be a bank account in the name of the nonresident assessed." In regard to the taxation of tangible personal property, sec- tion 7, subdivision 2, reads as follows : " The personal property of nonresidents of the State hav- ing an actual situs in the State, and not forming a part of capital invested in business in the State, shall be assessed in the name of the owner thereof for the purpose of identifi- cation and taxed in the tax district where such property is situated, unless exempt by law. This subdivision shall not apply to money, or negotiable collateral securities, deposited by, or debts owing to, such nonresidents nor shall it be con- strued as in any manner modifying or changing the law im- posing a tax on real estate mortgage securities." The comment of the New York City Department of Taxes and Assessments upon this section is as follows: " It is understood to have been the intention of the drafts- men of this subdivision chiefly to tax household furniture, pictures, rugs, yachts, habitually kept in this State by non- residents of the State. But the language is capable of a much broader construction, and may be deemed to confer the right to tax as property, and not as ' capital invested in busi- ness/ merchandise and other personal property having an actual situs in this State, owned by a nonresident. So that, in case nonresident merchants have goods, store fixtures and JOINT LEGISLATIVE COMMITTEE ON TAXATION 109 other personalty in this State, and yet are not doing business in this State as that expression in section 7, subdivision 1 has been construed by the courts, this subdivision 2 permits of the taxation of such goods, etc., as property just as a resi- dent would be taxed upon it. In taxing under this subdivi- sion, however, no deduction of debts is allowed." Failure of the Law Investigation of County Records. The investigations of the Committee disclose the fact that foreign corporations as a group escape paying taxation upon personal property almost entirely. For the purpose of ascertaining the extent of the evasion of the personal property tax by foreign corporations, the Committee at- tempted to obtain information from the localities as to the taxa- tion of foreign corporations. Section 61 of the Tax Law provides as follows: " The clerk of each board of supervisors shall on or before the second Monday in December, transmit to the State Board of Tax Commissioners, in the form to be prescribed by such Board of Tax Commissioners, a certificate of return of the aggregate assessed and equalized valuation of the real and personal estate in each tax district as the value of such real estate has been created by such board, and the amount of taxes assessed thereon for town, city, school, county and State purposes, also the aggregate assessed valuation of per- sonal property classified as follows: * * * Subdivision 6. Property of foreign corporations assessed pursuant to sec- tion 7." An examination of the statements of the aggregate valuations of personal property pursuant to section 61 of the Tax Law in the several towns and cities in each county, filed in the office of the State Board of Tax Commissioners, disclosed the fact that only eight counties out of the sixty-two in the State returned this in- formation in partial or complete form as required by law. Cor- 110 STATE OF NEW YORK respondence with the clerks of the boards of supervisors and tax assessors of the several counties disclosed the fact that in very few localities is any attempt made to ascertain the taxable personalty of foreign corporations. The data obtained, however, in this in vestigation was too incomplete to determine precisely to what ex- tent the personal property of foreign corporations escaped taxa- tion. The evidence obtained, however, establishes a very strong presumption that less than 10 per cent of the personal property of foreign corporations liable to taxation is actually assessed. In the second investigation the Committee obtained the names of some 250 important foreign corporations known to carry on large business in the State of New York and to have considerable amounts of actual taxable personalty permanently located in this State. To these corporations was sent a printed blank form re- questing information as to the following items : (1) The percentage of the total assets of the corporation in- vested permanently in New York .State. (2) The amount of taxable personalty permanently located in New York. (3) The locality which the corporation claimed as its principal place of business in New York. (4) The assessed value of personal property in New York. (5) The actual amount of personal property tax paid in New York. The failure of the corporations even to acknowledge these re- quests was enlightening. Of the 250 corporations only about thirty acknowledged the receipt of the Committee's communica- tion, and only nine attempted to fill out the blank, and of the nine only four actually filled in the required information. Several of the corporations reported that they paid no taxes, and most main- tained that inasmuch as they were foreign corporations they were not liable to taxation. It is perfectly evident from these replies that the average foreign corporation either believes that it is not liable for taxation under New York law or else knows that it f6 $3 98 $2,129,364 $525,426 Counties 755 , 634 5,700,921 7 54 4 , 156 , 772 31,023 Incorporated places 677,147 3 548 705 15,034,448 124 350 892 22 20 35 04 8,870,855 69 173,958 168,717 12,278,551 State 3,548 705 $25 742 902 $7 25 $6 252,161 $5,056,514 2 761 574 3 435 938 1 24 2 727 983 Incorporated places Michigan 3,294,319 2,936,618 95,172,052 52 979 446 28 89 18 04 60,193,814 36,461,096 7,222,037 889,621 State 2,936,618 $12,806,666 $4 36 $10,875,862 $628,831 2 936 618 8 642 466 2 94 6,045,366 253,527 Incorporated places Minnesota 1,431,059 2,181,077 31,530,314 44,089,229 22 03 20 21 19,539,868 23,221,369 7,263 1,080,115 State 2 181 077 $14 033 962 $6 43 $4 201 828 $714,905 Counties Incorporated places Mississippi 2,181,077 914,301 1 876 987 8,245,936 21,809,331 14 612 702 3 78 23 85 7 79 5,843,122 13,176,419 8,383,108 241,788 123,422 44,907 State 1,876 987 $3 694 027 $1 97 $2,325,705 $44,907 1 876 987 7 719 846 4 11 4 308 549 217 561 3 198 829 14 70 1*748' 854 Missouri 3,353,983 58 555,630 17 46 30,825,369 1,141,124 State 3 353 983 $8 243 849 $2 46 $3 , 222 , 363 $479,517 Counties 2,630,636 11,051 008 4 20 7,830,979 Incorporated places 1,465,008 39,260,773 26 80 19,772,027 661,607 JOINT LEGISLATIVE COMMITTEE ON TAXATION 239 APPENDIX All Continued STATES Population Total Per capita General property taxes Special property taxes 419,174 $12 803 151 $30 54 $7 864 865 $25 004 State 419,174 $2,642,075 $6 30 $905 746 $20 036 419,174 6 259 720 14 93 5 258 998 4 968 Incorporated places 141,253 3,901,356 27 62 1,700,121 1,233,122 17 998 117 14 60 12 194 263 137 131 State 1,233,122 $3,761,392 $3 05 $2 187 597 $71 872 1,233,122 6 597 146 5 35 5 757 843 65 259 Incorporated places 321,770 7 , 639 , 579 23 74 4,248,823 Nevada . ... 94 722 2 967,919 31 33 2 118 933 * State 94 , 722 $970,540 1 $10 25 $601 948 Counties 94 , 722 1,692,809 17 87 1,331,012 Incorporated places 15,434 304 , 570 19 73 185,973 436 740 7 054 912 16 15 4 655 153 $483 344 State 436 740 $1 793 881 $4 11 $1 178 347 $220 601 Counties 436,740 756,701 1 75 552 , 535 Incorporated places 262,907 2 749 486 4,504,330 68 684 931 17 13 24 98 2,924,271 39 613 391 262,743 758 599 State 2 749 486 $15 425 547 $5 61 $9 877 039 $748 086 Counties Incorporated places New Mexico .... 2,749,486 2,056,856 370 185 11,653,749 41,605,635 3,104,833 4 24 20 23 8 39 9,108,329 20,628,023 2,232,145 10,513 32 503 State.. 370,185 370 185 $797,423 1 765,421 $2 15 4 77 $529 , 143 1 408 799 $28,078 4 425 Incorporated places 48,124 541,989 11 26 294,203 New York 9 712 954 330 622 071 34 04 201 342 295 28 399 306 State 9 712 954 $52 013,706 $5 36 $6,187,819 $22 183 580 Counties . , 4,514,066 17,721,855 3 93 12,694,846 Incorporated places North Carolina 7,755,439 2,307,809 260,886,510 14,212,398 33 65 6 16 182,459,630 9,386,831 6,215,726 5,265 State 2 307 809 $3 294 223 $1 43 $1 969 056 $5 265 Counties 2,307,809 6,445,604 2 79 5,011,003 339 758 4 472,571 13 16 2,406,772 North Dakota 660 , 849 10,024,589 15 17 6,317,386 State 660 , 849 $3,251,350 $4 92 $1,240,338 Counties 660 849 5,010,319 7 58 4,122,970 66 620 1 762 920 26 46 954,078 Ohio 4 965 169 95 , 669 , 743 19 27 51,473,265 $1,922,998 State 4,965,169 $13,877,036 $2 79 $2,916,282 $1,895,094 4 965 169 28,812,212 4 80 15,646,094 27,904 2 864 526 57 980 495 20 24 32,910,889 1 938 761 18,391,968 9 49 12,252,427 5,572 State 1,938,761 $3,358,843 $1 73 $2,206,205 $5,572 1 938 761 6 920,032 3 57 5,429,713 366 947 8 113 093 22 11 4 616 509 Oregon 756,988 24,613,582 32 52 15,420,281 262,138 State 756,988 $3,847,371 $5 08 $2,541,696 $262,138 756 988 7 970,054 10 53 7,377,705 Incorporated places 350,709 12,796,157 36 49 5,500,880 Pennsylvania 8,107,942 137,280,510 16 93 70,197,242 18,876,538 State 8,107,942 $28,571,882 $3 52 $1,256,609 $18,876,538 6 475 986 17,640,063 2 72 12,552 663 Incornorated daces 4.878.522 81.068.565 18 67 56.387.970 240 STATE OF NEW YORK APPENDIX All Concluded STATES Population Total Per capita General property taxes Special property taxes Rhode Island 579,665 $13,627,651 $23 51 $8,065,197 $535,032 State 579 , 665 $3 018 385 $5 21 $843 319 $534 825 Counties Incorporated places South Carolina 557,768 1,572,285 10,609,266 9,295 371 19 02 5 91 7,221,878 6 154 648 207 122 575 State.. 1,572,285 1,572 285 $2,375,236 3 515 661 $1 51 2 24 $1,654,659 2 766 600 $122,575 Incorporated places South Dakota 237,836 643,121 3,404,474 9,782,158 14 31 15 21 1,733,389 6,016,784 9,781 State 643,121 $3 151 538 $4 90 $1 547 545 $9 781 643 121 4 600 068 7 15 3 128 460 Incorporated places 80 , 789 2 030 552 25 14 1 340 779 2 238 128 22 191 231 9 92 12 794 563 91 268 State.. 2,238,128 2 238 128 $4,639,769 9 210 586 $2 07 4 12 $1,733,782 6 888 484 $91,268 Incorporated places 467 , 588 8 340 876 17 84 4,172,297 Texas 4,171,997 44,015,367 10 55 28,780,156 541,971 State 4,171,997 $12,598,297 $3 02 $6,328,327 $541,971 4,171 997 13 100 016 3 14 11 063 779 Incorporated places 1,032,272 18,317 054 17 74 11,388,050 Utah 404 , 735 9,551,375 23 60 5,802,191 317,271 State 404,735 $2,715,919 $6 71 $1,883,377 $317,271 404 , 735 2 307 108 5 70 1 849 235 Incorporated places 189,769 4,528,348 23 86 2 069,579 Vermont 359,957 4,408,670 12 25 1,922,661 746,547 State.. 359,957 359 957 $1,952,770 30 359 $5 43 08 $184,319 25 623 $746,547 Incorporated places 171,510 2,425,541 14 14 1,712 719 2,129,003 20,734,314 9 74 11,175 929 412,588 State 2,129,003 $7 , 176 , 220 $3 37 $2 , 539 , 343 $412,588 1,674 340 3 557 591 2 12 3 013 324 Incorporated places 511,324 10,000,503 19 56 5,623,262 1 344 686 44 984 021 33 45 23 701 723 186 231 State 1 , 344 , 686 $7,174,313 $5 34 $3,333,336 $186,231 1,344 686 13,152 882 9 78 11 833 558 Incorporated places 726,144 24,656,826 33 96 3 , 534 , 829 1 306 345 10 609 218 8 12 6 314 812 587 735 State 1,306,345 $2,772,722 $2 12 $304 , 756 $587,735 1,306,345 3 975 059 3 04 3 697 582 Incorporated places 252,095 3,861,437 15 32 2,312,474 2,419,898 40,352,935 16 68 25 , 857 , 592 1,003,771 State 2,419,898 $11,380,681 $4 70 $6,818,729 $924,736 2,419,898 8,319,451 3 44 6 006 871 79,035 1 066 688 20 652 803 19 36 13 031 992 Wyoming 163,325 3,125,248 19 15 2,041,191 11,436 State 163 325 $1 063 277 $6 51 $573 573 $316 Counties 163,325 1,250,566 7 66 1,112,196 11,120 45 455 811 405 17 85 , ; * . 355 422 ' * f >' fr 0. ' * Abstract of Special Bulletins, Wealth, Debt and Taxation, 1913, pp. 36-42. JOINT LEGISLATIVE COMMITTEE ON TAXATION 241 APPENDIX A I 2 ASSESSED VALUE OF ALL PROPERTY, REAL AND PERSONAL, SUBJECT TO AD VALOREM TAXATION IN STATES, 1912.* GEOGRAPHIC DIVISION AND STATE ASSESSED VALUATION OF ALL PROPERTY SUBJECT TO AD VALOREM TAXATION Total Real property and improvements Personal property Other property Total $69,452,936,104 $51,854,009,436 $12,135,880,928 $5,241,114,687 New England Maine $416,891,264 439,683,132 221,530,142 - 4,803,078,625 619,010,208 1,041,334,019 11,131,778,917 2,490,490,534 5,068,802,988 6,481,059,158 1,898,307,218 2,343,673,232 2,317,561,634 2,466,636,793 1,474,585,315 992,092,597 1,860,087,956 293,048,119 354,278,413 463,371,889 2,746,900,291 93,814,011 1,235,457,607 359,932,253 864,962,621 1,168,012,658 747,500,632 291,531,003 842,358,342 212,887,518 1,031,174,033 625,686,792 566,807,488 411,551,004 427,473,108 550,517,808 1,193,655,846 2,532,710,050 346,550,585 167,512,157 180,750,630 422,330,199 72,457,454 140,338,191 200,299,207 101,087,082 1,005,086,251 905,011,679 2,921,277,451 $329,614,002 299 , 333 , 340 157,967,927 3,216,714,460 426,968,806 880,054,721 10,684,290,188 1,880,407,662 4,821,764,111 4,335,665,521 1,221,410,854 1,648,500,546 1,649,105,370 1,723,425,870 1,154,269,735 547,544,903 1,187,413,981 199,070,599 264,163,184 319,049,627 1,798,339,960 89,541,628 1,151,374,665 330,322,487 538,924,546 633,747,633 382,775,963 152,052,298 431,329,671 140,200,555 636,774,911 447,552,416 342,648,441 240,104,986 298,828,900 368,449,430 719,703,439 1,650,198,381 179,892,897 132,531,537 81,270,500 280,766,698 34,682,427 84,328,045 109,625,848 83,667,525 729,751,400 674,866,639 2,163,020,203 $87,277,262 80,314,189 63,562,215 1,032,985,395 192,041,402 161,279,298 447,488,729 291,003,421 247,038,877 2,145,393,637 676,896,364 473,402,700 429,589,039 356,629,923 320,315,580 282,536,401 481,443,865 93,977,520 55,917,277 88,937,396 517,350,932 4,272,383 New Hampshire $60,035,603 Massachusetts Rhode Island Connecticut 553,378,770 Middle Atlantic New York "97!i48!398 New Jersey East North Central Ohio Indiana "22i;769;986 238,867,225 386,581,000 ' 72!6iii293 191,230,110 'si,' i97] 952 55,384,866 431,209,399 ""84;682;942 "isi 1689; 857 295,028,419 121,098,098 43,359,299 138,021,114 34,279,204 189,130,112 99,675,906 "'66,'i6i!652 Illinois Wisconsin West North Central Minnesota Missouri North Dakota South Dakota Nebraska South Atlantic District of Columbia . . 29,609,766 194,948,218 239,236,606 243,626,571 96,119,406 273,007,557 38,407,759 205,269,010 78,458,470 224,159,047 111,344,966 128,644,208 119,595,699 214,142,358 527,552,200 98,176,389 West Virginia North Carolina South Carolina Georgia Florida East South Central Kentucky Tennessee Mississippi West South Central 62,472,679 259,810,049 354,959,469 68,481,299 34,980,620 51,513,534 61,011,609 20,771,379 31,938,240 43,470,332 Texas Mountain Montana Idaho Wyoming Colorado 47,966,596 80,551,892 17,003,648 24,071,906 47,203,027 17,419,557 117,949,520 118,228,542 313,534,205 New Mexico Arizona Utah Pacific Washington 157,385,331 111,916,498 444,723,043 Oregon California.. * Abstract of Special Bulletins, Wealth, Debt and Taxation, 1913, page 16. 242 STATE OF NEW YORK 05 I 1:0 p. hH M I I II 8538 ' rH t-COCD rHOSCO rH :8 2 :; COCOON! t^t-iOCO OS N 00 CO CO CO 1C rH CO t^ 00 CO t^ (N O CO CO os co o T< co co a> rHCO r}N O(N -b- -CO 18 aSS IM O5 1 ic >c (N OT}ICOOCOCOO< * (N d Tf( Tji rH COOOCO 1C 00 CO (N fl CO CO OS t^ CO I C 00 ^ *< CO C CO rHOCO O5 CO- CO O5 C N 00 !> rH CO OS O O5 O *O rH 1> t^OSOiCOSO^O OS'tCOOS'* O CO OS t^ i-< 00 OS COCOOOOSOO rH 1C Tj< 00 1^ t^ OO COlCTt ^5 ; ia.S.2 Illllll IIII Ullll !l!ll!l I !,-. f . ! W JOINT LEGISLATIVE COMMITTEE ON TAXATION 243 6* m co o m . 1C O 1-- i-l * ICO Ol>COCOb. - 00O 1C . S J K%%< ooo c> 10 oc>e O O O t~ -H O5 OS )i-ieo oo * ic oo 1-1 o oo ^< >OOO O 00 * TJ< O ^ T C 1-1 DTf I'tTjHO'* 5(NOOCO(N 500Oi-HCO 1000 oo gf-H < coi >t-O( CO CO CO i-l O C * t^ CO C H tH iC T}< t CO CO CO n'eo'iccooorco'oo'oo' CO i-l t>. i-H co.1 ! ! tvT^oTor ^ N O -i CO t~ 00 iO 1-1 co CO C C< irfiCOi-H-i >OcOOS ' t>O5OO5 COOOi-H lOSOSOO-^ OOOCO S fe-2.2'S^ja ja'B'S OOJO OOOM t -oooot^eo t^ O5 O "5 g :S2SS O -OOS-^rH co cO'-iioeo ^ -C CO i-l CO SCO CO (NO-* *CO* -TH 05 ^ Sg^C^C^S CO CO Tt| r-l Tt< i : ;!!:: COt^OOO'N CO t>- CO CT> i-l O CO ^CO OO-* ** : jj Tt< -COCDOl O O5 T^ CO ^ O CO COCOOOOlN C<1 r-i 1> CD O ** : : 2 :ScS$S : O ' O O CO O cot-coo^oo CD Oi CO t- O 00 CO t- CO CO t-H >O i ,-1 O O CO . rfi CO 00 t-COCDOOOOO -^ O5 CO CO >O O CO OiOiOOO CO COCO COO i-H COt>CO ^H T}< CO O t>- 00 I-H 03 GO O> CD CO CO -^ O5 3 CO *-* CO 40 i CO COr-iiO H 10 CO ^ * r^ 00 o 2 CO ' r-i O <0 -1 ' (-coco coco o rJH 10 CO CO * OCO>O COCOO5 2 :So!5eoS!-!2 M CO 05 CO SSS2S8S8S3B512S8SS c fi "S v=> o oicoto^ I g S^S !1 1 2 1 3 5 2" ll 11 ,5 S3 |1 |; fe '^ ft, rt W o 3 'S'Sco -S g S ^^" ^ ::s tn O O a; IS ai J 264 STATE OF NEW YOKK O 'f^OSOOrH : : : ^SSSSS I OS -OIOOSCO # : : : :^2^22c^ I 'CMI> b-rH rHrHOrH rH rH 00 T}* IO Tjt TJH OS 00 CO OS - OS CM CM rH TH IO CO <*< CM t>- Ttl 1 00 -CO>OO5>O t& ' IO T}< rH (N rH CO CM i-H I>l>OOO 1 '. ; co 10 10 co co b- CM CM (N CN rH CO H M w 5 HH 02 g Q Tjt -rHOOO * 00 O -* CO b- 00 & \-^ PH tf -(NrHQOOS CSCOOOIOCO po H B 05 T ~ l M -NrHINrH . . . CO CO OS CM 00 IO CM CM CM CM rH CO PH 8 '. PH PH rH rHt>CSOO 10 -iOTt*OCO CD O> CO t^- "^ M H OS g j^ScOrH j : ! -CMCMCMWCMCO g H rfl O CO OS CO CO t^ lOCOlNOOOOrH b-iOCOCOOCMrHCOt- 2 O 2 CM rH OS O O IO rH (^ _ JH rH CO rH (M COCOCMCMCOiOCMOSt> ' TO W > !! fc a : ig : ij 144 iliJ !! o c3 * "S Is ^ O^ QJ ^ " " * I iiiu'ii | i-g.J|| JOINT LEGISLATIVE COMMITTEE ON TAXATION 265 APPENDIX B II 4 PEE, CAPITA MUNICIPAL, INDEBTEDNESS FOB MUNICIPAL PURPOSES (LESS SINKING FUND ASSETS) OF THE REMAINING CITIES CITY 1913 1902 1890 Batavia $35 33 $1 96 $4 85 Cohoes. 32 18 30 73 11 30 Corning 33 98 18 88 9 45 Cortland 58 03 32 71 3 75 Dunkirk 24 48 28 93 14 31 Fulton 46 78 57 78 38 Geneva 36 56 39 93 Glens Falls 24 42 29 78 15 25 Gloversville 34 97 19 81 11 00 Hornell 39 47 40 63 Hudson 30 66 28 31 28 31 Ithaca 96 98 20 96 4 05 Jamestown 20 75 25 68 7 79 Kingston . . 37 91 43 29 21 59 Lackawanna 27 39 Little Falls 30 51 39 93 34 73 Lockport 37 33 13 59 15 40 Middletown 30 99 33 30 12 81 Newburgh 44 00 25 63 14 47 North Tonawanda . .... 49 52 75 27 Ogdensburg 27 22 16 11 10 80 Olean 30 86 20 62 13 79 Oneida 28 65 35 12 5 10 Oneonta. 33 69 14 55 6 86 Ossining 72 78 23 91 24 06 Oswego. . . 31 85 47 22 39 83 Peekskill 53 11 26 57 14 97 Plattsburg 28 86 25 35 27 51 Port Chester 53 45 15 35 14 41 Port Jervis 14 24 10 03 Poughkeepsie 67 36 72 60 79 74 Rensselaer ... . '. 30 57 34 04 13 60 Rome 42 44 33 84 10 67 Saratoga Springs 40 26 36 34 25 97 Tonawanda 60 55 56 88 17 63 Watertown 41 15 33 78 15 48 Watervliet 23 65 22 89 15 19 White Plains 140 47 155 55 25 48 SUMMARY (The above includes all the remaining cities except Geneva, Hornell, Lackawanna North Tonawanda and Port Jervis, for which data is lacking for certain years.) Average for 1913 ... $43 . 21878 Average for 1902 33.999 Average for 1890 17.2887 Per cent increase for 1913 over 1890 Per ecnt increase for 1902 over 1890. 149.98 96.65 266 STATE OF NEW YORK APPENDIX B II 5 PEE CAPITA TAXES FOR MUNICIPAL PURPOSES LEVIED ON GEN- ERAL PROPERTY IN REMAINING CITIES CITIES 1913 Batavia $11 85 Cohoes 7 89 Corning : 8 09 Cortland 9 95 Dunkirk 7 98 Fulton 10 07 Geneva 10 42 Glens Falls 10 48 Gloversville 8 76 Hornell 10 47 Hudson 7 55 Ithaca 14 12 Jamestown 11 68 Kingston 11 57 Lackawanna 8 69 Little Falls 6 64 Lockport 14 17 Middletown 11 20 Newburgh 12 29 North Tonawanda 13 11 Ogdensburg 5 46 Olean 10 04 Oneida 8 79 Oneonta 9 47 Ossining 12 03 Oswego 12 31 Peekskill 9 55 Plattsburg 7 15 Port Chester 14 93 Port Jervis 9 75 Poughkeepsie 13 35 Rensselaer 9 65 Rome 8 36 Saratoga Springs 15 34 Tonawanda 13 88 Watertown 12 72 Watervliet 8 45 White Plains. . 21 12 NOTE. Data for the years 1890 to 1912 is lacking. JOINT LEGISLATIVE COMMITTEE ON TAXATION 267 APPENDIX B II 6 PER CAPITA EXPENDITURES FOR MUNICIPAL PURPOSES IN REMAIN- ING CITIES Cities 1913 Batavia $15 78 Cohoes 11 79 Corning 11 42 Cortland 15 09 Dunkirk 15 03 Fulton 28 34 Geneva 18 75 Glens Falls 14 38 Gloversville 14 50 Hornell , 20 49 Hudson 11 31 Ithaca \ . 20 47 Jamestown 13 17 Kingston 15 71 Lackawanna 19 51 Little Falls 13 93 Lockport 19 29 Middletown 19 46 Newburgh 19 63 North Tonawanda 19 62 Ogdensburg 15 39 Olean 18 51 Oneida 14 58 Oneonta 13 26 Ossining 20 31 Oswego 14 64 Peekskill 14 91 Plattsburg 14 95 Port Chester 18 68 Port Jervis 12 89 Poughkeepsie 30 09 Rensselaer 13 90 Rome 13 43 Saratoga Springs f 18 98 Tonawanda 18 13 Watertown ' 17 13 Watervliet 14 60 White Plains 30 16 NOTE. Data for the years 1890 to 1912 is lacking. 268 STATE OF NEW YOEK HH iz O ^ P I g PH So PLH 9 << H S pi 2 PH O O XJ CC H ^ O " S ^ o E cc | ^ I OQ "H o 1^ o-S PQ V ao S-S d .5 S3 -r5lO C*^ Q, Ilsil 8 f^-l I lift I OK Q : iii! H . +JT300 o3 O -d o oj a, llllfSl S a c< 'S 8 -i Its" Poo" QO $** ^3 "s Hi 11 ^ So O OJ 10 fl II ~ s o * i-l 35 53 .2 ^ ^^ ^1 ** -s^ s ^^ II 8 I * CN (M i-Hr-l S * o o ^ 1C CO Ti cir-T r-T Tj< CO Bill* 3 S 2 * < o>" *21 M a>S * ^1 1 Pdi5i|pi|;|--3|l |il.i.g:,!liii!s fe *-eS-s% s'fcSoirS 84* a i O O^_ liil l|S|g-S ~r>3 S'sflsf ^S 1 I & !! s f|-s i-gj 8 POO o 0355 a a c c LO oooo c c o o 1) J O O O O C fl fl ooo o sss o o< 5555, 55 5555555555 : ooo o :555555 55 00 OOrHOi-loSoSoS 03 t^ O CO O 05 *J -^ -g -u 10 -iooo " IO C<1 OO O CO .i .3 ^, .,' 00 $St2SS"c"S g Tfl O O S a a t^ 00 55 55 C<> CO fe S i-H OCSJ rt rt rt Tj< 10 COO g g < 3 - * t~-o : : oo" oo" 55 s s CO CO v 55 i"< (" o oo 88 t o oo iO iO OO * CM OO o" co" co'o" :8 (N CO r-t i-H o S 8 S 270 STATE OF NEW YORK i n b p fc&j 1,88 la -3 it i . ''S a ^ o 5 || r, s.S T3 t^i (H ill s O C && lf|| If *f life -s-i^ c s s|^|2 sSlU ill Oil' T5 ^! *& & *rn l&ssa I OH . O Q O 85? Cj O O5 j O Q,) 5 {fiig 50 55 5 - fc 55 55 3t- S CQQQ P JOINT LEGISLATIVE COMMITTEE ON TAXATION 271 APPENDIX D II DOMESTIC CORPORATIONS ASSESSED UNDER SECTION 12 OF THE TAX LAW, IN TOWN OF ESOPUS, COUNTY OF ULSTER, WITH THE AMOUNT OF CAPITAL STOCK AS OBTAINED IN THE OFFICE OF THE SECRETARY OF STATE, AND THE PERSONAL PROPERTY ASSESS- MENTS PLACED ON SUCH DOMESTIC CORPORATIONS BY THE ASSESS- ORS OF THE TOWN Capital stock E 100 $5,000 E 101 10,000,000 E 102 300,000 E 103 30,000 E 104 150,000 E 105 150,000 E 106 201,870 E 107 100,000 E108 200,000 E 109 100,000 E 110 40,000 Bill 15,000 E 112 30,000 E 113 200,000 E 114 300,000 E 115 25,000 E 116 120,000 E 117 200,000 E 118 20,000 E 119 1,000,000 E 120 100,000 E121 250,000 E 122 50,000 E 123 50,000 E 124 85,000 E125 1,000,000 E 126 400,000 E127 5,500,000 E 128 160,000 E129 1,500,000 E130 5,000,000 E131 150,000 E 132 1,200,000 E 134 200,000 E135 150,000 E 136 100,000 E137.. 100,000 Assessment under Section 12 $500 1,800 1,500 400 800 3,000 800 800 500 500 500 300 500 4,000 400 400 500 300 300 8,000 800 800 2,000 1,000 1,500 1,000 1,000 2,000 250 500 500 500 500 500 000 300 1,000 272 STATE OF NEW YORK APPENDIX D II Concluded under Capital stock Section 12 E 138 $30,000 $500 E 139 500 500 E 140 100,000 500 E 141 350,000 1,200 E 142 100,000 500 E 143 500,000 1,500 E 144 150,000 1,000 E 145 10,000 500 E 146 250,000 1,000 E 147 150,000 300 E 148 200,000 750 E 149 135,000 800 E 150 100,000 200 E 151 2,000,000 1,500 $33,257,370 $60,700 SUMMARY OF ABOVE TABLE Number of corporations 51 Aggregate capital stock $33,257,370 Aggregate assessment $60,700 Aggregate assessment as per cent of aggregate capital stock . 18% or less than 1/5 of 1% JOINT LEGISLATIVE COMMITTEE ON TAXATION 273 APPENDIX D III DOMESTIC CORPORATIONS ASSESSED UNDER SECTION 12 OF THE TAX LAW, IN TOWN OF WASHINGTON, COUNTY OF DUTCHESS, WITH THE AMOUNT OF CAPITAL STOCK AS OBTAINED IN THE OFFICE OF THE SECRETARY OF STATE, AND THE PERSONAL PROPERTY ASSESSMENT PLACED ON SUCH DOMESTIC CORPORATIONS BY THE ASSESSORS OF THE TOWN Assessment Designation of under corporation Capital stock Section 12 D 101 $2,000,000 $100,000 D 102 50,000 1,000 D 103 120,000 3,000 D 104 16,000,000 50,000 D 105 1,000 500 D 106 17,500,000 150,000 D 107 300,000 500 D 108 :... 100,000 5,000 D 109 1,000,000 5,000 D 110 50,000 2,500 D 111 30,000 1,000 D 112 10,000 500 D 113 150,000 1,000 D 114 50,000 1,000 D 115 1,000,000 50,000 D 116 100,000 1,000 D 117 100,000 1,000 D 118 No record 2,000 D 119 1,750,000 30,000 D 120 250,000 5,000 D 121 1,000,000 1,000 D 122 250,000 500 D 123 200,000 5,000 D 124 500,000 500 D 125 1,500,000 500 D 126 100,000 1,000 D 127 50,000 1,000 D 128 180,000 3,000 D 129 i 100,000 10,000 D 130 ** 25,000 500 D 131 50,000 1,000 D 132 400,000 1,000 D 133 1,200,000 500 D 134 1,125,000 500 D 135 1,500,000 15,000 D 136 100,000 10,000 D 137 500,000 3,000 274 STATE OF NEW YORK APPENDIX D III Concluded Designation of corporation D 138 D 139 D 140 D 141 D 142 D 143... Capital stock $400,000 2,000,000 1,000 60,000 400,000 100,000 Assessment under Section 12 $10,000 500 1,000 1,000 500 500 SUMMARY Number of corporations 43 Aggregate capital stock $52,302,000 Aggregate assessment $477 , 500 Aggregate assessment as per cent of capital stock . 91% or less than 1% JOINT LEGISLATIVE COMMITTEE ON TAXATION 275 !!! ISsll 11^ 5 3 H K04g o Q H 3- 1 13 I pd W ,*" r^ P^ O H O o -2r o~" rt -pH< -' as a) lot il Hill i 1J 03 00 J ^ y ^ K'S' ^ ,4 03 c 03 2 O303 03 2 i r^ 00 co *fi s CO-* coco CO i CO 282 STATE OF NEW YORK APPENDIX D VI 1 BONDED DEBT OF THIRTY-SIX DOMESTIC MANUFACTURING CORPORA- TIONS TAKEN AT EANDOM Designation of Bonded Capital stock corporation debt* outstanding B.D. 1 $2,000,000 $3,896,000 B. D. 2 433,000 500,000 B.D. 3 3,164,000 9,325,000 B.D. 4 12,067,500 101,485,700 B.D. 5 500,000 500,000 B.D. 6 17,426,234 20,359,000 B.D. 7 .21,399,834 39,849,500 B. D. 8 640,000 789,500 B.D. 9 3,414,500 4,907,000 B.D. 10 41,313,000 34,756,000 B.D. 11 7,743,728 10,000,000 B.D. 12 375,000 500,000 B.D. 13 1,785,000 15,000,000 B.D. 14 822,000 4,000,000 B.D. 15 851,612 500,000 B.D. 16 125,000 500,000 B.D. 17 3,800,000 2,500,000 B.D. 18 3,000,000 7,924,700 B.D. 19 1,038,277 2,000,000 B.D. 20 600,000 600,000 B.D. 21 95,000 328,300 B.D. 22 11,335,100 6,000,000 B.D. 23 500,000 500,000 B. D. 24 614,550 3,135,161 B.D. 25 4,000,000 15,000,000 B.D. 26 225,000 600,000 B. D. 27 2,765,000 1,000,000 B.D. 28 2,080,000 6,800,000 B.D. 29 740,200 2,300,000 B.D. 30 1,497,963 1,600,000 B.D. 31 1,500,000 1,250,000 B. D. 32 5,123,350 8,554,425 B.D. 33 1,500,000 1,000,000 B.D. 34 6,850,000 2,410,000 B.D. 35 100,000 1,011,000 B.D. 36 273,048 571,000 SUMMARY Aggregate bonded debt $161,697,896 Aggregate capital stock outstanding 311,952,286 Bonded debt as per cent of capital stock 51.8% In some cases notes payable are included. JOINT LEGISLATIVE COMMITTEE ON TAXATION 283 APPENDIX D VI 2 BONDED DEBT OF THIRTY-EIGHT DOMESTIC MERCANTILE AND MIS- CELLANEOUS CORPORATIONS SELECTED Designation of Bonded Capital stock corporation debt* outstanding B. M. 1 $2,700,000 $5,000,000 B. M. 2 19,593,900 10,084,00 B. M. 3 3,550,000 4,000,000 B. M. 4 2,500,000 2,000,000 B. M. 5 5,000,000 5,000,000 B. M. 6 700,000 750,000 B. M. 7 7,540,072 10,457,200 B. M. 8 2,969,500 3,665,800 B. M. 9 1,900,000 1,357,500 B. M. 10 2,000,000 2,000,000 B. M. 11 4,027,000 3,500,000 B. M. 12 10,000,000 2,000,000 B. M. 13 9,200,000 6,000,000 B. M. 14 1,500,000 2,942,750 B. M. 15 1,100,000 9,800,000 B. M. 16 4,193,000 3,000,000 B. M. 17 1,004,871 740,200 B. M. 18 3,025,000 22,755,000 B. M. 19 4,809,958 2,000,000 B. M. 20 2,960,141 248,103 B. M. 21 1,200,000 1,000,000 B. M. 22 2,720,000 2,250,000 B. M. 23 954,633 1,000,000 B. M. 24 446,500 300,000 B. M. 25 3,000,000 1,700,000 B. M. 26 1,857,781 6,900,000 B. M. 27 352,000 375,000 B. M. 28 3,700,950 10,500,000 B. M. 29 750,000 1,000,000 B. M. 30 380,375 565,600 B. M. 31 75,750 198,500 B. M. 32 156,500 249,600 B. M. 33 4,797,215 7,395,100 B. M. 34... 769,000 1,180,400 B. M. 35 487,500 400,000 B. M. 36 3,649,871 6,000,000 B.M.37 220,000 900,000 B. M. 38 2,277,690 3,977,000 SUMMARY Aggregate bonded debt $118,069,207 Aggregate capital stock outstanding 143,191,753 Bonded debt as per cent of capital stock 82.4% * In some cases notes payable are included. 284 STATE OF NEW YORK APPENDIX D VII SELECTED LIST OF DOMESTIC CORPORATIONS WITH GOOD WILL OF GREAT VALUE Designation of Capital stock corporation Good will outstanding Total assets G. W. 1 $15,000,000 $19,300,000 $21,623,840 G. W. 2 600,000 1,000,000 2,115,563 G. W. 3 7,500,000 9,800,000 12,202,852 G. W. 4 5,664,000 9,145,000 14,081,332 G. W. 5 1,000,000 3,000,000 3,937,286 G. W. 6 5,000,000 7,850,000 9,080,957 G. W. 7 15,525,310 22,755,000 31,314,167 G. W. 8 12,000,000 17,000,000 19,084,009 G. W. 9 7,451,448 9,875,000 10,446,802 G. W. 10 500,000 945,000 1,461,654 G. W. 11 7,000,000 10,000,000 10,809,428 G. W. 12 3,874,965 5,800,000 6,002,213 G. W. 13 7,499,600 10,500,000 14,686,162 G. W. 14 3,000,000 7,395,100 12,960,426 G. W. 15 600,000 1,000,000 1,413,786 G. W. 16 4,000,000 6,800,000 8,994,505 G. W. 17 50,000,000 64,000,000 74,444,730 G. W. 18 878,792 1,010,000 1,047,131 G. W. 19 1,080,258 900,000 1,158,728 G. W. 20 386,138 3,034,070 3,651,142 G. W. 21 2,637,309 3,450,000 4,541,708 G. W. 22 3,023,983 8,000,000 10,045,729 G. W. 23 1,524,752 1,000,000 3,937,911 G. W. 24 4,966,365 9,900,000 14,144,547 G. W. 25 9,786,065 14,647,200 19,236,468 G. W. 26 18,000,000 26,000,000 21,936,638 G. W. 27 17,947,142 10,457,200 21,511,644 G. W. 28 1,794,342 2,075,000 3,109,241 G. W. 29 8,025,000 10,250,500 14,980,831 G. W. 30 2,800,000 3,656,526 G. W. 31 1,575,000 7,480,000 8,308,073 G. W. 32 500,000 900,000 2,006,331 G. W. 33 3,000,000 5,000,000 7,188,292 G. W. 34 5,100,000 6,200,000 7,270,292 G. W. 35 58,380,902 89,100,000 94,936,954 SUMMARY Aggregate good will. . . $287,651,371 Aggregate capital stock outstanding 405,569,070 Aggregate total assets. . 497,327,898 Aggregate good will as per cent of capital stock 70.9% Aggregate good will as per cent of total assets 57.8% JOINT LEGISLATIVE COMMITTEE ON TAXATION 285 05iCi-liOt>C<>fOOiOO^-lrH05CO>Ot^C01>O-*CDOlT}*l^t>O-*'-HCO(NC>000 CO'OCDTj(tTtlTjCDCC)'*OCOlOTticDC^r}<^'C(NCO OCO^OJOOrH^T^CO'OOr-iiOCO-^OO'tii-HOCO'-i-rticOCJOCO-^-^'-HO .eooTfo>i>t*iQOoSic5oioeoooo '-'- ^i-iiO(rOO'-iCCOi-l(NOOO^fiCs|-^iO5i-iCCCOiOt^-Tt l> rH O 10 * O ^H --1 IN 00 <> rH Oi IN iO KCS 3 C<3r^ fl H * T' i-HOi^CO l GCIOC01 (l >-TT'- OOC>if3C300(Nt-rtt03'-l'SCDeCT-iT-i )^HT^C s J l O"<^Tti-HCOGOi-H^OOrHOCOCOiO*Cl s '^C^C&'^ "i-T N COi-^OO i : 11 rH N 3 a *o M a 05" c oo Illflll flttl 3 MJ9 : 1* g JOINT LEGISLATIVE COMMITTEE ON TAXATION 287 APPENDIX E IV TABLE SHOWING THE AMOUNT OF THE $38,000,000 INCOME TAX THAT WOULD BE RETURNED BY THE STATE TO EACH COUNTY, IF THIS TAX WERE APPORTIONED TO EACH COUNTY ACCORD- ING TO THE RATIO OF THE ASSESSED VALUE OF REAL ESTATE IN THE COUNTY TO THE AGGREGATE ASSESSED VALUE OF REAL ESTATE IN ALL THE COUNTIES. COUNTIES Assessed value of real estate, including village property, real estate of cor- porations and special fran- chises Percentage such assess- ment for each county is of the entire assessment for the State Amount of the $38,000,000 yield of the income tax allocated to each county Albany $135,306,349 Per cent 1 2 $456 000 21 229 483 19 72 200 50 121 967 44 16 720 Cattaraugus 35,174 263 31 117 800 41 389 501 37 140 600 Chautauqua 61,185,310 54 205 200 Chemung 34,595,626 31 117 800 16 472 864 14 53 200 Clinton 10,018,340 08 30,400 26,561 393 23 87 400 Cortland 17 012 221 15 57 000 Delaware 15,738,848 14 53,200 66 010 836 59 224 200 Erie 407 595 886 3 65 1 387 000 Essex 14,851,302 13 49,400 Franklin 13,050 904 11 41 800 Fulton 16 456 624 14 53 200 Genesee 28,040,502 25 95,000 12 737,958 11 41,800 Hamilton 4,916,732 044 16,720 Herkimer . . 34,877,231 31 117,800 46 354 589 41 155,800 Lewis 10,970,233 0.09 34,200 Livingston . . 27,240,601 24 91,200 21,234 613 19 72,200 Monroe Montgomery 271,783,213 29 , 857 , 687 2.43 26 923,400 98,800 105,222 041 94 357,200 New York (Greater) [including Bronx, New York, Kings, Queens and Richmond coun- ties] 8,049,859 912 72 22 27,443,600 Niagara 75,606,856 81,264,851 0.67 72 254,600 273,600 182 864 850 1 64 623,200 Ontario 35,792,695 0.32 121,600 53,978,477 48 182,400 28,078 172 25 95,000 Oswego 33,521,007 0.30 114,000 Otsego 24,256,890 0.21 79,800 Putnam 13,707,606 0.12 45,600 Rensselaer 83,081,895 0.74 281,200 Rockland 33,302,423 29 110,200 Saint Lawrence 45,787,133 0.41 155,800 Saratoga . . . . 28,178,422 0.25 95,000 64,953,520 0.58 220,400 Schoharie 11,724,504 0.10 38,000 Schuyler 6,723,745 0.06 22,800 17,078,374 15 57,000 Steuben 43,480,842 0.39 148,200 Suffolk 92,063,939 0.82 311,600 Sullivan . . 7,119,881 0.06 22,800 288 STATE OF NEW YORK APPENDIX F IV Concluded COUNTIES Assessed value of real estate, including village property, real estate of cor- porations and special fran- chises Percentage such assess- ment for each county is of the entire assessment for the State Amount of the $38,000,000 yield of the income tax allocated to each county Tioga . $13,860,147 Per cent 12 $45 600 Tompkins 20,641,257 18 68 400 Ulster 32,904,296 29 110 200 Warren 16,012 611 14 53 200 20,462,596 18 68 400 Wayne 32,654,979 29 110 200 Westchester 389,896,028 3 49 1 326 200 19,795,811 17 64 600 Yates 11,610,176 0.10 38 000 Total $11,146,271,012 99,734 $37 898 920 . JOINT LEGISLATIVE COMMITTEE ON TAXATION APPENDIX F V ESTIMATE OF POSSIBLE YIELD OF STAMP TAXES ON CHECKS, NOTES, BILLS OF EXCHANGE AND OTHER LEGAL INSTRUMENTS IN NEW YORK STATE For the purpose of estimating the possible yield of stamp taxes in New York State the Committee caused to be made a study of the following : first, the stamp taxes in France, Germany and the United Kingdom; and second, the Federal stamp taxes in the United States (a) during the Civil War, (b) during the Spanish- American War and (c) under the present Federal Emergency Revenue A,ct. With few exceptions, the data obtained concerning France, England and Germany was of little value for purposes of estimat- ing the possible yield of such taxes in the United States. The taxes in these countries are levied upon many miscellaneous sources, and a number of these important sources is already reached in the State of New York by other forms of taxation. With the exception of a few of the German figures the Committee found it impossible to use the foreign figures for even an approximate estimate. Out of the complexity of the German system we may select the follow- ing figures as offering the easiest basis of a comparison. The total revenue receipts from bills of exchange, promissory notes, etc., in all Germany (Federal Tax) are as follows: 1909 $4,661,250 1910 4,684,250 1911 4,670,250 1912 4,865,250 1913 4,780,500 The total revenue receipts from the tax on checks in all Ger- many (Federal Tax) was as follows: 1909 $751,000 1910 890,000 1911 777,250 1912 779,500 1913 784,000 10 290 STATE or NEW YORK Because of the complexity of the German rates it is impossible to estimate even with rough accuracy what such a tax might yield in New York State. In considering the above tables it should, of course, be borne in mind that the amount of revenue in each case represents the aggre- gate for the entire German Empire. In any case New York State could not hope to obtain an amount representing anything like the yield of the German tax upon these particular sources. CIVIL WAR STAMP TAXES During the Civil War, the Federal Government levied stamp taxes upon the following fifteen miscellaneous sources : First: Agreement of contract, 5c. Second: Bank checks, 2c. Third: Bills of exchange, inland, varying from 5e, upon bills of $100, to $1.50 upon bills from $2,500 to $5,000. Fourth : Foreign bills of exchange at approximately same rates as inland. Fifth: Bills of lading, lOc. Sixth: Express company receipts, Ic and 2c. Seventh: Bonds, 50c. Eighth: Certificates of stock from lOc upward. Ninth: Charter party $3.00 to $10.00. Tenth: Broker's note, lOc. Eleventh: Conveyance of deed varying from 50c when con- sideration is less than $500 to $20, when consideration is $20,000. Twelfth: Telegraphic dispatch from Ic to 3c. Thirteenth: Lease, 50c to $1.00. Fourteenth: Power of attorney, 25c. Fifteenth: Probate of will, 50 cents to $1.00. In addition to the above taxes we also levied upon entry of goods at customs house, life insurance policies, marine insurance policies, protest and other legal documents. The yield of these taxes from 1863 to 1870 is given below, in round numbers, and, for purposes of comparison, the yield of the Federal Income Taxes for the same years: JOINT LEGISLATIVE COMMITTEE ON TAXATION 291 Year Stamp Taxes Income Taxes 1863 . . . . $4,100,000 $455,000 1864 5,900,000 14,900,000 1865 11,200,000 20,600,000 1866 15,000,000 60,900,000 1867 16,100,000 64,900,000 1868 14,900,000 34,100,000 1869 15,000,000 34,600,000 1870 15,600,000 36,600,000 No record has been kept of the yield of the stamp taxes by states. However, a very rough idea of this yield in New York State may be obtained by comparing it with the yield of other federal taxes in New York State. The following table shows the percentage of the total yield of the Federal Income Taxes and of the Internal Revenue Taxes collected in New York State; Year Income Taxes 1864 33 per cent. 1865 30 per cent. 1866 30 per cent. 1867 31 per cent. 1868 30 per cent. 1869 31 per cent 1870 28 per cent. Internal Revenue Taxes 24 per cent. 24 per cent. 24 per cent. 24 per cent. 22 per cent. 25 per cent. 22 per cent. Average 31 per cent. 24 per cent. From the above it would seem fair to assume that New York's share of the total amount raised by the Federal Government from stamp taxes would be not less than 24 per cent, at that time. This percentage is, of course, of no importance except as it may be used to check up later estimates of the percentage of the Spanish War taxes collected in New York State. 292 STATE OF NEW YORK STAMP TAXES LEVIED DURING THE SPANISH-AMERICAN WAR PERIOD During the Spanish-American War, the Federal Government levied stamp taxes on the following twenty-one miscellaneous sources; bonds, certificates of stock, sales or agreements to sell, bank checks, certificates of deposits, bills of exchange, bills of lading, telephone messages, indemnity bonds, certificates of pro- test, brokers' contracts, conveyances, telegraph dispatches, various forms of insurance, leases, manifests for customs house entry, mortgages, foreign steamship tickets, power of attorney, protests and warehouse receipts. With few exceptions the sources taxed, as well as the rates, were substantially the same as the Civil War taxes. In a few cases the Civil War taxes were higher than the Spanish-American War taxes. The total yield of these taxes for the entire country for the years 1898 to 1901 were as follows: 1898 $724,073 *1899 38,618,081 1900 36,416,082 1901 34,998,836 As in the case of the Civil War stamp taxes, no record has been kept of the yield of the stamp taxes for this period by states. We may, however, roughly approximate the yield of these taxes in New York. In the following tables we give the total internal revenue col- lected in the United States, the amount collected in New York State, and the percentage of the total collected in New York State for the years 1895 to 1903: Internal Revenue Internal Revenue Per cent collected Year United States New York in New York 1895 $143,246,077 $19,090,723 13 per cent. 1896 146,830,615 21,620,471 15 per cent. 1897 146,619,593 18,420,767 13 per cent. 1898 170,866,819 21,058,569 12 per cent. * The taxes went into effect July 1, 1898. JOINT LEGISLATIVE COMMITTEE ON TAXATION 293 Internal Revenue Internal Revenue Per cent collected Year United StaUs New York in New York 1899 273,484,573 46,634,981 17 per cent. 1900 295,316,108 46,475,135 16 per cent. 1901 306,871,669 49,789,698 16 per cent. 1902 271,867,990 38,694,831 14 per cent. 1903 230,740,925 26,749,648 12 per cent. An examination of the above table discloses the fact that the total internal revenue receipts increased after the imposition of the war taxes by approximately $100,000,000. . This increased yield was due not only to the stamp taxes, but also to the increased rates upon the normal sources of internal revenue. At best we can attribute not more than $75,000,000 of the increase to the federal stamp taxes. The percentage of the total revenue taxes collected in New York from 1895 to 1903 averaged about 13 per cent. If we assume that this percentage would hold for that part of the internal revenue taxes collected from the stamp taxes the yield of stamp taxes in New York State during the Spanish-American War period would have been about $10,000,000. This estimate is probably too high, and at best it can be said to be only very rough. STAMP TAXES UNDER THE FEDERAL EMERGENCY REVENUE ACT The present Emergency Revenue Law imposes stamp duties on the following fifteen miscellaneous sources : I. Documents Subject to Stamp Duties and Rates 1. Bonds, debentures or certificates of indebtedness on each $100 face value or fraction thereof 5c 2. Sales or agreements to sell per $100 face value. ... 5c 3. Sales of products at exchanges per $100 Ic 4. Promissory notes: Not exceeding $100 2c Each additional $100 2c 5. Express or freight shipments on manifest or bill of lading Ic 6. Telegraph and telephone messages : Where charge is over 1.5 cents Ic 294 STATE OF NEW YORK 7. Indemnity bonds 50c 8. Certificates of profits per $100 face value 2e Of marine damages. . . 25c Of any other description lOe 9. Contract, brokers' note or memorandum of sale of any goods or merchandise, stocks, bonds, etc lOc 10. Conveyances of real property, when consideration is greater than $100 and less than $500 50c For each additional $500 50c 11. Custom house entries when value of goods is less than $100 25c Between $100 and $500 50e Entry or withdrawal of any goods from bonded ware- house 50c 12. Foreign Passage Tickets: Exceeding $10 in value $1 00 Between $30 and $60 300 Greater than $60 5 00 13. Power of attorney or proxy lOe General power of attorney 25c 14. Protest 25c 15. Seats in palace or parlor car le The yield of these taxes for the period beginning December 1, 1914 and ending June 20, 1915 was $20,494,475. This covers of course only seven months. Assuming that the tax will continue to yield at the same rate we should receive for the entire year approximately $35,000,000. Assuming that the New York per- centage of the total internal revenue receipts during the Spanish War period would hold for the present Federal Emergency Revenue Tax, namely 16 per cent., we may estimate that stamp taxes equivalent to the present federal stamp , taxes would pro- duce approximately $5,600,000. CONCLUSIONS TO BE DRAWN FROM THE ABOVE. In attempting to use the statistics of the yield of stamp taxes of France, England, Germany, and the Civil War period in the United States we found so many conditions substantially different from those in New York at the present time that it was necessary JOINT LEGISLATIVE COMMITTEE ON TAXATION 295 to make so many assumptions as to vitiate the value of our esti- mates based upon these sources. We must fall back, therefore, upon the results of the Spanish- American War taxes and the pres- ent Federal Emergency taxes. We find that in 1898, under one of the most drastic stamp duties ever imposed, New York's share of the total collection could not have exceeded $10,000,000. Since stamp duties imposed by the State could never hope to cover such a broad range of items, it would be too much to hope that the State of New York could raise as much as $10,000,000. Should the State duplicate the present Federal Emergency Revenue Act it could not hope to raise more than $5,600,000. 35625 679528 UNIVERSITY OF CALIFORNIA LIBRARY