1- L IOWA ECONOMIC HISTORY SERIES EDITED BY BENJAMIN F. SHAMBAUGH TAXATION IN IOWA IOWA ECONOMIC HISTORY SERIES EDITED BY BENJAMIN F. SHAMBAUGH HISTORY OF TAXATION IN IOWA BY JOHN E. BRINDLEY ASSISTANT PROFESSOR OP POLITICAL ECONOMY AT THE IOWA STATE COLLEGE OF AGRICULTURE AND MECHANIC ARTS VOLUME I PUBLISHED AT IOWA CITY IOWA IN 1911 BY THE STATE HISTORICAL SOCIETY OF IOWA ■> > J * « <#ti J * J ) 17 3 1 » J > * 9-> ' .*^'. 'r-t EDITOR'S INTRODUCTION The writing of a history of taxation in Iowa is not an ^ easy task; indeed, it involves many difficult problems ^ both of research and of presentation. From beginning to end the scientific investigator is really embarrassed ^ by a superabundance of materials. The statute books Hof the Territory and State, the journals of the legis- lature, the messages of Governors, the reports of Audi- tors and Treasurers, the reports of special commissions, the decisions of courts, the financial reports of counties, ;1 special and miscellaneous public documents, and tons of newspapers yield a richness of data that is invit- ing and at the same time appalling. The facts and sta- '^ tistics of industrial and economic developments, cover- ^ ing nearly three quarters of a century, are equally ^ abundant and far more difficult to obtain. The prob- •^ lems of handling such masses of detailed information ^ fully, accurately, and without confusion can only be ap- preciated by those who have successfully carried to jSgompletion similar investigations. ^ But the problems of historical research are not the ^only difficulties which confront the writer of such a history of taxation as has been produced by Professor Brindley. Underlying the statute and code provisions, the reports of public officials, the decisions of courts, and the facts of industrial life are fundamental eco- nomic principles and theories which must not only be Vll 280840 viii EDITOR'S INTRODUCTION seen and appreciated by the investigator but by him also successfully handled as scientific interpretations of the facts of history. And of no less importance are the problems of politics and administration involved in the actual workings of the machinery of assessment, equali- zation, and collection. Moreover, the opportunities for utilizing and making practical application of the results of historical re- search are perhaps nowhere more promising than in the field of fiscal legislation and administration. Nowhere, indeed, are there to-day greater opportunities for the science of Applied History than in the solution of the complex problems of tax reform. At the same time there is no line of reform that is more difficult and perplex- ing, since from the very nature of the problems involved the whole subject is one which is too often handled with prejudice, or partisanship, or from the standpoint of selfish interest. Indeed, any program of tax reform is sure to be more or less unpopular and meet with opposi- tion simply because the subject of taxation is affected with so much individual self-interest. The small tax- payer will undoubtedly favor much needed reforms in regard to the taxation of public utility and other corpo- rations and demand that they may be compelled to bear their just share of the burdens of the State; but the same small taxpayer will probably be shocked when he is told that tax reform means that he too must clear himself of dishonesty and perjury — especially in re- porting moneys and credits. Effective tax reform will consist not simply in perfecting the machinery of as- EDITOR'S INTRODUCTION ix sessment, equalization, and collection, but in arousing a public conscience which will demand an honest dec- laration of property from big and little property hold- ers alike. This work on the History of Taxation in lotva might have been concluded with Chapter XXIII, but for the fact that underlying the loiva Economic History Series is the conviction that history not only can but should be applied in the solution of the practical problems of social life. And who is better able to suggest a program of tax reform than the disinterested student who has de- voted years to the historical and critical study of the subject of taxation? . And so the author of this work was especially urged by the editor of the series to pre- pare Chapter XXIV on Historical Analysis of the loiva Revenue System and Chapter XXV on Comparative Study and the Problem of Tax Reform in lotva. All who are really interested in the practical solution of the problems of taxation in Iowa from the standpoint of the public welfare will welcome the results of Profes- sor Brindley's painstaking investigations. In all es- sential points Professor Brindley's work will be found to be complete, accurate, and the product of disinter- ested scholarship. Beitj. F. Shambatjgh Office of the Superintendent and Editor The State Historical Society of Iowa Iowa City 1910 AUTHOR'S PREFACE The subject of taxation as presented in these volumes has been treated essentially from the standpoint of his- torical research ; and for that reason, the work is logically included in the publications of The State Historical Society of Iowa. While the facts outlined in the narrative consti- tute a study in public administration, the monograph con- sidered as a unit is first of all a contribution to Iowa history. It has seemed logical and desirable to arrange the work in four divisions or parts. Part I deals exclusively with the so-called general property tax, it being presumed that an historical survey of the machinery of administration for the work of assessment and equalization on the one hand and the levy and collection of taxes on the other is a necessary introduction to a thorough study of the many complex questions which arise in the field of State and local taxation. Parts II and III comprise an historical and critical review of certain special problems in taxation. In most, if not all, cases these problems are directly or indi- rectly connected with the general property tax ; and in fact, some chapters are simply more specific statements con- cerning certain elements of that important tax. Part IV gives, first, an historical analysis of the Iowa revenue sys- tem, and second, a brief comparative study of the experience in other States, which, taken together, form the corner-stone of scientific tax reform, based as it should be upon the laws of fiscal evolution. xi xii AUTHOR'S PREFACE The History of Taxation in Iowa thus outlined, and embracing twenty-five chapters of text, twelve hundred and forty-eight notes and references, and four appendices, has been written primarily for the benefit of the people of Iowa in the hope that it may be of service to them in the gradual solution of the great problem of equal and uniform taxa- tion. At the same time, an earnest effort has been made to make the work complete and accurate from the stand- point of historical research as well as scientific from the standpoint of public administration and public finance. Manifestly an historical study of taxation may be made according to two essentially distinct methods of investi- gation. On the one hand, a few leading and generally ac- cepted ideas, having the stamp of age and authority — such as the unqualified condemnation of the general property tax, the contention that the personal property tax is the greatest of all ''fiscal abominations", the imperative ne- cessity of an elaborate classification of property for pur- poses of taxation, the separation of revenue sources, ''home rule" in taxation or distribution on the basis of expendi- tures — may be woven into a more or less hasty review of tax laws, including perhaps an occasional executive docu- ment or court decision, and the product called a financial or tax history. On the other hand, the facts of revenue history may be diligently collected and impartially sifted without being colored and warped out of their true relationship by pre- conceived opinions or approved economic theories, the mo- tives of men and perhaps sections or economic groups fearlessly examined, arguments for and against a particular reform carefully weighed, in fact a thorough historical and comparative study made in order to distinguish between AUTHOR'S PREFACE xiii those elements of the present revenue system which are out- worn and useless and those which are permanent and vital. In other words, one may endeavor to make the facts har- monize with orthodox opinions, or adopt the scientific but more arduous task of frankly recognizing all the facts and reshaping theory itself, when it becomes necessary, in an effort to formulate a more accurate and comprehensive expression of the truth. In these two volumes on the History of Taxation in Iowa an earnest effort has been made to follow the latter course and thus meet the first requirement of The State Historical Society of Iowa that whatever is published under its aus- pices should be the product of genuine scientific historical research. These considerations explain the length of the mono- graph; the numerous quotations in the text from laws, executive documents, newspaper files, court decisions, and other sources; the extensive notes and references; and finally, the extensive appendix. While the author has some ideas of his own, which he has not hesitated to express in Chapters XXIV and XXV of Volume II, he has aimed to avoid even the appearance of dogmatism, and for that rea- son has made the references to source material fairly com- plete so as to enable the reader to verify the statements in the text and to form independent judgments. It will be generally conceded that the true solution of any great political, social, or economic question must be evolu- tionary and not revolutionary — in other words, it should be judiciously approached from the standpoint of the his- torical method. For example, scientific tax legislation in Iowa is possible only on the basis of a true history of the revenue system coupled with a critical study of the ex- xiv AUTHOR'S PREFACE perience of other States. But while this truth will be al- most universally recognized, especially by the so-called his- torical school of economists, the reformer or even the trained economist seldom takes the trouble to make a thor- ough and impartial investigation of facts. The author desires to state, however, that the preparation of this monograph was not undertaken for the purpose of advocating any particular plan of reform. On the contrary, he began work more than two years ago reasonably con- vinced that the general property tax is a miserable failure, that the personal property tax should be abolished, that moneys and credits should be entirely exempted from tax- ation, and finally, and that the principle of the separation of revenue sources is a necessary asset in any successful program of State tax reform. In the course of the investi- gation, fundamental changes in these views have been im- perative in order to make them harmonize with conditions as they are in a real not a fictitious environment. Among other things it has been discovered (1) that the breakdown of the general property tax is primarily from the standpoint of administration, the logical and only rem- edy for the same being a permanent tax commission and the gradual evolution of a more centralized and efficient sys- tem of assessment; (2) that while substitutes should grad- ually be found to take the place of the worn-out personal property tax, it is necessary to approach this task with great caution and make haste slowly; (3) that the underly- ing principle of general property taxation (assessment at full value) is sound from an historical, legal, and economic standpoint, and therefore may reasonably be expected to endure; and (4) that the principle of segregation as gen- erally advocated has no logical place in a system of central- AUTHOR'S PREFACE xv ized assessment, but that in lieu of this principle a clear line of demarcation should be drawn between local and non- local property or business for purposes of taxation in order to insure equality and uniformity of taxation as between the various taxing districts of the State. It will be observed that public expenditures and public debts, also special assessments and the fee system, are not treated in these volumes. These are proper subjects for separate historical monographs which may be published at some future time by The State Historical Society of Iowa. In fact public revenues, public expenditures, and public debts, are the distinct and logical subdivisions of a general work on public finance. As to fees and special assessments, they are not taxes in either a legal or an economic sense, and for that reason should not be included in a history of taxation. In the preparation of the manuscript, recognition should first be made of the able and helpful services of Professor Benj. F. Shambaugh, Superintendent of The State Histor- ical Society of Iowa. On the one hand, the amount of routine work required has been materially decreased by the efficient laboratory of historical research created by years of patient and careful labor on the part of Professor Shambaugh; and, on the other hand, through numerous conferences, the author has received valuable suggestions as to the arrange- ment of material and form of presentation. Any research worker by cooperating with The State Historical Society of Iowa can at least double the efficiency of his labor, thus saving his own time while the expense to the State through wise correlation of effort is reduced to a minimum. Professor B. H. Hibbard, Head of the Department of Eco- nomics and Political Science at the Iowa State College of xvi AUTHOR'S PREFACE Agriculture and Mechanic Arts, made the original sugges- tion regarding the present system of unjust railway tax distribution in the rural districts, stating that the same would be a fruitful and important field of investigation. Professor Hibbard and Professor L, B. Schmidt have also kindly read the proof sheets and made a number of helpful criticisms. The author is likewise under obligation to former Gov- ernor "William Larrabee of Clermont, who has supplied val- uable source material from his own private collection and has given helpful advice as to certain parts of the manu- script. Much original data has also been obtained through the courtesy of Mr. A. H. Davison, Secretary of the Execu- tive Council. The Iowa Tax Revision Association, and the Association of Iowa Tax Ferrets have also contributed much valuable information. For a careful reading of the proof sheets and for the compilation of the index the author is indebted to Dr. Dan E. Clark, Assistant Editor in The State Historical Society of Iowa. John E. Brindley The Iowa State College of Ageiculture and Mechanic Arts Ames 1910 CONTENTS PART I THE GENEEAL PEOPERTY TAX I. The Territorial Period 1838-1846 ... 3 II. The Period of the First (Constitution 1846- 1857 23 III. Administrative Decentralization 1857-1872 . 45 IV. Administrative Failure of the General Prop- erty Tax 1873-1910 70 V. Statistical Study of the General Property Tax 106 PART II SOME SPECIAL PROBLEMS IN TAXATION VI. The Taxation of Banks 145 VII. The Taxation of Insurance Companies . . 163 VIII. The Taxation of Express Companies . . . 181 IX. The Taxation of Telegraph and Telephone Companies 201 X. The Inheritance Tax 223 XI. Poll and License Taxes 251 XII. Tax Exemptions 259 XIII. Tax Limitations 274 XIV. The Taxation of Moneys and Credits . . 282 XV. The Tax Ferret System 310 Notes and References 359 Index 475 XVI 1 PAET I THE GENERAL PROPERTY TAX THE TERRITOEIAL PERIOD 1838-1846 The present State of Iowa was a part of the Territory of Michigan from 1834 to 1836 and of the original Territory of Wisconsin from 1836 to 1838, the separate Territory of Iowa being set apart by the provisions of an act of Con- gress approved June 12, 1838.^ Accordingly, the system of taxation which prevailed in early Iowa was, first, that of the Territory of Michigan, and second, that of the original Territory of Wisconsin. This system, dating back to the beginning of the Michigan Territory in 1805 and borrowed for the most part from the older States, especially Ohio and Virginia, embraced such important elements as license taxes, the general property tax, county assessment, and a fiscal administration which was almost entirely ex officio in its personnel. These elements, moreover, clearly charac- terize the revenue acts passed by the original Territory of Wisconsin and copied almost verbatim by the first Legisla- tive Assembly of the Territory of Iowa, the general reve- nue for the Territory in both cases consisting of five per cent of the gross amount of taxes received in the various counties.^ When the separate Territory of Iowa was established the legislative power, which embraced direct control of taxation, was vested in the Governor and a Legislative Assembly. The Assembly was composed of a Council of thirteen members and a House of Representatives of twen- ty-six members, elected by the people. Congress, however. 4 HISTORY OF TAXATION IN IOWA retained the power to veto Territorial legislation by pro- viding that "all the laws of the Governor and Legislative Assembly shall be submitted to, and if disapproved by, the Congress of the United States, the same shall be null and of no effect." According to the provisions of the Organic Act the leg- islative power of the Territory was made to include ''all rightful subjects of legislation". In matters of taxation only two restrictions were placed on the Legislative As- sembly: first, "no tax shall be imposed upon the property of the United States;" and second, "nor shall the lands or other property of non-residents be taxed higher than the lands or other property of residents."^ The first restric- tion is still universally imposed upon all States and Terri- tories, it being held by the Supreme Court of the United States that no State, Territory, or minor political unit can tax the instrumentalities of the general government. The second restriction, however, as we shall note later has been so loosely interpreted as to violate practically all rules of interstate comity in taxation. Pursuant to the call of Governor Lucas the first Legisla- tive Assembly of the Territory of Iowa met at Burlington in November, 1838. Among other acts provision waS" made by this Assembly for a county and Territorial revenue sys- tem. While much of the Territorial budget was provided for by appropriations from the Federal treasury, the bur- dens of local administration and a portion of the Territorial expenses were borne by the resident taxpayers. Machinery for the levy and collection of taxes had, therefore, to be pro- vided by Territorial enactment. The result was the pas- sage of two acts: first, "An Act for assessing and collect- ing county revenue", approved January 24, 1839; and sec- ond, "An Act to provide for a Territorial Eevenue", ap- proved January 25, 1839.^ These acts, moreover, were al- most exact copies of acts which had been passed one year THE TERRITORIAL PERIOD 5 earlier by the Legislative Assembly of the original Terri- tory of Wisconsin. The measure entitled "An Act for assessing and collect- ing county revenue" is basic and fundamental, and should, therefore, be carefully studied. By the provisions of this act the county was made the unit for the levy and collection of the general property tax — a function which it still per- forms. The act declares "that for the purpose of raising a revenue for county purposes, the board of county com- missioners shall levy a tax on all lands, town lots, and out lots, with the improvements thereon ".''' Following this are provisions concerning exemptions, license taxes, and a poll tax, all of which will be discussed in separate chapters.^ Pro- vision is made also for one county assessor to be elected an- nually at the time and place of holding the election for county commissioners. He is required to give bond and take an oath to be administered by the clerk of the board of county commissioners, said board being given power to fill all vacancies which may occur. The assessor so elected and qualified is required to deliver to the board of commis- sioners on or before the first Monday in July thereafter a full and complete assessment roll. The description of prop- erty contained in the assessment roll and the duties of all ofiicials are carefully outlined.'^ On the last Monday in June the assessor is required to attend at the office of the clerk of the board of county com- missioners, and with the aid of said clerk to correct any errors or omissions in the assessment roll. The roll thus corrected is accepted and filed in the clerk's office to remain on record as a guide to future assessors. The compensation of assessors is fixed by the boards of county commissioners in their respective counties at such sums "as to them shall seem just and reasonable". The law, however, provides that deductions may be made from the sums thus paid on account of taxes collected from unassessed property. 6 HISTORY OF TAXATION IN IOWA From the assessment roll as corrected and filed, the board of county commissioners proceed to determine the tax rate at their session in July of each year.^ The total amount of property and rate of tax being determined, it becomes the duty of the clerk to calculate and carry out the amount of taxes opposite to the specified property, lots, or lands charged with tax. The tax roll being completed in dupli- cate, one copy is filed with the county treasurer and the other, together with a precept in the name of the Territory, is delivered to the county collector. The sheriff who is made the county collector by the terms of the act is re- quired to pay over all moneys collected by him and return the precept, together with the transcript of the tax roll and a full account of his official acts, to the clerk of the board of commissioners on or before the first Monday in January.*^ Collection of taxes must, therefore, take place between some time in July and the first Monday of the fol- lowing January. The remaining provisions of the act outline the method of selling property for delinquent taxes, the redemption of such property, tax deeds, and various other allied sub- jects. Taxes are made "a lien on the lands, or town lots, on which they may be due, in whosesoever hands such lands, or town lots, may come".^*^ The collector is author- ized to receive orders regularly drawn upon the treasury of his county in payment of taxes. He is also entitled to certain fees stipulated in the act,^^ and is given the right to appoint as many deputies as he may think necessary or proper, who are in turn given full power and authority, the collector being held responsible for their acts. The con- cluding sections outline in detail the subject of licenses.^- The second act under consideration, entitled "An Act to provide for a Territorial Eevenue", is composed of only four short sections.^ ^ The act is what the title indicates and provides that five per cent of the gross amount of taxes THE TERRITORIAL PERIOD 7 charged on the assessment roll shall be set apart by the county commissioners as a debt due the Territory. Each county is required to furnish the Treasurer of the Terri- tory with a statement of such debt together with a dupli- cate assessment roll. In conclusion the act specifies that the amount due the Territory shall be retained by the treas- urer of each county and paid from ''the first moneys which may be returned by the collector". The various county treasurers and their securities are made liable for any losses which may accrue. A brief study of these companion acts will convince the reader that they are still in a very real sense the basis of the jDresent revenue system of Iowa. While many changes have been made to meet new conditions, the fundamental outlines of our revenue system have remained much the same. To make this point clear it is only necessary to re- call the distinctive features of the acts. Taxes were levied by a county board of commissioners, assessed by a county assessor, and collected by a county collector and his depu- ties, a portion thereof being paid into the treasury of the Territory. From a fiscal standpoint the county was thus made the important unit of government by the first Legis- lative Assembly, and in the levy and collection of taxes it has so remained to the present time. While the county plan of assessment has been supplanted by that of the township or precinct, the county still has in charge the col- lection of taxes, and through its board of equalization ex- ercises a certain supervision over assessment. At the next session of the Legislative Assembly (1839- 1840) an act was passed providing for the annual election of a county treasurer. It is made his duty "to receive all moneys due and accruing to the county, to pay and dis- burse the same on orders drawn by the board of county commissioners .... and not otherwise".^'* In addition he is required to make an annual settlement of his accounts 8 HISTORY OF TAXATION IN IOWA with the board of county commissioners and to collect de- linquent taxes. By the provisions of an act approved January 14, 1840, important changes were made in the revenue system of the Territory.^ ^ The taxation of improvements on land had met with criticism from the actual settlers who held that such taxes did not fall on the non-residents who, it was claimed, were holding lands for purposes of speculation.^^ The sentiment against this form of speculation was strong enough to control the Legislative Assembly. Accordingly, an act was passed providing that assessment be made on the value of the land without taking into consideration the improvements thereon. The county commissioners were also given power to extend the time granted the collector for filing his report "to such period as they may deem re- quisite". That part of the earlier act which required the sheriff or collector to make his report on the first Monday in January was repealed, it being enacted in lieu thereof ' ' that it shall be the duty of said sheriff or collector to pay over to the county treasurer the sums collected for taxes as fast as he shall receive the same". The assessor was given the power, when deemed necessary, to appoint a deputy assessor upon the approval of the county board. In conclusion this important act contains a provision of special interest to the student of fiscal administration. If an assessor had reason to believe that any person was not making a true statement of his or her property subject to taxation, he was empowered at his discretion "to swear such person to give a true account of the quality and quan- tity of such property, according to the best of his or her knowledge and belief ".^'^ In case of refusal thus to testify the assessor had the authority to ascertain the amount of taxable property from the best information to be derived from other sources.^ ^ The revenue system established by the first Legislative THE TERRITORIAL PERIOD 9 Assembly and amended as above indicated soon proved, however, to be defective. Governor Kobert Lucas in his third annual message called attention to the necessity of adopting a regular financial system for the Territory, and recommended the creation of such a system as would dis- tribute the burdens and benefits of taxation ''upon prin- ciples of exact justice to all."^^ A few days after this message was submitted the Auditor placed before the Leg- islative Assembly a very intelligent discussion of the sub- ject of revenue reform. After referring to the many ex- penses not borne by the Federal government, he says: "It certainly cannot be deemed otherwise than correct policy to levy upon correct principles, a Territorial Tax, the burthen of which shall be equal upon all classes of citi- zens. "^^ Two important criticisms were made of the existing revenue law. First, it was held that the Territorial tax of five per cent, being levied on the gross tax receipts of the various counties, was "regulated entirely by the necessities of the respective counties ' ', and was, therefore, not equally distributed. In some counties a heavy tax might be found necessary, while in others, a comparatively light tax would be sufficient for county purposes. The discussion of these provisions recalls to mind the method of "distribution by expenditures" now being advocated by a number of tax re- formers. In the second place, it was claimed that many of the counties would not be able to pay the per cent of tax for Territorial purposes for the reason that county orders outstanding and receivable in payment of taxes were fre- quently greater in amount than the actual tax assessed. This the Auditor alleged could be remedied by levying a Territorial tax directly on property as such and requiring the same to be paid in money.-^ In the act which passed the Legislative Assembly and was approved January 15, 1841, at least one important 10 HISTORY OF TAXATION IN IOWA change was made. The agitation in favor of a regular mil- lage tax for the Territory resulted in the enactment of the provision: "that there shall hereafter be levied and col- lected on all taxable property within this Territory, one quarter mill's per cent, on the value thereof, for Territory purposes."-- This meant the repeal of that part of the act of 1839 which set apart five per cent of the gross taxes levied in each county as revenue for the Territory. The change thus made has remained a permanent part of our fiscal system. The agitation for reform, however, continued. While the rate of taxation was low in pioneer Iowa, it was fre- quently impossible to obtain ready cash, and the payment of a small tax was thus made a serious burden. An exam- ination of early documents reveals this condition.-^ The Territorial Agent reported in 1841 that the only resources he had for continuing work on the Capitol consisted of notes given in payment for lots in Iowa City amounting to $18,282.75. The excess of expenditures over receipts was $4,385.60 ; and arrearages incurred on the Capitol amounted to $5,214.91 in outstanding certificates and $5,500 in loans. In his report of December 1, 1842, the Territorial Agent again complains in terms more emphatic.-^ It was neces- sary to contract debts in anticipation of collections and to keep supplies on hand to meet daily wants because the scrip made payable to the bearer and based exclusively upon unsold lots in Iowa City would neither pass with the mer- chants for goods nor be received by the farmers for pro- visions.-^ The Agent refers to a draft of $507 as "more than one half of the actual cash handled by me through the season". Governor John Chambers, speaking of a pro- posed Territorial tax for building a penitentiary, in his message of December 7, 1842, declares that "such a tax, in addition to the contributions demanded of them for indis- pensable county purposes, would operate with a degree of THE TERRITORIAL PERIOD 11 severity which, it is feared, the Representatives of the States in Congress do not justly appreciate".-" These de- tails are mentioned in order to impress upon the reader the actual economic conditions existing in pioneer Iowa when the historical foundations of our present revenue sys- tem were being laid. Early in January, 1843, the Legislative Assembly, in re- sponse to urgent public demands, began in earnest the work of redrafting the revenue laws. Mr. Hackleman of the Revision Committee introduced into the House of Rep- resentatives a bill for levying and collecting county and Territorial revenue. That the work of the Revision Com- mittee was careless and imperfect is apparent from the content of the law itself and from editorials in The Iowa Standard. When the bill was introduced, an editorial ap- peared giving a digest of its chief provisions. ^^ Among other provisions the gross amount of tax levied for the county and Territory was to be five mills — *'one fourth mill for the use of the Territory". In other words the Ter- ritorial revenue was not to be a percentage of gross tax receipts, but was to be levied on a strict property basis. Land was valued at rates running from one dollar and twenty-five cents to eight dollars per acre. Finally, cer- tain classes of personal property were to be assessed at a fixed arbitrary standard good for five years unless changed by the legislature. The Revision Committee was searching for a proper method of determining the value of real estate and personal property. The problem seemed to puzzle them, as it has continued to puzzle all other legislative committees in Iowa since that time. Had the original bill passed, a rigid, arbi- trary, and unjust scale of valuations would have been en- acted into law. A second Standard editorial, appearing one week later, informs us that "the Revenue bill has been greatly modified in many particulars".-^ 12 HISTORY OF TAXATION IN IOWA Four distinct changes of vital importance are mentioned in the editorial. Taxable property is made to include money, capital of all descriptions, and also all descriptions of stock or corporation shares. The manner of valuing real estate is also entirely changed, lands being valued at rates proportioned to their proximity to navigable streams, water privileges, towns, villages, etc., and their intrinsic worth in other respects and not by an arbitrary scale of valuations as previously proposed. Again all personal property is made taxable at its value in cash. Finally, it was provided that collectors should receive two dollars per day instead of a percentage. "With these changes the bill was placed in the hands of a select committee, with instruc- tions "to amend in such manner that 'it shall establish the principle of assessing all real and personal property at what it shall be worth in cash, including the improvements on claim land, to be assessed as personal property.' "-'' But few changes were made by the select committee in the act as approved February 13, 1843. Nevertheless, the law should be remembered especially for the change from a county assessor to township or precinct assessors. *'At the time and place of holding township elections, for town- ship officers, there shall be elected one assessor for each and every organized township, who shall be a qualified voter, whose term of office shall be one year", and in coun- ties not organized into townships "there shall be one as- sessor elected in each election precinct ".^"^ Provision is also made for the appointment, when necessary, of a depu- ty assessor, whose appointment shall be approved by the township board of trustees. The second point worthy of special attention is the method of valuation of taxable property. It is therein pro- vided that "lands and all town lots shall' be valued at their true value, in cash, with all the improvements thereon, by the present assessors .... with two other persons of good THE TERRITORIAL PERIOD 13 qualifications, to be appointed by the board of county com- missioners .... and when said appraisers are so appointed and qualified as aforesaid, it shall be their duty to attend with said assessor, on the second Monday in June next, at the county seat of said county, then and there to make said valuation as nearly equal as may be, which valuation, when examined and corrected by the board of county commis- sioners, shall be recorded in the clerk's office of said board, and remain as a fixed value for five years ".^^ Again, it is specified that all personal property shall be taxed accord- ing to its true value in cash, as determined by the asses- sor.^- Respecting the subject of property valuations it will be noted that the act itself is very different from the bill as originally drafted and reported. The law further provides that appraisers are to receive two dollars a day, assessors the same compensation, and a collector the following fees for his services: five per cent on all taxes by him collected, except by distress, then ten per cent in addition, and on real estate sold, twenty-five cents for each certificate.^^ The collector is required to make monthly payments to the county treasurer and may arrange to receive taxes either in the respective townships and precincts or at the county seat.^* Regarding the subject of Territorial revenue the act is inconsistent and in fact contradictory in its terms. Section 51 provides a tax of one quarter mill on all taxable proper- ty for Territorial purposes,^^ while section 15 makes the rate half of a mill on the dollar. ^^^ Attention is called to this careless defect by an editorial in The Iowa Standard.^'^ An effort was made, however, to secure more cash for the Territorial treasury by prohibiting the receipt of war- rants in lieu of money. To remedy the difficulties of obtain- ing money it was enacted that no collector ''shall hereafter be allowed to purchase any warrant issued by the auditor, or any draft heretofore issued by the territorial treasurer 14 HISTORY OF TAXATION IN IOWA upon any county treasurer in this Territory, with a view of paying the same into the territorial treasury in lieu of money collected or received on account of the Territory ".^^ In short, three important objects were accomplished by the act : first, a township system of assessment was established ; second, a Territorial tax was levied on the basis of proper- ty in the respective counties; and finally, the payment of Territorial revenue in cash was required. It is needless to say that this law was unpopular and unsatisfactory from the beginning. The people at once de- manded its repeal. At the opening of the next session of the Legislative Assembly (1843-1844) an editorial appeared in The loiva Standard condemning the measure.^'' The As- sembly at once took up the work of drafting a new law, and a bill relating to revenue was reported to the House from the Judiciary Committee.^*^ A later issue of the Standard contains a lengthy discussion of the bill, in which reference is made to the ''complicated and almost incomprehensible provisions" of the old law. ''The bill now before us", says the writer, "is well drawn up, and is less than half the length of the present law"^^ — the truth of which is at once apparent from an examination of the law itself which is systematic, clear, and arranged in six logical subdivisions. On the subject of property valuations the committee was divided. Some of the members held that all real and per- sonal property should be assessed ^' at the cash value there- of at the time of Assessment." The remainder took a dif- ferent view, affirming that ' ' ' All lands shall be valued at the true value thereof in ready money, taking into considera- tion the fertility and quality of the soil, the vicinity to roads, towns, villages and navigable waters; water privi- leges on the same, and all other local advantages, having no reference to improvements thereon'.""*- The measure as finally passed represented the views of both elements in the committee. The section relating to property valuations THE TERRITORIAL PERIOD 15 provided that the "assessment shall be made at the cash value thereof at the time of assessment, taking into con- sideration the fertility and quality of the soil, the vicinity to roads, towns, villages, and navigable waters, water privi- leges on the same, and all other local advantages. "^^ It would seem, however, that the difference between "the cash value thereof" and "the true value thereof in ready money" when reduced to its lowest terms was one of words rather than of revenue principles. Aside from the general form and structure of the new act but few real changes were made from the old law which was so much condemned. The machinery and practical working of our revenue system were left essentiallj^ the same. The old law was stripped of much of its verbiage and a number of contradictory statements were eliminated. A few real changes, however, merit special attention. Per- sonal jDroperty under mortgage was, for purposes of tax- ation, deemed to be the property of the party having pos- session.'*^ It was further provided that "money at interest and stocks in any corporation or association, shall be deemed and taken to be personal property and shall be taxed at their true value." ^^ Territorial orders or war- rants were to be received for Territorial taxes ; county or- ders, for county taxes; and township orders, warrants, or scrip, for township taxes. Such in brief was the act re- ferred to by The Iowa Standard as "probably the best and most consistent act of the kind that has ever found a place upon our statute book".^*^ Many unnecessary words had been removed, something definite had been enacted regard- ing the taxation of credits, and provision was made for re- ceiving Territorial taxes either in cash or in Territorial orders or warrants — a rule also applied to the county and township. Finally, the township system of assessment was continued, a half mill was levied for Territorial revenue, and property was assessed at its cash value. 16 HISTORY OF TAXATION IN IOWA But the Territorial period continued to be one of agita- tion and change in fiscal affairs. A large element in the population had been accustomed to the county organization as a form of local government ; and accordingly, they were opposed to a system of township or precinct assessors. It will be recalled that the early acts provided for a county assessor.^"^ In 1843 the township or precinct system was established,^^ and in the following year it was confirmed by the Legislative Assembly.^^ This change in fiscal admin- istration from the county to the township is indicative of the strife which existed in pioneer Iowa between the two forms of local government. At the regular session of the Legislative Assembly which convened on May 5, 1845, the administration of the tax sys- tem was again considered and an act was passed providing for a return to the county plan of assessment. It was en- acted that 'Hhere shall be elected on the first Monday of August in each year, by the qualified voters in each county in this Territory, one county Assessor who shall hold his office for the term of one year from the day of his election, and until his successor is duly elected and qualified, and shall perform all the duties that are or may hereafter be required of him by law", and when he ''shall deem it neces- sary, he may appoint a deputy Assessor, to be approved of by the board of county commissioners." ^'^ A few months later, by the provisions of the last tax measure passed dur- ing the Territorial period, the duties of the county assessor were clearly defined. ^^ The history of taxation in Iowa during the Territorial period would be incomplete, however, without a brief refer- ence to the long struggle for Statehood and the condition of the public mind which was disclosed by this contest. In his message of November 5, 1839, Governor Lucas said that the Territory ''may, in my opinion, with propriety proceed to measures preparatory to the formation of a Constitu- THE TERRITORIAL PERIOD 17 tion and State Government, and for our admission into the Union as an independent State ".^- This recommendation was taken up and considered by the Committee on Terri- torial Affairs, which reported that it was inexpedient to take any preparatory stejDs for admission into the Union "at the present session of the Legislative Assembly ".^^ Moreover, the report contained these significant lines: Your committee have also taken into consideration the subject of our Territorial expenses being now defrayed by the General Government, and our whole system of affairs both civil and mili- tary being sustained at little or no cost to the people — while on the other hand there is but one of two alternatives for defraying the expenses contingent upon our commencement of a State Gov- ernment. The one an immediate contraction of a heavy public debt by negotiating loans from abroad, which must keep us long under embarrassment in our State affairs: The other an imme- diate assessment of heavy rates upon personal property, or a levy of a heavy poll tax upon individuals; which must render the new State Government burthensome as well as odious to the people." Agitation for Statehood continued. The question of call- ing a constitutional convention was submitted to the peo- ple in 1840 and again in 1842 ; but in each case the proposi- tion was rejected by a decisive majority. The demand for Statehood was voiced by the loiva Capitol Reporter in these words : Who that has been absent from the Territory since he has re- sided in it, has not felt that he would rather hail as the citizen of an Independent State, than of a Territory kept in leading strings Jjy the Federal Government, and supported hy its bounty? And would not prefer paying a small additional tax for the maintainance of a State Government, should it become necessary, than subject himself to any such humiliation ? ^^ Little was accomplished until 1844, when a vote was re- turned by the people in favor of State government. The first constitutional convention met at Iowa City in October, 18 HISTORY OF TAXATION IN IOWA 1844. The constitution adopted by this convention was twice submitted to the people in 1845, and twice rejected by them. The debates of the Convention of 1844 are instruc- tive along many lines of research, including the subject of taxation.^^ When the subject of calling a convention was up for con- sideration the two Iowa City papers took opposite sides. The Iowa Standard maintained that "when the people had a fair opportunity of investigating the matter, they would never decide in favor of a State Government. Instead of receiving over $60,000 they would have to pay over $40,000. We could not reasonably calculate upon our government costing us less than that".^^ It was further estimated that the total expense of Des Moines County under Statehood would be $9,706 as compared with only $3,190 under the Territorial system — an increase of $6,516. In opposition to this statement the following able and in- structive editorial, entitled State Government, appeared in the Reporter: So far as the taxes are concerned, we very much doubt whether they would be any greater than they are at present, — Every one must be aware that has lived in the Territory for any length of time, that the laws for the collection of taxes are not so strictly enforced under a Territorial as under the State Governments. — True, in some few counties they may be, but as a general rule a rigid system of collecting the taxes, would soon lighten the burden of taxation in most of the counties of the Territory, and under a State organization this would inevitably be the case. All the of- ficers under a State Government, being elected by the people, would be immediately accountable to them for a dereliction of duty; and the fear of the popular will would make the accounting officers re- quire those whose duty it would be to collect the revenue to give a strict account of the manner in which they had performed the duty entrusted to them; — the consequence would be that the list of delinquent tax payers in the different counties would soon dwin- dle to little or nothing; and not be, as at present, in some of the counties nearly one half of the tax roll.'^® THE TERRITORIAL PERIOD 19 The convention which was called began its labors at Iowa City in October, 1844. The argument of the increased finan- cial burdens of Statehood was advanced with much force. The Standard declared that ''the introduction of nearly $100,000 annually into our Territory by the U. S. — being about $1 for every man, woman, and child in the country — should not be hastily thrown aside; but on the contrary, should be allowed to flow in as long as possible. We com- plain that our taxes are already heavy and almost unbear- able. Will this taxation become lighter by drawing on the robes of State sovereignty? .... Now, if our fellow- citizens believe that they can pay $50,000 annually without inflicting upon themselves serious injury, they will of course, adopt the constitution ; but if, on the contrary, they conclude that it is better to receive $80,000 than to pay out $50,000, they will certainly continue their present form of government. ' ' ^^ The press of the Territory was much divided on the issue of the adoption of the Constitution; nor did the discussion follow party lines. Democratic and Whig politicians were ac- tive on both sides, although each accused the other of being enemies of the Constitution. It may be said, however, that the Whigs in the main were inclined to oppose and the Democrats to favor the Constitution. That efforts were made to make it a party issue is clear from the following : We were not surprised to find in that most violent and wreckless of the whig prints, the Standard of last week, a declaration in favor of remaining a territory, based upon the most short-sighted, narrow, penurious, and degrading arguments; and this, notwith- standing that during the canvass, it roundly denied our charge that the whig press and leaders were secret enemies of admission into the Union.^^ The Davenport Gazette, the Bloomington Herald, the Dubuque Transcript, and the Burlington Hawk-Eye were disposed to criticism, if not to open opposition. The Bur- 20 HISTORY OF TAXATION IN IOWA lington Gazette, the Territorial Gazette, the County Demo- crat, and the Iowa Capitol Reporter favored the idea of Statehood. The second constitutional convention met at Iowa City in May, 1846. The constitution drafted by this convention was ratified by the people, and Iowa became a State on December 28, 1846. In the light of this review of some of the leading facts in the history of taxation in Iowa from 1838 to 1846, the Territorial period may be defined as one of experiment and constant change in the tax laws. In almost every ses- sion of the eighth Legislative Assemblies a new patch was added to our revenue system, or at least some verbal changes were made in the laws. It was a period of tax leg- islation, not of thorough fiscal administration. Neverthe- less, the general outlines of a revenue system, both local and central, were created and became the heritage of the State government. The point to be especially noted by the student of tax- ation is that the revenue system from 1838 to 1846 can not be understood by simply mentioning the details of the statutes. Laws which look well on paper are frequently worthless in point of fact because they are not enforced. This was largely the case with the tax laws during the pe- riod under consideration. Complaints were frequently made of the delinquent tax list, the difficulty of obtaining the full quota of taxes from each county and, what logically follows, the high tax rate and the piling up of debts. The practical working of the tax system and the condi- tion of the treasury are revealed in the legislative and executive documents of the time. In his fourth annual mes- sage of May 5, 1845, Governor Chambers says that ' ' the cre- ation of demands against the Territory, for the payment of which the Treasury affords no means, under the expecta- tion, (which may be disappointed,) that Congress will pro- THE TERRITORIAL PERIOD 21 vide for them, is productive of great inconvenience to those to whom they are payable, and ought to be avoided. "*^^ Seven months later in his message of December 3, 1845, Governor James Clarke recommends that **if possible, also, some measures should be adopted to ensure the more regu- lar payment of the Territorial tax into the treasury by the county collectors, much delay and irregularity in this par- ticular having heretofore prevailed. ' ' ^^ The Territorial Treasurer in his report of December 8, 1845, says that ''Territorial Warrants are worth but fifty cents on the dollar — a depreciation that is scarcely to be found in any county in this Territory 'V^ and he recommends that the Territorial tax be increased to one mill on the dollar.^^ In the Auditor's report of the same year the total amount of resources is found to be $6,871.72, the amount of liabili- ties outstanding, $17,650.60, or an excess of liabilities above resources amounting to $10,778.88.^^ Such were the fiscal conditions one year before Iowa was admitted as a State. In his second message of December 2, 1846, Governor Clarke says that '4t cannot be denied that under the Territorial organization, with all our legis- lative, executive and judicial expenses borne by the General Government, a system of taxation exceeded for severity by but few of the States of the Union has prevailed. ^Vliile these excessive levies have been submitted to, the necessity for their imposition has been denied. The time is believed to be at hand when the reform in this particular, looked for in vain for so long a period, is imperiously demanded by public opinion; and I confidently anticipate the adoption of such measures, by the Legislature, as will correct the evil in [the] future. "^*^ Thus the Territorial period closed with a fiscal system, which, according to the language of the chief executive, was unable to produce sufficient revenue to meet the limited de- mands incident to a Territorial form of government. Some- 22 HISTORY OF TAXATION IN IOWA thing definite, however, had been accomplished. Though the beginnings of our revenue system were necessarily crude, having evolved from the actual conditions of pioneer Iowa, the fact remains that real foundations were laid for future developnient. What these foundations were must now be apparent to the critical reader. The period began with the county sys- tem of assessment.^^ In 1843 a change was made to the township system ;^^ but before admission into the Union the county plan was reintroduced.*^^ The basis of assess- ment also became a serious problem. Was property both personal and real to be valued according to arbitrary rules, or should it be assessed on the basis of true value or actual cash value? If so, how should such value be measured? In estimating the value of land, should improvements there- on be included or excluded? After much debate in the Leg- islative Assembly it was finally decided that property should be assessed at its cash value, taking into considera- tion certain factors definitely outlined by law, and that im- provements on land should be included in the valuation for purposes of assessment. Again, it has been noted that the plan of apportioning Territorial revenue according to the gross tax receipts of the various counties was changed to the more equitable millage rate on property. Finally, it should always be borne in mind that the coun- ty, judged from the standpoint of administration, was the real seat of fiscal authority, having in charge both the as- sessment of property and the levy and collection of taxes. Manifestly this authority, if exercised at all, could be di- minished in only two ways. It could pass over to the State, on the one hand, or be absorbed by the lesser units of gov- ernment on the other. To trace this development will be one of the instructive subjects of future chapters. II THE PERIOD OF THE FIRST CONSTITUTION 1846-1857 The Constitution under which Iowa was admitted into the Union provides that ^ ' all laws of a general nature shall have a uniform operation 'V" ^iid that each house "shall have all other poers necessary for a branch of the General Assembly of a free and independent State. "^^ Aside from these provisions there is almost nothing in the Constitu- tion of 1846 affecting the general subject of taxation, the regulation of which was left to the people through their chosen representatives. That the revenue system at the close of the Territorial period was defective and demanded reform, has been clear- ly pointed out in the foregoing chapter. If it had not been able to supply adequate revenue when all legislative, execu- tive, and judicial expenses of the Territorial government were borne by the Federal government it would surely not be capable of meeting the larger demands of the State gov- ernment.'^^ Governor James Clarke, the retiring Territo- rial executive, stated that one of the most important sub- jects demanding legislation would be that of revenue for the support of the State. For the realization of a satisfac- tory system of State taxation temporary measures would not prove adequate. A permanent revenue system, the Gov- ernor declared, should be established and in fact was de- manded by considerations of sound policy and the larger duties of Statehood. Some of the facts which the Governor had in mind when he made his recommendations are disclosed by an examina- 23 24 HISTORY OF TAXATION IN IOWA tion of the reports of the Auditor and the Treasurer. In November, 1846, the Treasurer submitted a statement of finances ^^ as follows : 1845. Amount in the Treasury, Dee. 10, 1845, $ 33.50 1846. Amount received since 10th Dec., 1845, and up to the 16th, Nov. 1846, from counties, 3,716.23 Total amount of receipts, $ 3,749.73 Disbursements from 10th Dec. 1845, to 16th Nov., 1846, $ 3,765.09 Excess of disbursements, $ 15.36 "With so small a revenue and an excess of disbursements the fiscal outlook was, to say the least, not encouraging. But. to make conditions worse, many counties were delin- quent in the payment of taxes. A list of such counties is furnished in the Auditor's report. There it appears that for the fiscal year ending in November, 1846, the amount of delinquent taxes was $8,167.50 as compared with a reve- nue for the same period of only $3,716.23. In other words less than one-third of the Territorial revenue had been ac- tually collected on account of careless and inefficient ad- ministration.'^ But, while the Treasury was empty and the tax system weak and defective from the standpoint of administration, another and very different problem seemed to attract pub- lic attention — the problem of non-resident landholders and the taxation of improvements on land. The problem of de- veloping adequate machinery for the collection of taxes was temporarily lost sight of in the popular mind through a discussion of ''land monopoly" and non-resident specula- tors. It will be remembered that in 1839 an act was passed which prohibited the taxation of improvements on land.'^^ This act was soon repealed because the majority held that i I; was contrary to the Organic Law of the Territory, which limited the legislative power by the words: "nor shall the PERIOD OF THE FIRST CONSTITUTION 25 lands or other property of non-residents be taxed higher than the lands or other property of residents."'^ This prohibition of the Organic Law, or at least apparent pro- hibition, tended to check the discussion of the exemption of the improvements on land during the Territorial period. But when Iowa was admitted into the Union and the Constitution made the basis of government, a strong mi- nority demanded the exemption of improvements on land and became very outspoken in the criticism of non-resident speculators. A second class of citizens, however, believed in ad valorem taxation ; and they held that were all values taxed the burdens of taxation would be more equitably dis- tributed and the rate correspondingly reduced. The whole problem was freely discussed during the closing weeks of the Territorial period and for a number of years after the Constitution was adopted. Space will permit only a brief presentation of the ar- guments advanced. The Bloomington Herald was an advo- cate of exemption and published a strong series of articles relative thereto. On October 23, 1846, an editorial appeared giving an admirable summary of the claims of those who advocated the exemption of improvements. It was claimed that ''non-residents who have had capital to spare have in- vested largely in Iowa land on speculation only" ; that ''the evil of the present system of land monopoly is multiform and ruinous in its effects upon the country" ; that "it [land monopoly] prevents the dense settlement of the country, and interferes with the establishment of schools in neigh- borhoods by forcing settlers so far asunder that they can- not maintain teachers"; and that "it establishes the idea that every one has a right to make all the money he can off of the labor of others ".'^'^ The sturdy pioneers of Iowa did not propose to have their labor serve as the means of in- directly creating unearned increments for the benefit of non-residents who allowed their lands to lie vacant and 26 HISTORY OF TAXATION IN IOWA accumulate commercial value from the general development of the country. Such investments for speculative purposes only were regarded by the man of the frontier as savings banks wherein the deposits were necessarily made by the toil of actual settlers. As a remedy for these evils it was proposed to place all the taxes on real estate, making no distinction save that for different grades of land. This proposed tax, which in a disguised form was in reality to be levied on the unearned increment of land, it was alleged, would place the non-resi- dent on terms of equality with the resident. In reaching this conclusion the pioneer did not stop to formulate any definite theory of land values, still less of taxation. Those who opened up the Territory of Iowa were not men of fine distinctions, on the one hand, or of broad generalizations on the other. They were for the most part men of plain honesty and hard common sense. In thinking about this problem they canie to the very obvious conclusion that im- provements made on one piece of land not only enhanced the value of that land but also the farm across the road — and in fact all the land of the surrounding country. For this reason it seemed to them just and expedient to tax such enhanced value (unearned increment) of the farm across the road belonging to the non-resident and held for pur- poses of speculation, and thereby relieve the improvements created by their own labor. Such a fiscal program, in their judgment, was founded on considerations of both expedi- ency and justice — just, because it meant the taxation of speculative or unearned value; and expedient, because it would encourage better and more beautiful improvements, open up all the land to actual settlers at reasonable prices, stimulate education, and in fact promote the general prog- ress and prosperity of the country. The same general line of arguments were repeated and enlarged upon in later articles in The Bloomington Herald. PERIOD OF THE FIRST CONSTITUTION 27 For example, it was declared that *'tlie present system of Taxes in the State of Iowa is incompatible with the rights, equality, and progress of the many. . . . No folly can be more blind, no madness can be more ruinous, than the policy of taxing the improvements of the country for the benefit of the Land Speculators — men who simply invest the sur- plus of overgrown fortunes in the soil of a country for the most unjust purpose of accumulating wealth at the expense of the industrious classes — those classes who make the country all that it is, or can be." "^ An especially strong and clear statement was made in a communication signed '* Plowman". ''This, then," Plow- man writes, "strikes at the very root of Equality of Rights, and tends most effectually to make the rich richer and the poor poorer, and confers an exclusive privilege upon the speculating monopolist, directly at variance with the fun- damental principles of the institutions of our country." "I rejoice", continues Plowman, "that the subject of taxation is being presented to the citizens of our infant State .... I am opposed to monopolies, of all sorts, more especially to monopolizing the public domain, or lands, and I hope our Eepresentatives who are soon to convene in General Assembly, will early take this subject into consid- eration, irrespective of partizan considerations, and pass such laws as will secure Equal and Exact Justice to all the citizens of our infant State." '^^ In these later days, when so much is heard of the vari- ous forms of monopoly, it is interesting to learn that to the first settlers of Iowa the question of "land monopoly" presented a real danger. Fortunately, in the case of agri- cultural land, these fears have not been realized; but the whole subject is none the less instructive from the stand- point of the social and industrial history of the State. On the other hand the advocates of the so-called ad va- lorem system of taxation were not without arguments. To 28 HISTORY OF TAXATION IN IOWA exempt so large an amount of property, it was claimed, would vitiate every principle of equality of taxation. Again, if the United States owned the land held by non-residents no taxes would be received from it. In another communica- tion signed ''Chips", appearing in The Bloomington Herald two weeks later, it was said that ''the question at issue is — shall we levy a higher tax upon land in consequence of its being owned by non-residents, than upon other property. . . . When we break this rule of equal taxation, it leads to incalculable and endless difficulties. If it be so great an evil as to require the interposition of law, the government should not sell to non-residents, but let all the lands be entered by preemption. ' '^^ In reply to "Chips" the opposition, advocating the ex- emption of the improvements, became more extreme in their denunciation of non-resident landholders. The creation of a land monopoly was again made the point of attack, ' ' The greatest curse that can befall any country, ' ' said one writer, "is the monopoly of land. Other monopolies have, com- paratively, but an ephemeral existence — but Land Monop- oly extends from generation to generation, — from century to century — and its stringent evils are the curse of ages."^^ Obviously these views were extreme; but they indicate the temper of the early settlers of this Common- wealth. On January 2, 1847, while the first General Assembly was in session a convention of citizens of Muscatine County passed a number of resolutions in which it was declared ' ' that the value of improvements on such lands or town lots should not be included in the assessments unless it should be for corporation purposes in towns. "^^ These resolutions were presented to the General Assembly, and contain a complete resume of the subject under consideration.^^ The idea of social or unearned value was clearly stated and the principle of allowing it to go untaxed vigorously con- PERIOD OP THE FIRST CONSTITUTION 29 demned. Were it not for the labor of the settler and the protection afforded by the government supported by him, it was alleged, such value would not exist ; therefore, what could be more obvious or just than that in formulating a scheme of taxation "the Legislature should aim to secure an equality of its burdens, proportioning the same to the benefits which the non-resident receives from the labor of the resident, as well as what each receives on the score of protection from the government." In the new revenue measure as approved February 25, 1847, these demands were not granted: the views of the party favoring what was termed ad valorem taxation pre- vailed. Among other provisions of the act, each person is required to give in to the assessor "all town lots or lands with improvements thereon. ' ' ^^ The property liable to taxation was also made to include "every annuity, together with all moneys invested in property, of any kind, and se- cured by deed, mortgage, or other evidence of claim : Pro- vided, That each person giving in his list may deduct from the amount of money due him at interest the amount which he may owe, and on which he pays interest, so as to pay taxes only on the excess. The valuation of the property shall be its real worth in money, and not what it would bring at auction or a forced sale." ^^ It is significant that by the terms of the same act which rejected the plan of exempting improvements, provision was definitely made for the deduction of just debts from the amount of credits listed for taxation. The meaning of this is clear. The actual settler after all his agitation, speeches, and editorials was not only compelled to pay taxes on his land and improvements but was granted no deduction from the assessed valuation of the same. All tangible property, the law declared, must be assessed in order to realize what was supposed to be an equitable plan of ad valorem taxa- tion. On the other hand, the money loaner who held mort- 30 HISTORY OF TAXATION IN IOWA gages against such land and improvements was permitted to make a deduction of just debts. To some minds the handwriting on the wall was evident. It should not be for- gotten that even in pioneer Iowa the capitalist had some- thing to do with determining the course of "practical legis- lation". The reader will recall that, under the provisions of the act approved January 24, 1839, the sheriff was made collec- tor of county taxes — a position later occupied by the coun- ty treasurer.^** In the act under consideration it was pro- vided that the sheriff be made the ex-officio assessor and the recorder the ex-officio treasurer of the county.^" Dur- ing the early years of the government there seemed to be no settled policy regarding the officials charged with the administration of the fiscal system. The salary of the asses- sor was reduced to one dollar a day, but he was still given the privilege of appointing a deputy when necessary "to be approved by the Board of Commissioners,"^^ It was further provided that "partners in mercantile or other business may be jointly taxed under their partnership name, for all capital, personal and real property, employed in such business; and in case of being so jointly taxed, each part- ner shall be liable for the whole tax." ^^ Regarding the inefficient collection of State revenue from the counties, about which so much complaint had been made, the act, now being considered, represents little if any real improvement. It was stipulated that ' ' one half of the State revenue shall be paid in cash and the remainder in cash or Auditor's warrants", and the treasurer of each county ' ' shall pay into the State Treasury the amount of money col- lected by him, on or before the 15th day of February of each year."^^ There is nothing definite or compulsory in these provisions, the State Treasurer not being clothed with power to compel the county treasurers to pay their full quota of State tax. PERIOD OF THE FIRST CONSTITUTION 31 From the standpoint of tax administration the same defect continued to prevail. In fact, almost nothing was done to clothe the State with any real fiscal authority. The few administrative duties it had to perform were perfunc- tory and not vital. Two years later a more definite step was taken along this line. An act was passed providing that '^it shall be the duty of the clerks of the boards of county commissioners, asses- sors and prosecuting attorneys, of the several counties, to furnish such information in reference to the State revenue as shall be required by the Auditor of State, and a failure by any such officers, to furnish the information, if in their possession, as required by the Auditor of State, shall be liable to a fine of twenty-five dollars, which shall be collected by an action of debt in the name of the State, before any competent tribunal, and the boards of county commissioners shall make such compensation for said services as they may deem just and reasonable. '"^^ In this measure is noted the first serious effort to correct the evil of lax adminis- tration. The next changes in our revenue system came with the Code of 1851. In his biennial message of December 3, 1850, Governor Ansel Briggs makes only a brief statement re- garding taxation. "The assessment of 1850", he says, ''shows an increase of the revenue from taxable property within the State, of $20,409.28. Should the revenue con- tinue to increase in the same proportion, we may reasonably expect that our State will, in a few years, be freed from all incumbrances. "^2 The Governor, however, directs our attention to the Au- ditor's report, which is definite and comprehensive in its scope and worthy of careful study. The Auditor complains that some of the counties are in arrears to a large amount, and points out specific counties where the assessment had actually decreased when it was obvious that the actual 32 HISTORY OF TAXATION IN IOWA amount of property had been greatly augmented. The low assessment of moneys and credits receives special atten- tion.''^ Some of the older counties, he states, make no report of moneys and credits.®^ "It will be observed, from the foregoing statement," con- tinues the Auditor,^ ' that some of the counties are in arrears to a large amount, which will be reduced the present month, in all jDrobability, several thousand dollars; still there will be a considerable sum unpaid, which is of long standing, and ought to have been liquidated years ago, and every exertion has been used on my part to bring about such a result. In some cases I have succeeded, but in others I have been un- able to bring prosecution against the delinquents from a defect in our system. "Our Prosecuting Attorneys are the legal officers of the counties and of the county officers, and cannot be employed by the State against them, yet our law seems to indicate that they shall act for the State when called upon. The State should have an Attorney General, to bring suits in all cases in which the State is interested, and to give legal advice to the State officers when necessary; by this means the State's interest would be more carefully guarded, and delinquents would know that they could be made accountable. " It is useless to levy a uniform tax throughout the State, if a portion can pay or not, as they please. It is believed that an efficient and punctual set of collectors can collect and pay into the Treasury nearly every dollar of tax levied. It is done in some few of the counties, and if it can be done by a little extra exertion in some, it can be done much better than it has been in others. ' ' Our system of collecting is very imperfect, and it is de- sirable that the present session will not pass without some- thing better being adopted. A prompt collection and pay- ment of the revenue into the Treasury, would enable the State to meet all her liabilities at the per cent, now levied. PERIOD OF THE FIRST CONSTITUTION 33 and it would be but a short time before we would reduce the levy to a much less amount. "^^ The subject of non-resident landholders and the taxation of improvements on land again came up at this time in con- nection with the granting of a new charter to the city of Muscatine. Under the old act of incorporation a large amount of improvements had been exempt from bearing a share of the public burdens. ^^ An effort was made to con- tinue this exemption under the new charter. A communica- tion appearing in the loiva Democratic Enquirer signed "B" contains a statement of the subject quite similar to that already presented. The article is filled with much sentiment and some eloquence. Among other things the writer says that "labor is the oil by which our state light burns ; and that labor should not be discouraged by legisla- tion. Not that we do not want capital — we need it badly — but not to be locked up in land or lots to the exclusion of productive immigrants. Thus far the most improvement has been made by those that had the least money — often on bor[r lowed money at high interest, what none but a hopeful and energetic people, determined to have a home of their own could stand. As a remedy, in the absence of better, I would say, exempt from taxation all improvement on land and lots, where the aggregate value of the buildings, fencing, «&c., does not exceed one thousand dollars in value. And when the improvement amounts to more than the sum named, tax the excess only, and throw the tax mainly on land or lots in their naked state. "^'^ This was by no means the only plan of reform. A peti- tion was circulated in the city of Muscatine favoring the ad valorem system of taxation, and this was presented to the local representative in the General Assembly. It has already been noted that this system as it was then under- stood and advocated was supposed to guarantee the equal taxation of all forms of taxable property. A third class 34 HISTORY OF TAXATION IN IOWA maiutained that personal property should pay one-fourth of one per cent upon its value; that ground or lots should pay an amount not exceeding two per cent upon their value ; and that improvements upon real estate, houses, stores, etc., should be entirely exempt from taxation,''^ Other plans of fiscal reform were also being advanced. At a public meeting held soon after the above petition was circulated, the ad valorem system was repudiated by a large majority. It appears, however, that the two leading par- ties were quite equally divided — if so many reform ele- ments with as many indefinite programs can be classified into parties. The views of the party opposed to exempting improve- ments were clearly stated in an article by '' Justicia", who says that there had been assessed in Muscatine about $200,- 000 worth of personal property and $300,000 worth of lots making a total of $500,000 upon which a levy of one per cent had been made. He further estimates that $400,000 worth of improvements on buildings had been entirely exempted from taxation. "Thus it will be seen, that, out of $900,000 worth of property, there are $400,000, or nearly one-half the entire amount which pays no tax. The consequence is, that a tax of one per cent, must be levied on the $500,000 in order to raise the amount of tax necessary, whereas, if the whole amount was taxed one-half per cent., or thereabouts would be sufficient to raise the amount of tax required."®* Finally, it was maintained that the act admitting Iowa and Florida into the Union prohibited discrimination against non-resident landholders such as had been practiced in the city of Muscatine under the old act of incorporation. The act of Congress referred to provided that "in no case shall non-resident proprietors be taxed higher than residents ".^'^'^ By the provisions of "An Act to incorporate the City of Muscatine" (formerly the town of Muscatine and earlier the town of Bloomington), improvements on real property PERIOD OF THE FIRST CONSTITUTION 35 are declared taxable. The friends of ad valorem taxation had a majority in the General Assembly ; and placed the fol- lowing clause in the charter : ' ' The city council is further au- thorized to levy and collect taxes not exceeding one-half of one per cent, on the value of all property within the city which is liable for state and county taxes, including im- provements on real property. "^^^ An editorial in the Iowa Democratic Enquirer entitled ''The Charter of Mus- catine" commends the action of the General Assembly, de- claring that "by the charter we are allowed the control of the Ferry, but the discretion to exempt improvements on lots is denied, as we always believed it would be ; . . . Prop- erty is the proper basis of taxation, no matter in what it consists ; and you cannot make discriminations without favoring one class and oppressing another. . . . The argu- ment in favor of discriminating taxation, based on the self- ishness of non-resident lot owners, is one which has never had weight with us."^*^^ Thus in the long controversy concerning non-resident speculators and the taxation of the improvements on land some of the basic elements of our revenue system were considered and firmly established in law. All tangible property including improvements, save that specifically ex- empted by statute, was to be taxed, no deduction for debts being granted. Provision was made, however, for the de- duction of just debts from the amount of moneys and cred- its listed for taxation. And finally, the plan of taxing the unearned increment resulting from improvements was re- jected. The new Code of 1851 which was approved by the General Assembly on February 5, 1851, provided for the most com- plete machinery for levying and collecting taxes (especially State taxes) which had been evolved up to that time. Among other important changes a more logical and detailed classification of taxable property and also of property ex- 36 HISTORY OF TAXATION IN IOWA empt from taxation was made; and for the first time the State had in the Census Board a central body clothed with some authority for the correction of assessments and the equalization of taxes. The chapter on Revenue con- tains these logical subdivisions : rate of tax, State, county, and local, fixed by law; property exempt from taxation; taxable property; by whom, where, and in what manner property is listed and assessed; the assessment roll; the tax list; and finally, the collection of taxes. This classi- fication, which was the result of twelve years of almost con- stant agitation and change, afforded something approaching a logical system. The fiscal machinery therein provided may be briefly defined under the headings of levy, assess- ment, equalization, and collection of taxes. At the outset it should be noted that the levy was no longer made by the board of county commissioners but by the county court at a session held for that purpose on the fourth Monday of July annually. The rate was fixed by this court within the following specified limitations: for State revenue, three mills on the dollar, where no rate was directed by the Census Board ; for ordinary county revenue, including the support of the poor, not more than six mills on a dollar and a poll tax of fifty cents ; for the support of schools, not less than one-half mill nor more than one mill and a half on a dollar ; for roads and bridges, not less than one nor more than three mills on the dollar on the amount of county assessment, unless a higher rate was established by a vote of the people of the county upon the question being submitted to them in the usual manner.^"^ The levy was made on all taxable property as follows: '* lands, and lots in towns, including lands bought from the United States and from this state, and whether bought on a credit or otherwise ; ferry franchises, which for the purposes of this chapter are to be considered as real property ; horses and neat cattle ; mules and asses ; sheep and swine ; money, PERIOD OF THE FIRST CONSTITUTION 37 whether in possession or on deposite and including bank bills; money, property, or labor due from solvent debtors on contract or on judgment, and whether within this state or not; mortgages and other like securities, and accounts bearing interest; stock or shares in any bank or company incorporated or otherwise, and whether incorporated by this or any other state, and whether situate in this state or not; public stock, or loans; household furniture, including gold and silver plate, musical instruments, watches, and jewelry ; private libraries for their value over one hundred dollars ; pleasure carriages, stages, hacks, and other vehicles for transporting passengers, wagons, carts, drays, sleds, and every other description of vehicle or carriage; boats and vessels of every description wherever registered or li- censed and whether navigating the waters of this state or not, if owned either wholly or in part by persons who are inhabitants of this state; annuities, but not including pen- sions from the United States or any of them, nor salaries or payments expected for services to be rendered. And all other property not above exempted although not herein specified. "1^^ The term ''credit" is defined; corporations are to be taxed on the shares of the stockholders ; and insurance com- panies are to be taxed on the amount of the premiums taken by them during the year previous to the listing. And it is further stipulated that any person is entitled to deduct all bona fide debts owing by him from the gross amount of his moneys and credits.^*^^ In addition, it is provided that in listing his property for taxation the merchant ''shall take the average value of such property in his possession or con- trol during the year next previous to the time of the list- jjjg >no6 ^ manufacturer is to list his property in the same manner. The work of assessment remained in the hands of the sheriff, who was given power to appoint an assistant as- 280840 38 HISTORY OF TAXATION IN IOWA sessor.^'^^ It was made the duty of the Census Board to fur- nish blank forms to the assessors before the first of March annually, together with "such instructions as to secure full and uniform assessments and returns ".^^^ The assessor was required to leave with all taxpayers these blank forms, which were to be filled out and returned by the twentieth day of March. After the blank was filled out, the person listing was required to sign the same and take an oath that he had to the best of his knowledge listed all his property required by law to be listed. On or before the first day of June annually the assessor delivered the completed assessment roll to the county judge. That the work of accurate assessment might be doubly se- cure, in addition to the oath taken by the person listing, the assessor himself was required to swear "that in no case have I knowingly omitted to demand of any person of whom I was required to make it a statement of the amount and the value of his property which he was required by law to list, nor in any way connived at any violation or evasion of any of the requirements of the law in relation to the as- sessment of property for taxation. "^*^® The work of assessment is always logically followed by that of equalization which, as stipulated in the Code of 1851, is an improvement over the old system. The first step in this work is made by the county judge, clerk, and treasurer, who were made to constitute a board for the correction of the assessment roll, and who between the first day of June and the second Monday in July, were to act as a county board of equalization.^ ^^ The work of State equalization was placed in the hands of the Census Board — composed of the Governor. Treasurer, Auditor and Secretary of State, or any three of them.^^^ The duties of this board relative to the equalization of assessment are thus outlined: "The census board constitutes ar board for the equaliza- tion of taxes for the state, and is authorized and required to PERIOD OF THE FIRST CONSTITUTION 39 examine the various assessments so far as regards the state tax and equalize the rate of assessment on real estate in the different counties whenever they are satisfied that the scale of valuation has not been adjusted with reasonable uniform- ity by the different assessors. ' ' Such equalization may be made either by changing any of the assessments or by varying the rate of taxation in any of the counties as may be found most convenient, but in either case the board is directed to preserve unchanged as far as practicable what would have been the aggregate amount of valuation had no such equalization been made.^^^ "With county and State equalization completed, it becomes the duty of the Auditor of State to transmit to the judge of each county a statement of the change (if any) which has been made in the assessment and the rate of State tax which is to be levied and collected within his county. The assessment roll thus corrected, equalized, and transmitted is made the basis for the collection of taxes. The county treasurer (who was also recorder) after re- ceiving the tax list and warrant is required to be at his office during the months of September, October, November, and December to receive taxes. He is further required to collect delinquent taxes, as far as practicable. Auditor's warrants are made receivable for three-fourths of the amount payable into the State treasury; county warrants are receivable at the treasury of the proper county for county revenue; but actual money must be paid for the school tax. When taxes become delinquent they are made to draw interest at the rate of twenty-five per cent per annum. The provisions relative to delinquent taxes are more clear and definite than under the old laws. The pur- chaser is protected by receiving a deed which ''shall run in the name of the state of Iowa and be signed by the treas- urer in his official name and will convey the title to the land and shall be presumptive evidence of the regularity of all prior proceedings. "^^^ 40 HISTORY OF TAXATION IN IOWA The system of taxation outlined in the Code of 1851, em- bracing as it did a plan of county assessment and collection, a combination of State and local levy made within certain "well defined statutory limitations, and finally a dual scheme of local and central equalization, forms a close approx- imation to the revenue laws now in force. When we add to this the evolution of specific methods of taxing insurance companies and certain other corporations, it appears that more than half a century ago something like a modern sys- tem of taxation was being created — that is to say, it was about as modern as anything that has thus far been de- veloped in Iowa. The Code of 1851 did represent a long step in advance — especially from the standpoint of fiscal administration. The complaints that had been made for years concerning de- linquent taxes at last bore some fruit. The question at once arises, what is the secret of the more efficient administra- tion that followed? Wliy were State taxes collected with more success? In the reply to these queries one discovers the essence of the revenue provisions of the Code of 1851. The State was clothed with more fiscal authority. The fiscal center of gravity was moved one step away from the county, and therefore one step nearer the State. We should remem- ber, however, that it was only a step in this direction, since the transfer of power from county to State was in the main nominal, that it was largely a transfer on paper as will be disclosed in later pages. Following the enactment of the Code of 1851 the condition of the State treasury was rapidly improved. In his message of December 7, 1852, Governor Stephen Hempstead esti- mated that in the coming biennial period there would be "a balance of receipts over expenditures, fully sufficient to ex- tinguish all that part of the funded debt of the State, which is payable at option ".^^^ The Auditor also makes an en- couraging report, saying that "the present prosperous con- PERIOD OF THE FIRST CONSTITUTION 41 dition of our financial affairs, and the j)romptness with which the revenue is collected and paid over under the pres- ent law, admonishes that but few, if any alterations are nec- essary or called for."^^^ Changes of much importance were, however, made by the General Assembly. By an act approved January 22, 1853, a system of township assessors was reestablished, to take the place of the county assessor. Such township assessors were to be elected annually on the first Monday in April and must give bond to the township trustees or, in counties not organized into townships, to the county judge. They were further required to meet at the office of the county judge on the third Monday of April annually and classify the sev- eral descriptions of property to be assessed, and to meet also at the same place on the first Monday in July in each year and in conjunction with the county judge form a county board for the equalization of assessments.^^'' Finally, the act stipulates that in January and September of each year county treasurers shall pay into the State treasury all moneys in their hands belonging to the State, except when otherwise directed by the Auditor of State.^^^ But the system of township assessment was destined to be short lived. In his report of November 1, 1854, the Auditor submitted that "the only alteration in the present revenue law, which it is deemed advisable or necessary to make, is from the present system of township to county as- sessors. The experience of the past two years, it is thought has proved the latter to be best, as being more likely to ensure uniformity and correctness in the assessments.""^ Oovernor Stephen Hempstead made a similar recommenda- tion. ''At the last session of the General Assembly," he said, ^'it was thought advisable to so amend the revenue law, as to require the assessment of taxable property to be made by a township instead of a county officer. This system, as I 42 HISTORY OF TAXATION IN IOWA have been informed, has proven much more expensive than the former one, and leads to errors and inequalities which have been injurious to the public revenue, and unjust to in- dividuals." "To secure uniformity in the assessment of property," continued the Governor, "and remedy, as far as practicable, the evils complained of, I would recommend that the pres- ent law be so amended as to require the election of a county assessor for each county, with such other regulations as may be thought necessary to secure a faithful discharge of his duty. "11^ The new act as approved January 28, 1857, again re- turned to the former system of county assessment. Accord- ing to its provisions the assessor was to be elected for two years, holding his office until his successor was duly elected and qualified.^ -*^ One or more deputies might be appointed by the county judge under certain conditions, provided, ' ' that no deputy shall be appointed where the population of the county shall not exceed ten thousand, except in case of vacancy or inability of the assessor to act."^^! The Census Board was retained as a State Board of Equalization, be- ing required to meet at the seat of government on the first Monday of September, 1857, and every two years there- after for the purpose of equalizing the valuation of real property among the several counties and towns in the State. The period which closed with the adoption of the second constitution in 1857 was an important one in the history of Iowa taxation. It was essentially a period of transition on the one hand, and of origins on the other. A revenue sys- tem capable of meeting the demands of independent State- hood had to be created. How the administration of this system should be distributed between the various units of government had to be determined. Should fiscal authority be placed with the township, the county, or the State was PERIOD OF THE FIRST CONSTITUTION 43 one of the leading questions before the General Assembly. Like the Territorial period, the decade following admis- sion into the Union began and closed with county assess- ment, the sheriff being the ex-officio assessor. In the mean- time, however, the township system was re-introduced (1853) and continued until the session of 1856-1857. Dur- ing this period the correction of county assessment was in the hands of a board composed of the county judge and the township assessors. Formerly this same work had been done by the county board of supervisors and later by a county board composed of the county judge, clerk and treas- urer — a fact in itself indicative of the rapid transition then taking place in our financial administration. Wliile these changes were going on in the effort to secure a balance of fiscal authority as between the local units of government an important step in the way of centralization was taken by the creation of a regular state board of equalization — the Census Board. A second problem which received much attention, espe- cially from tax officials, during the years from 1846 to 1857 was that of delinquent taxes. It was discussed in the docu- ments of 1846, and after numerous efforts to tighten the fiscal bond between the State and the counties the same complaints were again made in 1857. The problem of effi- cient collection of the State revenue remained to be solved. Finally, the agitation concerning non-resident specula- tors resulted in two definite and very opposite types of legislation : first, an ad valorem scheme of taxation framed so as to include improvements on land; and second, the principle of deducting just debts from the amount of mon- eys and credits listed for taxation. On the one hand, the actual settlers, or debtor class, were not only compelled to pay taxes on their improvements but were denied the privilege of deducting debts from the value of their real estate. On the other hand, the non-resident was merely re- 44 HISTORY OF TAXATION IN IOWA quired to pay taxes on tlie value of his unimproved land as such, and the creditor class as a whole was given the right to deduct debts from the amount of moneys and credits listed for taxation. The proper basis of taxation, tax exemptions, land monopoly, the economic rights of non-residents, the taxation of moneys and credits and other allied questions were all a part of the great fiscal problem then under con- sideration. Thus more than sixty years ago the underlying principles of taxation in their relation to improvements on land and the status of moneys and credits were thoroughly debated, and the arguments then presented are similar to those advanced at the present time. From the standpoint of fiscal administration, both State and local, the equalization of assessments, specific methods of taxation, the listing of moneys and credits, etc., there is outlined in the Code of 1851 a revenue system about as modern as any that has thus far been developed by the General Assembly of Iowa. Ill ADMINISTRATIVE DECENTRALIZATION 1857-1872 The Constitution of Iowa as ratified in August, 1857, con- tains a number of important provisions relating to the exercise of the taxing power. In this respect it is more detailed and specific than the Constitution of 1846. ^^^ The provision that ''all laws of a general nature shall have a uniform operation' V"^ which is taken from the earlier document, has always been construed to cover the taxing power. It is further provided by the Constitution that "the General Assembly shall not pass local or special laws .... for the assessment and collection of taxes for State, County, or road purposes".^-" This section, which is in reality a negative statement of the proposition that laws of a gen- eral nature shall have a uniform operation, has had an im- portant bearing upon the judicial construction of our revenue system. The prohibition against enacting local and special tax laws is another way of affirming that such laws should be general in scope and therefore uniform in operation. But the clause of the Constitution of 1857 most fre- quently quoted in judicial opinions, and the one which has had the greatest influence on the history of taxation in Iowa, is the section which provides that "the property of all corporations for pecuniary profit, shall be subject to taxation, the same as that of individuals. ' ' ^^^ Frequent reference will be made to this important constitutional limitation on the taxing power, which is always advanced and frequently misunderstood. 45 46 HISTORY OF TAXATION IN IOWA Other provisions of the Constitution of 1857 limit the power of a county or other political or municipal corpora- tion in contracting debts to an amount in the aggregate not ^'exceeding five per centum on the value of the taxable property within such county or corporation".^-*' Again ^'the credit of the State shall not, in any manner, be given or loaned to, or in aid of, any individual association, or corporation".^-^ Nor shall the State contract debts in excess of two hundred and fifty thousand dollars. It will be recalled that in discussing the provisions of the Code of 1851 attention was called to the fact that the trans- fer of fiscal authority to the State was largely nominal.^^s The whole period of the first Constitution, as already suggested, had been one of transition and compromise. How were law-makers to strike a proper balance as between the township, county, and State in the administration of the public finance? This question had to be answered not only for the levy and collection of taxes but for that far more important and basic task, the assessment, including the equalization of property. In a word, if the county was to lose some of the fiscal power which it had received from the Territorial period, would this power be further central- ized or would it be dissipated among the lesser units of government? Judged from the standpoint of administra- tion this had been a vital question even before Iowa was admitted into the Union. The term "Administrative Decentralization" clearly de- fines the dominant characteristic of that x">eriod of our revenue history now under consideration. While the exi- gencies of war and the strong hand of Governor Kirkwood developed a more efficient system for the collection of State taxes, the all important task of assessment, including equal- ization as between individual property holders, was soon to be transferred to hundreds of local units of government, each a law unto itself — being subject only to meaningless ADMINISTRATIVE DECENTRALIZATION 47 ex-officio supervision — thus paving the way for the admin- istrative failure of the general property tax. So strong was the sentiment of the time for decentralization that even Governor Kirkwood, was more than willing to test the ex- periment of township collection. That the State was still powerless to collect all of its revenue is apparent from a study of numerous documents in the period now under consideration. The Auditor of State in his report for 1857 complains of delinquent taxes and depreciated warrants. Among other things he says that *'one of the greatest discouragements with which this office ( has to contend is the slowness of County Treasurers in col- lecting and paying in the revenues due the State. I would not charge these difficulties entirely to that officer, for in many or most instances the Treasurers have used their best exertions in this behalf. On the other hand, some of the counties have been culpably negligent in making their semi-annual payments, on the IStli of January and Sep- tember as required by law — the treasurers frequently hold- ing in their hands large amounts — used, if used at all, in ^dolation of law and duty, and thereby causing injury to the State in the loss of interest and credits, and to the holders of warrants in the sacrifices which they have to make in getting them cashed." ''While this is true of but few, I trust," continues the Auditor, "the main difficulty to prompt pajonent lies with the tax-payer. It is a matter of universal remark, that where money commands higher usury, than the interest which is affixed to delinquent taxes, tax payers will not pay till the last moment, and sometimes escape all together. The interest, too, which is chargeable upon delinquent taxes, is seldom collected — or if collected is not always and all of it reported to this office. To remedy this, is the duty of the Legislature. "^2^ He suggests also that the revenue laws be so amended 48 HISTORY OF TAXATION IN IOWA as to give non-residents the privilege of paying their taxes at the capital of the State. He thought that this plan, which was followed in some of the other States, if adopted in Iowa, would reduce the delinquent tax list — a good share of the delinquent taxes being found among non-resident tax- payers. Interesting also is his pertinent criticism that the revenue laws of the State were certainly confused and in many respects very defective, and that therefore legislation upon the subject should be the result of careful investiga- tion and deliberation.^^^ In the second biennial message of Governor Grimes some valuable suggestions are made in regard to the revenue laws. It was the opinion of the Governor that the system should be wholly changed as far as it related to State taxes. The county treasurers were to some extent State officers, and in case of default the State could not recover, but was obliged to sustain the loss. The transactions of the State ought to be with the counties, not with county officials.^ ^^ The amount of delinquent taxes, it was alleged, had reached the large sum of $62,401.94 — a very small per cent of which would ever be recovered. The operation of such a system placed a premium on fraud and delinquency and was a serious injury to those counties that paid their share of the revenue promptly. The one remedy for this condition was more efficient administration, requiring the payment of the quota of the State by a fixed day under suitable penalties. In regard to the merits of county versus township assess- ment, the Governor said : ' ' It is much doubted whether the law of last session, substituting county for township assessor, was any improvement upon the former method of assessment. Judging from my own observation, I do not hesitate to conclude, that many millions of dollars worth of property was overlooked at the last assessment, and is this year untaxed. I recommend the old law, in this par- ADMINISTRATIVE DECENTRALIZATION 49 ticular, to be restored. Sound policy requires that admin- istration as well as legislation should be brought as directly home to people as possible. There must ultimately be a thorough township organization throughout the State, and the sooner the people become accustomed to it, the less dif- ficult and burdensome it will become, and the more perfect and satisfactory will be the transaction of public affairs. "^^^ This clear statement by the Governor reflects the public opinion of the time on the question of township govern- ment. "Administration as well as legislation" ought to be placed as much as possible directly in the hands of the peo- ple. Such was the trend of statesmanship in the decade from 1850 to 1860. The people of Iowa have been painfully slow in their efforts to differentiate between legislation and mere administration, and to unlearn the wasteful and un- scientific lesson of decentralization in the case of the latter. In the Weekly Express and Herald (Dubuque), the cap- ital correspondent made some pertinent comments relative to the assessment of real estate, the work of the Census Board, and the proper distribution of State taxes. He claimed that real estate was greatly undervalued in many of the counties; that Dubuque County paid one-thirteenth of the State tax and had little more than one-thirtieth of the population of the whole State. Speaking of equaliza- tion he considered the Census Board to be nothing more than a farce, and held that something should be done to equalize taxes by legislative enactment. He said that to carry out this policy a bill had been introduced by a member of the Dubuque delegation which provided, first, that State taxes should be made a direct charge upon the counties in their corporate capacity, and second, that the taxes should be apportioned to the counties on the basis of their respec- tive population. ^^^ ''An Act in relation to Revenues" was approved March 23, 1858.^^* A study of this measure makes it apparent that 50 HISTORY OF TAXATION IN IOWA some of the criticism noted above was heeded. While the revenue law as a whole was much the same as before, a few changes are worthy of attention. The effort to secure a valuation of real estate for the year 1858 was, however, not successful, it being provided that "real property shall be listed and valued in the year 1859 and each second year thereafter, and shall be assessed at its true value in money at private sale, having regard to its quality, location, natural advantages, the general improvement in the vicin- ity, and all other elements of its value. In each year in which real estate is not regularly assessed, it shall be the duty of the assessor to list and value any real property not included in the previous assessment." ^^^ A permanent change was made in the machinery of assessment. The township system was for the third time re-introduced.^^^ The assessor was to be elected annually and receive a compensation of two dollars for each day employed in the discharge of the duties of his office; and the several assessors of each county were required to meet at the office of the county judge on the second Monday of January and classify the property to be assessed for the purpose of equalizing such assessments. From the stand- point of administration the act of 1858 was perhaps the most important revenue law ever passed by the General Assembly of Iowa. It was, indeed, the fatal and decisive step toward fiscal decentralization which explains the administrative failure of general property taxation revealed in the two following chapters. In order to prevent the duplicate assessment of real property, it was further stipulated in the act of 1858 that all the real property held by a taxpayer in any one county might be assessed in the township where he resided — the assessor of said township being required to furnish dupli- cates of realty owned in other townships. In order to complete the several township assessment books the sev- ADMINISTRATIVE DECENTRALIZATION 51 eral assessors were required to meet at the county seat on the last Saturday of March in each year.^^^ The powers of the county boards of equalization and the Census Board remain practically the same as under the former act.^^^ Other features of the act relate to the protection of county and State funds and define the fiscal relationship between the counties and the State. The recommenda- tion that the counties and not the county officials be made responsible was noted above.^^^ Following these recom- mendations it was enacted that each county should be made responsible to the State for the full amount of tax levied for State purposes, excepting amounts certified to be unavailable, together with double or erroneous assess- ments. In case any county treasurer proved to be a de- faulter to any amount for State revenue, provision was made for making up said amount within the next three years, by additional levies in a manner to be directed by the county judge.^"**^ Finally, in order to strengthen still further the machinery for the collection of State taxes and prevent so many cases of defaulting a rather unique provision was enacted. The State Treasurer was required to keep each distinct fund in a separate apartment of his safe, and at each quarterly settlement with the State Auditor it was provided that "he shall count each fund in the presence of the Auditor, to see if the same agrees with the balance found on the books. The total amount acknowledged to belong to each fund shall be exhibited before the count, and the County Treasurer shall account with the County Judge in like manner.'"'*^ The tendency to amend the revenue laws continued. In his report for 1859 the Auditor of State maintained that county clerks should be required to certify to his office the total amount of taxable property as the same appeared on their tax books when completed. Such a plan would prevent differences existing between his books and those 52 HISTORY OF TAXATION IN IOWA of the county officers. He also stated that the penalty for non-payment of taxes was not sufficiently heavy to secure promptness of payment for the reason that people frequent- ly believed they could use their funds so as to lose nothing by paying the twenty-five per cent interest required by law. It is further alleged that the State tax levied in the counties for the year 1857 had varied from one and one-fourth to three mills on the dollar — a condition of affairs which should be remedied by legislation.^^^ The subject of delinquent taxes and how to remedy the same was much discussed at this time. The uncertainty of tax titles was one of the chief causes of delinquency accord- ing to the loica State Journal. ''Especially do non- residents pay little heed to the prompt payment of taxes, for it is understood that the whole legal fraternity hold themselves in readiness to insure the recovery of lands sold for taxes. "^^^ The result was a loss to the counties and State of from ten to fifty per cent — the sum being measured by the large depreciation of county and State warrants. Many felt that the remedy for such a condition of affairs was to make tax titles more secure^^^ by defi- nitely providing that at the end of a certain period of years the fee simple be vested in the purchaser. If additional proof is needed at this time to convince the reader that the administrative centralization of our rev- enue system secured by previous acts was largely verbal, he should read the able messages of Governor Kirkwood. These State papers are filled with practical wisdom along many lines, including the subject of taxation. The Gover- nor recommended a law ''requiring the Judge of each Judicial District, to appoint once in each year a skillful accountant in each county of his district, whose duty it shall be to examine carefully the books of each county officer, and to state and record an account between such officer and his county, and when necessary, between officer ADMINISTRATIVE DECENTRALIZATION 53 and officer. "^^^ When it is remembered that even at the present time only two or three States (Indiana and Wash- ington now have such a law) provide for an efficient system of uniform public accounts, the statesmanship of Governor Kirkwood along this line will be duly appreciated. The Governor complains of a vagueness of the laws which introduces among officials a laxity of morals highly dangerous to the public interest. Furthermore, he suggests ''the propriety of a careful examination of our revenue system, with a view to ascertain if it cannot be made more certain and efficient. Any system of revenue which permits large amounts of taxes to become delinquent and to be ulti- mately lost to the State, must be defective, and must operate unjustly and unfairly upon our people. The deficiencies thus created in the revenue must be provided for by additional taxation upon those who have already dis- charged their duty as citizens, by paying the taxes assessed upon them, and they are thus compelled to bear more than their due proportion of the public burden. The laws should provide for the most rigid and exact accountability of all officers charged with the collection, control or dis- bursement of the public money. "^'^^ The next important revenue act was passed April 3, 1860, and appears as Chapter 45 of the Revision of 1860}"^" This act was largely a reproduction of Chapter 152 of the Laws of 1858, with, however, a few amendments. The county board of supervisors, as provided for in an act approved March 22, 1860,^^^ was given the power to levy taxes and also authorized to act as the county board of equalization. ''The board of supervisors of each county," reads the act, "shall constitute a board for the equalization of the assess- ment, and have power to equalize the assessments of the several persons and townships of the county, substantially in the same manner as is required of the state board of equalization to equalize among the several counties of the 54 HISTORY OF TAXATION IN IOWA state so far as applicable, at their regular meetings in June and next succeeding the general election in each and every year; and at such meetings they shall add to said assessment any taxable property in the county not included in the assessment as returned by the assessors, placing the same in the list of the proper township, and shall assess the value thereof. "^^^ This amendment was in fact significant. The question was, should township and precinct assessors hold a meet- ing at the county seat and proceed to equalize the assess- ments made by themselves, or should this task be placed in the hands of a regular county board? The adherents of the township system of local government naturally ad- vocated the former plan: those accustomed to the county plan of local government were inclined to favor the latter. The equalization of assessments by the county board of supervisors destined to be largely nominal, was, therefore, a point gained for the county system. Complying with the recommendations of the Auditor, it was further enacted that the clerks of the county boards of supervisors be required to make out and transmit to the Auditor of State by mail or otherwise, an abstract of real property setting forth (1) the number of acres of land in his county, and the aggregate value of the same, exclusive of town lots, returned by the assessors, as corrected by the county board of equalization at their first meeting, (2) the aggregate value of real property in each town in the county, returned by the assessor as corrected at their first meeting by the county board of equalization, and (3) the aggregate value of personal property in his county.^ ^*^ It is, however, from the standpoint of tax titles that the provisions of the Revision of 1860 are especially important. The agitation for reform along this line for many years, followed by the strong recommendations of the Auditor of State and of Governor Kirkwood, resulted at last in fairly ADMINISTRATIVE DECENTRALIZATION 55 specific legislation. Fully seven pages of the Revision deal with the sale of lands, town lots, etc., for unpaid taxes, and the deeds given in the event of such sale. Among other things it was provided that the tax title deed should be signed by the treasurer in his official capacity, and acknowl- edged in a legal way; and that when so executed and re- corded, it should become ^^ prima facie evidence in all courts of this state, in all controversies, and suits in relation to the rights of the purchaser, his heirs or assigns ".^^^ But the problem of delinquent taxes was not solved by this legislation. Complaints again become frequent — especially after the outbreak of the war. The Auditor in his report for 1861 states that "the aggregate amount of delinquent taxes is yearly increasing", and he suggests that the penalty be increased and a uniform system of accounts be established.^^- Governor IQrkwood in his special message also regrets that the tax laws are not ' ' suf- ficiently stringent to compel the prompt pa^Tuent of taxes. "^^^ It is, however, in the first biennial message of Governor Kirkwood that we find the most thorough and compre- hensive treatment of the revenue system. Delinquent taxes, the elements of a good revenue system, the duty of the citizen to pay his taxes promptly, the relative impor- tance of local as compared with State taxes, the necessity of careful administration and strict economy, these and many other important points receive careful consideration. From a table prepared by the Auditor of State the Gover- nor informs us that, of the total tax of $1,700,000 for 1861, only $300,000 was expended from the State Treasury for State purposes, the remaining $1,400,000 being expended for county and other purposes. In other words, of every $5.66 paid by the people of the State as taxes only one dol- lar reached the State Treasury or was used for State pur- poses^ ^^ — a fact which indicated the necessity of careful 56 HISTORY OF TAXATION IN IOWA economy in local as well as State finances. By rigid economy in both State and local expenditures it was suggested that the entire amount of the tax required by the general gov- ernment for war purposes might be raised without increas- ing the rate of taxation. Eeferring to the collection of State taxes from the coun- ties, Governor Kirkwood further reconomended that county treasurers be required to pay the whole sum at fixed times, whether they had received the entire amount of State tax or not. This he believed would stimulate county officials to a more strict performance of their duty. The law mak- ing each county liable to the State for the amount of tax assessed in it was declared to be useless because there was no means of enforcing it.^^^ In this recommendation, it should be noted, the chief executive was again far in advance of his time. The fact is that the amount of State supervision of taxation outlined or at least suggested in the messages of this statesman has not yet been realized in Iowa and may not be for years to come. To appreciate the worth of the document under consideration from a fiscal standpoint, it is only necessary to read the following sug- gestions and recommendations : But while this is true, it is equally true that our finances are not in a healthy condition. The Report of the Auditor of State dis- closes the somewhat startling fact that of the State tax for 1860 and preceding years, there was, at the date of his Report (the 4th day of November, 1861) delinquent and unpaid the large sum of about $400,000 — a sum more than sufficient to cover the entire expenses of our State Government for one year. This large delinquency has occurred mainly within the last four years, and the same Report shows there were at the same date warrants drawn on the Treas- ury to the amount of $103,645, which were unpaid for want of funds, most of which were drawing interest at the rate of eight per cent, per annum. From these facts the following conclusions are inevitable: 1st, ADMINISTRATIVE DECENTRALIZATION 57 That during the last four years there has been levied a State tax larger by about $300,000 than the necessities of the State required. 2d, That this was rendered necessary by the fact that only a por- tion of our people paid the tax due the State. 3d, That the State has been compelled yearly to pay large sums by way of interest on warrants, which need not have been paid had the taxes been col- lected promptly, and the Treasury kept supplied with funds to meet all demands upon it. 4th, That the State being compelled to purchase its supplies with warrants has had to pay higher prices than if it had had the cash to pay. 5th, That the tax-paying por- tion of our people have thus been compelled to pay not only their proper share of the public burthens, but also the share of those who did not pay their taxes, increased by interest and high prices. These things should not be so. They reflect discredit not only on those of our citizens who seek to avoid their just share of those burdens which are imposed upon all for the benefit of all, but also upon the laws which permit them to do so with impunity. I, there- fore, very earnestly recommend to your attention a careful exami- nation of our revenue laws for the purpose of ascertaining if they can be made more effective in enforcing the prompt payment of taxes. The leading features of a good revenue law, in my judgment, are : 1st, The imposition of such penalty for the non-payment of taxes when due, as will make it unmistakably the interest of every tax- payer to pay promptly. 2d, The assurance to the purchaser of property at a tax sale, of a valid title at the expiration of a fixed time. There is, in my opinion, much misapprehension in the minds of many persons on this subject. Some seem to think they receive no value for the money paid by them as taxes, and that they are, therefore, not culpable in avoiding payment if they can. Others, whilst they admit there is some kind of doubtful obligation upon them to pay their taxes, if convenient, yet insist that any strin- gency in the laws to compel payment would be unjust and oppres- sive, and that no greater penalty should be imposed for non-pay- ment than the interest allowed by law between citizens. These are radical errors. Every citizen is protected by the State, in life, liberty, and property, in all he has, and all he may acquire ; and in 58 HISTORY OF TAXATION IN IOWA all his honest efforts for further acquisition ; and in return, he is bound as a good citizen, to render obedience to the laws; to pay promptly his share of the taxes necessary for the support of gov- ernment ; and, in time of war, if need be, to defend the government with his life. If he fails to perfom either of these duties of a good citizen, he is liable to punishment, and the amount added to his taxes for failure of payment at the time fixed by law, is not the interest due upon a debt, but a fine or penalty for the non-perform- ance of a duty. Nor can any one justly complain of this. Why should any one of our people claim that he should enjoy all the benefits of civil government and be exempt from its burthens; that he should have all these advantages at the expense of his neigh- bors? It may be said that some are unable to pay their taxes. This, it seems to me is erroneous. The amount of tax each one has to pay is in proportion to the property he has, the greater the tax the greater the amount of property from which to raise means of pay- ment. I am well convinced that taxes are paid most promptly by our farmers, and by men of comparatively small means, and that there are very few of us who do not spend yearly for articles of luxury which do not promote either our health, our prosperity, or our happiness, more than the sum required from us as taxes for the support of the government that protects us. The subject of revenue and taxation assumes a graver interest and importance at this time, for the reason that our State is called upon, for the first time since its admission, to pay a direct tax for the support of the General Government. We may expect to be called on to pay, during the present year, a Federal tax of from $600,000 to $700,- 000. This is rendered necessary by the heavy expenditures in- curred by the General Government in preparing to put down the Rebellion in certain States of the Union. A resort to loans has been, and must continue to be, necessary to meet these expenses, and prudence and sound economy require that the General Govern- ment shall not be compelled to borrow money to pay the interest accruing upon its loans. The interest upon loans made, and to be made, must be met by actual payment, and not by incurring further indebtedness.^^*' ADMINISTRATIVE DECENTRALIZATION 59 Words like these require no comment or explanation. They have been quoted in full because they are thought to represent the clearest and most sane presentation of what a revenue system should be that can be found in all the documentary material and State papers dealing with the history of taxation in Iowa. The legislative session of 1862 was a stormy and event- ful one. The war was making extraordinary demands both on the Federal government and the loyal States. These demands had to be met in addition to the ordinary expenses of government. It required both money and men to preserve the Union. One of the first acts passed by the General Assembly provided for the payment of taxes in treasury demand notes issued by the authority of the gen- eral government, and the notes issued by the several branches of the State Bank of Iowa. A similar measure had been passed in other States. Much objection had been raised to the payment of taxes in coin. In a contemporary editorial the writer declares that ''tax-payers are at the mercy of the brokers. In this anomalous crisis is it not the duty of the State to relax, somewhat, the rigidity of a financial rule which would be perhaps well enough in times of peaceful prosperity? Outside of Iowa, we are not aware of a State which requires coin, exclusively, of its people in payment of taxes. "^"^^ It soon became manifest that, if taxes were to be promptly paid, some other currency than gold must be provided. Would it not be wise to follow the policy already inaugurated by the general government? The act granting these demands was approved February 17, 1862. It author- ized and required the county treasurer and State treasurer to receive United States demand notes and notes of the State Bank of Iowa and pay them out again in the redemption of outstanding warrants. But this rule was not to apply to the branches of the State Bank of Iowa after any 60 HISTORY OF TAXATION IN IOWA of the said branches had suspended specie payments. ^^* The second act of importance passed during this session was entitled ''An Act for the assessment, levy and collection of the quota of this State, of the tax laid on the United States, by the act of Congress, approved August 5th, 1861^ or any subsequent acts, and the payment of Auditors' war- rants on the war and defense fund."^^^ This bill brought forth considerable discussion in the General Assembly, chiefly concerning the question of rate. Some members thought that one mill was sufficient; others believed that one and one half mills would be required ; and still others held that a two mill levy was absolutely necessary. Mr. Ainsworth favored the object of the bill, but considered that "the amount proposed to be raised was larger than necessary. "^^*^ Mr. Dunlavy thought that one mill was enough. But Mr. Bowdoin spoke with much earnestness in favor of the two mills levy in order to keep up the credit of the State. Many other shades of opinion were expressed relative to the measure. The act as approved March 10, 1862, provided for a levy of two mills on the assessment of 1861. It was made the duty of county treasurers to enter the Federal tax in separate columns and proceed to collect it in the same manner as other taxes,, and they were also required to give additional bonds. Among the most interesting features of the session were the House income tax bill and the Senate reduction of salaries substitute. The question of income taxation was much discussed, and a measure providing for this form of tax passed the House but was defeated in the Senate. ^^^ A bill to change and fix the salaries of the judges of the Supreme Court and district courts and of certain State officers passed the General Assembly on April 7 ; but a veto was recorded with the Secretary of State by Governor Kirkwood on the ground that the measure was unconstitu- tional.162 ADMINISTRATIVE DECENTRALIZATION 61 The last important act relating to revenue passed by the Ninth General Assembly was an act amendatory of Chapter 45 of the Revision of 1860. By its provisions a few changes were effected. The boards of supervisors were required to levy annually the per cent of taxation of the Federal tax according to the provisions of the act outlined above. In addition to one township assessor in each township of the State, it was further provided that there should be elected in each city and incorporated town a separate city or town assessor. Where city or town assessors were thus elected, the township assessor was logically restricted in his duties ''to the persons and property of his township exclusive of the territory of such city or incorporated town"^^^ a pro- vision which meant further decentralization of the impor- tant work of assessment. Finally, the clerk of the county board of supervisors was required to furnish the State Auditor (1) an abstract of the aggregate value and number of cattle, (2) the aggregate value and number of mules, (3) the aggregate value and number of sheep, and (4) the aggregate value and number of swine over six months of age, as the same were returned to the clerk of the board of supervisors by the assessor of his county. A system of tax- ing railway corporations on the basis of gross receipts was established \'^^* and some minor changes were made relative to the sale of real property for delinquent taxes. In his second biennial message of January 12, 1864, Gov- ernor Kirkwood renewed many of his former recommenda- tions relative to the tax system — especially the payment by the county treasurers of their full quota of State tax whether the same had been received or not, the suggestion favoring a percentage to county treasurers on the amount of money collected and disbursed, and the creation of a new system of township collection.^^^ In marked contrast to the vigorous and constructive recommendations of the retiring executive, a policy of opti- 62 HISTORY OF TAXATION IN IOWA mistic conservatism characterized the attitude of Governor Stone. In his first inaugural the new Governor, speaking of the subjects of iinance and revenue, says: "I would recommend extreme caution in their consideration, and advise no change in any of them, unless demanded by obvi- ous utility and sound experience. "^^^ He did, however, recommend the consideration of a possible change from the supervisor system to the commissioner system of county government.^*'^ Little was done by the Tenth General Assembly along the line of tax legislation. An act was passed providing for the payment of taxes and the interest and principal of the school fund in treasury notes issued as legal tender by the United States government, notes of national banks as created by act of Congress, and notes of the State Bank of lowa.^^^ Aside from this no fiscal legislation of importance was enacted; and the supervisor system of county govern- ment was not changed. In his first biennial message of January 8, 1866, Governor Stone again made an optimistic report on the subject of finance and revenue. "Our financial affairs", he said, ''were never in a sounder condition. Dur- ing the entire period of the war we have levied but two mills on the dollar for State purposes; and have incurred an indebtedness of only $300,000, which was for military expenditures during the first year of the war .... Careful observation has satisfied me that any attempt to improve the present revenue system by additional legislation would be an experiment of doubtful expediency. "^ ''^ The follow- ing sums had been expended for military purposes : May, 1861, to November 4, 1861 $233,568.43 November 4, 1861, to November 2, 1863 639,163.85 November 2, 1863, to November 4, 1865 169.231.00 November 4, 1865, to January 1, 1866 4,047.711'*' Most of these expenditures had been made during the ADMINISTRATIVE DECENTRALIZATION 63 period which closed with the fiscal year 1863, and were in- curred to facilitate the military operations of the Federal government and to defray a large part of the expense in- curred in enlisting, transporting, quartering, and paying the volunteer forces organized in the State. These sums thus expended had merely been advanced to the United States and the State would in time be reimbursed under acts of Congress. Two years later, following the suggestions made by Gov- ernor Kirkwood in each of his biennial messages, the Eleventh General Assembly made an earnest effort to enact a law providing for the collection of public moneys by township collectors. A bill was introduced by Senator Hil- singer of Jackson County to create such a system.^ '^^ Space will not permit any lengthy examination of the arguments which were advanced for and against this bill in both the Senate and the House. Senator J. H. Smith said that "his countj^ desired the system of Township Collectors. Under this system the taxes were closely collected. New England had adopted this system, and New England had the reputation of knowing how to make money, and how to keep it. "1' 2 Some members felt that the measure was unconstitu- tional because it did not provide a uniform system for all the counties, but made the adoption of the plan optional with the county board of supervisors, the question to be determined by a two-thirds vote. Still other members com- plained of the expense and trouble of going to the county seat in order to pay taxes. Senator Paulk claimed that "it costs the people of the State of Iowa more to go up to Jeru- salem to pay their taxes than the taxes are in the first place. "^'^^ Senator Ross believed a system of township col- lection would not be practicable "in this young state", es- pecially in the sparsely settled districts. The Senate was closely divided on the merits of the bill. The first vote, 64 HISTORY OF TAXATION IN IOWA taken January 30th, was a tie — twenty votes being cast for and twenty against the measure.^'^'* Not having received a constitutional majority, the bill was declared lost. On the following day, however, upon reconsideration it passed the Senate by a vote of twenty-seven for and seventeen against.^'^^ In the House a similar bill had been introduced by Mr. Bolter on January IQth.^^*^ Both bills were referred to the Committee on Ways and Means and reported back without recommendation.^ '^^ A long and animated debate followed, in which the arguments were, for the most part, quite sim- ilar to those already advanced in the Senate. Mr. Hale op- posed the system because ''under the provisions of the bill the money would pass through too many hands. The taxes would not be collected more readily. The stringent law in regard to delinquent taxes had secured prompt pay- ment more effectually than any other provision could. He was opposed to delegating too much power to the separate counties. Only in extraordinary cases would he favor this kind of legislation which breaks up the uniformity. "^^^ Much objection was raised against the idea of having two different systems throughout the State. Mr. Sapp said that wherever the township system was adopted it was general throughout the State. Here it was proposed to have two systems in operation. This he could not favor.^'^^ On the other hand, many members favored the measure because they believed that it would secure a closer collection of taxes. The majority, however, finally lined up against the bill and it was defeated on March 12, the vote being forty- three yeas and fifty nays.^^*^ At the following session of the General Assembly (1868) a bill along similar lines was introduced by Senator Fairall ; and this bill became a law.^^^ By its provisions the intro- duction of the township system was made optional with the board of supervisors of each county having a population ADMINISTRATIVE DECENTRALIZATION 65 exceeding seven thousand inhabitants. It was provided that the resolution creating such a system should be passed by a two-thirds vote at their regular June meeting; and, in the event of adopting such a resolution, a collector was to be elected annually for such organized township, save the one in which the county seat was located.^ ^^ In the counties thus providing for the township system it was made the duty of the county auditor to prepare a duplicate tax list of each township, which list was to be de- livered, with the original to the county treasurer, who in turn was required to deliver the duplicates to the several township collectors. The provisions regarding monthly statements to the county treasurer and compensation of col- lectors recall to mind the recommendations of Governor Kirkwood. The compensation of township collectors was (1) two per cent of all sums collected on the first two thousand dol- lars and one per cent on all sums in excess thereof collected otherwise than by distress and sale, to be paid out of the county treasury, and (2) five per cent upon all taxes col- lected by distress and sale, to be paid by the delinquent tax- payer, and the same fees in addition to the said five per cent as constables were entitled to receive for the sale of property on execution.^^^ In counties not availing them- selves of the township system, or where the population was seven thousand or less, the county treasurer was given the power to appoint one or more deputies to aid him in the work. In his first biennial message of January 11, 1870, Gover- nor Merrill called attention to the observations and sug- gestions of the Auditor of State in reference to double assessments and the cumbersome mode of keeping tax- books, and suggested that the plan outlined might aiford a remedy ' ' for an evil of great magnitude. ' ' ^^'^ In the report to which the Governor referred there is a 66 HISTORY OF TAXATION IN IOWA careful discussion of a number of important fiscal questions. The Auditor speaks of double and erroneous assessments, points out the advantages of the geographical or congres- sional as opposed to the alphabetical system of assessment for taxation, and recommends the semi-annual payment of taxes into the State treasury. "In place of our present system of assessing and listing lands alphabetically," he writes, ''I would recommend assessing and listing in geo- graphical order, and in making out the tax lists would recommend having nothing more on the list than the de- scription, number of acres, valuation and total tax, instead of the owners' name, description, number of acres, valua- tion, and the tax divided into from ten to a dozen different funds, as it now is." ^^^ According to this instructive report it appears that dur- ing the preceding biennial period $40,808.65 had been remitted on the ground that it represented double and er- roneous assessment. Larger sums had been remitted in earlier periods — a condition of affairs vexatious to county officers, owners, and purchasers of tax titles and expensive to the State and counties. The remedy, he alleged, was to place nothing more on the list than the description, number of acres, valuation, and total tax, instead of the owner's name, description, number of acres, valuation; and the tax divided into ten or a dozen different funds. Such a plan, it was claimed, would be simple, clear, accurate, and less ex- pensive than the old system. These recommendations of the Auditor were in a measure made the basis of legislation. A law was passed by the Thirteenth General Assembly (1870) providing for the con- solidation of certain taxes by which it was enacted that uniform taxes be placed on the tax list in a single column and denominated a consolidated tax, and that tax receipts be printed to show the per cent levied for each separate fund,^^*^ This act has remained a permanent feature of ADMINISTRATIVE DECENTRALIZATION 67 our revenue laws and has done much to simplify the assess- ment roll. The important period of our tax history outlined in this chapter closed with the second biennial message of Gover- nor Merrill. The views of the Governor regarding a high tax rate, under-valuation, and the necessity of imposing statutory limitations on the taxing power may best be told in his own words. "The total valuation", wrote the Governor, "upon which this taxation ($9,371,685.76) was based was in the neighborhood of $300,000,000, making the levy some 3% per cent. This is a heavy — not to say oppressive — rate of taxation. To be sure, it is based on a great undervaluation of property ; upon actual value it would probably be about one and a quarter per cent — certainly not more than one and a half. But this rate, it will be remembered, is an average one throughout the State, and implies, of course, a higher rate in some localities. In fact, a rate twice as high does actually prevail in some parts of the State. It is true that much the larger part of this amount of taxation is levied by the people themselves, or by their immediate representatives in city, township, and school boards. Never- theless, I suggest to the legislature the propriety of adopt- ing a maximum limit of taxation to which any property may be subjected in one year".^^''^ When these statements were made the following maxi- mum rates of taxation were provided by law : State 2 mills County, for ordinary revenue 4 mills County, for schools 2% mills County, for bridges 3 mills Township, for roads 5 mills Total I6I/2 mills In addition, school boards were authorized to levy a tax 68 HISTORY OF TAXATION IN IOWA for a contingent fund and one for a teachers' fund sufficient, with the annual apportionment, to sustain school twenty- four weeks in each year, and longer if desired by the sub- districts. The period of our revenue history from 1857 to 1872 as considered in this chapter may be briefly reviewed. The existence of war and the imposition of a direct Federal tax for that purpose had a marked effect both directly and indirectly on the revenue system of the State. The gross receipts tax on railroads, one-half of the proceeds of which passed into the State treasury, was indirectly a war meas- ure. The profound messages of Governor Kirkwood, revealing the defects of the tax system and pointing out the leading features of a good revenue law, had much to do with strengthening the fiscal power of the State. Tax titles were made more secure and the fiscal reports submitted by the counties to the State were required to be more accurate and complete. Much progress was also made in the solution of the delinquent tax problem. In a word, the administra- tion of Governor Kirkwood, accompanied as it was by the exigencies of civil war, developed a far more efficient system of collecting State taxes than had previously ob- tained. Eegarding the division of fiscal authority as between the county and lesser units of government, considerable ad- ditional legislation was enacted. The county board of super- visors was given power to levy taxes and was made the county board of equalization. In 1862 an act was passed providing for city and town assessors, which was supple- mentary to the earlier act definitely establishing the town- ship system of assessment. As already indicated these measures resulted in the complete decentralization of the machinery of assessment, and for that reason they might with propriety be entitled "A series of acts to guarantee ADMINISTRATIVE DECENTRALIZATION 69 the administrative failure of the general property tax". Finally a law was enacted in 1868 making township col- lection of taxes optional in counties having a certain popula- tion. Thus in optional township collection, but especially in township, city, or town assessment, we note the passing of fiscal authority from the county to the lesser units of government. On the other hand, the strengthening of the fiscal i30wer of the State meant a passing of authority away from the county in the opposite direction. When, however, the question was asked, should local assessors be granted the power to meet at the county seat and equalize the results of their own labors, it was answered in the negative by the creation of a regular county board of equalization. Briefly stated, the period was a mixture of centralization in name and decentralization in fact, some nominal power being transferred to the State while the real substance of fiscal authority was absorbed by the local units of government. In conclusion, the enactment of a law providing for a con- solidated tax list, the recommendation of Governor Merrill for the semi-annual pajTuent of taxes, the arguments in favor of the geographical or congressional system of assess- ment, and especially the necessity of imposing statutory limitations on the taxing power should be remembered for the important bearing which they have on later develop- ments. IV ADMINISTEATIVE FAILURE OF THE GENERAL PROPERTY TAX 1873-1910 When the Code of 1873 was adopted much of Iowa was no longer a pioneer section. In fact the Commonwealth had just passed through a period of great industrial expansion — an index of future development. Corporations were being rapidly organized, which meant consolidation on the one hand, and the rapid growth of intangible wealth on the other. In striking contrast with the industrial centraliza- tion, which even at that time was becoming a serious prob- lem, should be noted the administrative decentralization which characterized the field of public finance. How this system operated, or in other words the administrative fail- ure of the general property tax, is clearly revealed by an impartial examination of the facts of our revenue history. In 1873 the tax levy for the State was made by the Census Board, and for the local units by the county boards of super- visors — the levies in each case being fixed within certain specific statutory limitations. The assessment was made by township assessors chosen annually by popular election. Attention has also been called to the growth of a more com- plete system of statutory equalization, consisting of (1) the township board of equalization, composed of township trus- tees or the city council, (2) the county board of equaliza- tion, composed of the board of supervisors, and (3) the State board of equalization or Census Board. Finally, the collection of taxes was made by the county treasurer as- sisted by deputies, or under certain conditions in coopera- 70 FAILURE OF THE GENERAL PROPERTY TAX 71 tion with township collectors. ^^^ Such in a word was the machinery created by acts of the General Assembly for the administration of the general property tax.^^^ The fact that this revenue system had been gradually developed at the cost of much printer's ink is evident when we compare the Code of 1873 ^^*^ with the Revision of 1860}^'^ The powers of the county board of supervisors the classification of taxable property, also of property exempt from taxation,^^- the duties of the assessor, the tax list and its preparation, the equalization of taxes, the pro- visions regarding delinquent taxes and tax sales, in fact the fundamental elements of our revenue system remained essentially the same. The few changes which were made may be briefly summarized.^^^ The clerk of the county board of supervisors was super- seded by the county auditor. A township board of equaliza- tion had been created with power to increase or diminish the valuation of any piece of property, or the entire assess- ment of any taxpayer, in case such action was deemed nec- essary for an equitable distribution of the burden oif taxation upon all the property of the township.^*^^ The time of making reports was changed in some cases. Under the Code of 1873 classifications of property were made by the boards of supervisors at their annual meeting in Jan- uary, while by the terms of the Revision such classifications had been made by the assessors at an annual meeting held in the office of the clerk of the county board of supervisors on the second Monday in January.^^^ It was further pro- vided in 1873 that a certificate of such classifications be furnished each assessor by the county auditor on or before the fifteenth day of January,^^*^ and that the assessor be required to enter upon the discharge of his duties on the third Monday in January and on or before the first Monday in April of each year deliver to the clerk of his township one of the assessment books to be used by the trustees for 72 HISTORY OF TAXATION IN IOWA the equalization of assessments and the levy of taxes for township purposes.^^^ Under the Revision of 1860, the assessor had been required to enter upon the discharge of his duties on the second Monday in January, and to make his report to the clerk of the county board of supervisors on or before the third Monday in May.^^^ The powers of the county and State boards of equaliza- tion remained the same. Moreover, it should be noted that these boards deal with the "aggregate valuation" of property and not with inequalities as between individual taxpayers.^ ^^ The Census Board was superseded by a similar board known as the Executive Council, consisting of the Governor, Secretary, Auditor, and Treasurer of State,-*^^ which was required to meet on the second Monday in July to determine the State tax rate and equalize the valuation of real property among the several counties of the State, the equalization to be completed on or before the first Monday in August. -°^ By the provision of the Code of 1873 the time of making the tax levy by the county board of supervisors was changed from their regular meeting in June to their regular meeting in September — thus giving more time to make returns and complete the assessment roll and tax list.-*^- No demand for taxes was deemed necessary, it being made the duty of the taxpayer to call at the office of the treasurer and pay his taxes some time between the second Monday of Novem- ber and the first day of February. The work of collection was placed in the hands of the county treasurer, assisted by deputies or in cooperation with township collectors as already noted.^^^ The provisions regarding delinquent taxes were made more elaborate and the penalties some- what more severe than under the Revision of 1860 ; but when a careful analysis has been made the changes along this line prove to be more nominal than real. The question naturally arises, what had been accom- FAILURE OF THE GENERAL PROPERTY TAX 73 plished? The old evil of grossly unequal assessments (that is, of unjust taxation) continued to exist and, indeed, be- came a very serious problem. From the standpoint of fiscal administration the State seemed to have no definite, well- conceived policy. While it may be affirmed that some fiscal authority had passed from the county to the State during the period from 1857 to 1872, it is a recognized fact that the township, town, and city had become the all important units of fiscal administration. It is interesting, indeed, to note how a small measure of fiscal centralization (a centraliza- tion largely on paper) was accompanied by fiscal decentral- ization (a decentralization in fact). The fiscal authority of the county decreased both in form and in substance — the form going to the State and the substance passing to the township, town, or city.-*^^ The revenue system, which had its inception in pioneer days, was destined to be less and less adapted to the conditions of a wealthy industrial Com- monwealth. It would be erroneous to say, however, that no progress had been made during the period from 1857 to 1872. For certain corporations special forms of taxation with more or less merit had been developed. A more complete clas- sification of taxable property had been made. Many gaps in the law relative to delinquent taxes, the manner of mak- ing financial reports, the security of public funds, and equal- ization, had been bridged over. In short, some effort had been made to adapt the general property tax to the rapidly changing conditions of the economic life of the people. The General Assembly from time to time had diligently en- deavored to add new cloth to an old fiscal garment, leaving it the same garment still. It will be the purpose of this chapter to record the history of the failure of this system of general property taxation, which as early as 1872 was the result of a generation of almost constant legislative en- actment in Iowa. 74 HISTORY OF TAXATION IN IOWA In his report for 1873 the Auditor of State suggested the propriety of making a change in the mode of report- ing and collecting the State revenue. The amount of tax- able property for each county, appearing on his books as reported by county auditors, he alleged, was subject to con- stant change from additional assessments, erroneous as- sessments, or taxes declared to be unavailable. ''It would very much simplify the mode of doing the business", he writes, "if the counties were made responsible at once for the full amount of tax, as shown by the tax levy in each year, without allowing any change to be made by any of those deductions or additions, provided for under our pres- ent law."-^^ This recommendation was endorsed by Gov- ernor Carpenter who suggested also that it might be well to collect the taxes semi-annually instead of annually, as then required by law.^^*^ The Fifteenth General Assembly (1874) added practically nothing to the revenue laws of the State. Two years later the Auditor of State endorsed the recommendation of his predecessor that each county be held absolutely responsible for the full payment of the annual State tax. ' ' I believe ' ', says the Auditor, ''in the practicability of the method proposed, and altogether the plan commends itself to my unqualified approval." -°^ To compensate for this ad- vantage, it was further suggested that all the interest col- lected upon State tax levies, together with the amount received from peddler licenses and certain additional as- sessments, be surrendered to the counties. This, it was believed, would prove an incentive to more efficient ad- ministration. Two other points are clearly stated in the Auditor's report : first, fully ten per cent of the amount of taxes levied was for various reasons uncollected and so absolutely lost; and, second, property was by no means assessed at the true cash value as provided in the Code of 1873. In this con- nection the words of the Auditor are significant. FAILURE OF THE GEx\ERAL PROPERTY TAX 75 *' Notwithstanding the law is thus explicit," he says, ''it is notorious that it is not obeyed, and in but few cases is there any pretense of observing the requirements of the statute; not because the law is regarded as unreasonable, nor impracticable of compliance, but rather that years of following in a wrong direction have established a custom, which individual officers are loth to depart from, lest the neighboring locality, in not coming up to the correct stand- ard, shall escape with a less amount of taxation, than that in which the assessor makes the effort to correct the evil. As a consequence, real property is not generally reported at more than one-third its actual value, and even that differs so much in localities, and as often in contiguous townships as otherwise, that it is difficult to conceive the motive, or standard of value, governing the assessor. The theory of the law is, that these inequalities are corrected by the action of the several boards of equalization, whose duty it is, each in its own sphere, to harmonize these values, and cause the burden of taxation to rest equally upon all por- tions of the State. This could be better done, were the State destitute of cities, and comprised an agricultural region only. As it is, the values of realty in town, and country, are relatively grossly disproportioned, and when taxes are levied, one or the other bears more than its proper share. A glance at the last assessment reveals the fact, that, whereas some cities are rated far below others of the same class, the lands of the county within which the city is located are often placed at so high a figure, when com- pared with other counties that the board of equalization is powerless to establish proper values for the city without manifest injustice to the country, and vice versa. The State Board is unable to make a just equalization, because no authority is given to change the assessment of a city with- out a corresponding increase or decrease as to all the real estate in the county. It would be well to amend the law, 76 HISTORY OF TAXATION IN IOWA and authority be given the State Board to excerpt, when necessary, the cities from the counties, and fix upon either, independently of the other, such a percentage of increase or decrease as justice would seem to demand relatively with other property in the State of the same general class, and substantially as is now done between the different counties." -'^^ These suggestions and recommendations, it will be ob- served, read like an up-to-date document. Indeed, they might be reproduced to-day and be as true of present con- ditions as they were of conditions in 1875. We are told that assessments were then grossly unequal; that real property was assessed at about one-third of its value; that the motive or standard of value governing the assessor was an unknown quantity; and finally, that the work of the various boards of equalization in correcting inequalities of assessment was nominal and not real. A palliative was of- fered in the recommendation that the State Board be given jDower to make a separate equalization for cities. In a word, we have here a clear statement of the evils then ex- isting with no definite program for their solution. Governor Carpenter gave his approval to the recommen- dations that the appropriation year and fiscal year begin and end on the same day, that the counties be held respon- sible for the collection and payment into the treasury of the State tax, that the board of equalization be given power to equalize between the realty in cities and the lands outside, and finally, that many forms of property be taxed, which, from the failure of the local assessors to reach them, now escape their just share of the public burden.-*^ ^ But not- withstanding these recommendations and suggestions and notwithstanding the many obvious defects of the tax sys- tem the Sixteenth General Assembly (1876) accomplished nothing along the line of revenue reform. In the State executive documents of 1877 more complete FAILURE OF THE GENERAL PROPERTY TAX 77 and urgent recommendations along the line of taxation appear. For the first time we find in the Report of the Auditor of State a specific criticism of the method of local assessment. ''So long as we adhere to local assessment only", writes the Auditor, "I can see but little opportunity for improvement. It has occured to me, however, that with some modifications of the system, a more equitable valua- tion may be realized." ^lo The Auditor mentions two ways of securing this more equitable valuation. The first suggestion is especially note- worthy.2^^ "In some States", suggests the Auditor, "this labor is performed under the general direction of a county assessor. Such plan would not avail here, without authority to appoint a sufficient number of deputies to complete the work within the time necessary, or investing the officer with control of the township and city assessors; in which case we would be reasonably sure to accomplish a more equal valuation of all kinds of property, inasmuch as all would be done under one supervision." -^^ Strange as it may seem these words reflect a bit of real fiscal statesmanship. But how is a more equitable valuation to be secured? And what should be the seat of fiscal authority? Two plans are possible: a county assessor with deputies to complete the work in the required time ; or the same official may be given supervision over city and township assessors. Reduced to its lowest terms, this is the old question of the county versus the township from the standpoint of administration. The Auditor, however, confesses a prejudice in favor of the method of assessment by local officers, elected by the people in each city and township, and he suggests as a second avenue of necessary reform that all the assessors of each county be required to meet at the courthouse on the first Monday in January and adopt a general schedule which should govern the work of assessment for that year. In the same report we are told that the inequalities sug- 78 HISTORY OF TAXATION IN IOWA gested regarding real estate were even more conspicuously true of the assessment of personal property. ''A glance at the returns for the present year will convince the most skeptical, that not only is the property undervalued, but that a large proportion of the personal wealth of the state, entirely escapes taxation." -^^ With such gross inequali- ties but one result was possible — the maximum rate of tax allowed by law. Were all property assessed at its true cash value, as the law really contemplated, the result would be a substantial reduction of the tax rate.^^"* Even land, according to the Auditor, was being assessed at less than half of its actual sale value. The biennial message of Governor Newbold of January 15, 1878, contains some important recommendations along the line of tax reform. He reiterates the opinion that the counties should be made absolutely responsible for the State tax, "being firmly persuaded as I am that every year's experience continuously demonstrates the unbusiness-like character of the present mode of keeping the revenue ac- counts with the counties ".-^^ He also recommends the semi- annual payment of taxes, and suggests that the law be so amended ''as to require the counties to pay into the state treasury only the tax on realty, leaving the corresponding tax on personalty in the county treasury." -^"^ The merit of such a system, he held, was the removal of an incentive to the undervaluation of personal property by making the adjustment of the same entirely a county function. This type of county option calls to mind one form of present day tax reform of which more will be said later.-^'^ The question of State finances at this time became an im- portant topic of discussion in the State press. The State had a floating warrant debt of about $350,000 which meant either that expenditures must be materially reduced or that some new plan must be devised for raising additional revenue. The Dubuque Times placed the responsibility for FAILURE OF THE GENERAL PROPERTY TAX 79 the depleted condition of the treasury upon the General Assembly of 1876 which, it declared, ''was one of the most reckless and irresponsible legislative bodies that ever con- vened in our State ".-^*^ Many other papers, however, did not share this view. The Cedar Rapids Republican and the Council Bluffs Nonpareil expressed the opinion that the rate of assessment and not the rate of taxation should be increased. The Sioux City Journal held similar views. ''The secret of the trouble", declared the editor, "lies in the fact that while the expenses of the State have been largely and legitimately increased under the wretched system of assessment pursued, the income of the State has remained very near the same. The State revenue is really but a trifle more now, under the same nominal rate of tax- ation, than it was eight and ten years ago. This is a fact worth considering in connection with the information con- tained in our census reports showing the increase in popula- tion and wealth of the State in that time. As things are, taxes are not equally laid, and the laws as they exist are by no means executed." -^^ Such a condition of fiscal af- fairs, it was claimed, would prove injurious to the State. With much property given only a nominal value and a large amount entirely escaping the burden of taxation, the remainder would be required to bear an exorbitant rate — a condition detrimental to the industrial progress of the State. A bill was introduced in the House of Representatives providing for the payment of taxes in semi-annual install- ments at the option of the taxpayer, and further provid- ing that the counties be made responsible for the full amount of State taxes charged against them upon the books of the Auditor of State.^^o This bill, however, failed to be enacted into law — a failure due, first, to the feeling that a more urgent need was the removal of unnecessary burdens rather than the semi-annual payment of such burdens, and 80 HISTORY OF TAXATION IN IOWA second, to the opposition developed against making the counties absolutely responsible to the State, when it was a matter of common knowledge that so large an amount of property (especially personal property) was evading tax- ation altogether. In his report for 1879 the Auditor of State repeats many of his former recommendations. He continues to complain that the assessment of property throughout the State is made at less than one-half and frequently at not more than one-third of its true cash value. ^'I have heretofore be- lieved", he writes, ''and yet hold to the opinion, that if the law was adhered to, it would be better for the people than the pernicious custom which now prevails ".-^^ He further recommends that the taxpayer be required to state on a printed blank a complete list of his personal estate sub- scribed by himself, and that the assessor be given more time in which to complete his work. By thus perfecting the law, he hoped to reach a large amount of personal property that was entirely evading the burdens of taxation.-^s Governor Gear also recommended remedial legislation relative to personal property and suggested that taxes be made payable semi-annually. An amendment to the law requiring each assessor to make oath to the board of super- visors that the provisions of section 825 of the Code of 1873 had been carried out by him before receiving com- pensation for his work, the Governor believed, would have a tendency to secure the better enforcement of the law. A fourth suggestion made in this message of January 13, 1880, is worthy of special attention both from the standpoint of assessment and the necessity of statutory limitations on the local taxing power. "If the property of the state", he says, ''were to be assessed at its real value — a consumma- tion most desirable for her reputation both at home and abroad — the result would be nearly, if not quite, to double the taxes, not only of the state, but of the counties, cities, FAILURE OF THE GENERAL PROPERTY TAX 81 and lesser taxing districts, by reason of the fact that the law permits the county and city authorities to levy a certain percentage of taxes, which is usually done in most cases to the maximum limit. If the percentage of taxes now authorized by law were decreased by about one half, the result, in my opinion, would be that the next assessment of property would be at, or nearly on a basis of, its cash value, while the aggregate of taxes would not be increased thereby." 223 Early in the session of the Eighteenth General Assembly (1880) the fight for semi-annual pajonent of taxes began in earnest. A bill was introduced by Mr. Pliny Nichols of Muscatine,--^ providing that taxes be made payable semi- annually on or before the first day of March and on or before the first day of September following. The leading arguments in favor of the bill were well stated by Mr. Nichols in a communication to the loiva State Register.-^^ Chief among these arguments should be mentioned the claim that fully six million dollars was raised long before it was needed — which merely represented so much dead capital that might prove beneficial to the banks, but was a positive loss to the taxpayer. Mr. Nichols made an able and earnest defense of the measure. A similar law had been enacted in Ohio and In- diana, and in the former State had been in force for twenty- one years. New Jersey permitted the payment of taxes in four installments. Upon investigation the system was found to have met with success where it had been tried. A letter received from the Ohio Auditor of State claimed that semi-annual payments were ^^so much superior to the old annual system that under no circumstances could we be induced to repeal the present law."--® Continuing the ar- gument, the author of the bill stated that objections to semi- annual payment of taxes could come from only three sources: first from a few officials who regarded their own 82 HISTORY OF TAXATION IN IOWA ease more than the interest of the people ; secondly from a few banks that would serve themselves at the expense of the taxpayer; and lastly, from a few citizens who considered the power of a few officials and capitalists more than they did the general welfare of the public.^^^ The bill passed the House February 20, 1880, the vote be- ing eighty-four yeas and fourteen nays.^^^ It was at once transmitted to the Senate and on the following day was re- ferred to the Committee on Ways and Means.^^^ A substi- tute bill was prepared which" was reported back on March 1st with the recommendation that it be indefinitely post- poned.-^^ Mr. Nichols, however, was not to be defeated with- out a struggle. "I have learned this morning, to my sur- prise," he said, ''that the Ways and Means Committee, which is composed of a majority of lawyers and bankers, have 'set down' on the bill, and that . . . there will be little show for any measure that looks to the relief of the tax payers of the State ".-^^ The measure was debated in the Senate and recommitted to the Committee on Ways and Means on March 8th, only to be reported back for indefinite postponement. -^2 Thus was defeated the earnest effort for semi-annual pay- ment of taxes. The same zeal which characterized this con- test was also manifest along other lines of fiscal reform. The majority realized the need of better tax laws, but no one came forward with a definite workable policy. Some members believed that the system of keeping county ac- counts should be remedied by having all tax receipts coun- tersigned by the county auditor.-^^ Others held that a sat- isfactory remedy could be secured by giving larger powers to the State Board of Equalization. A writer in the loiva State Register says that "there seems to be a general desire on the part of our legislators at Des Moines to greatly im- prove our assessment laws, but as yet no definite plan or measure has been proposed that promises to remove the FAILURE OF THE GENERAL PROPERTY TAX 83 evils of our present system of doing that branch of the pub- lic business. The trouble, as it seems to us, arises not so much from the want of compliance with the statutes already on our books. Make the laws more stringent and mandatory, if you can, and then confer large discretionary and remedial powers upon the State Board of Equalization. That might serve to bring our assessors and supervisors up to a sense of the obligations imposed upon them when they take their official oaths. "234 Numerous bills were introduced in order to remedy the defects of the revenue system, but in the absence of a defi- nite coherent policy they failed to pass.^^^ After a prolonged debate, a law as finally enacted appropriating $300,000 and making a special levy not to exceed one-half mill on the dol- lar for the payment of the War and Defense Bonds author- ized by the Eighth General Assembly and due July 1, 1881.-^^ Aside from this measure no fiscal legislation of im- portance was enacted in 1880 — and this in spite of the fact that the House had passed the following resolution instruct- ing the "Ways and Means Committee to secure a way of catching the untaxed millions : Whereas: There is and has been for several years in this State great complaint about the failure of assessors to assess all the prop- erty there is in the State, and Whereas: It was early urged upon this General Assembly, by the public print and all classes of property holders, that one of the highest duties should be to improve our Revenue Laws, so that there will be a more efficient assessment of property and especially per- sonal property, and Whereas, It is claimed by able statisticians, that there is as much personal property in this State in value, as there is in realty, and yet the report of the Auditor of State shows that the personal property assessment of 1879 was but $79,618,995, a trifle over one- fourth the assessed value of real estate, and Whereas, It is beheved that the question of getting all species 84 HISTORY OF TAXATION IN IOWA of property equally and fairly assessed is one of the most important duties of the General Assembly, and Whereas, There is now before the Ways and Means Commit- tee of the House, several important bills intending to remedy the defects above set out : therefore be it Resolved, By this House, that the Committee of Ways and Means are hereby instructed to perfect, at as early a date as possible, and report to this House a bill which ^\'ill meet, as far as possible, the wants of our Revenue laws, as stated in the preamble hereto, and as more fully shown on pages 6, 7 and 8 of the last biennial report of the Auditor of State.-^^ Two years later the Report of the Auditor of State was even more pronounced in favor of revenue reform. How to prevent double taxation, secure a more uniform assessment of property at its full cash value, and place a larger amount of personal property, especially credits, on the tax roll were among the problems which received special attention in the report. Personal property had only increased from $75,201,- 885 in 1871 to $89,327,400 in 1880. It was estimated "that the burthen of taxation is laid upon the realty as three is to one, or nearly so."-^^ To the argument that the local au- thorities would levy the full percentage of the true cash value of property, the Auditor replied by recommending that the General Assembly amend the law authorizing the levy of taxes by reducing the maximum levy from six and four mills to three and two. In this way he hoped to force local officials to obey the assessment laws.-^*^ Governor Gear again recommended the advisability of making taxes payable semi-annually, a policy which he said would keep several million dollars in the hands of the people which, under the existing system, was locked up in the treasury or deposited in banks. ^^"^ The question of fiscal re- form again received the serious attention of the General Assembly. But the experience of 1880 was repeated. The advocates of reform did not seem to have their plans care- FAILURE OF THE GENERAL PROPERTY TAX 85 fully made. There were many ideas of what should be done, but no definite program was proposed. At least three bills were introduced into the Senate in re- lation to the duties of boards of equalization. They were referred to the Committee on Ways and Means of which Senator "William Larrabee was chairman, and a substitute offered with the recommendation that the substitute do not pass.^'*^ Another bill in reference to the time of paying taxes was disposed of in the same manner. The Committee on Ways and Means also made an adverse report on the bill providing for semi-annual payment of taxes.^^^ Senator Larrabee considered that this bill "was a good deal like some of the measures of the Greenback party, and thought its passage was not demanded by the best interests of the taxpayers of lowa.-^^ But Senator Nichols was determined to make an effort to secure the enactment of his favorite measure. Two years earlier he had secured its passage in the House. He was now a member of the Senate Committee on Ways and Means, and in that capacity drafted an able minority report. ^^^ In this minority report it was claimed that semi-annual pay- ment of taxes would materially reduce the delinquent tax list and annual tax sales ; that many defalcations would be prevented ; that five million dollars would be left in the hands of the taxpayers of the State for an additional six months to be used in legitimate enterprise ; that government expenses had, as a rule, to be met gradually and therefore lump sum payment would always leave a large amount hoarded in the treasury; and finally, that the system was in vogue in other States and always tended to lighten the burdens of taxation. The minority report was in fact a brief but clear and convincing exposition of the arguments favor- ing semi-annual payment of taxes. It will be noted that the arguments are essentially the same as those presented in 1880. Senator Nichols made a 86 HISTORY OF TAXATION IN IOWA vigorous contest through the press and had many strong supporters in the Senate, but he was unable to secure the passage of the bill. After a prolonged debate it was finally referred to a special committee and def eated.-^^ It is apparent, however, that the sentiment in favor of tax reform had become much stronger than it was in 1880. There was a growing conviction among thoughtful men that the revenue laws presented a lack of system in the assess- ment, equalization, local levy, and finally in the manner of expending the various funds. There was also a duplication in the holding of local offices which amounted to chaos and resulted in a complete absence of official responsibility and therefore a squandering of the public funds. -^"^ It was not uncommon to find a person holding the office of assessor and trustee at one and the same +ime, thereby making the assess- ment and also helping to equalize it. In other cases the same person would hold the offices of town clerk and road super- visor, thus drawing the funds out of the county treasury and paying them to himself. Under such conditions one is not surprised at the question frequently asked: Is it any wonder that people's taxes are squandered? The only fiscal legislation enacted by the Nineteenth Gen- eral Assembly (1882) which should be noted in this chap- ter was : first, the law providing for biennial election of lo- cal assessors and granting additional assessors to cities of over ten thousand inhabitants;-^^ second, the acts transfer- ring the war and defense bond tax to the State revenue f^^ and third, the act levying an additional one-half mill "for the purpose of reimbursing the general revenue fund of the State on account of money paid out of said fund for war debts, and for the completion of the new capitol and the better support of the state institutions."-^'' In other words no reform of a general nature was enacted into law. The revenue system of the State remained substantially the same with all of its imperfections. FAILURE OF THE GENERAL PROPERTY TAX 87 In the Twentieth General Assembly (1884) the struggle for tax reform was renewed. The Auditor of State again recommended that the counties be made responsible for the amount of taxes levied for State purposes (said amount to be paid in four equal quarterly installments), the coun- ties, in turn, to receive the benefit of all additional assess- ments and all penalties on delinquent taxes.-^^ This view was heartily endorsed by Governor Sherman. "It is the only equitable method whereby counties will be placed upon a real level with each other", he said, *'and at the same time make certain the revenues to the State, which it will readily be seen is of vital importance to intelligent legislation. "251 The chief executive also urgently endorsed the advisability of allowing taxpayers, at their option, to pay their taxes in semi-annual installments. Senator Nichols for the third time introduced his bill to make taxes payable semi-annually.-^- It received a favorable report from the Committee on Ways and Means and passed the Senate with but little opposition.-^ ^ In the House, Mr. Lewis Fordyce moved to strike out the enacting clause, which resulted in a spirited debate.-^^ The bill was finally passed by a large majority.-^^ During the course of the House debate on the semi-annual tax bill, an amendment was introduced by Mr. Welcome Mowry reducing the penalty on delinquent taxes.^^® There was a strong sentiment in the State at this time against so heavy a penalty on delinquent taxes and also against pub- lishing the delinquent tax list. In other words, the people were in favor of passing laws but did not care to enforce them. The Mowry amendment placed a premium on lax ad- ministration for the obvious reason that a sure method of avoiding penalties was to obey the law. The spirit of the amendment may be paraphrased in these words: We will pass all the laws you desire, providing you will agree not to administer them.^^'^ 88 HISTORY OF TAXATION IN IOWA Public sentiment was so strong, however, that the Mowry amendment prevailed. The semi-annual tax bill as it finally passed and became law provides a penalty on delinquent taxes ' ^ at the rate of one per cent per month thereafter until paid."-^« Section 866 of the Code of 1873 had provided pen- alties ''at the rate of one per cent, a month on the amount of the tax for the first three months, two per cent, for the second three months, and three per cent, a month there- after."-^^ The amendment under consideration meant, therefore a reduction of penalty from a maximum rate of thirty- six to a maximum of only twelve per cent annually. This bit of our financial history is worthy of careful study from the standpoint of how not to secure efficient tax admin- istration. The law providing for the semi-annual payment of taxes may best be understood by a careful reading of its principal section. ''No demand of taxes", reads the law, "shall be necessary, but it shall be the duty of every person subject to taxation to attend at the office of the treasurer, unless other- wise provided, at some time between the first Monday in January and the first day of March following, and pay his taxes in full ; or, he may pay the one-half thereof before the first day of March succeeding the levy and the remaining half thereof before the first day of September following; provided, that in all cases where the half of any taxes has not been paid before the first day of April succeeding the levy thereof, the whole amount of taxes charged against such entry shall become delinquent from the first day of March following such levy; and in case the second install- ment of any taxes be not paid before the first day of October succeeding its maturity, penalty shall be computed on such installment from the first day of September designating the maturity of such installment ; provided also, that in all cases where taxes are paid by installment as herein provided, each of such payments, except road taxes, shall be apportioned FAILURE OF THE GENERAL PROPERTY TAX 89 among the several funds for which taxes have been as- sessed, in their proper proportions. And if any one neglect to pay his taxes at or before maturity, as herein provided, the treasurer may make the same by distress and sale of his personal property not exempt from taxation, and the tax list alone shall be sufficient warrant therefor."-'''^ This review of the work of the Twentieth General Assem- bly may be concluded by a brief reference to the mortgage tax bills,-*^^ which will be studied in a later chapter, and to the tax bill introduced by former Governor Carpenter. This important bill embodied a number of recommendations which are already familiar to the reader. Governor Car- penter had presented some of them in his messages to the General Assembly. The maximum rate of penalty on delinquent taxes was to be two per cent a month.-"- Counties were to be held directly responsible for the State tax — the same to be paid in four quarterly installments. The valua- tion of counties was not to be altered by the State Board of Equalization. Finally, all penalties for delinquent taxes, additional assessments, and peddlers' licenses were to be given to the counties.-"^ The bill, however, met with much opposition and was easily defeated by a large majority. The State of Iowa was not ready for a measure of this kind. Tax reform was proceeding on an evolutionary basis. The title of this chapter. Administrative Failure of the General Property Tax, should not be taken to mean that this tax has been an absolute failure. Through the levy of high and discriminating rates the necessary revenue for State and local government has been secured. On the other hand, it should be recognized that a perfect system of taxation is impossible. But when the history of taxation in Iowa is carefully and judiciously weighed, it may be safely alleged that the general property tax from the standpoint of admin- istration has been a failure because the revenue laws have not been able to guarantee even relative justice between in- 90 HISTORY OF TAXATION IN IOWA dividuals or local units of government under the changed industrial conditions of the last generation. Fiscal authori- ties are practically unanimous in their verdict that the gen- eral property tax, as that term is usually defined and under- stood, has become an anachronism. The people of Iowa have slowly realized this condition and have endeavored by legislation to prevent it. Since the first revenue act was passed in 1839 — a period of seventy years — an effort has been made to create an efficient system of taxation by the enactment of law. The whole body of this fiscal legislation may be conveniently classified under two heads: first, laws establishing general machinery for the levy, assessment, equalization, and collection of taxes; sec- ond, laws relating to specific problems in taxation. In this connection it is not possible to give absolute dates. It has already been noted that the main outlines of our general revenue system are to be found in the Code of 1851.^^^ When the Code of 1873 and more especially the semi-annual tax law of 1884 are reached we are brought face to face with what is practically the fiscal system, State, county, and local, of to-day. On the other hand, laws relating to specific problems in taxation are also to be found incorporated in the Code of 1851. -^'^ During the generation following the enactment of the Code of 1851, while many laws were being enacted to perfect the general machinery of taxation, other laws were passed creating special methods for the taxation of rail- roads, insurance, telegraph, express companies, etc.^'^*' By 1884 the pendulum of statutory tax reform, so-called, had shifted from general to special legislation. Nearly half a century of the former had failed to evolve a satisfactory scheme of general property taxation. The remaining chap- ters of the narrative dealing with some special problems in taxation will present a different type of statutory reform. The general narrative from 1884 to the present time FAILURE OF THE GENERAL PROPERTY TAX 91 (1910) is therefore necessarily brief.-^^ In the Report of the Auditor of State for 1885 the recommendation that the counties be made responsible to the State for the full amount of State tax levied on the equalized total value of the property in each county was again offered. Concerning the enforcement of tax laws, this pertinent suggestion is noted: "AVliat is wanted is not so much penalty for non- performance of the required duties, as direct provisions for enforcing performance thereof. ' ' ^^^ Tables are presented to show the low and discriminating assessment of real estate and especially of personal property. ' '-^'^ It is further main- tained that such a system of discrimination and low valu- ations "cannot be justified on any grounds consistent with the welfare and credit of the state and its various sub- divisions." -"*^ Governor Sherman in his second biennial message speaks of the gratifying success of semi-annual pajTnent of taxes and makes a strong plea for uniform assessments; but he did not believe with the Auditor that the State Board of Equalization can have that direct and intimate knowledge of all the counties of the State necessary to the proper equalization of live stock values. The Governor thought that "if the expenses of the State government could be so adjusted that each county might assess itself without regard to valuations in those adjoining, a happy result would be attained."-'^ In order to attain this "happy result" two somewhat radical plans are suggested: first, a division of the State expenses among the counties on the basis of population; or second, "levying a tax directly upon the rail- road property as assessed by the Executive Council, which rate should not exceed the average tax levies throughout the State for the preceding year, and requiring the same to be paid into the State Treasury." ^'^2 The latter alternative is especially important as being the most direct reference made by an Iowa Governor to the 92 HISTORY OF TAXATION IN IOWA question of local option in fiscal affairs and the separation of revenue sources.-" Judged from the standpoint of revenue reform the second message of Governor Sherman is an able, constructive document.^'^ Manifestly the suggestion that State expenses be apportioned among the counties on a basis of population should not be taken seriously, but the alternative plan of taxing railroads for the benefit of the State treasury at the general average rate levied on prop- erty throughout the State has much to commend it. In fact this system was applied to telephone, and telegraph com- panies until rendered impossible by an adverse decision of the Supreme Court.^^'^ During the session of 1886 there was much discussion concerning homestead exemption and the taxation of mon- eys and credits which resulted, however, in no legislation of importance. Two years later the executive documents are once more filled with complaints regarding low dis- criminating assessments. "Writing in 1887 the Auditor of State comments: "Under the present system of assessing property, the State of Iowa suffers in comparison with other States, both as to valuation of property and rate of taxation ; and at the same time the tax payer is not benefitted, as an increase in assessment would result in a corresponding decrease in rate of taxation. "^^"^ Governor Larrabee, in his message of January 11, 1888^ after a few clear statements concerning undervaluation and the full responsibility of counties for State taxes, called attention to the bill pending before Congress for refunding the direct tax levied during the Civil War.-"^ Under the act of Congress approved August 5, 1861, Iowa had paid over to the United States $384,274.80 — which amount would be refunded. The Governor recommended that the General Assembly memorialize Congress for the speedy passage of the bill, which he said should become a law.-'^ During the session of 1888 the Gatch homestead exemption bill and the FAILURE OF THE GENERAL PROPERTY TAX 93 taxation of mortgages and credits were also considered. In his second biennial message, Governor Larrabee pointed out that ''personal property continues to escape bearing its share of the public burdens. While the assessed value of real estate has during the last twenty years been advanced about 70 per cent, that of personalty has in- creased only 44 per cent during the same period. It is true that personal property, when assessed at all, is ordinarily rated higher in proportion to its commercial value than real estate ; yet on the other hand so much of it escapes the assessor that the total assessed value scarcely equals one- fifth of the true value of the personal property held in the State. An effort should be made to remedy this in- equality." ^^^ The meaning of this statement will be made clear by a careful examination of tables presented in the following chapter.-^*^ When the Twenty-third General Assembly met in 1890 the hard times which were to terminate in the crisis of 1893 had already arrived. The questions of homestead exemption and mortgage taxation demanded urgent consideration. There was also much talk of reducing the levj^ for regular appropriations to two mills — indeed, a resolution to do this was rushed through the House,^**^ but failed to pass the Senate. In fact a bill quite different in character was enacted into law. In addition to the regular levy made by the Executive Council, a special one-half mill tax levy was ordered for the purpose of properly meeting the necessary requirements of the several State institutions.^^- Two years later (1892) the popular demand for revenue reform could no longer be ignored. The hard times had much to do with causing the people to become dissatisfied with their system of taxation. Governor Boies, a Democrat, spoke in the most positive terms on the subject of revenue in his inaugural of January 20, 1892. The tax laws, he said, were universally ignored with reference to both real 94 HISTORY OF TAXATION IN IOWA and personal property. If property was to be assessed at a fraction of its value, some uniform rule ought to be established on the subject. It was a matter of regret that a custom ''as variable as the whims of men and sometimes as destitute of the spirit of fairness" had taken the place of law. The Governor believed, however, that the subject was too large and complex to be judiciously considered dur- ing one brief session of the General Assembly, and so he recommended the appointment of a commission "clothed with power to perfect a bill and report it to some future session of that body for final action thereon ".-^^ This State paper will be remembered especially because of the recommendation for a tax commission. It is the first time an Iowa Governor had made such a definite recom- mendation. Much credit is due Governor Boies for being- able so clearly to understand and boldly announce the fact that the subject of tax reform is too large to be wisely adjusted in one session of the General Assembly. At this time the whole subject of taxation, especially from the standpoint of assessment, was thoroughly discussed, not only in executive documents but also in the newspapers and other publications. The low and grossly unequal valuation of property by local assessors was the leading point of at- tack. Every one could diagnose the case but no one seemed to be able to furnish an efficient remedy. To illustrate the humorous, if not almost pathetic, absence of a constructive program, the Auditor of State was able to see but one practical remedy: ''the lowering of the maximum rate of taxation to such a degree as will force the raising of values to their proper position in order to be able to realize the necessary amount of revenue for county purposes. "^^^ The period under consideration was one of criticism and negation, not one of construction. A well settled conviction prevailed throughout the State that there was something radically wrong in the assessment of property. Many think- FAILURE OF THE GENERAL PROPERTY TAX 95 ing men were of the opinion that assessors and boards of equalization were not doing their duties as prescribed by law. In fact these officials were frequently accused of no less crime than that of perjury.^^^ The laws, it was claimed, were specific and at the same time both just and reasonable, but their administration by assessors and boards of equali- zation had become a meaningless sham. Complying with the recommendation of Governor Boies, and in response to the urgent demands of the people for relief from what they considered an unjust system of taxation, an act was passed to provide a commission to in- vestigate the revenue laws and report necessary changes.-^^ Briefly stated, the act provided for a temporary commission of four members named by the Executive Council. The members of this commission were to receive as compensa- tion five dollars a day for not more than thirty days, to- gether with necessary traveling expenses; and not more than two members of the commission were to be of the same political party. It was made the duty of the commission 'Ho studiously and carefully examine the revenue and taxa- tion laws of the state and report necessary and desirable changes to the Twenty-fifth General Assembly."-^" How this commission and the things it was expected to accomplish were judged by the majority of thinking men is perhaps most clearly stated in a contemporary editorial. "Senator Harsh", wrote the editor, "has introduced a good bill. It is for the revision of the assessment laws of the state. The bill creates a board of four, two members from each party, who shall take up the problem and prepare a report before the meeting of the Twenty-fourth [fifth] General Assembly. They are to give the matter thorough study and to prepare a system that shall overcome the many inequalities that now exist. The need for a revision of this kind has long been apparent. The undertaking is so great that it can only be done by a non-partisan commission, a 96 HISTORY OF TAXATION IN IOWA commission of business men rather than politicians. At the present time there is a great deal of property that is not assessed at all and the rest is assessed all the way from about 3 per cent of its real value to 40 or 50 per cent. The way to meet the situation is to provide for uniform assess- ment. Iowa suffers in comparison with other states be- cause the valuation is low, and the rate of taxation accord- ingly high. The state's business will make a better showing if the assessment is raised all around and the rate of taxa- tion reduced accordingly. All these details will suggest themselves to a commission of business men proposed in the Harsh bill, which ought to be passed." -^^ The tax commissioners named by the Executive Coun- cil were: Alfred N. Poyneer, Charles E. Whiting, Charles A. Clark, and August Pest. Later Edgar C. Lane of Guthrie Center was appointed to fill the vacancy occasioned by the resignation of Mr. Poyneer. The commission at once began their thirty days task of investigation and the prepa- ration of a bill to remodel the system of taxation. Under the circumstances one is not surprised to learn that "in entering upon the work assigned the commission, its mem- bers soon realized that the time contemplated in the leg- islative act, to be given to the work, was quite inadequate for its accomplishment in a satisfactory manner." -^'^ From the standpoint of the general narrative, the report and accompanying bill submitted by the commission may be briefly presented.-^^ According to the proposed bill local assessors were still to be elected biennially in town- ships, cities, and towns. But in addition to the elected assessors, it was provided that the board of supervisors of each county should appoint two associate assessors for each assessment district in the county. These associate assessors were to assist in the valuation of real estate and aid in equalizing values. The bill further provided that real property be listed and valued in the year 1895 and FAILURE OF THE GENERAL PROPERTY TAX 97 every fifth year thereaf ter-^^ — which meant an important change from the system of biennial valuation. The report, however, is most vital and instructive from the standpoint of the proper method of valuation. The com- mission was unanimously of the opinion that nothing short of the actual cash value of property should be made a basis of taxation. According to the terms of the bill, cash value meant ordinary sale value upon the usual terms of credit, not what property would bring at a forced sale.^^^ Some changes in equalization were suggested. The county board of equalization, however, was to remain practically the same, but the local boards of equalization were to be composed of the assessors and associate assessors rather than of the trustees or City Council. For example, a town- ship board of equalization would consist of an elected as- sessor and two appointed associate assessors. The chair- man of each local board of assessors was required to be present at the meeting of the county board of equalization. The commission believed that this plan would establish a more unified administration and give better results. The State Board of Equalization was still to consist of the Executive Council — except that in every fifth year for the purpose of real estate valuation it was provided that the Executive Council ' ' shall, on or before February first, ap- point one qualified elector from each congressional district in the state, who shall sit with and act as a member of said board on all matters of equalization for that year."-^^ The Auditor of State in his report of 1893, and Governor Boies in his second biennial message, spoke favorably of the report of the revenue commission. They refer especially to the recommendation concerning the assessment of prop- erty at its fair cash value. The Auditor thought that ''the recommendations of the tax commission relating to the as- sessment of real estate and personal property at its true cash value, and the reduction of the maximum rate of taxa- 7 98 HISTORY OF TAXATION IN IOWA tion for State and county revenue are valuable, timely, just and wise, and", said he, ''I believe the only practicable and feasible plan to correct and remedy as far as possible the evils of unequal assessment of property and unequal and unjust burdens of taxation. "^^^ The bill as framed by the commission was presented to the General Assembly. In the Senate bills were introduced by Senator Harsh and Senator Bishop which were quite similar to the one prepared by the commission. The result was the final introduction of a substitute bill by the Com- mittee on Ways and Means of which Senator Harsh was Chairman. The important changes made in the committee bill may best be explained in the words of Senator Harsh. ■"The most important changes", he says, "consist in the committee's failing to approve the commission's recom- mendations that two additional assessors be appointed in each assessment district to assist the elected assessor ; that an elector from each Congressional District be appointed to assist the executive council in equalizing and assessing as by law required, also that assessment of real estate be made only once every five years." ^^^ On the other hand, the committee adopted the r ecomm endation of the commission for assessing property at its fair cash value. The measure as finally presented should be considered as representing the combined work of the non-partisan tax commission, the county auditors and treasurers of the State, many citizens who prepared and presented papers, and finally, the Committee on Ways and Means of the Senate.^^*^ The chief concern of all seemed to be the desire to find some practicable method of preventing the gross undervaluation of property, -^^ and consequent inequalities of assessment. The fact was generally recognized that one man was paying taxes on twenty-five per cent of the value of his property, a second on fifty per cent, and a third on a full market valuation. Many intelligent men were honest FAILURE OF THE GENERAL PROPERTY TAX 99 in their efforts to find some definite solution to this prob- lem, and they rightly believed that no solution was possible which did not contemplate assessment at full cash value. The General Assembly, however, was not ready for what appeared to be so large a measure of law enforcement in fiscal matters. The committee bill was not even made a special order in the Senate, but was indefinitely post- poned.2^^ In assigning reasons for the complete defeat of the bill it was stated in an editorial that ''the farm lands of Iowa were assessed in 1893 at an average of $8.44 per acre, mak- ing a total assessment in round numbers of about two hundred and ninety-three and a quarter millions of dollars. The total assessment of town lots was in round numbers one hundred and four million dollars, and the total personal property assessments, in round numbers, one hundred and thirteen millions. The total assessed value of all the prop- erty of the state was in round numbers, five hundred and sixty-six millions of dollars. It is instructive to note the gradual increase and growth of property assessments in Iowa as shown by the last biennial report of the auditor of state. In 1870, the total assessed value of all property was, in round numbers, two hundred and ninety-four millions; in 1880, four hundred and ten millions ; in 1890, five hundred and twenty-four millions. Auditor McCarthy in his report for 1893, page 7, says: '' 'It is my opinion that the average assessment of real estate and personal property in this state for many years does not exceed 25 per cent of its actual cash value'. "It is now proposed", continues the editor, "by the new revenue bill to raise the assessment to its actual cash value which will make the snug round sum of two thousand two hundred and sixty-six millions. The farms are now assessed at two hundred and ninety-three millions and the live stock which belongs mainly to farmers, at fifty-two millions ; this 100 HISTORY OF TAXATION IN IOWA makes a total assessment upon the farms and their stock of three hundred and forty-five millions, leaving the assess- ment of only about two hundred and twenty million against all other classes. If the assessment shall be raised as proposed by the new revenue bill, the total assessment of the farmers' property in the state will be one thousand three hundred and eighty millions, and the property of all others eight hundred and eighty millions. With the present as- sessed value there is no trouble for the state to raise all taxes necessary to carry on the state and county govern- ments by moderate rate of taxation. It is the towns and cities which want to raise more money. The total assess- ment of town lots is in round numbers one hundred and four million. The rate of taxation in many of the cities is as high as 5 per cent of the assessed value including special levies authorized by law. The tax eaters of cities, of course, want to increase the assessment. We think it against the best interests of the state and of the cities to change the present tax laws." ^^^ Other editorials appeared in which the subject was fur- ther discussed and the proposed bill assailed with vigorous words rather than with clear arguments. Some startling accusations and admissions were made. More than two- thirds of the county and State taxes, it was claimed, were being paid by the farmers and the railroads. Assess prop- erty at its full cash value and the farmers alone will pay more than two-thirds for the reason that city valuations will not be proportionally increased. It was admitted that farms in many cases were being assessed at only one-fifth of their value, and that for years property had been as- sessed at from one-fourth to one-third of its value. ''This", one writer said, "is in accordance with the universal custom of all the states for the last one hundred years, except three or four that are now trying the full value plan. ' ' Moreover, an effort was made to justify this "universal custom", or FAILURE OF THE GENERAL PROPERTY TAX 101 rather universal disregard of law, by holding that such a policy was necessary in order to prevent the people from being over-taxed, especially in the cities where the rate was frequently as high as five or six per cent. Finally it was said that "if this bill passes it will not be three years — certainly not five — before thirty-six millions of dollars of taxes will be gathered from our people every year, and extravagance and corruption will then demand some further removal of the limit of taxation for the further plundering the tax payers. "^^^ Two years later the same appeal was made for relief from an unjust system of taxation. "I am inclined to the opin- ion", writes the Auditor, "that future generations will con- tinue to ask why the great state of Iowa has such a small valuation, and such an enforced high rate of taxation, and the stranger within our borders will continue to compare us unfavorably with other states that are not the peers of our own state. "^^^ In January, 1896, Governor Jackson presented a strong message from the standpoint of revenue reform. He pointed out that the per capita expense of certain State governments was as follows : New York, $2.06 ; Pennsylvania, $1.06 ; Ohio, $1.04; Michigan, $1.08; Minnesota, $1.87; and Iowa $.89. This, in his opinion, was a bad showing for Iowa. The Governor also makes a clear statement of the fact that the assessment laws were universally disregarded, and that in fact millions of dollars worth of property was evading taxation. In conclusion he says that in his judg- ment "no other issue is of such vital importance to the progress and welfare of Iowa as that of raising the neces- sary revenue for the proper maintainance of our state by a fair and equitable system of taxation. "^•'^ Despite a strong popular demand for fiscal reform no general legislation of importance was enacted at the regular session of the Twenty-sixth General Assembly in 1896. At 102 HISTORY OF TAXATION IN IOWA the extra session, however, which enacted the Code of 1897, one or two changes of a general nature were introduced.^*'^ The sections relating to the powers and duties of assessors were made somewhat more specific, the purpose being to secure a more equitable tax levy and a more complete list- ing, especially of personal property, for taxation. Perhaps the most important change of a general nature made by the Code of 1897 was that of placing the assessed value at twenty- five per cent of the actual value. "All property subject to taxation", reads the section in point, "shall be valued at its actual value, which shall be entered opposite each item, and shall be assessed at twenty-five per cent, of such actual value. Such assessed value shall be entered in a separate column opposite each item, and is to be taken and considered as the taxable value of such property, and the value at which it shall be listed and upon which the levy shall be made. Actual value of property as used in this chapter shall mean its value in the market in the ordinary course of trade. "^*^* In other words, two solutions of the fiscal problem had been presented to the General Assembly: taxation at full cash value, which had always been both the spirit and letter of the law; or, taxation at a fractional part of said value. The latter alternative was chosen. Up to this time the ad- ministrative failure of the general property tax had merely been admitted. It was now made a part of the Code of 1897.^^^ Aside from these changes, and one or two others of minor significance, the general machinery for the levy, assessment, equalization, and collection of taxes was the same in 1897 as in 1873.^*^^ Under both codes the tax levy was made by the Executive Council and county boards of supervisors, within certain limitations specified by the General Assembly; and the assessment was made by local assessors.^"'^ In 1897 as in 1873 there was a local, county, and State board of FAILURE OF THE GENERAL PROPERTY TAX 103 equalization, constituted in the same way and with the same general powers. After a quarter of a century of recommen- dation, suggestion, agitation, and amendment the defects of the tax system were more apparent in 1897 than in 1873. An examination of the statistical tables presented in the following chapter clearly reveals this fact. Indeed, in 1897 the State was even further removed from a real solution of the problem. Since 1897 almost nothing has been accomplished which may logically be included in this general narrative. Pri- mary election, two cent fares, the regulation of the liquor traffic, and a number of other problems have occupied the stage of political action. Governor Cummins during his long and strenuous administration was busy with these problems and made no serious effort to bring about a gen- eral revision of the revenue laws. His predecessor, Gover- nor Shaw, being inclined to conservatism and a ''business administration", believed in letting well enough alone. But during all this time a minority was demanding re- form. Nor has the decade passed without a final effort to secure a more efficient administration of the tax laws. The year 1900 witnessed the establishment of the tax ferret sys- tem — largely for the purpose of securing a more complete listing of moneys and credits — the history of which will ap- pear in a later chapter. Two efforts have also been made to create a tax commission. In 1907 Senator Jackson of Sioux City introduced a joint resolution providing for the appointment of a commission of nine persons to inquire into the subject of assessment and taxation for State and local purposes and report the results of their investigation and bills relating thereto to the next General Assembly. The resolution, however, did not prevail.^*^^ In 1909 a second effort was made to create a revenue commission. In the Senate a bill was introduced by Senator Arthur C. Savage providing for a commission of five per- ;104 HISTORY OF TAXATION IN IOWA sons to be appointed by the Governor.^^^ This bill found its way to the Committee on Appropriations where it slum- bered for some time, pending the consideration of the mort- gage tax bills.^^*^ In the House of Eepresentatives Mr. William L. Harding introduced a bill for the same pur- pose.^^^ "There is hereby created a legislative tax coni- mission consisting of five members, two of whom shall be members of the House of Eepresentatives and appointed by the Speaker, one of whom shall be a member of the Senate and appointed by the President of the Senate, and two of whom shall be appointed by the Governor of the State," reads the opening section of Mr. Harding's bill. This bill also slumbered during a large part of the session, pending action on the mortgage tax bills. After a number of un- fortunate experiences it was finally brought out on a mi- nority report and passed the House.^^^ Upon reaching the Senate it was referred to the Committee on Appropriations, and in the scramble at the close of the session failed to be reported.^ ^^ A bill relating to the collection of delinquent personal property taxes was, however, passed by the Thirty-third General Assembly. Boards of supervisors were given power in their discretion to authorize the appointment by the treasurer of one or more collectors to assist in the col- lection of delinquent personal property taxes, the compen- sation for said work not to exceed ten per cent of the amount collected.^^^ By way of review, it should be noted that the narrative thus far has dealt merely with the general property tax and the machinery of assessment relative thereto. This method of treatment would seem to be logical and scientific for the reason that general property taxation not only forms the most important part of our revenue system but is indeed the very foundation of that system. Aside from the statis- FAILURE OF THE GENERAL PROPERTY TAX 105 tical study made in the following chapter, the remainder of the volume is taken up with a number of special problems in taxation all of which, however, are directly or indirectly connected with the general property tax.^^s -^qj. example, the taxation of moneys and credits, forms of personal prop- erty, is a subject large and important enough for separate study. The general narrative since 1873 briefly stated may be said to embrace the following points : first, the earnest effort to secure more efficient collection of taxes resulting in the payment of the same semi-annually, the tax ferret law, and the law relative to the collection of delinquent personal property taxes; second, the growing recognition of in- efficient assessment in Iowa, especially the fact that this sham is embodied in a statutory subterfuge, the twenty-five per cent provision of the Code of 1897; and third, the tax commission of 1893, the report of which was repudiated by the General Assembly, and the efforts to provide a tem- porary commission in 1907 and 1909. It would seem that nearly three generations of fiscal history ought to make the necessity first, of a temporary, and later a permanent tax commission clear to the people of Iowa. Only under the constant and intelligent leadership of such a commission is it possible even to approach a solution of the many difficult problems incident to the administrative failure of the gen- eral property tax. The great industrial centralization of the present day with its endless multiplicity of intangible values must necessarily be accompanied by some measure of cen- tralization in our system of State and local administration. V STATISTICAL STUDY OF THE GENERAL PROPERTY TAX In the preceding chapters a narrative, historical and critical, of the general property tax of Iowa has been pre- sented. The efforts to establish a revenue system by legis- lation have been reviewed ; and from the account given the reader may judge to what extent these efforts have suc- ceeded, or, what is more to. the point, to what extent they have failed. The constantly amended laws, revealing the planless and shifting policies by which it was hoped that fiscal machinery might be adapted to the rapidly changing conditions of our social and industrial life, have been ex- amined chronologically. The study of these phenomena, however, would be both incomplete and indefinite were the narrative not supplemented by a statistical abstract show- ing the amount of taxes collected, and, what is far more im- portant, the efficiency of the assessment system. It will, therefore, be the purpose of this chapter to present a brief statistical study of the actual assessment and collection of taxes in Iowa. Without this data it is quite impossible for the reader to judge fairly as to the efficiency or inefficiency of the revenue system. Table I is a condensed statement showing receipts and disbursements of general revenue at the State Treasury of Iowa since 1846. A glance at this table reveals the fiscal growth of our State government from the beginning of its history. The biennial period 1846-48 shows a State levy of $76,150.84, a total available revenue of $76,152.23, and total expenditures of $74,757.83, leaving a balance in the treasury 106 STATISTICS OF THE GENERAL PROPERTY TAX 107 00 I— ( w I?; o »— I o Is ; ; I ; o o> ggg 1 §i§li CO o> A Ob o> •• H 1 : ; : : : ; ; ; ! ; : ; 1 : ; Q oo c-i 3b ")• n to «»» CO So o> o o a t* 00 oc 1-H -H O O -^ -^ 00 CO O C"! 00 C^ »0 CT> CO ^- ■.::::::::::■.:::'. 0? ^ S 00 esi b- C5 to sasgg H :::::::: :::§§SC:eg8§5 »-H CO 00 CO CO »o C4 -^ CO lO o t^ u ^H !8S2§S3 y ,r, S u •* CO C^ ■£) CO »-l 2 >< :::::::::: : S 5 g S S S 88 § lO c^ Ml <^ t^ ^ ;«< »— 1 hH «• SSg2§gC;SSg2SSSS8^??2 m t* CO CO Tj< o C^ CO 0> l>- CO 05 i) t^ o §iSliiigi2lgSteieiig in o:, *i^ r. r^ ^H (T ^ ^s § s o gK^22J::Ses§5SJ§5;5;§^S§ g 2 § gS '^'i c CM oc 05 — 00 o M cs (M M CO CM CO — < 00 o> t^ o a r/) i-o 00 — i e^ t^ Levi able tion •o ^H C5 CO lO oo u ■*^ nl .- 3 o G C^ lO CO CS» »-i ■^S C -^i 5"- ts 05 CO 00 *o ^ .5 rt-S ^ lO lO CD !>. ox: M CJ a"£ W w «& SSgg2§g£;S§g2SSSS8S?^2 . gSsS§§SSSSS2SSSg2S5S ir- r^ h* -H c^ CO M t^ 1-H OS OS O ^ «: 00 4C r^ t^ -^ OS CO CD t^ CO c CO 00 CO t- o rt»« — cs CO CO lO ^^ CO d l-tl-l^-^T-I^T^^f^ d cs cs CI O) c<» W «© ■ sssssg^s:ss5;52ssss OJ ■^ iC t^ lO lO y Balan ginning eriod *r; u- OS OS CO o> -^ ^rt_< CO ■«-» 00 03 00 '^ 1^ r o o CO T) c n s 3 >— 1 CO m ^^ •o c o Q) ■*-» on "O M< a CO rt ^H . ^H p. 00 00 Vt-I f/1 ^H •a o ■c Wl ^ K s ll> 0) o Xi i" ■4^ tt o U) CO c u Wl 0) 0) ^ ja a CO 01 00 > 1 o 2 00 00 fft vH <1) t/1 •4-1 o o 00 1 •c O, CO o C 3 C c o •o c 2 ^-B *" U O •2 "C rt s u > M O > 2; w o q o — ^ ■C " ! QD H o M o cc m 02 O h- ( O o or) o O 00 kO oo .* ira • OO CO cc ■*. '^. '^. " o oo ■>»< 1-H *— 1 1— t 0) H J2 o> o> CO CO ob CO ft 00 CO •* ■ d <« CO I-" CO 2 4) •3H o o o • CO ■* CSI H ^}< 05 (M ^H 00 t^ h* OO O e- CO CO (M CO Tt* OO o CO CO CM OO O »0 O 05 t— 1 OS 'J* CO CO ■* CO ■**-<*< CM lO «+-< CO O 00 00 CO CD »JO K m *0 OS CM CO O t^ CM •>ia C3 Oi CO CM Tt* CO 1— t -Tf* S^ o OO^ O 0_ CO CD OS lO .ti a OS O ^ CM t^ O OS "r: C -1^ .sS-r t* 00 t^ 00 O to CM ^-=i "^ a"£ w CD lO -^ O ■<** O lO O CO 00 t>- O lO CO > O CO O t^ O t^ CD O T-4 CO lO Q 00 t^ I^ t^ CM 1— 1 CD CO CO J 00 -rp -<*« ^H •* CO lO r- CM r- 1 CO CO OS o ni CM CO CO CO CO *-< rt< U2 S M J3 c ■^ CD i>- t^ CO r* i-i Tf* OS CO »^ 00 CM CO ^'5'2 ■^ C F-t n t^ oi S CO lO CD CO 1 1 ,1 1 1% ?s 4 «- •> IS H c •56 S S s SS3 CO s •0 s t^ t>- ■M ^ ■M r^ CO CO •>H 1— « 00 00 5 s ^ kO <-> »o -^ — OS t^ 10 -^ 00 •^ CO 10 QC t^ 2 CC -< >o OJ >o r^ CO •0 CO 0 •* OJ CO 01 ^ CM >o CO 00 00 rr. CO CM ■32 .«• CO "^ 01 o> ^^ ■a- o» !M -^ t^ 0> CO CO r^ '^ ^^ C^ C>I f^ SSR i5Di 1—1 1-H H 89 CO o» i« CO t^ -H CO 00 00 to 00 OS t* 10 OS CO CO — o> — CO .-1 c^ ,— , o> CO OS ^H CD cc CO 00 cq CO t~ o H w t* Q S CO 4) •^ 10 ■* CU CO CO "3 •1— S ^ U) El< '7) Ul W b X ftcn W^ « •d •n u Cl, ,_ ca C c u CQ ot ) c- 1 •««< CO . > 1-H « > CO ci :i ,4-rl 1 1 • 1 . Ja r Tf* ir 3 lO «3 »r o( 5 « o< 3 OC oC « > QC ) ot oc or 1 "a o fc: o U3 STATISTICS OF THE GENERAL PROPERTY TAX 109 c CJ E H 3 ^ § ?5§ QO 3» o 2 to n n CO s 00 § 88 •* r* at C5 g to i C» 00 S g s g cc s s 1 i no § CO i ■^ g «* s fe »/3 CO Q § §. o i CO CD i to to_ cs "- S. ?3 t-- lO O r- ^. <-*»^c*«»-i^^csic^»c4c^cococoeocO'*^<^'*oocQr* •— « <^ — a o c^ s r* ■^ lO s 30 n s 00 o CO S a> 5 s CO CO oo § GO ?3 i s CO o 2 g 1 ■^ ?? to to o CO 00 00 i 1 1 cq o % to ?3 CO CM W5 2 5 co_ to ?3 co_ g **< 00_ co_ •-ie^eM»o>ot-oo'»>oo u o s Ol g s 05 ?3 o S: LO C5 ro •^ CO CO g s r>- § o CO s CO i I s Tf i 1 O i ¥5 CM 00 g s -"9* s 05 s s CO o W5 i r- § 1 00 OS s 1 •<»« ". 3 CO ^. CD Oi S OS 5 § ^1 1 § Tf^ CM .-i^^CM.-*-^CMCMCS»CMCOCOCOCOCO'^W5iO«DOeOt* 5-ag o i c gt>-»ocotor^oi*otooc^*-»0'*'-^*^cMc.^r-_co_-H^^?Sr^cocMt^oooitDt^o-^t*to •«».^*«GOWOO^HC^050^J<05COOOS»OTftCS C^t0C0tD*Oi/0;0CM^05(Nt0*OOC0C^0000r^00'^ »-<^^'— «»-^»-*OI^HC ^ r* en "— • t- CO ^^ -^ lO CM :g r* oo M« lO ^^ o CO i 00 00 M • ^ r- ++ o oo *»< b» o eg lO ^< o> oo QO CO f-« »» a r- OJ o> OS «* CO •» «M » o c a < 4-1 c 4) E c 3 E > o eo M ■«-• t4 t> rt ^ £ o V4 •o ■a c 4) 3 J3 u •*^ i-i w V) o a> T) T) 3 3 OS CO ei 00 OS oo t^ ^J« CO CM CO *— < s I/O to OS So "5 CO g in i o s CO to CO o CO •o CM to s 5 -Hh,CDcDOSCMQt^'*»-O>OCMCM0C00O *-H ^ CM CM ^ ^ S O) VI p s. a H OS -^ o •c u 0. n CS^HCO*Ot^CS-HCO"0 tOt^t^t^tN,t>-000000 r>.cs^HCO"Ot>«os-Hcouot^os»-ico»o.- S5^f^trf^f^f^ooooooooooososososos OOOOOOQOOOOOOOOOOOOOOOQOOOOOOOOOOO CO O to 00 r^ OS '-< CO »o CD 110 HISTORY OF TAXATION IN IOWA of $1,394.40. The revenue rapidly increases until we find in the biennium 1857-1859, following the adoption of the Constitution of 1857, a State levy of $763,350.57 — more than ten times as large as that levied in the first biennium. The total revenues and total disbursements are found to rep- resent about the same ratio of increase. In other words, during the short space of a decade the revenues of Iowa had increased nearly tenfold. Those who complain of how taxes have increased in recent years, may find some negative com- fort in this fact. The following biennium shows a slight decrease, due in a measure, no doubt, to the general depression following the crisis of 1857. By the biennium 1865-1867 the State levy passed the million dollar mark, never to return again. One notes the phenomenal increase from $1,067,819.18 to $1,742,- 793.55 during the period from 1865 to 1869, which is in- dicative of the return of prosperity following the war. This increase is nearly equal to the total State le\^ for the bien- nium 1857-1859, and in fact is more than the levy for the following biennium. Beginning with 1870 and reading down the column entitled ''State Levy" there is noted a gradual and almost constant increase for two decades. A sub- stantial falling off during the crisis of 1893 is apparent. The decade following the biennium 1895-1897 represents with but one exception a constant increase until in the last biennium the ''State Levy" reached the sum of $4,054,- 876.35. Adding "Special Levies", the amount was $5,304,- 450.60 — representing the total receipts from counties. To present these facts in another form, it is apparent that the increase of the State levy during the forty years following the biennium 1865-1867 was fourfold, and adding ' ' Special Levies ' ' nearly fivefold, while the increase during the first decade of our history as a State was nearly ten- fold. To those whose claim to statesmanship consists in advocating the pruning down of requests for necessary STATISTICS OF THE GENERAL PROPERTY TAX 111 appropriations this comparison contains much food for thought. In this connection it might not be out of place to suggest that the real pain is caused not by high State taxes, but, as the next table will show, by vastly higher local taxes. It should be noted, moreover, that the $1,249,574.25 for the biennium 1906-1908 represents special levies for the insane, blind, deaf, feeble minded, orphans' home, and in- ebriates, as provided for by special statutes. Beginning with 1868 insurance taxes have been paid into the State treasury.^^'^ These taxes increased from only $14,920.09 in 1867-1869 to the large sum of $630,443.07 in 1906-1908. The table also reveals the fact that for some years tele- phone, telegraph, and exjDress companies paid their taxes directly into the State treasury.^^^ No data, however, ap- pears after 1900 — which is due to an adverse decision of the Supreme Court, followed by a new law taxing such corpora- tions in the local districts of Iowa on a pro rata mileage basis, the same as railroads.^^^ The revenue secured from fees, which became an im- portant item about 1870, reached the large sum of $588,- 955.08 in the last biennium as collected by various State inspectors, boards, and other officials. Such fees are not taxes in the ordinary sense and therefore will not be dis- cussed in this connection. Nor does the column headed ''Miscellaneous" represent taxes in any large measure. It does include, however, the collateral inheritance tax which will be considered in a separate chapter. In conclusion, attention is directed to the breaking away from the ordinary State levy, which began about 1870. In the biennium 1867-1869 the State levy was $1,742,793.55, and the total receipts were $1,757,713.64, or practically the same. In marked contrast with this, it is seen that in the last bien- nial period there was an ordinary State levy of $4,054,- 876.35; and there were total receipts of $7,247,078.01, or nearly double the amount. The force of this comparison 112 HISTORY OF TAXATION IN IOWA will be partially explained in the chapters below dealing with specific problems in taxation.^^*' Table II is a statement showing the total revenues of Iowa, State and local, for the period from 1873 to 1907. The statement includes the revenue derived from ordinary taxes alone, not including fees. By comparing the data herein presented with that given in the previous table, one is able to judge as to the relative importance of State and local revenues. TABLE II 321 Total Revenues of Iowa 1873-1907 Year Amount ]873 $ 9,360,451.79 1874 9,547,408.07 1875 .. 10,288,721.77 1876 10,699,762.39 1877 10,561,694.89 1878 10,763,602.57 1879 10,146,041.04 1880 10,457,982.14 1881 11,183,676.21 1882 12,201,493.69 1883 13,261,251.27 1884 13,978,912.62 1885 14,430,547.40 1886 14,953,060.65 1887 14,278,817.31 1888 14,732,286.34 1889 15,483,328.74 1890 15,563,974.05 Year Amount 1891 $16,043,081.44 1892 16,889,671.34 1893 18,297,497.54 1894 18,497,483.75 1895 18,785,907.49 1896 18,584,429.67 1897 18,353,994.81 1898 18,692,480.60 1899 18,891,742.78 1900 19,726,789.80 1901 20,600,044.23 1902 22,542,580.45 1903 25,657,913.58 1904 26,693,543.33 1905 26,061,977.03 1906 , 26,333,163.31 1907 27,550,669.84 In the biennium 1871-73 the total State levy was only $1,941,878.25. Assuming that approximately one-half of that sum was for the fiscal year ending 1873, and comparing this amount with the $9,360,451.79, or total revenue as shown in Table II, it appears that the State revenue rep- resents but little more than one-tenth of the whole. For 1880 there was a State levy of about one million dollars,^^^ STATISTICS OF THE GENERAL PROPERTY TAX 113 as compared with a levy for State and local purposes of $10,457,982.14 in the same year. The ratio is again about ten to one. In 1885 the total revenue is more than twelve times the State levy; in 1890 about ten times; and finally, in 1907 the ratio remains approximately the same. In 1907 the large sum of $27,550,669.84 was raised in Iowa by taxes ; and of that amount but little more than two and one-half millions was paid into the State treasury. While it should be stated that these comparisons are not exact, they are sub- stantially accurate and represent the true situation. The conclusions to be drawn from a careful study of Tables I and II are obvious. Local revenues are relatively far more important than State revenues. In fact for every dollar of interest we have in fiscal reform from the stand- point of the State government, we ought to have ten dollars from the standpoint of the local units. We hear much in these later days of the inequalities between counties in the apportionment of State taxes ; but we think too little of the far greater and more important inequalities between in- dividuals in the payment of both State and local taxes. The fact is that the bulk of our revenue is levied and expended by the localities ; and so, if uniform and efficient assessment is needed for the State, it is far more imperative in the case of towns, townships, cities, and counties. This fact was perceived and understood a generation ago by Governor Carpenter. Eeferring to the total amount of taxes levied ($11,267,562.13 for 1871, and $10,711,925.49 for 1872) he pointed out that *'of these amounts less than one- thirteenth, or, to be exact, $1,606,716.94, was for State pur- poses. These are suggestive tables, and worthy of con- sideration by representatives of the people. They indicate with tolerable clearness 'where the money goes', and prove that taxation is largely — almost entirely — local and self- imposed; and that, when it becomes burdensome, the remedy is at the source of the evil. ' ' ^^^ 8 114 HISTORY OF TAXATION IN IOWA A table representing Iowa State budgets for the period from 1873 to 1897, prepared by Mr. John Herriott (at that time Treasurer of State), contains additional data of inter- est to the student of public finance. (See Report of Treas- urer of State, 1897, pp. 24, 25.) ''Iowa's state finances", wrote Mr. Herriott, "have be- come the subject of such spirited public discussion and such interest to the taxpayers that I have had prepared an ex- tended table giving a complete exhibit of the budgets for twenty-four years past, beginning with 1873. The receipts for taxes and their disbursement for appropriations are analyzed and classified, as far as practicable, so that any citizen can see at a glance just how much and from what source the state has obtained the revenue necessary to carry on its governmental machinery and work, and how much and in what direction the people's money has been expended during any fiscal period in the past quarter of a century. The length of time covered represents the life of a political generation and will show quite accurately the financial operations of the State authorized by the repre- sentatives of the people and superintended by the officials of her civil service. It is only when we are able to view our state finances in retrospect that we can appreciate the present or anticipate the future. It is only by comparison of the present with the past that we can intelligently dis- cuss the nature and relative importance of the expenditures of to-day. The relative growth in the population, wealth and the functions of government should all be studied and compared. ''The tabular scheme adopted will, I trust, make manifest at sight from what general source every dollar of public money has come and on what general account it has been paid out. Every form of tax is separated and all appropria- tions of revenue are classified so far as can be from the records of the Treasury Department. Under each heading STATISTICS OP THE GENERAL PROPERTY TAX 115 are given the biennial and duo decennial increase or de- crease of taxes and disbursements or appropriations to- gether with the same for the whole twenty-four years, both the absolute amount in dollars and the percentage of in- crease or decrease. There will also be found the population and wealth for the twenty-four years for use in comparison and in the last columns at the right of the table will be found the proportion in percentage of all revenues collected from the tax payers in the counties and what has been obtained from corporations and miscellaneous sources; also what has been the percentage of the expenditures appropriated by the Civil Lists; the proportion allotted to State In- stitutions and what has been absorbed in the Incidental Ex- penses. It is to be regretted that the taxes received from railroads cannot be separated from the remittances of revenue returned from the counties, but they are indistin- guishable from the general receipts. If those inspecting and comparing the several showings of the table will remember the reasons for the discrepancies that exist between the total disbursements and the total appropriations the table will need neither key nor guide. *' Attention should, however, be directed to several strik- ing facts which are brought out in the table. The most remarkable facts are those shown by the comparison of the growth in population, wealth, and the 'state levy'. Popu- lation increased 61 per cent in the twenty-four years and the state tax levy collected in the counties kept about even pace, not quite keeping up, however, reaching 60 per cent; while the wealth of Iowa has mounted up 163 per cent, nearly three times the increase of population or taxes in the same time. The annual per capita tax sustained by the people is to-day but 3 cents greater than it was twenty-four years ago, calculated upon the basis of the state levy, while the per capita taxes measured from the point of view of the total of all taxes shows an increase from 69 cents in 1873 116 HISTORY OF TAXATION IN IOWA up to 99 cents in 1897. Consequently the increase of 30 cents, as it is not shown in the state levy, must have come from corporations and miscellaneous sources. This is further proved by the percentages of increase for the first twelve years and for the second twelve. The state levy is 26.4 per cent in the first twelve years and 16.6 per cent, nearly one-half less, in the second ; whereas there are very marked increases in the revenue from the corporate and miscellaneous sources. Finally, the state levy has increased but 60 per cent and the total taxes have nearly doubled, they being 116.3 per cent greater between 1895-97 than in the fiscal period of 1873-75. ''Part II of the table, giving the appropriations, will prove equally interesting and instructive. The total for the Civil List shows an increase in both the twelve-year periods ; and the same is true for the Judiciary and the Legislature. In the latter instance, however, the extra session of the Twenty-sixth General Assembly explains the decided in- crease in its expense. The decline in the increase of the cost of the state offices is over 86 per cent, i. e. from 101.8 per cent in the first twelve years to 15.5 per cent in the last twelve. The total appropriations for state institutions show an increase in both the twelve year periods. There is a decrease, however, in the case of all institutions except the charitable, in the second twelve years. The largest in- crease of state appropriations for any one class of institu- tions in the twenty-four years has been for educational in- stitutions. Incidental expenses show proportionately larger by far in the first twelve years than during the second. Sundries, it will be seen, fall off greatly ; this was due to the fact that the cost of building the capitol is included in the first seven fiscal periods. "The last columns on the right of both tables should be noted. In 1873-75 county tax payers contributed 91.5 per cent of all taxes, and corporations, etc., 8.5 per cent; in STATISTICS OF THE GENERAL PROPERTY TAX 117 1895-97 the counties paid 86.9 per cent and corporations 13.1 per cent, a lessening in the twenty-four years of 4.6 per cent of the relative share of tax burdens sustained by the people. ''The columns in Part II showing the relative amounts allotted to various expense accounts of the state govern- ment exhibit the fact that the Civil List cost less propor- tionately during 1895-97 than twenty-four years ago; that Incidental Expenses took 30.8 per cent of all the appropria- tions in 1873-75, and only 10.5 in the last period; and that with one exception the Incidental Expenditures of the State of Iowa were relatively less during the period just closed than in any other in the past quarter of a century. The column that shows where the increasing proportion of the people's money has gone is the second one of that group. State Institutions. It shows almost a steady increase from 52.6 per cent of all appropriations in 1873-75 up to 73 per cent of all authorized expenditures in 1895-97. ' ' ^^^ Table III^^^ gives data relative to population and as- sessed valuation. Both the total and the per capita assessed valuation is given. In 1856, when Iowa was for the most part a pioneer State with a population of 517,875, the assessed valuation was $164,394,413, or $317.44 per capita. In 1875 when the population had reached 1,350,553, the per capita assessed valuation had fallen to $293.52 ; but in 1885, with a population of 1,753,980, there is a per capita assessed valuation of only $279.17. Finally, the per capita assessed valuation, which in 1857 reached the large sum of $373.13, was only $241.83 in 1900. Speaking of this relation between growth of population and increase of assessed valuation, the Auditor of State in 1885 says that "the total equalized valuation of property as before stated, is $489,660,081. That this figure very in- adequately represents the wealth of the state needs no argument to establish. It is palpable. No observing person 118 HISTORY OF TAXATION IN IOWA will contend that the state's growth in population, until it now contains one and three-quarter millions of people within its borders, has not been accompanied with a much greater increase in wealth, both acquired and productive. Yet the figures of the assessors would indicate far otherwise. . . . These figures show that, while the population of the state has increased in the last twenty-nine years 238 per cent, the assessed valuation of property has been raised only 198 per cent".^-*^ As indicated by the data given for 1890 and 1900 ^^^ the contrast had become even more striking. TABLE III ^ Total and Per Capita Assessed Valuation Assessed Valuation Years Population Valuation Peb Capita 1856 617,875 $164,394,413 $317.44 1857 562,930 210,044,533 373.13 1859 641,628 197,823,350 308.31 1861 685,713 177,244,316 251.19 1863 701,093 167,108,974 238.35 1865 756,427 215,063,401 284.31 1867 902,317 256,517,184 284.28 1869 1,045,025 294,532,252 281.84 1871 1,217,900 348,642,728 286.26 1873 1,251,340 369,124,912 294.98 1876 1,350,553 395,423,140 293.52 1877 1,445,900 404,670,044 279.87 1879 1,541,000 405,541,397 262.14 1881 1,660,000 419,102,728 262.47 1883 1,700,000 463,824,466 272.83 1885 1,753,980 489,660,081 279.17 1890 1,911,896 523,861,858 273.47 1900 2,231,863 539,737,596 241.83 Table IV ^^^ showing the reported assessment of various forms of property, together with the total equalized assess- ment of the State for the period from 1870 to 1908, affords a more complete basis for the study of assessed valuations. This table gives the reported actual value of lands and town lots, the reported and equalized taxable value of such lands STATISTICS OF THE GENERAL PROPERTY TAX 119 and town lots, and finally the equalized taxable value of personal property, railroad property, telegraph and tele- phone properties, and the taxable value of express com- panies. The net equalized taxable value of the State is ob- tained by reading to the right, beginning with the "net equalized taxable value of lands and town lots." Up to the time of the enactment of the Code of 1897 the actual value of lands and town lots as given in Table IV was synonymous with the taxable value of such lands and town lots. In 1897 those who were responsible for the revision of the code, recognizing that property was actually being assessed and taxed at about one-fourth of its value, concluded that such a ratio should be enacted into law and made a part of the new code.^-^ Accordingly, this clause was inserted: "All property subject to taxation shall be valued at its actual value, which shall be entered opposite each item, and shall be assessed at twenty-five per cent of such actual value ".^^° It was thought at the time that taxpayers would be more inclined to give in the full value of their property if it was known that they would be taxed on only one-fourth of such value. This may be true, but it is none the less difficult for one to understand the distinction between four times one and one times four either in the realm of mathematics or of taxation. Other conditions being equal, if the assess- ment is doubled the rate will be only one-half as great. The benefit to be derived from such a provision is, to say the least, questionable. It certainly has a tendency to inflate tax rates which always makes a bad impression from the standpoint of non-residents coming into the State. Eeferring again to Table IV it is seen that the total as- sessed valuation of the State has increased from $294,532,- 252 in 1870 to $409,819,020 in 1880, $523,862,858, in 1890, $539,737,596 in 1900, and finally to $667,668,233 in 1908. On the whole, the increase has been gradual and in fact quite 120 HISTORY OF TAXATION IN IOWA m Q % < , h^ 1^ r iJ 5 w ^H h3 H r <1 H S H rH M «3 ;z; g^ 03 M fA M a ;h «3 ^ H '^ <1 W H ^ -. «3 w ►-* C 02 < 5 Dh *™' t, H H K C? . H H M tH ^ r B o ^ K « H O a w H ^ oT « HP, o o E IV Town AILROA ^ oW s « CQ 1^ <[ ^ Eh «3 << <;cO O fA ^ s rr. W ^ o 02 " ^ Ed Ph "^ HpH r^ H '^^ w ^ M O Q a 02 H 5 - ^ !2; "«! 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C o '0. ■e -■ "o S -^ ■> o "o v^ " 2 ^ .h; o O :S J3 ^ C ^ >■ n c/i •-'33 in fji a; t> 3 o rt o j3 0) o X2 I rt tf) o C 1-1 c _ 8 g a> o *-> "2 ^ X /r -C -O *^ "* ^ ^ -fl D O M o i- 'A 5 S i3' 2 rt uo u 3 J3 ^ u O TO +-» a 01 o C 00 A > ^ ^ J3 §2 o ^£ ^2 •l-S c '-' t, _ 5 [2 rt. O e ft rt t/i rt CJ rt ^ o O o CO 4J .S"3 1> III 2 .5 rt So - 3 O u 5 •= C 'S c •a 122 HISTORY OF TAXATION IN IOWA constant. Exceptions to this rule are to be found in the years 1878, 1894-1899, and 1905. But it should be noted that the jDeriod from 1894 to 1899 reveals a uniform assessed valuation much higher than that of 1892, thus showing an increase rather than a decrease for the decade beginning in 1890. One other general fact in Table IV should be considered, namely, the results of the twenty-five per cent ratio of as- sessed to actual value as provided in the Code of 1897. In 1899 the reported actual value of lands and town lots is nearly four times as great as in 1898. As a logical result of this condition there is a small decrease in the total assessed valuation of 1899 as compared with that of 1898. This, however, merely indicates a continuation of the decline which began in 1894. In other words, reading down the column giving total assessed valuation the same gradual increase is found between 1898 and 1908 as between 1870 and 1898. The twenty-five per cent ratio has no effect on this column. On the other hand, the actual value of lands and town lots is approximately four times as great after 1898, or four times the assessed valuation as provided by law. It is apparent, therefore, that what was actually done in 1897 was to leave the assessed valuation just as it was — legally recognizing, however, that such valuation was about one-fourth of what it should be, that is, one-fourth of the actual value. To put this same thought in another form, the General Assembly in passing the Code of 1897 formally enacted into law the administrative failure of the general property tax by declaring that it was only twenty-five per cent of a success.^^^ The full meaning of these statements becomes apparent when we examine the Federal census reports and compare the total taxable value therein contained with the total as- sessed valuation as found in Iowa reports. The estimated true value of all taxable property as given in the United STATISTICS OF THE GENERAL PROPERTY TAX 123 States census reports is as follows : in 1850, $23,714,638 ; in 1860, $247,338,265; in 1870, $574,115,800; in 1880, $1,721,- 000,000 (taxable and exempt); in 1890, $2,226,117,151; in 1900, $3,271,559,959; and in 1904, $3,943,314,927.^32 Contrast these figures with the total assessed valuation as given in Tables III and IV. The assessed valuation of the State in 1850 ^33 was $22,623,334 ^^^ as compared with the "estimated true value" of $23,714,638. By 1860 the assessed valuation was approximately $185,000,000,^35 as compared with the '^ estimated true value" of $247,338,265. In 1870 the assessed valuation was $294,532,252, as com- pared with ''estimated true value", $574,115,800. Follow- ing this date, the contrast rapidly becomes greater : in 1880, assessed valuation $409,819,020, "estimated true value" $1,721,000,000; in 1890 assessed valuation $523,862,858, "estimated true value" $2,226,117,151; in 1900, assessed valuation $539,737,596, "estimated true value" $3,271,559,- 959; and finally, in 1904, assessed valuation $642,445,336, "estimated true value" $3,943,314,927,330 To speak mildly, this data is significant. While not ab- solutely accurate, it reveals fairly well the true condition of affairs. When the Code of 1851 was enacted, which as has already been stated 33" contains the fundamental out- lines of the Iowa revenue system of to-day, the assessed value was nearly equal to the true value. In other words, our revenue system at that time was fairly well suited to the pioneer conditions which prevailed. It was nearly one hundred per cent of a success. In 1860, the date of the Revision, the revenue system was still about ninety per cent of a success. In 1870, shortly before the Code of 1873 was enacted and about the time that agitation was earnestly demanding specific forms of taxation, we find that the as- sessed value is fifty per cent of the "estimated true value". Ten years later, the results are even more startling. x\fter the Code of 1873 had verbally perfected the scheme of 124 HISTORY OF TAXATION IN IOWA assessment, and a number of specific forms of taxation had been introduced, the assessed value is less than twenty-five per cent of the ''estimated true value". By 1890 the ratio had not materially changed. In 1900 and again in 1904, however, the general property tax as administered in Iowa had become so much of a failure that there existed an as- sessed value of about one-sixth of the ''estimated true value". As already explained, the legislation of 1897 mak- ing the assessed value of twenty-five per cent of a "fictitious actual value" does not change this conclusion. The Code of 1897 merely recognized by this provision the failure of the general property tax, and incidentally advertised an ex- orbitant tax rate of seven to ten per cent. In a word, the system of assessment, as has been statistically demon- strated, was fairly successful from 1850 to 1860. By 1870 it began to show a real decline. In 1880 it was twenty-five per cent of a success — in other words, a failure. Finally, when the Code of 1897 was enacted it was worse than a failure — a fact which the General Assembly endeavored to conceal by a statutory subterfuge. The reform impera- tively demanded at that time was efficient fiscal administra- tion, which means efficient assessment. But nothing of the kind was accomplished. Having examined somewhat in detail the amount of taxes, both State and local, collected, and the aggregate assessment of Iowa property ,^^^ we are now in a position to investigate that most vital and fundamental of all fiscal questions, uniformity of assessment. Manifestly, if all tax- payers were assessed at the same proportionate rate, it would make little difference whether the rate was at ten per cent, twenty-five per cent or one hundred per cent of the true value of property. The lower the assessment, the amount of tax remaining the same, the higher would be the rate, and vice versa. We would have an interchanging of multiplier and multiplicand — a rather harmless process, but STATISTICS OF THE GENERAL PROPERTY TAX 125 TABLE V339 Average Taxable Values of Li\t: Stock Year VI OJ (A U O OT V C 1 o O 1870 $ 12.87 13.37 11.10 10.98 11.04 11.01 10.90 10.26 10.90 10.20 10.48 10.52 10.44 10.60 10.41 10.97 10.16 9.03 8.05 7.70 7.11 6.71 6.70 6.99 7.25 4.96 7.65 8.13 6.87 6.96 7.09 6.41 5.77 5.73 5.24 5.09 5.19 5.32 5.11 S 42.67 39.97 35.04 34.33 35.35 33.35 32.42 30.48 29.05 29.23 29.33 29.80 30.52 30.06 31.00 31.56 30.18 29.04 28.33 27.81 26.46 25.64 24.10 21.67 17.03 13.58 12.72 11.81 8.94 9.56 11.27 12.06 12.90 13.74 14.11 14.36 15.53 16.82 16.61 $ 38 . 53 50.18 45.01 42.41 41.80 40.77 40.54 38.94 36.75 37.11 36.62 36.59 37.47 37.14 37.25 36.07 34.54 33.32 32.24 30.80 28.80 27.46 25.67 23.85 18.93 15.43 14.19 12.97 9.39 10.26 12.31 13.92 15.46 16.57 16.94 16.86 18.03 19.03 18.83 S .63 .68 1.00 1.09 1.08 1.22 1.11 1.09 1.01 1.10 1.30 1.25 1.28 1.19 1.17 1.08 .99 1.02 .99 1.06 1.18 1.33 1.35 1.36 .99 .88 .94 .97 .86 .87 .90 .83 .70 .68 .68 .74 .86 .88 .87 S 3.09 2.56 2.03 1.86 2.00 2.37 2.63 2.36 1.91 1.50 1.92 2.02 2.08 2.15 1.97 1.71 1.58 1.56 1.84 2.06 1.64 1.39 1.55 2.14 2.02 1.65 1.66 1.56 1.19 1.19 1.28 1.47 1.63 1.68 1.30 1.30 1.41 1.62 1.21 1871 1872 1873 1874 1875 1S76 1877 1878 1879 1880 1881 1882 1883 1884 1885 1886 1887 1888 1889 1890 1891 1892 1893 1894 1895 1896 1897 1898 1899 1900 S .74 1901 : .78 1902 .70 1903 .72 1904 .65 1905 .67 1906 .66 1907 .61 1908 .60 126 HISTORY OF TAXATION IN IOWA o fi W H t) > o -^ H O K ^g a ^^ a a H « © ^ H ■* Q 1?; HH 5 ^ > -< o w >-i « ^ m ^ ^ • rj P3 02 - w «3 CC H cc t» a « X O t* a r' O a CO «-t o lO O O CO ■. 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IS E o c .5 a a C i 'C PC C "c C IL 0. Palo Alto . Plymouth. Pocahontas Polk 4-1 0) 4-* IS en 2 "3 Ofl c 2 4-1 •4-1 1 > X! M > STATISTICS OF THE GENERAL PROPERTY TAX 129 o H ;z; o o anjBA o CO oo c^ O 00 ■* o gggs-ss CO *-< 1 aSBjaAV .-* s H ani^A *- « '<5 l^ioj. s ^ •«»< w ^»< ?* jaquin^ 2S?32=='2?3S;:2:«=S5S22 c^ aniBA aScjaAv »O^C^ r»c3no>c^jh-.cT»o»ocscoiot>-i-»oo5 jaquin^ c^icokO'^O'^coc^w:* ^coc^cc CO CO {2SSg5oSoJo2SgSR§SS s aniBA aSBjsAV ?5 ■*00>O->»< — «00t^1<0-<>00""' (M OS-Htoiri-^oiO — O^C^-^^t"-^" H aniBA IBiox 00 00 C^ 0> 0> ii 0_ N — , O, <0 N — •«< TO t>-OOCO'*'OSOSOC»->t^OO^H^^C O M >o o jaquinj^ '"^ CO t;? anpA aSBiSAy Oir>ou5tocoooQiMf2t:£2 ■^'^a5b-'^c»(MC^c^»o(NOOoa500 s u aniBA •<»'ooc<50ooo>>—i^tooooa>e^>o(ji ^ w I^IOX o: C^eOC^MCONCO'fl'MN MTOi-H^ o e« CO K c^ «» o jaquin^ ■^ioc^ct>»-ii-iioiO'^e»5»ocooocoo M N ooeoooc^*-00 a> '«jiioiooicD'^coT-«ioooh-.ooccr>c»: CO u O*J^00ra Ib;ox i-r-^C^CMCM^tMCSCSICS f-«CS — OJ •< «» " »» "5 eCOCOiOCOO c . rt E 1- c in Bur apello arren. ashing avne . ebster inneba innesh oodbu ort h 4J X. •c 3 Xf e- H > ^ ^ ^^ ^ ^^^^ ^ 130 HISTORY OF TAXATION IN IOWA one which was never known to solve any tax problems. But when one person is assessed at ten per cent of the true value of his property, another person at twenty-five per cent, a third at fifty per cent, a fourth at one hundred per cent, and a fifth at two hundred per cent, there exists a real injustice under the forms of law which ought not to be tolerated in a democratic State. Yet these are conditions quite general throughout our country, and Iowa offers no exception to the rule. The inequalities under consideration may be considered as threefold: first, inequalities between counties in the payment of State taxes ; second, inequalities between local taxing districts in the payment of county and State taxes; and third, inequalities between individuals in !}earing the burden of taxation, both State and local. Tables V and VI show conditions relative to the assess- ment of live stock. Table VI deals directly with inequalities between counties. Table V moreover reveals the rapidly declining efficiency of the whole assessment system. Here it is seen, for example, that the average taxable value of cat- tle declined from $12.87 in 1870 to $10.48 in 1880; to $7.11 in 1890; to $7.09 in 1900; and finally to $5.11 in 1908. In other words, the average value of cattle in 1908 was about forty per cent of what it was in 1870, if we are to form our judg- ment from the assessment roll. The taxable value of horses also declined from $42.67 in 1870 to $16.61 in 1908, the lowest point, $8.94 being reached in 1898. Mules which were as- sessed at $50.18 in 1871 declined in value at about the same ratio. An assessment roll mule was worth $36.62 in 1880, $28.80 in 1890, $9.39 in 1898, and $18.83 in 1908. Swine listed at $3.09 in 1870 had an assessed value of only $1.21 in 1908. The table considered as a whole reveals the rapid fail- ure of the general property tax since 1870 from the stand- point of administration and incidentally pays a compliment to scientific stock raising in Iowa. Table VI requires only a brief comment. It is self- STATISTICS OF THE GENERAL PROPERTY TAX 131 explanatory, and he who runs may both read and under- stand. As shown by this table the assessed value of cattle was as follows: Adair County, $6.96; in Calhoun County, $5.11; in Clarke County, $9.05; in Des Moines County, $10.45; and in Wright County, $4.66. The assessed value of horses, mules, sheep, and swine reveals the same in- equalities. It would be instructive, for example, to know what breed of swine was raised at that time in Sioux County, where the assessed value was only fifty-four cents, as compared with Webster County where the assessed value was $4.00. The same conditions prevail to-day — and in fact prevailed before 1893. In his report for 1885 the Auditor of State writes that ''the valuation of cattle ranges from $18.32 a head in Davis county, and $15.47 in Appanoose county, to $6.14 in Winne- shiek and $6.46 in Lyon; that of horses, from $43.20 in Davis, and $42.78 in Mills, to $15.85 in Lyon and $15.95 in O'Brien; that of mules, from $53.88 in Mills, and $51.32 in Page, to $16.62 in Lyon and $16.98 in 'Brien ; that of sheep, from $2.01 in Pocahontas, and $1.53 in Linn and Monroe, to 41 cents in Palo Alto (adjoining Pocahontas), and 47 cents in Lyon; and that of swine, from $4.30 in Van Buren and $4.23 in Davis, to 62 cents in Carroll and 30 in 'Brien !"3^i Manifestly, such inequalities ought not to exist in Iowa. They indicate radical and fundamental defects in the ad- ministration of our fiscal system. The remedy is more efficient administration, not more laws. Turning now to the assessed value of land as compared with the actual sale value, the same inequalities are found to exist. On May 3rd, 1909, the Secretary of the Executive Council addressed the following letter to all County Auditors : The Executive Council having determined that it is desirable that data be gathered relative to the actual value of lands and other property in the several counties of the State, I am directed by the 132 HISTORY OF TAXATION IN IOWA Governor to request, under the authority of Section 544 of the Code, that you furnish during the current month a list of lands that have been conveyed in your county between the dates May 1st, 1908, and May 1st, 1909, by deeds representing the real sale value thereof together with the actual values placed upon the same by the several assessors and as equalized by the township and county boards of equalization. In selecting the tracts endeavor to select tracts from each town- ship of the county if possible. Select tracts of 160 acres or more in preference to smaller tracts and in no case select tracts of less than 40 acres. Do not report more than six (6) descriptions in the same township, nor more than an average of three for all the townships of the county. Discard transfers based on contracts made prior to 1908, where you can determine the fact from the conveyance or from information in your possession. Discard quit claim deeds and all other deeds that for any reason do not represent the actual value or present value. With this letter will be sent a printed form for the land transfers. The letter requires no explanation. The data obtained from the county auditors and tabulated by the Secretary of the Executive Council appears in Table VII. To be sure this data is obviously incomplete and open to criticism; at the same time it represents fairly well the actual conditions now prevailing in Iowa. The table gives the equalized value per acre for 1903, 1907, and 1909; the value of lands re- ported transferred in 1902 and 1908 ; the actual value placed on the same tracts for taxation in 1903 and 1909; and finally, the per cent of assessed value to sale value in 1903 and 1909. Attention is directed especially to the columns giving the ratio of assessed to actual sale value. In 1903 the ratio was as follows in selected counties: Adair, 63 per cent; Adams, 87 per cent; Appanoose, 91 per cent; Cass, 74 per cent; Davis, 95 per cent; Henry, 98 per cent; Monona, 65 per cent ; Polk, 93 per cent ; Warren, 100 per cent ; and Win- nebago, 116 per cent. In the same list of counties the ratio STATISTICS OF THE GENERAL PROPERTY TAX 133 OS o 05 Pi a < % O < < > o H < H CO fa o a: ^Hc^co**'»o?ot^QO';?>o^NC^ico^F»«iceOh»Qoa5 O ^^ C^l M ■V lO C5 C4 c^ w cs» c^ gnpA 3IBS CO oi 3n[BA g JO ;u33 aaj '^ SSoSSSScSSSSoSSSSSSKSSKSSSScS 0} an[BA g JO ;u33 jaj '- 0) w c 5 C o.O rt O cij ♦J ^^ lis »0 OC ■"'J* CO t^ r- o> c^ ^f o -H t>- (N •-« -^Jt CC O lO X> lO CO Tf b- CD CO 00 r^ o CO CO ^H CO ^H ^H 40 __ ,1- rt o\ <« ii - OO C^^ 00 CO M 00 '^ cc O"- a> CO C4 (N CO — ■^ O OC 1— OCM-^t^-^OiOOOOiOCOOOOJiOOOO OiOOOOSCDCCOOCOCO'-'OO'OOC^C^ '^t^oo»o»cMO<--?^ C^CM^HCMCMCMC^COC-SCMCMCO^^ C*»HCM s •s .s CS > > H 2S (MCM^O'OOOOOOOCOCMOO'XJ-^OCC'ICDCMCMCO COiOiOOCOC^C'JO'— '-^lOOlOOO-^COCOOOO cOs»ccr^cooo*ooorocofO*-»^»c»io>'-'^-cooo CM C-l "^ r- OS CO CJ CO CO 40 -H lO t^ -^ OS r^ ^ t- »o t^ C^ CM 0» CM -H -^ -^ QOCMOJ*— CMCD^HCMCMCOCOOOCSr^t^'^OC^'i iOCO-*»»^H.- H OOCMrOfcOr»OOCMQ«OcOOO- — -- - ^^— . t* ff> 00 00 CM CO_ ^ CO lO CM O :0 '-• O cO t>-_ 00 f" oc t^^ •^_ t^_ ^-_ oo_ o ■^ O CO ■« t>- O -^ "- - , - ■^ -^ CM CM CO ^ t>- 'J' r* *J* o -^ r* "-^ 00 o CO -^ t>. (M 00 ^ 00 C2 2 CO CO CO CO ^^ ^' "^ D<.2^a-<2 CMOCM^GO^-CMCMCOt^CMOCOCM;;;QO^ CM:0-^*rsOcooCM»-<-'« *HC^co^toor>»oooso^^c^?5^j<^^ t^OOOiO'-^'MCO^l'^ a-g c S ft 3 S is C 3 S O O £ t at CD CO 'J U o si s u u Q 134 HISTORY OF TAXATION IN IOWA Q W l-H o o Eh o 2 ^t ^1 ^*i ^< '^ ^ft ^j* ^j< 3niBA siBS JO ?n33 jaj 38 i2 OS W O <-> r- 00 cc — £Ost^ooscoooooosoot^ on s CO m t^ to «o •«f< o o CO ,^ ^n r^ >o r^ rr. J s o t^ o 1« er r* cc e^ f •^ o aS a". (M o nr^ t^ *o O CO (-, LS CO CM W> o *o s 5CO.O rt O rt ^ OiTscO-^CSIOOOO c^ cs o c^ _ _ C^ CO ITS lO » ^ CM Tj- o ^ SM CO CM OS CO CO OS CM i.'O to iO >o 1— ' - - . . Tj* O ^*i CM '(J* ro C^ O O CC O > H , ^"-^^ CS^CO'-^CSi— lOCOOOkOOOOOl^ CSCM00iO-Ht>.c0C0CM^*' r— SM^HT-^COCOCMCOCM-^J* O O »0 CM ^ CM uO O »-• <-H O O CO '«»* — • iC l^ O O b* o O C^ O CM ** O CO CO -^ cc t-* i-» t;*'^«*»->t>" CMOSiOOCMOSOOCMCOOO COTjHOcOCD-^'^iiCMCM*^ 1-H CO O OS o O 00 ^< ^ -c CO CO CO lO CI CC ^H CO -"U^ o »-^ »-< CO .^^^^f^OCMOCCCi— 'CD(DC000r*O CM CM O CO CO -^ td 10 ^H ■^ CO ■^< CO -v Tji la* CMOSt^CMr*t--OCO irsco^co'^co'^co OOOOOOO^HOOiO^HUO COCMCOCtscOCMi^COO ioiocM»-HMlicr^io ^!l?S£^^y?05r^oscoeO'^ t^OSOS'^OSOOCMtO^HTjllOCO ^ OS -»j' r* o CO -H CO CO CO .-O Tf* Tt< 'S* ■^ C^ t^ h* Tj< 00 ■^ ro ■^ CO ■v CO S£2S2fc'5"-^5?*^c^o*5^'''"5coTt*t^u:)ioco^H-HOcocMT»< oscoosCMo— •^cM^^oooooocoMc«^c»iS--^S=;S^r^^^ CM CM CO CO -^ CO CO ''J* rj* CO 2S92£2^^'^ooo **'COCO*^^J''^^«iCCO COOO-^OOIO^HCMOOOSCO "0 O CO CO ^91 ^3< CO ^9* o cococococococococoSo CO cc -^ *o o t-* 00 C5 O ^H CO C*tt ■<*< ^ -^ 40 »0 »rs lO 10 o « c 5 O ^ ^ -M 4> ^ ^ t: ^ E S- o « •a 'C ::: •a o c o c o STATISTICS OF THE GENERAL PROPERTY TAX 135 o 2: <0 C0 ^ i« CO r^ 00 o» 00 OC CO JO }U33 J3 J ^H an[BA aiBS o; sni^A JO 1U30 jaj T-H 4) W C rt O rt -^ K,^ ^ t-i Co r^ •-1 fi -V " Os O cot^csoooioco h<- CD r* CO -^ ,-1 -H •-< (O CO 30 -^ CO OO'^'^OTi-HOt^iCCO O'DCOC^iOiOOiW^iOt-H COOOCOC^POCOCOCOCOW ra T}« ic o CO C35 o 35 r* o I-- o CO c^ o* »-< ro C. o •* CO o r>- .o CM ca o pi ■!-> ^ ^ r-"" rt O rt y 5i •geu a) H-^ w^ o M o CO CO ^H CO 00 »— t O ^ 'S* ^* ~ ■^ 00 -^ Tj* r^cocoO'X>c^iCMco'»*CMr-.'^-DOioOiri'»»<-->joot^ coco ^CM*-" ^1CM»-HC5^-I C^ C^J CO "^ ^^ _ --t-i^Oir-ooioo»-40CTiCsico3i CMCOM^HCM^^CO^^'-HCOCO— H SCsOOCMiOO»'OOr^C?sO"0'— <*o C0300t^aO<3iOiOC7>-fOiOCM cjscDrccOi— tcM-^co-^cot^^-iOi— I t^CM'^oo^or-'^cc O-^OOO-H'— i»-- Tf ■* to s C^-^C^CS-^-^CCCMOCOCOiOtnOC^C^OCSCftiOtr^-HOiCOiOfMCa^HCO *Mi— l-HO^•ooo^Hcsc^oo^JlCOoo^co■J^»-^oo^*cococ^oQcr^^J*-H^ COCOO'^C^^J<^J«»O^^C^CO«*C^UOC^CCCOOSC^'^^OOI^C^t^^'*J CO — O O Q CO o t* »o oc o CO a> »o :o oo o ■«< t^ s=: — iO^HOOC5CO'^COQ--D T-* CC GO t^ c^iTrcoot^r»^J''-*co . _ r>eocMr^cMoooo9^C''OiO'-< •^lo*— i^^^co»— 'C^iirscJuoffO'— • OCMCOOOt>-GOh-COOOi'^ — - ■'rp-D''C«— COCO?4-H 'tf* o ira CO c£ ""^ "" ** h* 05 CM CO o c^3 r^ - . - , 0> t>- '— < CO »o ^»" »— < COOOCOC^iOOCOtP'^O 'O Pi r^ -^ o lo c3 o t^ »-H 05 ^ CM CO *0 t* OCiu^eo^-tOSkOCOOCOOOOiOCO^HOSt^C^OCTjOOCMCDCOOOsC^ COCOW3"^COCOCO'VTpiO'^COCOCO'^»OCOCOiOCOCO'^«DiO-^CO*^uOTf CO o o o (TS t^ CO C- O-N rt^ "2 M' o *-> CO CO *o CM l>- t^ -^ O ■^ CO ■<»< CO •«** o t^OOCfe^^-*C^CO'«»'»OCOt^OO z o o ni c o OS.Ho3>.tOrtc8 "o — o CQ o ni .2 o -c -e c o s "a o 60 c o SSSSSSSoOPH&HaiCi»<"5«ot-5£'2 1 o S000000»50O5O>O>O5O>O>O5O>O>C» ^ o\ 3n[BA § s JO ;u33 jaj - oi aniBA § S55SSSSSSS?3SSSSSS JO 1U33 jaj -^ 1 2 J2 c 5SSS5;SS?§SSS3S^SS o ^Cu.O -S CO ?3 to K S_ S_ CO oo_ ira_ •* co_ in tj._ n ■* '°. 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S S S3 ^ § S § S S 5o 5. p: S 5o 5 c 0.2 "! 2 ti SgS?;35:SgSSS§oSS?3§ r* ''■at-' xo co^MOiS^coeo^iMCO ^--eo — « ., rto> «» 3^1^- |^c;5S ^ 41 (U > H r^ rn m <— > rft r-i CO o lO c^ OS OS CO o> ^-1 o OS »n 'f r* r^ •—1 1-H <£> r- ■* io S c^ »o o> t^ o ,^ •■n m r% o^ CD ^^ CO lO 04 CO •^t* iC c^ r^ CO A» s r% o Ol ■*t< r- ^-« a fcTI »o lO CM CO r- »^ »-» «^ i>3 o a-^"^ ta ^ CM o O iC SiO O CM OO C^ CM ■^ 00 ■^ CM .rs -* O CM CO O •«< O CM O O cft c^ ^^ r» CM t^ O 00 CO »-• 1/5 o ■^COCMt^-incOCOOOt-'^OOiOCO^ OOCO'VO>COOCOCCCMOS"*COO>CO^ CC>iOiOC0CMCM^HTj«t^»C0*O»O COCM *-iCOOCOU^OCM-HOsCOcOCOiOCOCOCO Tj«*-» t~ eo ■»)" CO »— I f-H t^ lO »0 OS CO ^ CO CO CO CO CO W500O00O0S»--C0 Cl^-tOOCOCMCMCM'^COOS'^ ^ 'a' CO ^ o 0>0-^C»^CO'^»OCOt^OOOS z o u • • • • • 5 • 2 • : M .2 & : : o o 5 i' S 5 <« rt <« ta I* •- i- .° .° J" ii 2 ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ STATISTICS OF THE GENERAL PROPERTY TAX 137 of assessed to actual sale value was as follows in 1909: Adair, 52 per cent ; Adams, 52 per cent ; Appanoose, 75 per cent; Cass, 47 per cent; Davis, 78 per cent; Henry, 54 per cent; Monona, 52 per cent; Polk, 57 per cent; Warren, 69 per cent; Winnebago, 56 per cent. In every case a falling off is noted, and in some cases there is a marked decrease. It should be understood that these figures are by no means accurate. Every one knows that the assessed value is not 116 per cent of the true value in any county of Iowa. In fact the writer is convinced that careful research would show that it does not reach 100 per cent. The above data is therefore at best merely suggestive ; and it is only when all the counties of the State are included, thus balancing the inaccuracies, that a conclusion of substantial value is reached. The fact that the general average thus obtained for the ninety-nine counties gives a fairly trustworthy impression of actual conditions is apparent from an examination of Table VIII, and also the data given for Story County. The general average for 1909 according to Table VII was 55 per cent as compared with 51.56 per cent for the group of counties represented in Table VIII, and 52.52 per cent for Story County. Another significant fact is that more than three-fourths of the counties show an assessed valuation ranging from forty to sixty per cent of the actual value in 1909. The general average of 80 per cent for 1903 is ob- viously too high. Table VIII was prepared by Mr. T. A. PoUeys, Tax Com- missioner of the Chicago, St. Paul, Minneapolis and Omaha Eailroad. It gives numbers of acres sold, average price per acre for 1907, 1908, and 1909; average actual assessed value per acre for 1909; and finally the ratio of assessed value to sale price for the three years. Again this data is by no means accurate or complete, but it is none the less suggestive of conditions which everyone knows to exist. At- 138 HISTORY OF TAXATION IN IOWA tention is directed to the following percentages of assessed to actual sale value: Woodbury, 50.47 per cent; Plymouth, 49.40 per cent; Sioux, 49.14 per cent; O'Brien, 52.35 per cent ; Osceola, 56.60 per cent ; and Lyon, 53.81 per cent, thus making a general average of 51.56 per cent. The per- centages for the same counties as given in Table VII are TABLE VIIP43 Ratio of Assessed to Sale Values in Selected Counties County Woodbury Plymouth Sioux O'Brien.... Osceola Lyon Group. . . . 1907 1908 1909 Total 1907-09 3 »,2 o 2 Mo o Mo u M o o Mo a ^ o .•o < .•a < .•a Go 2< < O o ^ VI ^ > o ■O o m > M O ^ Co. Q> 50.47 49.40 49.14 62.35 56.60 53.81 51.56 Statistics compiled by Hon. T. A. Polleys. Tax Commissioner of Chicago, St. Paul. Minn., and Omaha. the following: Woodbury, 51 per cent; Plymouth, 47 per cent; Sioux, 53 per cent; O'Brien, 49 per cent; Osceola, 54 per cent; Lyon, 61 per cent, making a general average of 52.5 per cent. It is significant to note that while the per- centage of individual counties varies, the general average not only remains almost the same but is practically a con- stant quantity for the State at large. In other words, it is quite apparent that the agricultural lands of Iowa are now assessed at about one-half of their actual sale value, which, considered in the concrete, means that land now having a sale value of $100 per acre is valued on the assessment roll at $50 and taxed at $12.50 per acre. This, it should be under- stood, is descriptive of assessment in the aggregate and not of individual assessments. STATISTICS OF THE GENERAL PROPERTY TAX 139 Assessment data for Story County was collected under the supervision of Professor B. H. Hibbard of the Iowa State College. Here a thorough study was made — perhaps the most thorough that has been made for any county of the State. The investigation covered the years from 1905 to 1909, inclusive, and included seven hundred farm sales and two hundred ninety-three city sales. In each case the selling value was compared with the average of two assessed values, one before and the other following the sale. Doubtful sales were omitted as far as possible. The results of this in- vestigation showed a ratio of assessed to sale value of 52.52 per cent for farm sales and 60.5 per cent for city sales. The ratio of 52.52 per cent for farm lands, which alone can be compared with the data given in Table VII, is nearly the same as the general average (55 per cent) of said table, but is higher by 5.52 per cent than the ratio there given for Story County. In other words, the investigations scientif- ically made for Story County substantiate the general con- clusions drawn from Tables VII and VIII. Such are the revelations of an examination, historical and critical, of the statistics of assessment and taxation in Iowa. This study, however, would be incomplete and would fail to give a correct impression of the defects in our revenue sys- tem if we neglected to note at least one important fact not revealed in the tables. Indeed, it is not too much to say that the most vital criticism of Iowa's assessment remains to be stated, namely: the gross, one is almost tempted to say criminal, inequalities of assessment that exist between in- dividuals. It is interesting to know that the average assessed value of horses in one county is ten dollars, and in another county forty dollars. It helps one in understanding the defects of our revenue system, if he learns that sheep and swine of the same grade or class are assessed on an average three 140 HISTORY OF TAXATION IN IOWA times as high in one county as in another. One should also study the percentage of assessed to true value of land in the various counties. The fact that one county reveals a general average of 75 per cent, a second 60 per cent, and a third 45 per cent throws some light on the administration of our fiscal system. But when all is said along this line an understanding of these facts forms but an avenue of approach to a considera- tion of that most fundamental of all the defects in our revenue system, namely, inequalities of assessment as be- tween individuals. It is quite impossible to make a critical study of such inequalities in this connection. To do this would be an important, perhaps the first, duty of a tax com- mission. Here only a statement of the problem will be un- dertaken. The honorary Ohio Tax Commission mentions the follow- ing inequalities as between individuals: first, inequalities between the owners of real and personal property; second, inequalities among the owners of personal property; third, inequalities among the owners of real estate; fourth, in- equalities between the owners of real estate and personal property, and owners of corporate property; and fifth, in- equalities among corporations. Concluding their considera- tion of this subject, the commission says: "We have found that the general property tax is a failure for purposes either of revenue or equality; that more than half of the total wealth of the state in tangible property alone escapes tax- ation; that of intangible property, such as moneys and credits, stocks and bonds, subject to taxation under our laws, not ten per cent, perhaps not even five per cent, is listed on the duplicates ".^^^ The Minnesota Tax Commission in its preliminary report held that ''the evils of the general property tax center in the process of assessment ".^^^ The same commission, re- porting later concerning inequalities between individual STATISTICS OF THE GENERAL PROPERTY TAX 141 parcels of land, said: ''The discussion of inequalities be- tween individual parcels of land resolves itself into the consideration of the shortcomings of local assessors. In different parts of the state great variances will be found in assessments, running from 5% of true value to 300%. "■^^''' After more than ten years of investigation, the Wisconsin Tax Commission has reached the same conclusion. In fact all authorities on taxation agree that inequalities of as- sessment which in the last analysis refer to inequalities be- tween individual property owners, constitute the most vital defect of the general property tax. This principle may be illustrated by concrete examples. Two persons, A and B, live in the same taxing district. Each owns $25,000 worth of land. A's land is assessed at $10,000 or 40 per cent of the actual value. B's land is assessed at $20,000 or 80 per cent of the actual value. In each case the rate of taxation is the same. A pays $100 in taxes, and B pays $200 on the same amount of property and under the same conditions. Two other persons, A and B, hold equal amounts of property, and are taxed at the same rate. A owns $10,000 worth of land and pays taxes on $8,000. B owns $10,000 in personal property and pays taxes on $1,000. In other words, A pays eight times the amount of B on the same value of property. Such illustrations could be mul- tiplied indefinitely. One property owner is taxed on the full value of his property, a second on fifty per cent of the actual value, and a third evades all taxation. Such are the actual conditions, not only in Iowa but in other States of the Union. No one denies the truth of the fiscal law that all persons should contribute to the support of the government according to their ability to pay. How to measure this ability to pay, fairly and honestly as be- tween man and man, is one of the leading problems of the future, and one which the people and the law-makers of Iowa must have the courage to face squarely, and honestly endeavor to find a solution. PAET II SOME SPECIAL PROBLEMS IN TAXATION 143 VI THE TAXATION OF BANKS Iowa was admitted into the Union at a time when the business of banking was much discredited especially in the popular mind of the West. The reckless systems of banking that had prevailed and the heavy losses resulting therefrom were responsible for this condition. Accordingly, there were extended debates on the proposition of banks or no banks in the Iowa constitutional conventions of 1844 and 1846.^^'^ The final result of these discussions was a con- stitutional prohibition of banking in the following terms: No corporate body shall hereafter be created, renewed, or ex- tended, with the privilege of making, issuing or putting in circula- tion, any bill, check, ticket, certificate, promissory note, or other paper, or the paper of any bank, to circulate as money. The Gen- eral Assembly of this State shall prohibit, by law, any person or persons, association, company or corporation, from exercising the privileges of banking, or creating paper to circulate as money. 2. Corporations shall not be created in this State by special laws, except for political or municipal purposes, but the General As- sembly shall provide, by general laws, for the organization of all other corporations, except corporations with banking privileges, the creation of which is prohibited.^^s The Code of 1851 also contains stringent statutory pro- hibitions. Among other things it is provided that ''no per- son, association, or corporation shall issue any bills, drafts, or other evidences of debt to be loaned or put in circulation as money or to pass or be used as a currency or circulating medium ; and every person, association, or corporation, and every member thereof who violates the provisions of this 10 145 146 HISTORY OF TAXATION IN IOWA section shall be punished by fine not exceeding one thousand dollars ".^^'^ In fact the law against membership in banking associations was made even more drastic ; members of such associations were to be punished by imprisonment in the county jail not exceeding one year or by a fine of not more than one thousand dollars.^^^ A careful reading of the Constitution of 1846 and the Code of 1851 reveals the fact that what the framers of the Constitution and those who enacted the Code had in mind were banks of issue rather than ordinary banks of discount and deposit. Not only was banking carried on between 1846 and the adoption of the Constitution of 1857, but pro- vision was made in the Code of 1851 for the taxation of the shares of stock in banks. Among other things, property liable to taxation was made to include ''stock or shares in any bank or company incorporated or otherwise, and wheth- er incorporated by this or any other state, and whether sit- uate in this state or not."^^"^ Other provisions of the Code of 1851 relate indirectly to the subject of banking and should be studied in connection with court decisions. The term "credit" includes every claim and demand for money, labor, or other valuable thing, every annuity or demand for money receivable at stated periods, and all money in property of any kind, secured by deed, mortgage or otherwise, said credits to be listed at such sum as the person listing them believes will be received or can be collected. It was finally stipulated that depre- ciated bank notes and depreciated stock or shares in corpo- rations or companies "may be listed at their current value and rate".^^- Such was the constitutional and statutory law relative to banking until the adoption of the Constitu- tion of 1857. The Constitution of 1857 contains at least eight sections which relate directly to the subject of banking. It provides that "no act of the General Assembly, authorizing or creat- THE TAXATION OF BANKS 147 ing corporations or associations with banking powers, nor amendments thereto shall take effect, or in any manner be in force, until the same shall have been submitted, separately, to the people, at a general or special election, as provided by law, to be held not less than three months after the pas- sage of the act, and shall have been approved by a majority of all the electors voting for and against it at such elec- tion."2^3 Subject to this provision the General Assembly was given power to establish a State bank with branches and to enact a general banking law ; but no political or mu- nicipal corporation was permitted to become a stockholder in any banking association directly or indirectly .^^^ In 1858 an act was passed entitled "An Act authorizing General Banking in the State of lowa."^^^ Shares of stock in banking corporations are declared to be personal prop- erty, and provision is further made for the levy of taxes upon the corporation as such, and not upon the individual stockholders. The value of the property is to be ascertained annually by the bank commissioners, and the rate of taxa- tion to be made the same as that required to be levied on other taxable property by the revenue laws of the State. ^"*^ A second act passed in 1858 was entitled "An Act to Incorporate the State Bank of lowa."^^'^ The only section of this act which relates to taxation provides that the Gen- eral Assembly shall never impose any greater tax upon property employed in banking than is imposed upon the property of individual s.^^^ The Revision of 1860 contains no additional provisions of importance relative to bank taxation. Further legisla- tion, however, was soon rendered necessary by the act of Congress creating a national banking system. The General Assembly which met in 1866 took up the question of taxing this class of banks, a bill being introduced to provide for the taxation of the currency of national banks.^^^ A sub- stitute, however, was presented providing for taxing the 148 HISTORY OF TAXATION IN IOWA shares of stock. Senator J. B. Leake believed that the act of Congress which established the national banking sys- tem prohibited the States from levying a tax on circulation. He said : " To tax the circulation would be to tax what they owe, not what they own. The national banks can be taxed on their shares if at all, as the State banks have been taxed, and to do that I think the machinery provided by law amply sufficient ; but if not it can be easily amended, so as to enable assessors to include such shares in the tax lists. "^^"^ After considerable debate the majority were disposed to favor the taxation of shares of stock rather than circulation. A few days later an amendment was introduced to exempt the real estate from taxation on the ground that to tax the shares of stock and also the real estate would be double tax- ation. The amendment, however, was lost by a decisive vote.^*'^ The substitute bill providing for the taxation of shares of stock then passed the Senate with only five neg- ative votes.^*^^ As approved April 2nd the measure provided that all shares in national banks should be included in the valuation of the personal property of ' ' such person or body corporate or corporation" for assessment in the township, incorpo- rated town or city where such banking associations were located and not elsewhere, but not at a greater rate than was assessed upon other moneyed capital in the hands of in- dividuals. The real estate was subject to State, county, or municipal taxes the same as other real estate. Each banking association was further required to list the shares, giving the name of the owner and the amount owned by each, and was finally made liable for the payment of the tax as the agent of each of its shareholders under the provisions of section 725 of the Revision of 1860.^^^ In fact it was made the duty of a national bank ' ' to retain so much of any divi- dend or dividends belonging to any shareholder as shall be necessary to pay any taxes levied upon his or her shares. "^'^^ THE TAXATION OF BANKS 149 But the taxation of national bank shares was not to be an established fact without a struggle in the courts. In 1867, only one year after the passage of the act, the Supreme Court of Iowa declared it to be unauthorized and invalid.^*^^ This decision is worthy of careful study, especially from the standpoint of later judicial opinions. The Iowa court followed the opinion of the Supreme Court of the United States in the case of Van Allen vs. The Assessors, ^'^^ wherein it appears that the State of New York had passed a law providing for the taxation of nation- al bank shares while other banks were taxed on their capital. The New York law was held to be illegal and void for the reason that it did not comply with the forty-first section of the act of Congress which provided 'Hhat the tax so im- posed under the laws of any state upon the shares of any of the associations authorized by this act shall not exceed the rate imposed upon the shares in any of the banks organ- ized under authority of the state where such association is located. "^*^^ It was held in the Bank of Commerce vs. New York City that a tax on capital would permit the exemption of non-taxable United States securities, a privilege which would not extend to the stockholder .^''^ After carefully reviewing all Iowa laws relative to bank taxation. Judge Wright of the Supreme Court of Iowa said : ''We contend, that the system of taxation thereby provided for, is, that the corporation itself is to be taxed, precisely as though it were an individual, upon its actual taxable prop- erty, real and personal ; and that the individual stockholders are not to be taxed upon their shares of stock. ''If this position be sound", continues the Judge, "it fol- lows, of course, that these banks cannot be taxed, upon any portion of their capital or assets, invested in the bonds of the United States, any more than an individual can be so taxed; and thus the precise state of things, determined in Van Allen vs. The Assessors to be fatal to the power of the 150 HISTORY OF TAXATION IN IOWA State to tax shares of stock in national banks, will have been demonstrated to exist in this State, and that decision will be brought to bear, incontrovertibly, upon the present case'\^^^ It was further held in the majority opinion that to tax the capital and also the shares of stock would be double taxation. Judge Cole in a dissenting opinion maintained, however, that taxation was the rule, and no property should be ex- empted save by act of the General Assembly. He held that our revenue law provided for the taxation of all real and personal property, also for the taxation of stock or shares in any corporation; and he pointed out in conclusion that by a decision of the Supreme Court of the United States shares of stock had been declared property other and differ- ent from the capital, and therefore liable to taxation as such. "I should therefore invert the rule of the majority opinion", he said, "and instead of holding that the legisla- tive intent to tax them, must be made clear and certain, I would hold that, being property, they are legitimately liable to taxation, and should be taxed unless the legislative intent to exempt them from taxation is made clear and certain." Referring to the majority opinion Judge Cole further states that "it, to a greater or less extent, assumes, that the taxation of the capital stock of our State banks, and the tax- ation of the shares therein also, would be double taxation, and it is directly stated, that before the shares could be properly taxed the legislative intent to tax them should be clear and certain. "However much I might, upon original principles, agree with the writer of the majority opinion, in the view that the distinction between capital and shares, as held by the Su- preme Court of the United States, is arbitrary and without foundation in principle, yet that question was properly be- fore that court, and the distinction was clearly held and made the basis of its judgment. It was a question upon which TPIE TAXATION OF BANKS 151 the decision of that court becomes legitimately binding upon us. I accept it in all its force, and insist on its application in these cases. "^""^ As a result of this decision, the subject of taxation of national banks was brought before the General Assembly in 1868, when Senator Fairall offered the following resolu- tion: That it is the sense of the Senate that the shares in national banks ought to be rendered subject to taxation the same as other property, and that the Committee on Banks is hereby instructed to report, at as early a day as practicable during this session, a bill in accordance with the views herein expressed.^'^^ This resolution was adopted by a unanimous vote, and a law was promptly passed with practically no opposition. The new act followed the main outlines of the law passed in 1866, but provided in addition that, in case Congress changed or amended the national bank acts, the amendment should be made "in such manner as to conform to such altered or amended act of Congress"; and it was further stipulated that "all acts and parts of acts inconsistent with the provisions of this act, are hereby repealed ".^'^^ No time was lost in bringing the new law before the court for adjudication.2^2 Judge Wright again delivered the opin- ion of the Supreme Court. He held first, that the repealing clause contained in the act of 1868 repealing all acts and parts of acts inconsistent therewith removed the objections specified in Hubbard vs. The Board of Supervisors,^"^ thus authorizing the taxation of shares in the State bank ; second, that exemption from taxation must rest upon some clear and just ground, courts not being justified in making nice distinctions to defeat the legislative will ; and third, that the constitutional provision which declares that no act of the General Assembly authorizing or creating corporations with banking powers, nor amendments thereto, shall take effect until the same shall have been submitted to and received a ]52 HISTORY OF TAXATION IN IOWA majority vote of the people does not apply to nor operate as a limitation upon the repealing power of the legislature. The Supreme Court held therefore that the new act of 1868 was authorized and valid, it having received the two-thirds vote of the legislature required in such cases.^^^ The language of Judge Wright in reference to section 1598 of the Revision of 1860 is significant. It should be stated that this section provided for the levy of taxes on the cor- poration and not upon the individual stockholders, the value of the property to be ascertained and made the basis of assessment. Concerning the repeal of this section Judge Wright said: ''But for this provision, I am not mistaken in saying that the taxation would have been sustained. For it is expressly provided that stock or shares in any corpora- tion or company, not required by law to be otherwise taxed, shall be liable to taxation ".^'^*^ The power of the State to tax national bank shares was thus finally and fully sus- tained. In 1870 the general banking act passed on March 22, 1858, was repealed.^^" The State bank act which was passed on March 20, 1858, was also repealed, and the officers of that bank were required to proceed immediately to wind up the affairs of the same by redeeming the notes and paying all outstanding liabilities.^"^ This action was rendered nec- essary by an act of Congress levjnng a tax of ten per cent on State bank notes, thus making that form of note issue im- possible.^'^^ Further contention soon developed in regard to the tax- ation of national bank shares. In the First National Bank of loiva City vs. Hersliire ^^^ it appears that Chief Justice Day held that the tax under the law must be assessed against the shareholder, and that this form of taxation did not au- thorize the seizure of the property of the bank for its liqui- dation. In Hershire vs. The First National Bank of Iowa City, adjudicated two years later, the language of the court THE TAXATION OF BANKS 153 was somewhat more specific. It was held that to render a national bank, organized under the Federal banking act, liable for the payment of taxes due from its shareholders, it must be shown that the bank has or has had in its possession dividends or other money or property belonging to the delinquent shareholder. The court held that the shares of capital stock were under the control of the shareholders and not under the manage- ment or control of the banking association as such. The stockholders had the absolute power of sale and alienation of their shares. Following this reasoning the court con- cluded that ''the banking association is not liable for the tax due from shareholders, under the statute, simply be- cause they are holders of shares in the capital stock of such banking association". Shares in a national banking association are character- ized by Judge Cole in these words : ' ' The shares in the cap- ital stock of the banking association are the property, and under the control of the shareholders. They are not under the control or management of the banking association in any legitimate sense. Even if it be granted that the rules or by-laws of every banking association require, that in order to constitute a valid and complete transfer of such shares the same must be entered upon the stock-book of the asso- ciation, yet this could not limit or restrain the absolute power of sale and alienation by the shareholder himself, and doubtless, any refusal to enter such transfer upon the stock- book might be over-ruled, and corrected by mandamus or other proper remedy. Of course we are not here question- ing or discussing the right of the banking association to re- tain the dividend for the purpose of paying the taxes, or of providing by rule or by-law, properly made and recorded, for the liability of the shares themselves for any indebted- ness of the shareholder to the bank, or the like, so that any transfer of such shares could not affect the right of the bank 154 HISTORY OF TAXATION IN IOWA as against a purchaser having notice of such by-law. All that we intend to say here is, that the shareholder himself in legal contemplation owns, controls, and manages his own shares, nothing different in fact being shown. And hence, the banking association is not liable for the tax due from shareholders, under our statute, simply because they are holders of shares in the capital stock of such banking asso- ciation. Other averment and showing must be made that the shares are in fact under the control or management of the association, before it can be made liable. "^^^ The Code of 1873 contains no additional law of impor- tance relative to bank taxation. It should be noted, however, that private banks were taxed under section 812 which pro- vided that personal property should be listed and assessed each year in the name of the owner. The Fifteenth General Assembly (1874) passed an act to amend this section by inserting after the word January in the third line the words : "Except moneys and credits of associations, organized un- der the general incorporation laws of this state, for the pur- pose of transacting a banking business, and moneys and credits of private bankers, and others who have loaned money, bought notes, mortgages, or other securities within the year previous to the time of assessing; in every such instance the average value of the moneys and credits which have been in the possession or under the control of the per- son making the list during the year previous to the time of making said assessment, shall be listed for taxation. "^^^ This meant the taxation of private bankers on the average amount of moneys and credits in their possession or under their control during the previous year. A second act was also passed in 1874 providing for the organization and management of savings banks. As to taxation the act provided that 'Hhe paid up capital of all savings banks organized and doing business under this act shall be subject to the same rates of taxation and rules of THE TAXATION OF BANKS 155 valuation as other taxable property, by the revenue laws of the state, which taxes shall be levied on and paid by the banks and not the individual stockholders, and the general assembly shall never impose any greater tax upon property employed in banking under this act than is or may be im- posed ujDon the property of individuals. The franchise of all such banks, the savings and funds deposited therein, and the mortgages and other securities, wherever the same are invested, are not to be taxed, but are expressly ex- empted therefrom, and may be omitted from assessments of the bank required by the revenue laws of this state ".^^^ This section is self-explanatory. The tax is to be levied on the paid uj) capital, which does not mean the shares of stock, and thus a new door is opened for legal controversy. During the years that immediately followed the passage of the act of 1874, a number of important bank tax cases came before the Supreme Court. In Branch vs. the Toivn of Marengo ^^^ Judge Eothrock held that a banker is liable to taxation only for such moneys and credits as are in his pos- session as owner, and not for those which he may hold as the custodian of others. '^It is presumed", says the Judge, *Hhat the customers of banks make returns of their moneys and credits, which would include bank deposits ; and to give this section the construction claimed by appellant, would re- sult in double taxation ".^^^ The alternative construction of the law, it is further maintained, whereby the banker would be considered owner of the deposits would also make him absolute debtor to the depositors for the whole amount thereof and entitle him to deduct the same.^^^ One or two cases relative to savings banks should be briefly considered. In the German American Savings Bank vs. The City of Burling ton^^"^ Judge Day held that the capital of a savings bank to the extent that it is invested in bonds of the United States is exempt from taxation. This decision again opened up the question of taxing the shares of stock in 156 HISTORY OF TAXATION IN IOWA national banks. In Davenport National Bank vs. Board of Equalization ^^^ Judge Adams delivered an opinion, holding that the taxation of savings banks on their paid up capital while national banks were taxed on their shares of stock did not constitute a discrimination against national banks, in violation of section 5219 of the Revised Statutes of the United States. It was further alleged that some latitude in modes of assessment should be granted the General Assem- bly, even though the same did not result in absolute equality of taxation.2^^ The next act of importance in the history of bank taxa- tion was passed in 1890 and provided for the assessment of the capital stock of State or commercial banks to the banks as such in the city or town where located, and not to the individual shareholders.^^'' With national banks assessed to the individual shareholders, an important distinction was thus made between the two methods of assessment, and the door was again opened for further litigation. Before considering the effect of this apparent discrimina- tion, it will be instructive to note one or two additional cases relative to the taxation of national banks. A number of points had not been definitely settled. In First National Bank of Albia et al vs. City Council of Alhia ^^^ the court held, first, that real estate which is otherwise assessed for taxation shall be deducted from the value of the capital stock; and second, that shares of capital stock are credits within the meaning of section 814 of the Code, and the tax- payer is therefore entitled to deduct from the value of his shares all debts owing by him in good faith.^^^ tj^^ ^^^^ ^^^^ real estate should be deducted from the actual value of the stock had been held in a number of important decisions of the Supreme Court of the United States.^^^ Eegarding the deduction of debts, the Iowa Supreme Court followed the able opinion of Justice Harlan, which was in part as follows : THE TAXATION OF BANKS 157 1. That the words "at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens" refer to the entire process of assessment, which, in the case of national bank shares, includes both their valuation and the rate of percentage on such valuation; consequently, that the act of Congress is violated if, in connection with a fixed percentage applicable to the valuation alike of national bank shares and of other moneyed investments or capital, the State law establishes or permits a mode of assessment by which such shares are valued higher in proportion to their real value than is other moneyed capital. 2. That a State law which permits individual citizens to deduct their just debts from the valuation of their personal property of every kind, other than national bank shares, or which permits the tax-payer to deduct from the sum of his credits, money at interest or other demands to the extent of his hona fide indebtedness, leav- ing the remainder to be taxed, while it denies the same right of de- duction from the cash value of bank shares, operates to tax the latter at a greater rate than other moneyed capital.^^^ In the case of Farmers and Traders' National Bank vs. Chas. Ho f man, tlie Iowa Supreme Court took an additional step by declaring that national bank stock cannot be as- sessed as the personal property of the bank without the list- ing or mention of the shareholders. This construction was rendered necessary, in the opinion of the court, to make it possible for stockholders to deduct their indebtedness as provided by law. Otherwise they would be assessed at a higher rate than was imposed upon other moneyed capital in the hands of individuals. It has already been pointed out that different methods of assessment were adopted by the General Assembly for State and commercial banks as opposed to national banks. The legality of this dual system soon came up for adjudica- tion. In Primghar State Bank vs. Henry Rerick, the law of 1890, providing that the shares of capital stock of State banks shall be assessed to the bank and not to the individual shareholder, was sustained. It was declared to be a general 158 HISTORY OF TAXATION IN IOWA and not a special law for the assessment and collection of taxes.^'^^ The fact that State and commercial banks belonged in a separate class from national banks was clearly stated by the court. The whole question of bank taxation was re- viewed in this important case and the conclusion reached that three classes of chartered banks exist in Iowa from the standpoint of assessment and collection of taxes : first, na- tional banks; second, State and commercial banks; and third, savings banks.^^^ Since the Code of 1897 became operative bank taxation in Iowa may be summarized as follows : first, private banks are assessed on the aggregate value of moneys and credits, after deducting therefrom the amount of deposits and of debts owing by such banks, and the aggregate actual value of bonds and stocks, after deducting the portions thereof ex- empt, or otherwise taxed in this State, and also the other property pertaining to the business ; second, national bank shares are assessed to the individual stockholders at the place where the bank was located ; and finally, the shares of stock of State and savings banks and loan and trust compa- nies are assessed to such banks and loan and trust compa- nies and not to the individual shareholders.^^^ To aid the assessor in fixing the value of such shares it is further stipulated that the banking corporations shall furnish a verified statement showing separately the amount of their capital stock, surplus, and undivided profits.^^^ In other words, the law virtually provides that national. State and savings banks, and loan and trust companies shall pay taxes on their capital stock, surplus, and undivided profits. The only distinction made in the case of national banks is that the shares of stock are assessed to the individual stock- holder at the place where the bank is located and not to the bank itself. This law, with a slight amendment regarding the deduc- tion made of real estate, still prevails in Iowa. The amend- THE TAXATION OF BANKS 159 ment referred to provides tliat: "in arriving at the total value of the shares of stock of such corporations, the amount of their capital actually invested in real estate owned by them and in the shares of stock of corporations owning only the real estate (inclusive of leasehold interests, if any) on or in which the bank or trust company is located, shall be deducted from the real value of such shares, and such real estate shall be assessed as other real estate, and the prop- erty of such corporations shall not be otherwise as- sessed. "^^^ In W. S. Judy, County Treasurer, vs. The National State Bank, of Mt. Pleasant ^^^ it was held that before a county treasurer can collect taxes on omitted property he must list it the same as an assessor. In the absence of a regular assessment no tax on omitted property can be collected. In April, 1903, Judge McClain reviewed the whole subject of bank taxation and rendered an important decision from the standpoint of the provisions of the Code of 1897. He held that the method of taxation of national banks is substan- tially the same as that provided for State and savings banks ; and the fact that government bonds owned by a na- tional bank are to be considered in estimating the value of its shares of stock for taxation, while a private bank is as- sessed on its moneys and credits after making certain de- ductions, including government bonds owned by it, is merely a distinction in the method of taxation and not a discrimi- nation against national banks. ^*^^ In conclusion it may be said that the history of bank taxation in Iowa, while complicated in detail and a subject of almost constant litigation before the courts, is neverthe- less characterized by a few well defined principles. Banks of issue were prohibited by the Constitution of 1846; but banks of discount and deposit existed, and in fact provi- sion was made in the Code of 1851 for the taxation of the 160 HISTORY OF TAXATION IN IOWA shares of stock in such banks. Following the Constitution of 1857, which contains elaborate provisions concerning banks, a general banking act and a State bank act were passed in 1858. The former act provided for the levy of taxes against the corporation as such and not against the individual stock- holder, and the latter stipulated that taxes imposed should not be at a greater rate than was levied on the property of individuals. These laws, however, were repealed in 1870 as a logical result of the act of Congress imposing a tax of ten per cent on the circulation of State banks. The act of Congress creating a national banking system as a war measure marked a new epoch in the history of bank taxation in Iowa as well as in other States. Years of litigation followed. In 1866 the General Assembly passed an act taxing the shares of stock in national banks. The banks were required to list the shares and in fact were made responsible for the tax as agents of the shareholders un- der the provisions of section 725 of the Revision of 1860. It was made their duty to retain that portion of the divi- dends necessary to pay all taxes levied against the shares. This law was promptly declared unconstitutional on the ground that to tax national banks on their shares of stock while other banks were taxed on their capital constituted a discrimination against national banks. It was further held, first, that a tax on capital would permit the deduction of non-taxable securities, a privilege which would not extend to the stockholders; and second, that to tax capital and also shares of stock would be double taxation. In a dissenting opinion Judge Cole held that our revenue laws provided for the taxation of both capital and shares which had been de- clared to represent different forms of property by the United States Supreme Court. In 1868 a new law was passed which followed the main outlines of the old act but provided for the repeal of all acts or parts of acts inconsistent with the provisions of the same. THE TAXATION OF BANKS 161 The new act was at once brought before the Supreme Court which declared that the repealing clause removed the ob- jections formerly made by authorizing the taxation of shares in the State bank. The Revision of 1860, section 1598, had provided for the levy of taxes on the corporations as such and not upon the individual stockholders. The re- peal of this section, therefore, made it possible under the revenue laws to tax the shares of stock in all chartered banks, which was authorized and valid as it did not consti- tute a discrimination against national banks. A tax on the shares of stock in national banks was thus finally sustained, although United States government bonds were considered in arriving at the value of such shares. It was later held, first, that to render a national bank liable for the pa>Tnent of taxes due from its shareholders, it must be shown that the bank actually has in its possession divi- dends or other property belonging to the delinquent share- holder; and second, that shares of stock are not under the control or management of the banking association in any legitimate sense. During this time the assets of private banking associa- tions excluding real estate were listed and assessed as per- sonal property. In 1874 an act was passed providing for the taxation of such banks on the average value of moneys and credits in their possession or under their control during the previous year. The same General Assembly also passed an act providing for the organization and management of sav- ings banks and the taxation of the same on their paid up capital. The Supreme Court held that such paid up capital to the extent that it was invested in bonds of the United States was exempt from taxation. More litigation followed; but the Supreme Court held that the taxation of savings banks on their paid up capital and national banks on their shares of stock did not consti- tute a discrimination against the latter. It was further al- ii 162 HISTORY OF TAXATION IN IOWA leged that this was a legitimate classification for the pur- pose of assessment even though it did not result in absolute equality of taxation. In 1890 an act was passed providing for the assessment of the capital stock of State and commercial banks to the banks as such and not to the individual stockholders. This again opened the door to litigation. This classification for purposes of assessment was also upheld by the Supreme Court, although it was recognized that the new act did not permit the owners of capital stock in State and commercial banks to deduct their debts — a privilege granted to holders of national bank stock. In fact this was regarded as a mere incident and not a necessary result of the statute. Finally, under the Code of 1897 and the court decisions relative thereto, the following classes of banks for purposes of assessment and taxation have been clearly recognized: first, private banks taxable on their moneys and credits, in- cluding stocks and bonds after deducting deposits, just debts, and non-taxable securities; second, national banks, taxable on the shares of stock at the place where the bank is located; and third, State, savings and commercial banks, taxable on the shares of stock to the banks as such and not to the individual stockholders. In a recent decision the Iowa Supreme Court has taken an additional step by holding that bonds of the United States may be considered in determining the value of shares of stock in national. State, or savings banks. VII THE TAXATION OF INSURANCE COMPANIES Insurance companies were among the first of the corpora- tions doing business under the laws of Iowa to emerge from the system of general property taxation. The plan of col- lecting revenue from these companies through the general property tax had at an early day proved to be impractic- able. Accordingly, in the Code of 1851, in addition to cer- tain corporations required to be taxed through the shares of their stockholders, it is specifically stated that insurance companies shall be taxed one per cent for county purposes and one per cent for State purposes upon the amount of premiums taken by them during the year previous to the listing. The agent in the county where the business is con- ducted is required to list and is made personally responsi- ble for the tax.^<>2 A similar section is found in the laws of 1858^*^^ and also in the Revision of 1860.^*^^ An act was passed, however, in 1868 entitled ''An Act to Regulate Insurance Companies", which provided that ' ' every insurance company doing busi- ness in this State shall at the time of making the annual statement, as provided in section twenty of this act, pay into the State treasury, as taxes, two per cent, of the pre- miums on risks in this State taken during the preceding year, taking duplicate receipts therefor, one of which shall be filed with the Auditor of State, and upon the filing of said receipt, and not till then, the said Auditor shall issue the annual certificate as provided in this act, and the said sum of two per cent, shall be in full for all taxes upon the cor- 163 164 HISTORY OF TAXATION IN IOWA poration or its shares under the laws of this State, except taxes on real property ".^*^^ The nature of the tax on premiums soon became a subject for judicial interpretation. In the City of Dubuque vs. The Northivestern Life Insurance Company ^"^ the Supreme Court held that the annual premiums of an insurance com- pany received by an agent residing in a city are not subject to taxation as personal property under the power conferred upon the city by its charter to tax all real and personal property within its jurisdiction. Later in the same year a similar opinion was again handed down by the Supreme Court. -^^^ The insurance legislation of 1868 was not long on the statute books: the Fourteenth General Assembly passed ''An Act to Amend Chapters 138 and 173 of the Twelfth General Assembly, to Regulate Insurance Companies "."^^^ This act is memorable chiefly because of the discrimination and, what is more to be condemned, the cowardly spirit of retaliation which it reveals. An elaborate set of fees was to be collected from all insurance companies, heavier fees being required of companies organized outside the State. Then follows a section, by no means a credit to our law- makers, which reads: ''Wlien, by the laws of any other State, any taxes, fines, penalties, licenses, fees, deposits of money or of securities, or other obligations or prohibitions, are imposed, or would be imposed, on insurance companies of this state doing, or that might seek to do, business in such other State, or upon their agents therein, so long as such laws continue in force the same obligations and prohi- bitions, of whatever kind, shall be imposed upon all insur- ance companies of such other State doing business within this State, or upon their agents here."^"^ The act further provides that, in addition to the fees required, a tax of two and one-half per cent shall be levied on the "gross amount of premiums received in this state during the preceding THE TAXATION OF INSURANCE COMPANIES 165 year", said tax to be "in full for all taxes, state and local". Joint stock and mutual companies organized under the laws of this State were not, however, required to pay this tax, such companies being assessed under the general rev- enue law.^^^ The following is the elaborate system of fees, outlined in section four of the act : upon filing declaration or certified copy of charter, twenty-five dollars; upon filing the annual statement, twenty dollars ; for each certificate of authority, and certified copy thereof, two dollars; for every copy of any paper filed in the department, the sum of twenty cents per folio, and for affixing the official seal to such copy, and certifying the same, one dollar ; for valuing policies of life insurance companies, ten dollars per million of insurance, or any fraction thereof; and for official examinations of com- panies under this act, the actual expense incurred. Com- panies organized under the laws of this State were required to pay the following fees : for filing and examination of the first application of any company, and the issuing of the cer- tificate of license thereon, ten dollars ; for filing each annual statement, and issuing the renewal of license required by law, three dollars; and for each certificate of authority to its agents, fifty cents.^^^ The only change to be noted in the Code of 1873 is that mutual companies organized under the laws of Iowa are also exempted from the two and one-half per cent tax on gross premiums.^^^ In fact no important change was made in the law relating to the taxation of insurance companies un- til the adoption of the Code of 1897. Two or three minor points, however, should receive brief consideration. In 1870 complaints were made by a number of companies that they were unable to file their reports by January 1st, or thirty days thereafter, as required by law. Among these companies the Phoenix Life Insurance Company of Hart- ford, Connecticut, announced that it would be obliged to 166 HISTORY OF TAXATION IN IOWA withdraw from the State. It was pointed out in The Iowa Daily State Register that ''figured down to sharp points, as the question now stands, we have less than half the com- panies legally doing business in the State that we had last year, and our revenue from them is less than one-fourth the amount received last year. The law as it now stands is wrong. The Senate passed a bill yesterday which is es- sentially just, and is substantially the same as recommended by the Governor in his message and the Auditor in his bien- nial report. "^^^ An act was passed releasing certain penal- ties and fixing April 1st as the date for filing the annual statement. ^^^ From time to time there is evidence of a growing desire to discriminate against insurance companies organized out- side of Iowa. As an illustration of extreme public opinion on this subject, a bill was introduced into the General As- sembly of 1884 to forbid any insurance company from taking any lawsuit into the United States Court under penalty of being driven out of the State."*^^ Many other efforts were made to pass discriminating or retaliatory legislation. In March, 1888, an important decision relating to the tax- ation of insurance companies was handed down by the Su- preme Court in the case of The Equitable Life Insurance Co. vs. the Board of Equalization of the City of Des Moines.'^'^^ Judge Beck held that so much of the assets of a life insurance company as consists of securities for loans, notes taken for premiums, municipal bonds and warrants, and cash and cash items is taxable as moneys and credits. In listing said moneys and credits for taxation the debts of the company, however, should be deducted. It is further stipulated that among such debts are: first, the debt of the company to its stockholders represented by the amount each stockholder would be entitled to receive from a present dis- tribution of the moneys and credits of the companies ; and second, the amount owed to the policy-holders, represented THE TAXATION OF INSURANCE COMPANIES 167 by the reserve fund required by law. In other words where the amount of debts exceeds the amount of moneys and credits, it was held that a company was not taxable on account of said moneys and credits. In this important case the Supreme Court first sustained the lower court and the board of equalization,^^'^ holding that the assessment of moneys and credits had been valid. But a re-hearing was granted and the case thoroughly ar- gued. It was upon the re-hearing that the above decision was rendered by Judge Beck, wherein he held that ' ' the amount of plaintiff's indebtedness to its stockholders and policy- holders exceeds the amounts of its moneys and credits."'*^® It was said in The loiua State Register that "had the form- er ruling been adhered to the home companies would have been taxable on the large deposits which they are compelled by law to make, and would have been driven out of the State. "^19 The Code of 1897 contains important changes in the law relative to insurance taxation. A threefold classification of insurance companies is made for purposes of tax dis- crimination. In the first class belong all insurance compa- nies organized outside of the United States, which are re- quired to pay into the State treasury three and one-half per cent on their gross premiums received in Iowa during the preceding year. The second class includes those compa- nies organized or incorporated under the laws of any State of the United States other than the State of Iowa. Such companies are required to pay into the State treasury two and one-half per cent on their gross premiums. The third, or residual claimant class is made to include every other in- surance company or association doing business in this State, not including those otherwise taxed under the pro- visions of this section, and not including county mutuals and fraternal beneficiary associations. This class is required to pay into the State treasury one per cent of the gross 168 HISTORY OF TAXATION IN IOWA amount received by it on assessments, fees, dues, or premi- ums for business done in this State, after deducting the amounts actually paid for losses and the amount of premi- ums returned. It is finally stipulated that the taxes pro- vided in this section shall be in lieu of all taxes State and local except taxes on real estate and special assessments. ^^^ No time was lost in testing the constitutionality of this section of the Code of 1897. It was open to attack, first, from the standpoint of discrimination between companies, and second, because of the exemption of such companies from local taxation. The first point was adjudicated by the United States Circuit Court in Manchester Fire Insurance Company et al. vs. Herriott, Treasurer of the State of loiua.^^^ The bill in this case was filed on behalf of some thirty-two fire insurance companies doing business in Iowa but incorporated under the laws of Great Britain and other foreign countries. The opinion submitted by Judge Shiras covers a number of vital questions relating to the taxing power as limited and defined by the Constitution of Iowa and the Constitution of the United States ; but in this con- nection the discussion will be confined to the chief point in controversy, namely, the nature of the tax on gross pre- miums which is defined as a license tax imposed as a con- dition to do business and not a tax upon the tangible prop- erty of the company. It is in this connection that Judge Shiras said that "this license tax is the condition imposed by the state upon the privilege of engaging or continuing in business within the state. It is optional with the companies whether or not they will subject themselves to the burden, but they cannot enjoy the privilege of continuing in business in the state except upon compliance with the terms which the state has seen fit to impose as a condition to the exercise of the privilege." The Judge admits that the burden is both in form and in substance a tax, although not a tax imposed upon the THE TAXATION OF INSURANCE COMPANIES 169 tangible property of the companies. It is rather in the na- ture of a license fee imposed as a condition to do business, on the theory that the State has the right to prescribe the terms and conditions upon which any foreign corporation ^'not engaged in interstate commerce, or in the furtherance of the business of the United States", may enter or remain in the State.^22 Referring to the Iowa insurance tax law, and having in mind the Manchester Fire Insurance case just reviewed, John Herriott writes that "the Iowa law imposing discrim- inating or differential taxes on insurance companies imme- diately achieved considerable notoriety throughout the country. Following close upon its enactment in 1897, sim- ilar measures were introduced in the Legislatures of other States. Marked opposition was naturally manifested against the Iowa act by foreign companies — not so much because the discriminations were excessive, but because of the precedent established, and measures were early taken to test the validity of the law".'*-^ Granting the constitution- ality of discrimination as emphatically affirmed by Judge Shiras, Mr. Herriott in his report as Treasurer is inclined to doubt the wisdom of such a policy, which he says can lead to no beneficial results — a view that is well founded and in harmony with the best modern thought on the sub- ject.^-^ In the same year another and far more important decision was handed down by the Supreme Court relative to the tax- ation of insurance companies. Reference has already been made to the two questions presented for adjudication : first, discrimination as between companies; and second, the ex- emption of such companies from local taxation. In Haivkeye Insurance Co. vs. French the District Court of Polk County held that the payment of State taxes as provided by law did not exempt an insurance company from local taxation. Referring to this decision Mr. Herriott said that if sus- 170 HISTORY OF TAXATION IN IOWA tained by the Supreme Court ''it will be exceedingly dif- ficult, if not impossible, with the Constitution as it is, to tax corporations in Iowa exclusively for State purposes accord- ing to the best methods of assessment in vogue in the ma- jority of States 'V^s Notwithstanding this opinion the Supreme Court did affirm the decision of the lower court in Haivkeye Insurance Co. vs. French.^-^ In this case, which is one of the most im- portant and far reaching along the line of taxation ever ad- judicated in Iowa, the opinion was written by Judge Deemer. After presenting a portion of section 1333 of the Code of 1897 as referred to above. Judge Deemer quoted the following section of the same Code: "The shares of stock of any corporation organized under the laws of this state, except those which are not organized for pecuniary profit, and except corporations otherwise provided for in this act, shall be assessed to the owners thereof, at the place where its principal business is transacted, the assessment to be on the value of such shares on the first day of January in each year; but in arriving at the total value of the shares of stock of such corporations, the amount of their capital ac- tually invested in real estate owned by them, either in this state or elsewhere, shall be deducted from the real value of such shares, and such real estate shall be assessed as other real estate, and the property of such corporation, except real estate situated within the state, shall not be otherwise assessed. "^^'^ At the time of the commencement of the suits under consideration, Mr. F. A. French, an as- sessor of the city of Des Moines, was about to list the shares of the stock in the plaintiff companies under the provisions of this act. The court held that the section ^^^ by which insurance companies organized under the laws of the State are re- lieved of all other taxes. State, county and local is contrary to that provision of the Constitution which requires that THE TAXATION OF INSURANCE COMPANIES 171 ''the property of all corporations for pecuniary profit, shall be subject to taxation, the same as that of individuals".^-^ The vital point in the decision can best be presented in the words of Judge Deemer. ''Reduced to its last analysis", he says, "the question is a narrow one, and must find its solution in the construction of the constitutional provision relied upon by appellee. That provision not only requires that the property of corporations be taxed, but that it be subject to taxation the same as that of individuals. This does not mean, of course, that the methods should be iden- tical, but that the property of corporations organized for pecuniary profit should assume the same burdens as are l^laced upon the property of individuals, and that the taxes should be for the same purposes and objects. It will not do to say that the constitutional provision is a mere grant of power to the legislature to impose taxes on corporate prop- erty. That power would exist in the absence of any constitu- tional grant. Indeed, it is fundamental that a state constitu- tion is not a grant of power, but a limitation upon the pow- ers of government. Generally speaking, a state may do whatever is not prohibited by its constitution. Morrison v. Springer, 15 Iowa, 342 ; Steivart v. Board, 30 Iowa, 18. The language quoted then, was a command or direction to the legislature in the execution of a power inherent in it in vir- tue of sovereignty; and that was that taxes levied on the property of corporations shall be the same as those imposed upon the property of individuals. In other words, corpora- tions shall bear the same burdens of taxation as individuals, and the objects and purposes of the tax shall be the same whether levied upon the property of an individual or of a corporation. The evident object of the constitutional re- quirement was to secure uniformity, and impose equal bur- dens upon the owners of all property which was under the protecting wing of the state, and it was but giving emphasis to that other provision of our fundamental law forbidding 172 HISTORY OF TAXATION IN IOWA the general assembly from granting to any citizen or class of citizens special privileges or immunities. "^^" In order to form a comprehensive and just estimate of this case in all its bearings a detailed and critical study is necessary. From such a study it appears: first, that the court did not in any way interfere with the right of the General Assembly to adopt different methods for ascertain- ing values or to fix the situs of property for purposes of taxation ;^^^ second, that the evident purpose of the Consti- tution as understood by the court is to subject all forms of property both individual and corporate to the same burdens of taxation, the central thought being uniformity of taxa- tion, not uniformity in method of assessment ;*^^ and third, that, while the opinion, considered as a unit, clearly inter- prets the Constitution as requiring equality of fiscal bur- dens and nothing more, such uniformity of taxation, when applied, is construed to mean the duty to pay certain local taxes. In other words, two different views of the phrase "sub- ject to taxation the same as that of individuals"'*^^ appear in this case: first, equality of fiscal burden; and second, the pajTQent of taxes to the various units of government. State, county, and local. The obvious fact that one form of prop- erty may pay all its taxes to the State, a second to the county, and, if desirable, a third to some other local unit, and the true principle of uniformity not be violated, does not appear to be appreciated by the court. At least such a notion is not expressed, save indirectly in the recognition of the well settled fact that the General Assembly has the power to provide different methods of assessment and fix the situs of property for purposes of taxation. The interpretation of that provision of our Constitution relating to equality and uniformity of taxation is stated by Judge Deemer in these words : ' 'It is the provision of the act relieving companies that have paid a tax on gross income THE TAXATION OF INSURANCE COMPANIES 173 from all other state and local taxes that is in issue. Under our law the individual pays taxes for state purposes, for county purposes, for city or municipal purposes, and for the support of schools. If section 1333 is valid in all its pro- visions, insurance companies are not required to contribute anything to the county, the city, or the school district. These burdens are removed from their shoulders, although they may have large interests which require protection at the hands of the county and the city. They contribute to the state fund alone, and no part of their contribution ever reaches the smaller subdivisions of government." ^^^ When this decision was rendered it received much at- tention from the press of the State. State Treasurer John Herriott had said in his report, while the case was pending, that, if the views of the lower court were sustained, it would jeopardize the State tax on telegraph, telephone, and ex- press companies, and put insurmountable obstacles in the way of much needed tax reforms. ^^^ Writing at the time the editor of the Sioux City Journal said : * ' The supreme court holds that the constitution means that corporations must pay taxes, not only to the same ex- tent, but for the same purposes as individuals; hence the law is held unconstitutional. If it is unconstitutional as to insurance companies the law which turns the taxes of tele- graph and telephone companies into the state treasury must also be held unconstitutional. The next legislature will have to entirely revise the system of taxing all these classes of corporations." ^^*^ Two other points of interest are mentioned by the editor of the Sioux City Journal: first, that Senator Thomas A. Cheshire had been the father of the movement to annul these taxation laws; and second, that Attorney General Remley was pleased with the decision because it "means a revision of the methods of taxing railroads" — referring to a ter- minal tax law. Senator Cheshire at the time thought that 174 PIISTORY OF TAXATION IN IOWA a repeal of these laws would make way for the so-called Cheshire amendment — a proposition to tax corporations on the market value of their stock.^^^ Other newspapers of the time placed a similar construc- tion on the decision. The Cedar Rapids Republican ob- served that "the Supreme Court of Iowa created a sensa- tion to-day by handing down a decision which completely knocks out the present system of assessing and taxing the insurance, express, telegraph, telephone, sleeping car and fast freight companies. "^^'' The Burlington Haivk-Eye and the loiva State Register took a similar view. The language of the latter is especially clear and significant. Eegarding the decision the editor said: ''It holds that insurance and kindred corporations are subject to state, county, city and school taxes just as individuals are. Their capital stock and personalty, by this holding, are placed on a footing with their real estate, all being subject to the local tax levies, which formerly they escaped. ' ' ^^^ Numerous other sources along the same line might be quoted, but enough has been presented to indicate the popular estimate of this important case. The fact is that it did result in a number of radical changes in our revenue laws. A State system of taxation for certain public service corporations it was generally assumed was made impossible by one stroke of the judicial pen. The movement toward the creation of State revenue sources was stopped, and in the opinion of Mr. Herriott, Iowa was compelled to return to the fiscal legislation of pioneer days. The fact is, however, that the real nature of this decision and of another along similar lines written by the same judge ^^^ was generally misunderstood ; and largely for that reason, its importance as a permanent factor in determin- ing the character of fiscal reform was greatly overestimated by the public. There can be no doubt that the able opinion of Judge Deemer was fundamentally sound from a legal THE TAXATION OF INSURANCE COMPANIES 175 standpoint. If that provision of the Constitution requiring the taxation of corporations on the same basis as the prop- erty of individuals has any significance, it means that all l^ersons should contribute to the support of government ac- cording to their respective abilities. Each should bear his proper share of the public burdens according to our con- stitutional law — a beneficent principle which should not be violated by the mere association of individuals in a particu- lar corporation. How to measure this ability to pay taxes will be a subject for separate study.^^^ In the second place it would also seem to be obvious that the situs of property has a very direct bearing upon the question of taxation. Not only should taxes be paid, it is alleged, according to the basic principle above stated, but they should be paid in a certain district, and the proceeds, at least in part, should pass to a certain local unit of govern- ment. This view seems to have had great weight with the court and not without good reason ; for, in a large measure, it is sustained by an historical and critical study of the Iowa revenue system. There can be no dispute with the two fundamental legal doctrines stated by the court : first, equitable taxation; and second, that the situs of property should be considered in determining where taxes ought to be paid. But after granting these contentions and therefore as- suming that the principles of law as such have been cor- rectly interpreted, the question still remains, what is meant by the situs of a certain class of property and how should it be determined? It will be apparent to the critical reader that this is primarily a question of economic facts rather than of mere legal opinions ; yet these facts must be clearly understood, if the whole doctrine of equality and uniformity of taxation is to be anything more than a name. The fact that principles, legal or otherwise, though correct in them- selves, may be so ap]3lied as to defeat their own purpose 176 HISTORY OF TAXATION IN IOWA and intent, is a commonplace of knowledge. Such we believe is true of the important decision now under consideration. No economist would contend for a moment that, aside from real estate owned, office buildings, fixtures, etc., the business of insurance is local in character. From the stand- point of the General Assembly the true situs of this business is the State as such and not any local unit of government. The mandate of the Constitution (Article 8, Section 2), therefore requires the exclusive State taxation of this class of business, or in other words prohibits the local taxation of the same to the end that the underlying principle of equality and uniformity of taxation may be conserved. It is true, as stated by the court, that the General Assembly has the power to determine the method of assessment and fix the situs of property for purposes of taxation; but it is also obvious that, when a law is passed providing for the ex- clusive State taxation of local property or the local taxation of State wide property or business, the true principle of equality and uniformity of taxation is being violated, and it is, therefore, the business of the court to annul such a law in order to comply with the real purpose and intent of the Constitution. What is needed most of all in this connection is not better legal principles but a more thorough and scientific study of various classes of property and business in order that said principles may be correctly applied both by the lawmaker and the jurist. There is nothing in the Constitution which prohibits the exclusive State taxation of the business of insurance or any other business or form of property providing the true situs of the same is the State itself and not a particular locality. On the contrary both the spirit and letter of the Constitution of Iowa demand this form of taxation, and therefore place no legitimate barrier against the scientific reform of our revenue system.^^2 The relation of this decision to the taxation of certain THE TAXATION OF INSURANCE COMPANIES 177 public service corporations will be studied in later chap- ters.^" Following this decision the General Assembly in 1900 amended the law relative to the taxation of insurance companies by repealing the section exempting such com- panies from local taxes and requiring the taxation of their real estate and personal property together with their shares of capital stock as provided in Section 1323 of the Code.'''^* It is further provided, however, that, in assessing the mon- eys and credits of every insurance company, corporation, or association, organized under the laws of this State, ex- cept county mutuals and fraternal beneficiary associations, not organized for pecuniary profit, "the assessor shall as- certain the debts or liabilities, if any, of such corporation, company or association to its shareholders or other persons, which debts and liabilities shall be deducted, as provided in section thirteen hundred and eleven (1311) of the code, but in ascertaining the indebtedness or liability of such corporation, company or association, a debt shall be deemed to exist on account of its liability on the policies, certificates or other contracts of insurance issued by it equal to the amount of the surplus or other funds accumulated by any such corporation, or association, pursuant to law, its con- tracts of insurance or its articles of incorporation for the purpose of fulfilling its policies, certificates or other con- tracts of insurance, and which can be used for no other pur- pose." ^^^ The one per cent license tax to be paid into the State treasury is retained in the law, and is levied on the gross receipts from premiums, assessments, fees, etc., after mak- ing certain deductions. In other words, the law is so framed that assets are offset by liabilities thus practically exempt- ing Iowa companies from local taxation. Insurance business is of such a character that assets can easily be cancelled by liabilities, the whole process being simply one of sub- traction. The House of Representatives hurried the bill 12 178 HISTORY OF TAXATION IN IOWA through without amendment in order to relieve insurance companies from additional taxation under the decision of the Supreme Court above outlined.'*'*^ For reasons already outlined no other sane course was open to the General Assembly. Since 1900 a number of amendments have been made which should be briefly noted. In 1902 the rate on the gross amount of premiums received by foreign insurance com- panies was decreased from three and one-half to two and one-half per cent.^^^ Four years later an act was passed exempting from taxation the funds of fraternal beneficiary associations. ^^^ The Thirty-second General Assembly passed two acts relative to the taxation of fire insurance companies. Foreign companies doing a fire insurance business are allow- ed to deduct from the gross amount of premiums received the amount of premiums returned on cancelled policies issued upon property situated in this State.'*'*^ Domestic comjDanies are also permitted to make similar deductions.^^'^ One more Supreme Court decision should be mentioned before concluding this narrative, namely The Iowa Mutual Tornado Insurance Association vs. Gilbertson, State Treas- urer.'^^'^ In this case the court held that the license tax on mutual insurance companies is not unconstitutional because county mutuals not organized for pecuniary profit are ex- empted. The distinction between county and State mutuals was considered to be a valid classification for purposes of taxation.^^2 Such is a brief review of the history of the taxation of insurance companies in Iowa. A special method of assess- ment and taxation was early devised for this class of cor- porations. In the Code of 1851 there are provisions for the taxation of insurance companies, one per cent for county purposes and one per cent for State purposes, on the amount of premiums taken by them during the previous THE TAXATION OF INSURANCE COMPANIES 179 year. The same law prevailed until 1868, when a new act was passed imposing a ten per cent tax on premiums ex- clusively for State purposes, such tax to be in lieu of all other taxes save those on real property. Under this act the Supreme Court held that a city had no right to tax the premiums of an insurance company by virtue of the power conferred in its charter to tax all real and personal property within its jurisdiction. The law, however, was again changed in 1872, when retaliatory legis- lation was enacted imposing a list of discriminating fees on foreign companies and in addition a tax of two and one- half per cent on gross premiums in lieu of other taxes. State and local. Joint stock and mutual companies organized in Iowa were exempted from the tax on gross premiums. This law remained in force until the enactment of the Code of 1897. In the meantime a decision was handed down by the Supreme Court of great importance to home com- panies. It was held that the assets of a life insurance com- pany, consisting of cash and cash items, municipal bonds and warrants, securities for loans, notes taken for premi- ums, etc., were taxable as moneys and credits. But, for- tunately for home companies, it was further stipulated that the debts which might be deducted should include, first, the average amount each stockholder would be entitled to receive from a present distribution, and second, the amount owed to policy holders represented by the legal reserve fund. In other words — • thanks to the judicial pen — assets were cancelled by liabilities and therefore said companies were practically exempt from local taxation. The Code of 1897 recognized four distinct classes of in- surance companies from the standpoint of taxation: first, those organized in foreign countries and taxed three and one-half per cent on gross premiums ; second, those organ- ized in other States of the Union, and taxed two and one- half per cent on gross premiums ; third, county mutuals and 180 HISTORY OF TAXATION IN IOWA fraternal beneficiary associations which were exempt from taxation ; and finally, the residual claimant class which was required to pay one per cent on the gross amount of assess- ment, fees, dues, or premiums for business done in Iowa after deducting the amounts paid for losses and premiums returned. Such taxes were paid into the State treasury, and were in lieu of all other taxes. State and local, except taxes on real estate and special assessments. This act will be remembered as a masterpiece of aimless fiscal dis- crimination which could have but one logical result — retal- iatory legislation in other States. Nevertheless the classification was sustained by the Supreme Court on the ground that the tax was not levied on property but was rather in the nature of a license tax imposed as a condition to doing business in this State.^^^ A second decision held that the provision exempting insurance companies from local taxation was contrary to that clause of our Constitution requiring all corporations doing busi- ness for pecuniary profit to be subject to taxation on the same basis as the property of individuals. The force of this decision, however, was promptly nullified by the Gen- eral Assembly which passed an act in 1900 repealing the exemption clause but accomplishing the same purpose by framing the law so that assets would be offset by liabilities for purposes of assessment and taxation. Since 1897 the rate on the gross premiums of insurance companies organized in foreign countries has been reduced to two and one-half per cent, acts have been passed relative to the taxation of fire insurance companies, and a license tax on State mutuals has been sustained by the Supreme Court. VIII THE TAXATION OF EXPEESS COMPANIES The first law relative to the taxation of express com- jjanies was passed in 1868 and bore the title "An Act in relation to Revenue and Taxing the Property of Express Companies and Telegraph Companies." ^^"^ In the early history of the State and during the Territorial period revenue was collected from corporations doing an express business under the general property tax. Later such cor- porations could be taxed through the shares of the stock- holders.^^^ The law of 1868 provided a unique method of taxing ex- press and telegraph companies. The property of such com- panies was to be listed as personal property '*in the town- ship, incorporated town, or city where such company or corporation shall have an office for the transaction of its business""*^" and assessed at the same rate as other personal property in the hands of individuals of the State. The law further stipulated the exact method of ascertaining the amount of personal property, which was to be equal to forty per cent of the total gross receipts "accruing from the business and earnings of such company for the year ending on the first day of January next preceding." ■^^'^ The tax thus determined was to be collected through the various agents of the companies. It was finally provided that "all real and personal property owned by any express com- pany, or telegraph company, in this State shall be subject to State, county, and municipal taxes, to the same extent, according to the value, as other real estate is taxed ".'^^^ Two years later the act of 1868 was repealed, and it was 181 182 HISTORY OF TAXATION IN IOWA provided ' ' that all property, real and personal, in the State, owned by telegraph and express companies, shall be listed and assessed for taxation, and shall be subject to the same levies, as property belonging to individuals ".^^^ The same provision is contained in the Code of 1873.^^^ This meant the general property tax again applied to the companies under consideration. That it soon proved to be a failure is evident from an examination of the Auditor's report for 1875. The Auditor explains the object of the law to be to secure uniform taxation, and he complains that local assessors are not able to reach the property of certain corporations. His words are significant and should be care- fully weighed. "The object of the law", writes the xluditor, "is to secure uniform taxation of all property within the State that is a proper subject thereof, without regard to ownership or con- dition. It is a well-known fact, however, that certain kinds of property in the State almost wholly escape taxation; and this, not because of the fault of the assessor, but rather on account of the impracticability of assessment as required. Conspicuous in this regard is the property of the various Telegraph, Express, and Pullman Car Companies, and Fast Freight lines, which to a very large extent is in constant use in the State, yielding large revenues to the proprietors, and yet almost entirely escapes contributing a due proportion to defray the expenses of the government which protects this same property to its owners. Under our present system this matter is entirely in the hands of the township and local as- sessors, the majority of whom can not, in the very nature of things, fix an approximately correct valuation upon such kinds of property. The fact is, it is but rarely attempted. The people, generally, are not familiar, either with the cost of construction, nor the expense of operation, nor the revenues derived therefrom, and as a result the vast interests and capital concentrated in such property are THE TAXATION OF EXPRESS COMPANIES 183 disregarded in assessment, and the local and State govern- ment deprived of legitimate revenue. There is no good reason why these companies should not be made to bear their just proportion of the taxation of the country. Would not the desired result be attained, if such corporations and property were assessed in the same general manner as is now done with railways, and either a general levy be made by the same authority and the tax collected there- on apportioned to the counties entitled thereto, or the as- sessment be certified as with the railways, and taxes levied by the local authorities? No doubt there are other kinds of property which should be mentioned equally with those above, that escape the vigilance of the assessor for like reasons. It is estimated that over one-third the wealth of the country contributes little or nothing towards the expenses of government. Any and every movement on the part of the proper authorities, in the general direction in- dicated, would be a step in the right direction, and an earn- est of intention to compel every species of property to bear its just proportion of the public burden. "^^^ At the present day no well informed person would doubt the truth of these statements. Local assessment proved a failure in Iowa more than a generation ago not only for ex- press companies but also for all other State wide public ser- vice corporations. This was true for the obvious reason that local officials in the very nature of things could not ascertain the cost of construction, expense of operation, and revenues enjoyed by such corporations, data without which no in- telligent assessment is possible. How the Executive Coun- cil now deals with this same problem will appear later. Nothing of importance was done, however, relative to the taxation of express companies for nearly a quarter of a cen- tury. In 1896 Senator Funk introduced a bilP^^ defining express companies and providing that such companies be required to pay two dollars for every one hundred dollars 184 HISTORY OF TAXATION IN IOWA of their gross receipts. Considerable discussion followed. Hearings were granted to the agents of express companies and an agreement was reached to fix the rate at one dollar for every one hundred dollars of gross receipts. ^*We have found that", said Senator Funk, ''comparatively speaking, the assessor has been able to find no property whatever in this state on which they can compel them to pay taxes." ^^^ The bill passed with little opposition and was approved April 14, ISQe.'*^^ Briefly stated the law simply provides a one per cent tax on gross receipts plus a taxation of their tangible property in the manner that other tangible property is assessed and taxed. No change of rate appears in the Code of 1897 ; ^^^ but in 1898 the tax was increased to two dollars for every one hundred dollars of gross receipts as provided in the original Funk bill introduced in 1896.^^*^ While, however, these changes were taking place another movement was on foot to provide an entirely new system of taxing express companies and certain other public service corporations. The leader of this movement, which took definite shape as early as 1897, was Senator Thomas A. Cheshire. The decision of the Supreme Court in the case of Haivkeye Insurance Co. vs. French,^^'^ which required or appeared to require certain public service corporations to pay not only State but also county and local taxes, seemed to necessitate a complete change in the system of taxing ex- press companies. In fact Senator Thomas A. Cheshire, the author of the new series of bills for taxing express, tele- phone, and telegraph companies, had been very active in his efforts to overthrow the old gross receipts State system.^^^ The new bill providing for the taxation of express com- panies introduced in 1900'*^^ was quite similar to our present railroad tax law.^'^^ The unit rule of valuation was to be applied on a somewhat different basis, but the method of tax distribution is essentially the same. Under the pro- THE TAXATION OF EXPRESS COMPANIES 185 visions of this bill an elaborate report is required showing the name of the company, principal place of business, num- ber of shares of stock, together with the par, market, actual, or face value of the same, and many other items.^'^^ Such a report being placed before the Executive Council by the Auditor of State together with any further informa- tion which may be required, it becomes the duty of the Coun- cil, as outlined in the fourth section of the bill, to ascertain, first, the actual value of the entire property of express com- panies, and second, the actual value of their property within the State after deducting "the actual value of all the real estate, structures, machinery and appliances within the state that are subject to local taxation within the counties, towns, and other assessment districts". The value thus ascertained is to be distributed among the counties on a pro rata mileage basis and re-distributed by the county boards of supervisors in the same manner among the local taxing districts of each county. In view of the controversy which followed relative to the method of assessment applied to express companies as out- lined in this important bill, it may be well to state briefly the exact steps in the process. In the first place the total value of an express company is to be determined by adding to the market value of the stock the aggregate amount of the bonded debt or mortgages. Then from the gross actual value of the property thus ascertained is deducted the actual value of the several pieces of real estate situated without the State and not used in the general business of the com- pany. Thereupon the executive council shall next ascer- tain the actual value of the property of such real estate without the state, which the length of the routes within the state of Iowa, bears to the whole length of the routes of such company, and such amount so ascertained, shall be con- sidered and taken to be the entire actual value of the prop- erty within the state. Finally, from this amount is de- 186 HISTORY OF TAXATION IN IOWA ducted the actual value of all real estate, structures, machinery, and other appliances within the State subject to local taxation, and the remainder is distributed on a pro rata mileage basis the same as railroad property.^'^^ No serious opposition, however, was made directly to the express company bill; but a long controversy was waged over the telephone and telegraph bills, which were also in- troduced by Senator Cheshire.'*'^^ The result was that the bill providing for the taxation of express companies was indirectly brought into the debate. The chief argument urged against the bill was that the unit rule of valuation was so applied as to include property for taxation which actually belonged outside the State. It was also claimed that the hard and fast method of valuation was a discrim- ination against express companies, and that, including the value of the stock, plus the value of the bonds, plus the real estate, machinery, instruments, etc., it amounted to double taxation. On the other hand, the chief merit claimed for the bill was that it reached intangible values. "The merit claimed for the Cheshire plan of taxation", wrote the editor of the Iowa State Register, "is that it assures taxation on intangible values. If a company owns a valuable franchise, it cannot be reached for taxation except in some such way. Taxation on gross or net earnings is uncertain, because these may vary widely, even when the company is equally prosperous. But the value of shares, reflected in the market quotations is a sure guide, and hence it is adopted." ^'^^ It was also urged that express companies had evaded practically all taxation for thirty years, and that unless the bill was passed the State would continue to lose a large amount of revenue.^^^ During the course of the debate which followed, four im- portant amendments were introduced, only one of which was adopted. These amendments and the discussion relative THE TAXATION OF EXPRESS COMPANIES 187 thereto will enable the reader better to understand the bill as introduced and the law itself as finally passed. The original bill, as amended by the sub-committee, provided for reports from express companies to the Executive Council of ^'real estate, improvements thereon, bonds, mortgages and other property situated outside of the state and used ex- clusively outside the business with a specific description of the bonds, mortgages and other personal property, the cash value of it, the purposes of its use and where kept, the real estate and where located, its actual value", etc. Senator W. E. Lewis proposed to strike out these words and insert the following : ' ' The true cash value of all its real estate and personal property including money and credits with- out the state of Iowa and not used in the express business of such express company. "^"^ The real purpose of this amendment is evident. It was to prevent what was so fre- quently referred to as the importation of values actually located in other States. After considerable debate this amendment was defeated by a viva voce vote. Senator Lewis then introduced a second amendment to strike out that portion of the bill requiring the Council to ascertain the valuation of express companies by adding to the market value of the stock, the mortgages and bonds. This was necessary he said in order to avoid double taxation. Senator J. M. Junkin made an effective reply to this argument, and the amendment was voted down without a roll call.^"^^ In the course of the debate Senator Junkin said that he feared that some "little magician" had caused the Senator from Poweshiek to form a misconception of the bill under consideration. He alleged that even in the written objections filed by the express companies no such double taxation argument appeared. A third amendment, however, was adopted without op- position. It was offered by Senator W. C. Hayward, who moved to insert ''market value" instead of "amount" of 188 HISTORY OF TAXATION IN IOWA mortgages. The fourth amendment was offered by Senator G. W. Ball and required the assessment of the intangible property of express companies according to the proportion of the actual value to the tangible value. In other words, if a company had a total value of $10,000,000, three-fifths of which was tangible and the remainder intangible, and $4,000,000 of the tangible property was located in Illinois and only $2,000,000 in Iowa, then Senator Ball would con- tend that only one-half as much of the intangible value would be assessed and taxed in Iowa as is assessed and taxed in Illinois. Senator Cheshire opposed this plan, say- ing that if it prevailed, "Iowa could only assess and tax the horses and wagons which the express companies own^ and their safes." ^^^ The amendment was lost. The bill finally passed the Senate with only one vote in opposition, that of Senator Lewis.^"^ It was approved and became a law April 7, 1900, essentially as it had been in- troduced by Senator Cheshire. The law, briefly stated, pro- vides for an elaborate report by the express comj)anies to the Executive Council, valuation according to the "unit rule" by the Council and the distribution of the value thus, determined among the various counties on the pro rata mile- age basis, redistribution of the same among the local units by the county boards of supervisors, and finally taxation by State, county, and local districts on the same basis as the property of individuals. It has already been pointed out. that the chief objection made to the measure was that the "unit rule" was applied in such a manner as to tax property in Iowa which in reality belonged in other States. Some minor changes in the law were made in 1902 ;^^" and in 1907 an important amendment was adopted relative to the method of valuation by the Executive Council. In as- certaining the actual value of the property of an express company within the State of Iowa it is provided that the Executive Council shall determine "the actual value of that THE TAXATION OF EXPRESS COMPANIES 189 part of its property, if any, without the state which cannot lawfully be considered in determining the mileage value of its routes ".''^^ Provision is finally made for deducting the value of sea or ocean routes ; and in carrying on this work much latitude is given the Executive Council.''*^ jt thus ap- pears that after a few years of amending through the in- structive process of elimination by addition, very little remains of "imported values" — at least one would judge this to be the case from an examination of the assessment of express companies recently set forth by the Executive Council. In order that the true character of the law relative to the taxation of express companies may be fully understood, a number of statistical tables have been prepared showing the assessed valuation of the four leading express compa- nies as determined by the Executive Council in 1909, and the method of distributing the same among the cities and other taxing district of the State. As already stated the method of tax distribution for express companies is similar to that employed in the case of railroad property. The chief dif- ferences lie in the method of valuation, not of tax distribu- tion. Table IX ^^^ shows the assessed valuation of the Adams Express Company as fixed by the Executive Council on July 21, 1909, and distributed among the various counties of the State in which the company operates. It appears that the assessed value was fixed at thirty-five dollars per mile. The table shows the number of miles in each county and the as- sessed valuation thereof, which is in turn redistributed by the county boards of supervisors among the lesser taxing districts of each county. The total assessed value is not a large sum ($79,403.89) when one considers the great volume of business transacted by the company. The assessed value in specific counties should also be carefully noted. It is as follows in selected counties : in Polk, $1,094.55 ; in Wright, Si u 3 < 5. Powe';hit?k 36.591 55.91 24.79 19.50 55.008 43.673 42.05 26.723 56.492 38.613 36.693 67.68 20.91 13.861 15.456 $35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 $1,280.68 1,956.85 Scott 867.65 Story 682.50 Tavlor 1,925.28 Union 1,528.56 Van B uren 1,471.75 Wapello 935.30 Warren 1,977.22 Washington 1,351.46 Wayne 1,284.25 Webster 2,368.80 Winnebago 731.00 Worth 485. 13 Wright 540.96 Totals 2,268.7073 879,403.89 $540.96; in Adair, $1,043.77; in Boone, $961.80; and in Lee. $3,940.16. The writer has no means of knowing to what extent these figures represent the true value of the Adams Express Com- pany in Iowa. The property of express companies is largely intangible, and therefore more or less elusive. It consists of the right to do business over certain lines of railroad or ocean routes, and under certain conditions. Before the value of such a corporation can be ascertained, where the franchise as such is the vital and paramount consideration, it is necessary to determine the gross income and cost of operation. In this case we refer especially to the gross in- come and cost of operation on Iowa business as far as such facts can be determined. Something approaching this method was pursued under the law of 1868, save that cost of operation was arbitrarily fixed at sixty per cent of the gross receipts. It would be interesting to know the true value of the Adams Express Company in Iowa, or, to state the problem 192 HISTORY OF TAXATION IN IOWA TABLE X^84 Statement of Assessments of Express Property as Fixed by THE Executive Council July 21, 1909, by Counties AMERICAN EXPRESS COMPANY County -a a o Pi JJ 1 > 01 a> 73 (U If) 0) Palo Alto 2.74 52.31 33.95 77.293 41.34 27.21 88.38 22.195 18.72 64.23 104.334 77.92 111.72 11.43 100.53 13.78 23.85 2,721.601 40.00 40.00 40.00 40.00 40.00 40.00 40.00 40.00 40.00 40.00 40.00 40.00 40.00 40.00 40.00 40.00 40.00 109.60 Plymouth 2,092.40 1,358.00 Polk 3,091.72 1,653.60 Poweshiek 1,088.40 Sac 3,535.20 Scott 887.80 Shelby 748.80 Sioux 2,569.20 Story 4,173.36 Tama 3,116.80 Webster 4,468.80 Winnebago 457. 20 Woodbury 4,021.20 Worth 551.20 Wright 954.00 Totals 8 108,864.04 in a better form, the value obtained by capitalizing the net income enjoyed by this company on Iowa business. To be sure this is not a simple problem ; but the average taxpayer would none the less appreciate the information. It is one of the many problems which should be carefully investigated by a tax commission. This should be done in justice to other corporations which may be paying relatively higher taxes — we say may advisedly, because only a thorough and im- partial investigation would reveal the facts — and also in justice to the general property of the State. Table X ^^^ shows the assessed valuation of the American Express Company which was fixed at forty dollars per mile. The total mileage appears to be 2,721.601, and total assessed valuation $108,864.04. The mileage and assessed valuation, which it will be observed varies widely in the different coun- ties, may be found for any particular county by referring to the table. For example. Clay County has 5.70 miles of line with an assessed valuation of $228.00, while Crawford 13 194 HISTORY OF TAXATION IN IOWA TABLE XI^ss Statement of Assessments of Express Property as Fixed by THE Executive Council, July 21, 1909, by Counties UNITED STATES EXPRESS COMPANY County Adair Allamakee . . Appanoose . . Audubon. . . Benton Black Hawk Boone Bremer Buchanan. . . Buena Vista , Butler Calhoun .... Carroll Cass Cedar Cerro Gordo . Chickasaw. . Clay Clayton Clinton Crawford . . . Dallas Davis Delaware . . . Des Moines . , Dickinson . . . Dubuque . . . Emmet Fayette Floyd Franklin Greene Grundy Guthrie Hancock Hardin Harrison . . . . Howard. . . . Humboldt. . Iowa Jackson Jasper Jefferson Johnson .... •a CS « o J 3 > m 1.. (A 8.52 $35.00 S298.20 64.55 35.00 2,259.25 52.23 35.00 1,828.05 22.93 35.00 802.55 63.61 35.00 2,226.35 32.73 35.00 1,145.55 23.17 35.00 810.95 9.87 35.00 345.45 25.78 35.00 902.30 26.65 35.00 932.75 21.06 35.00 737. 10 57.48 35.00 2,011.80 24.93 35.00 872.55 56.77 35.00 1.986.95 57.80 35.00 2.023.00 43.76 35.00 1,531.60 26.33 35.00 921.55 77.46 35.00 2,711.10 132.28 35.00 4,629.80 104.23 35.00 3,648.05 43.28 35.00 1,514.80 78.59 35.00 2,750.65 23.75 35.00 831.25 36.91 35.00 1,291.85 21.18 35.00 741.30 42.16 35.00 1,475.60 60.10 35.00 2.103.50 36.22 35.00 1,267.70 97.82 35.00 3.423.70 45.20 35.00 1.582.00 12.43 35.00 435.05 27.36 35.00 957.60 26.24 35.00 918.40 70.27 35.00 2,459.45 69.90 35.00 2,446.50 17.89 35.00 G26. 15 7.01 35.00 245.35 24.38 35.00 853.30 24.99 35.00 874.65 57.93 35.00 2.027.55 74.97 35.00 2.623.95 68.92 35.00 2.412.20 30.36 35.00 1.062.60 72.81 35.00 2.548.35 THE TAXATION OF EXPRESS COMPANIES TABLE XI— Continued 195 County •o Pi v> s > 77.76 97.29 64.14 27.18 107.03 48.25 50.28 20.64 52.42 27.42 25.28 7.75 27.53 10.47 121.60 37.24 39.20 51.63 15.00 40.41 74.39 92.54 32.39 19.15 124.78 44.23 45.36 24.79 47.37 38.15 78.87 26.23 89.69 42.71 7.41 26.21 82.84 37.59 18.07 45.05 $35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 $2,721.60 3,405.15 Kossuth 2,244.90 Lee 951.30 Linn 3,746.05 Louisa. 1,688.75 1,759.80 Madison 722.40 1.834.70 Marion 959.70 Marshall 884.80 Mitchell 271.25 963.55 366.45 Muscatine 4,256.00 O'Brien 1,303.40 Osceola 1,372.00 Palo Alto 1,807.05 Plymouth 525.00 1,414.35 Polk 2,603.65 3,238.90 Poweshiek 1,133.65 670.25 Scott 4.367.30 1,548.05 Sioux 1,608.60 867.65 Tama 1,657.95 1.335.25 Wapello 2,760.45 918.05 Washington 3.139.15 1,494.85 Webster 259.35 917.35 Winneshiek 2,899.40 1,315.65 Worth 632.45 1,576.75 Totals 3.949.75 $138,241.25 County has 112.98 miles with an assessed valuation of $4,519.20. Table XI ^^^ gives similar data for the United States Express Company which was assessed at thirty-five dollars 196 HISTORY OF TAXATION IN IOWA TABLE XII^86 Statement op Assessments of Express Propektt as Fixed by THE Executive Council, July 21, 1909, by Counties WELLS FARGO EXPRESS COMPANY County •0 w 01 to 1^ Black Hawk 69.665 57.083 14.31 27.742 18.558 35.213 31.506 25.509 1.872 34.54 33.626 31.210 35.341 24.673 7.970 1.931 14.53 30.632 19.760 19.428 31.823 36.208 55.86 30.424 23.836 32.876 12.658 5.792 22.487 15.72 46.433 16.652 45.732 $35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 S 2,438.27 Bremer 1,997.91 Buchanan 500.85 Butler 970.97 Calhoun 649.53 Carroll 1,232.45 Cerro Gordo 1,102 71 Chickasaw 892.81 Crawford 65.52 Dallas 1,208.90 Delaware 1,176.31 Dubuque 1,092.35 Fayette 1,236.94 Franklin 863.56 Grundy 278.95 Harrison 67.58 Howard 508.55 Jasper 1,072.12 Lee 691.60 Madison 679.98 Marshall 1,113.81 Mitchell 1,267.28 Polk 1 .955. 10 Pottawattamie 1,064.84 834.26 Shelby 1,150.66 443.03 Taylor 202.72 787.04 Warren 550.20 1,625.16 Worth 582.82 Wright . . . 1,600.62 Totals 911.600 $ 31,906.00 per mile. This company has 3,949.75 miles of line with a total assessed valuation of $138,241.25. Table XII ^^® represents the assessed valuation of the Wells Fargo Express Company in the various counties where it operates. This is the company which was recently THE TAXATION OF EXPRESS COMPANIES 197 reported in the papers as declaring a dividend of three hundred per cent. If this is true, it would be interesting to know the amount and rate of their dividend resulting from Iowa business. Perhaps the lines in Iowa have been operated at only a small profit. At least this could be made to appear plausible in a report. Table XIIP^" gives the assessed valuation of the United States Express Company and the American Express Com- pany as set forth by the board of supervisors of Audubon County and distributed among the lesser taxing districts of the county. It will be observed that Hamlin and Exira townships have more assessed valuation than the remaining seven taxing districts in which the United States Express Company does business. Hamlin has $220.00 and Exira TABLE XIII 487 Assessed Value of Express Companies Addubon County, Iowa Name of No. Company Assessment District Miles Per Mile Total United States Leroy Township 1.07 $35.00 $87.00 ExrBBSS Co. Audubon Independent 57 20.00 Audubon Town 83 29.00 Hamlin Township 6.28 220.00 Exira Township 3.33 117.00 Exira Independent 63 22.00 Exira Town 674 24.00 Oakfield Township 2.546 89.00 BraytonTown 30 11.00 Total 16.23 $569.00 American Cameron Township 4.68 $40.00 $187.00 Express Co. Gray Independent 1.72 69.00 Gray Town 1.17 47.00 Leroy Township 3.22 129.00 Audubon Independent 67 27.00 Audubon Town 53 21.90 Total 11.99 $480.00 198 HISTORY OF TAXATION IN IOWA $117.00 out of a total assessed valuation of $569.00. On the other hand, Brayton town has an assessed value of only $11 ; Exira town, $24 ; and Audubon town, $29. The same condition prevails in the townships where the American Express Company operates. Cameron and Leroy townships have about three-fourths of the assessed valuation, while Audubon and Gray townships have almost nothing. Fur- ther comment would be superfluous. The reader is referred to the chapter entitled *' Railway Tax Distribution" in Vol- ume II of this work.^^^ The facts set forth in that chapter apply with equal force to express companies. TABLE XIV 489 Assessed Value of Express Companies in Fifty Leading Cities OF Iowa Municipal Accounts Report, Iowa, 1907, p. 43. City Assessed Number City Valuation 1 Des Moines $2,330 2 Dubuque 1,640 3 Sioux City 1,043 4 Davenport 2,980 5 Cedar Eapids 2,664 6 Burlington 346 7 Council Bluffs 1,088 8 Clinton 625 9 Ottumwa 405 10 Muscatine 445 11 Keokuk 12 Fort Dodge 300 13 Marshalltown 402 14 Oskaloosa 39 15 Boone 315 16 Fort Madison 377 17 Iowa City 169 18 Creston 190 19 Mason City 459 20 Centerville 193 21 Oelwein 22 Cedar Falls 23 Atlantic 115 THE TAXATION OF EXPRESS COMPANIES 199 TABLE XIV— Continued City Assessed Number City Valuation 24 LeMars 145 25 Fairfield 94 26 Eed Oak 163 27 Webster City 461 28 Grinnell 120 29 Charles City 269 30 Washington 171 31 Newton 32 32 Shenandoah 91 33 Perry 21 34 Clarinda 122 35 Cherokee 148 36 Albia 193 37 Decorah 70 38 Independence 57 39 Maquoketa 40 Estherville 213 41 Mount Pleasant 108 42 Vinton 95 43 Indianola 78 44 Waverly 226 45 Missouri Valley 46 Belle Plaine 156 47 Ames 195 48 Carroll 121 49 Knoxville 142 50 Denison 66 Finally, the data given in Table XIV ^^^ will be especially instructive to the student of taxation. Without the facts therein presented it would be difficult to form a clear idea of how the present law operates in Iowa. This data was obtained from the Municipal Accounts Report, 1907, issued by the Auditor of State. The table gives the assessed val- uation of all the express companies doing business in the leading Iowa cities, save that returns were not made for five of the cities. Comment on this table is unnecessary. The reader will draw his own conclusions. It is obvious that the express companies pay almost nothing toward the 200 HISTORY OF TAXATION IN IOWA support of our city governments. For example, the as- sessed valuation of express companies in Des Moines is only $2,330; in Council Bluffs, $1,088; in Ottumwa, $405; in Fort Dodge, $300 ; in Iowa City, $169 ; and in Ames, $195. In other words, the express companies pay less taxes in the average city of Iowa than the owner of a modest home, which may be incumbered with a heavy mortgage. The history of the taxation of express companies in Iowa may be divided into six distinct periods. Up to 1868 these corporations were included in the general property tax. From 1868 to 1870 they were taxed on their personal prop- erty which was arbitrarily fixed at forty per cent of their gross receipts. During the long period from 1870 to 1896 general property taxation was again the law. In 1896 a law was passed, largely through the efforts of Senator Funk, imposing a tax of one dollar on every hundred dollars of gross receipts. The rate was doubled in 1898. But in 1900 the whole system was again changed. Following a decision of the Supreme Court adverse to the principle of exclusive State taxation for certain corporations, Senator Cheshire secured the passage of a bill providing for the assessment of express companies according to a rigid and complicated plan which it is feared, has failed to reach intangible values. The assessed valuation thus obtained is distributed on a mileage basis among the counties and by the county boards through the lesser taxing districts. From the standpoint of tax distribution one meets the same objections as in the case of railroads. Since the present law was originally passed in 1900 it has been amended so as to prevent any possible '* importation of values" — a fact which is clearly revealed by the tables herein presented. IX THE TAXATION OF TELEGRAPH AND TELEPHONE COMPANIES The early history of the taxation of telegraph companies in Iowa has already been discussed in connection with the taxation of express companies.^^*^ Under the Code of 1851 and the Revision of 1860 the same provisions applied to each class of corporations. As late as 1868 the General As- sembly passed ''An Act in relation to Revenue and Taxing the Property of Express Companies and Telegraph Com- panies ".^^^ This act fixed the valuation of the personal I)roperty of such companies at forty per cent of their gross receipts, and further provided that the valuation thus de- termined should be taxed at the same rate as the personal property of individuals. Attention has already been called to the fact that the law relative to the taxation of express companies, passed in 1870, was not changed until 1896.^^^ ^j^-g ^^j^^^ however, was not experienced in the case of telegraph companies. Upon examination it soon became evident that these cor- porations were practically exempt from taxation. Tele- graph lines, being for the most part erected on the right of way of railways, were generally considered by assessors to be railroad property, and it was supposed that they were taxed accordingly. The Auditor in his report of 1877 says that ''the law requiring the assessment of telegraph lines is rarely enforced, and a tax-book whereon appears such an assessment would be a curiosity indeed, and this not be- cause of any intention to evade the law, nor except such property, but through misapprehension ".^^^ 201 202 HISTORY OF TAXATION IN IOWA It was recommended in this same report that telegraph companies be separately assessed by the Executive Council, that the rate be so increased as to compensate for the average local levies, and finally, that the tax collected there- from be paid directly into the State treasury. Accord- ingly, a law was promptly passed embodying these recom- mendations.^^^ The act as approved requires reports from the companies setting forth the total number of units of telegraph lines, number of wires, stations, instruments, poles, and the like, but no statement is required of the gross or net earnings. From the data thus secured it is made the duty of the Executive Council to assess the tele- graph lines at their true cash value. The most interesting provision of the act, however, is that fixing the rate of taxation, which reads: ''The said state board shall also, at said meeting, determine the rate of tax to be levied and collected upon said assessment, which shall not exceed the average rate of taxes, general, municipal and local, levied throughout the state during the previous year, which rate shall be ascertained from the records and files in the auditor's office, which tax shall be in lieu of all other taxes, state and local, and shall be payable into the state treasury. "^^^ It is finally provided that any telegraph line, owned and operated by any railroad exclusively for the transaction of its own business, and taxed as a part of the property of said railroad, shall be exempted from the pro- visions of this act. The Auditor of State two years later refers to the satis- factory operation of this law. He says that a tax of three per cent had been levied upon the valuation as fixed by the Executive Council, which tax had been promptly paid into the State treasury. He then recommended a similar law for the taxation of railroad companies,^^^ which recommenda- tion was repeated in the report of 1881.^^^ Up to this time no law had been passed providing directly TELEGRAPH AND TELEPHONE COMPANIES 203 for the taxation of telephone companies. This question, however, was settled by the Supreme Court in The loiva Union Telephone Co. vs. The Board of Equalization of The City of Oskaloosa.'^^^ In this important case, which came up for adjudication in 1885, it was held that the law providing for the taxation of telegraph companies ^^^ should also in- clude telephone companies, which meant that the prop- erty of such companies should be assessed and taxed by the Executive Council and not by the city board of equaliza- tion.500 The law thus enacted, and so interpreted by the court, was revised and amended in the Code of 1897. Here a more complete report is required of the companies, which is made to include gross receipts and operating expenses, the total capital stock together with the par and market value of the shares, mortgages upon the whole or any part of the prop- erty, and numerous other items.^^^ In making the assessment it is further provided that the Executive Council shall take into consideration the valua- tion of all the property of such companies including fran- chises and the use of property outside of the State, "mak- ing such deductions as may be necessary on account of extra value of property outside the state as compared with the value of property in the state, in order that the actual cash value of the property of the company within this state may be ascertained ".^^^ It is also stipulated that from the actual cash value of the property of such companies thus determined there shall be deducted the actual cash value of their property assessed for taxation in local taxing dis- tricts. Finally, it is provided that the rate of tax levied shall be equal "as nearly as may be, to the average rate of taxes, state, county, municipal and local, levied throughout the state during the previous year", and that the same shall be paid directly into the State treasury.^°^ It will be noted that the method of assessment thus outlined is not rigid or 204 HISTORY OF TAXATION IN IOWA arbitrary, and in addition every precaution is taken to pre- vent the assessment of property belonging in other States. This whole system of taxation for telegraph and tele- phone companies was completely changed in 1900. Fol- lowing the decision of the Supreme Court in Hawkeye In- surance Co. vs. French^^^ it seemed necessary to devise a scheme of taxation whereby certain public service corpora- tions would be required to contribute not only to the State but also to the local units of government on the same basis as individuals. Accordingly, Senator Cheshire, who had been largely instrumental in defeating the State plan of tax- ation, introduced three separate bills for taxing telephone, telegraph and express companies on the same basis as the property of individuals. The passage of the Cheshire bill for the taxation of express companies^*^^ has already been discussed. Many of the facts relative thereto apply also to telephone and telegraph companies and therefore need not be repeated. It will be recalled that the Cheshire bill for the taxation of express companies as amended by the com- mittee passed both houses with but little opposition. The small effort that was made to defeat it came through the in- fluence of the telephone and telegraph companies who felt that their own interests were being endangered. The nature of the opposition has also been explained. This opposition was destined for a third time to defeat the bills for the tax- ation of telephone and telegraph companies. As these bills were the same in principle we will confine our attention to a brief consideration of the one for the taxation of tele- phone companies. The bill requires, first, a complete and detailed report from the companies to the Executive Council of their total amount of capital stock giving par, actual, market, or face value of shares as demanded by the Council, total length of their lines, also their length within the State and within counties, towns, and local assessment districts, amount of TELEGRAPH AND TELEPHONE COMPANIES 205 mortgaged indebtedness, and the like; second, assessment by the Executive Council on the plan of the unit rule ; and third, taxation by State, county, and local units on the same basis and in the same manner as the property of individuals. The point to be specially noted is the manner of assess- ment. There are four distinct steps in the process. First, the total value of the property of a telephone company is determined by adding the market value, or the aggregate shares of stock, or the value of the capital,^^^ to the total aggregate amount of mortgaged indebtedness. In the second place, there is to be deducted from said amount the value of the real estate situated without the State and not specifically used in the general business of the company. Third, the actual value of the property within the State is then ascertained by taking that proportion of the amount above determined ''which the length of the routes within the state of Iowa, bears to the whole length of the routes of such company". Finally, from the actual value of the property within the state is deducted the real estate, structures, machinery and appliances, subject to local tax- ation, and the remainder is distributed on a mileage basis among the counties and local assessment districts to be taxed in the same manner as the property of individuals.^"^ In other words, the method of assessment and distribution proposed is exactly the same as that outlined in the Cheshire bill for the taxation of express companies. It will be recalled that two important objections were made to the bill providing for the taxation of express com- panies.^"^ In the first place it was alleged that the hard and fast method of valuation on the basis of capital stock plus mortgaged indebtedness was unjust and discriminat- ing as compared with the assessment of certain other cor- porations, for example, railroad companies. In the second place, the opponents of the measure contended that the unit rule was so applied as to include in the assessment 206 HISTORY OF TAXATION IN IOWA property situated and taxed in other States. The same objections together with numerous other criticisms were urged against the Cheshire bills for the taxation of tele- phone and telegraph companies. The representatives of these corporations understood that in view of the late decision of the Supreme Court a complete change of the law would be made, and accordingly they favored the introduction of a substitute bill which would eliminate the objectionable features of the Cheshire plan. In the Iowa State Register one reads that ''it is un- derstood that Senator L. C. Blanchard, of Mahaska county, will introduce a bill this morning repealing those sections of the law relating to the assessment and taxation of tele- phone and telegraph lines which are unconstitutional, and enacting a substitute therefor, placing the assessment and taxation of the property of these concerns on the same basis as the assessment and taxation of railroad property. The defect in the present law is the collection of taxes directly by the state ; this may be remedied by the executive council assessing and taxing the corporations and certifying the tax for local collection in the different counties. ' '^"^^ The substitute bill referred to was introduced by Senator Blanchard and ably supported by the independent telephone companies. Mr. H. C. Eaney, a representative of these companies, said: ''We cannot get independent companies outside the state to build in, if their outside lines and ex- changes are to be taxed again in this state. "^^° It was claimed that the proposed Cheshire bill would seriously jeopardize the interests of the leading independent com- panies — especially the Mississippi Valley Telephone Com- pany with its large exchanges at Minneapolis and St. Paul, and the Missouri and Iowa Telephone Company with its large exchanges at St. Joe and Kansas City. The telephone representatives finally argued that the bill was indefinite and, if passed, would subject them to special legislation TELEGRAPH AND TELEPHONE COMPANIES 207 more burdensome and different from tliat applied to other corporations of like character. The Ways and Means Committee of the Senate held a number of meetings to hear arguments for and against the Cheshire bills.^^^ The argument advanced with most force was that Senator Cheshire proposed to apply the unit rule so as to tax property in Iowa which was located and taxed in adjoining States.^ ^^ Tj^^g {^q^ of "imported valuations" was vigorously assailed by all those who ap- peared and spoke against the Cheshire bills. At a meeting of the Iowa Independent Telephone Association a set of resolutions was adopted condemning this plan and asking that the Blanchard bill be passed for the following reasons : First — Because by its fundamental principle, the unit idea of taxation, or the theory of imported values, will work a great hard- ship upon the independent lines, in that it will prevent them from building lines outside the state, and especially will prevent them from being able to get outside lines to build into the state, thereby giving them the long distance connections which they must have in order to successfully compete with the old company. If outside companies, especially those owning large exchanges, understand that building toll lines into Iowa means that they will be taxed again in Iowa on part of their investment in another state, already taxed in that state, they will refuse to build into Iowa. The result will be that the independent Iowa companies will be unable to get outside long distance connections. Second — Because said independent telephone companies are com- posed of Iowa people, investing Iowa capital for the benefit of Iowa people, and since their organization they have reduced the price of telephone service from 33 1-3 to 50 per cent,, and they are furnish- ing telephone service to the smaller towns and to farmers, who are entitled to first class service. Third — Because it singles out the independent telephone compa- nies of Iowa, composed of home people, who have invested home capital in the telephone business, and appHes to them a harsh and unreasonable rule of taxation that is not applied to other corpora- 208 HISTORY OF TAXATION IN IOWA tions of like character. No attempt is made to apply this rule to the railroad companies, and other large corporations. Fourth — Because the assessments on telephone companies, made under the present law, are conceded on all hands to be entirely fair and satisfactory, and all that is needed is a short amendment to the present law which will cover the objections made to it by the decision of the Supreme Court, and such an amendment would give us a law taxing them on the same plan and principle as other corpora- tions of like character. Fifth — And we most respectfully ask you to support S. F. 265, known as the Blanchard bill, for the reason that we believe the same to be fair, both to the public and to the home telephone companies, and it applies to the home companies the same rule of taxation that is applied to other corporations of like character. It will also put the home companies in a position, with outside independent tele- phone companies, where they will be able to get outside long distance connections, and thereby enable them to furnish a first class service to their patrons, not only in the larger cities and towns, but also in the smaller towns, and to their farmer patrons.^ ^^ The contest lasted for more than a month. Senators Cheshire and Junkin ably defended their particular plan of taxation. The discussion was always animated and at times bitter. Senator Cheshire once referred to Senator Blanch- ard, the author of the bill for taxing both telephone and telegraph companies, as a "cat's paw" of the Western Union Telegraph Company.^^^ Senator Junkin spoke of the General Assembly as ''now wrestling with a Hercules", and referred to the facility with which the Western Union Tele- graph Company could speak ' ' simultaneously from Chicago through 1,133 Iowa stations. "^^^ He said that he was al- ways willing to consider a petition emanating voluntarily from the people but not one dictated by special interests. Senator James Trewin opposed the Cheshire scheme of taxation. Eeviewing the history of these bills he said that the vital principle they involved was the taxation of intangible value which had already been incorporated into TELEGRAPH AND TELEPHONE COMPANIES 209 section 1330 of the Code of 1897:'^^ The real principle of the bills having been transplanted into the law, nothing re- mained, according to Senator Trewin, but the idea of taxing foreign values which caused the defeat of the plan in 1898 and was the chief cause of opposition to the pending bills.^^^ Senators Cheshire and Healy denied that the proposed plan of taxation would result in the importation of foreign values. The Blanchard amendment to adopt the railroad plan of assessing telephone and telegraph companies was finally brought to a test vote on motion of Senator Titus and was adopted — ayes twenty-six and nays twenty-two. The bill was then read a third time and passed almost without oppo- sition.^ ^^ This amendment as finally enacted into law repre- sents a change from the Code of 1897, largely from the standpoint of tax distribution. The reports required of the companies are essentially the same. The method of assess- ment is also practically the same. In making the assess- ment the Executive Council is still required to grant ''such deductions as may be necessary on account of extra value of property outside the state as compared with the value of property in the state" ;^^^ but aside from this the Council is held to no hard and fast rule of valuation. It is given much the same latitude as in making an assessment of railroad property.^2*^ From the standpoint of tax distribution, however, the new law is a radical and complete change. The rate of tax is no longer equal ' ' as nearly as may be, to the average rate of taxes, state, county, municipal and local, levied through- out the state" ;^2^ nor is the tax itself paid directly into the State treasury. The new act provides for an assessment on the unit plan and a distribution of the value thus deter- mined among the counties and local districts on a mileage basis. It is then stipulated that ''all telegraph and tele- phone property shall be taxable upon said assessment at the 14 210 HISTORY OF TAXATION IN IOWA same rates, by the same officers, and for the same purposes as the property of individuals within such counties, cities, towns, townships, or lesser taxing districts, and the county treasurer shall collect such taxes at the same time and in the same manner as other taxes, and the same penalties for the nonpayment shall be due and collectable as for the non- pajTuent of individual taxes." ^-^ This act, with minor amendments made in 1904,^^^ is in force at the present time. Before concluding this chapter attention will be directed to two important decisions of the Supreme Court. In Lay- man, County Treasurer of Polk County, vs. The Iowa Tel- ephone Company, the Supreme Court followed their former opinion given in Hawkeye Insurance Co. vs. French,^-^ so far as the same relates to the separation of revenue sources and the right of certain corporations to be exempt from local taxation. The language of the court, however, is more explicit. Speaking for the court Chief Justice Deemer said : "The issue between those who believe in the segregation of sources of tax income, and those who believe in a strong, centralized system, while not, perhaps, appreciated by those who have given the matter little thought, is sharply drawn ; and the Legislature has veered from one side to the other, according to the views of its constituent members, until the matter was finally set at rest for this state in Hawkeye Ins. Co. V. French, 109 Iowa, 585. That case announced no new doctrine, however, for prior thereto the whole matter had been gone over and decisions of like import had been made, in Davenport v. C, R. I. & P. R. R. Co., 38 Iowa, 633, and Dunlieth S Dubuque Bridge Co., v. Dubuque, 32 Iowa, 427. These decisions had evidently been overlooked, however, by many subsequent Legislatures, and the matter was not pressed for hearing until a case arose which seemed to de- prive a municipality of considerable of its local revenues. In the French Case, as in the ones preceding it, the principle of segregation is distinctly affirmed ; and, in view of Article TELEGRAPH AND TELEPHONE COMPANIES 211 8, Section 2, of the Constitution, it was squarely held that corporations should be subject to taxation the same as in- dividuals — that is to say the objects and purposes must be the same, whether the property be that of individuals or corporations. Such result is not obtained when the corpora- tion is taxed for state purposes only, while the individual is taxed not only for state, but also for local, purposes. Fol- lowing these cases, we must hold that that part of the law exempting telephone companies from local taxation is in- valid, unless it be for a reason suggested by appellee's counsel, to which we shall presently refer. **If these statutes, in so far as they relieve telephone companies from the pajTuent of local taxes, are unconstitu- tional, it follows, we think, that the entire scheme is invalid, for it is manifest that this provision was one of the induce- ments for the passage of the act, and that there can be no taxation thereunder for any purpose — state or local. This is not a case where part of the statute may be held invalid, and another part good. The two provisions are so closely associated and allied — so materially dependent — that one cannot be severed from the other without destroying the entire scheme. "^^^ It thus appears that the same legal principles are here involved as in Hawkeye Insurance Co. vs. French. An analysis of these principles and their application to the property of certain corporations having already been made, little additional comment is necessary. The student of tax- ation should observe, however, that the court objected to that degree of segregation which would seem to deprive "a municipality of considerable of its local revenues," on the ground that such a policy was not in harmony with Article 8, Section 2, of the Constitution, requiring the taxa- tion of all corporations organized for pecuniary profit on the same basis as the property of individuals. This fact is especially important in connection with scientific tax reform 212 HISTORY OF TAXATION IN IOWA and general conclusions relative thereto formed as a result of an historical study of the Iowa revenue system. There can be but little doubt that many theorists, and practical financiers as well, have pushed the idea of segre- gation altogether too far. While that measure of segrega- tion based on the exclusive State taxation of non-local values or non-local business, is just, practicable, and there- fore desirable ; it is equally true that a complete or even par- tial separation of revenue sources rendered possible by the exclusive State taxation of strictly local values is contrary to every canon of equal and uniform taxation. The fact that this objection could be legitimately raised against the plan of taxing telephone and telegraph companies above outlined forms a sound economic basis for the opinion of the court in Layman vs. The Iowa Teleplione Company. This conclusion, however, by no means involves the assumption that a different law drafted so as to make a careful dis- tinction between local and non-local values for purposes of taxation would necessarily be declared unconstitutional. On the contrary, a careful study of Haivkeye Insurance Company vs. French and Layman vs. The Iowa Telephone Company would seem to furnish ample proof that a law thus framed would meet the requirements of Article 8, Section 2, of the Constitution as interpreted by the court. There is little or no reason to believe that scientific tax reform re- quires an amendment to the Constitution. In Chicago B. S Q. R. R. Co. vs. Rhein^^^ the question came up concerning the taxation of a telegraph line owned by a railroad, but not used exclusively in the operation of its road. It will be recalled that a telegraph line owned by a railroad and exclusively operated for the transaction of its own business is to be assessed and taxed as an integral part of such railroad.^^x Otherwise a telegraph line is as- sessed and taxed as a separate corporation and under a different section of the Code.^^s rpj^^ court held, first, that TELEGRAPH AND TELEPHONE COMPANIES 213 a tax paid by a railroad company for a telegraph line owned but not exclusively operated in the transaction of its busi- ness could not recovered; and second, that the payment of such a tax did not exempt a telegraph line from the pay- ment of an additional tax as a separate corporation.^29 The following tables will enable the reader to better understand the present law providing for the taxation of telephone and telegraph companies. Detailed comments are unnecessary as the same principles are involved which have already been noted in a previous chapter and which will be more thoroughly analyzed in the chapters on railway tax- ation. The chief criticism is that of grossly unjust tax distribution. Values are created in one district and taxed in another without regard to any principle either of justice or expediency. Tables XV,^3o xvi ^^ and XVII ^^^ show the assessed valuation of the Postal Telegraph-Cable Company, Western Union Telegraph Company, and American Telephone and Telegraph Company as fixed by the Executive Council on July 26, 1909. The data is similar to that given in Tables IX to XII inclusive. It appears that the Postal Telegraph- Cable Company was assessed at sixty-five dollars per mile, save where it makes use of the poles of another company. The company operates in forty-four counties, has 1,232.45 miles of line, and a total assessed valuation of $69,581.85. The Western Union Telegraph Company operates in all the counties of Iowa, is assessed at eighty dollars per mile, and has a total assessed valuation of $704,339.20. The distribu- tion of the assessment among the various counties should be carefully noted from the table. Finally, the American Telephone and Telegraph Company is rated for purposes of taxation at eighty dollars per mile and has a total as- sessed valuation of $70,960.80. In Table XVIII ^^^ there is a statement showing the actual value of various forms of property in the several tax- 214 HISTORY OF TAXATION IN IOWA TABLE XV530 Statement of the Assessment of Telegraph Property as Fixed by the Executive Council, July 26, 1909 Names of Companies and Counties Postal Telegraph-Cable Co.— 203 C. F. Fox, W. W. Morrison, Des Moines Adair Bremer Butler Black Hawk Buchanan Cass Cedar Chickasaw Clinton Delaware Des Moines Dubuque Fayette Franklin Grundy Howard Harrison Iowa Jasper Johnson Linn Louisa Lee (on poles of Iowa Tel. Co.) Lyon (on poles of Iowa Tel. Co.) Madison Marshall Mitchell Mahaska (on poles of Iowa Tel. Co.) Monona Muscatine Plymouth (on poles of N. T. E. Co.) Polk Poweshiek Poweshiek Pottawattamie Ringgold Scott Sioux (on poles of N. T. E. Co.) Tama Taylor Union Wapello (on poles of Iowa Tel. Co.) Warren Woodbury Woodbury (on poles of N. T. E. Co.) Worth Total Mileage 25. 31. 27. 37. 14. 28. 6. 25. 16. 25. 27. 31. 33. 9. 7. 13. 30. 25. 56. 38. 9. 22. 90. 3. 45. 31. 15. 55. 26. 44. 15. 2«. 25. 16. 74. 23. 37. 14. 12. 5. 22. 34. 18, 24. 5. 14. 1,232.45 Assessment Per Mile S65.00 20.00 20.00 65.00 20.00 65.00 20.00 65.00 20.00 65.00 20.00 65.00 20.00 65.00 65.00 20.00 65.00 Total Assessment SI ,661. 40 2,063.75 1.807.65 2,408.90 930.15 1,862.25 451.10 1,668.55 1.057.30 1.665.30 1.755.00 2.028.65 2.177.50 625.20 516.75 854.75 1,986.40 1,641.25 3,697.20 2,531.75 633.75 1.491.75 1,800.00 60.00 2,980.25 2.054.00 995.15 1,100.00 1,721.20 2.867.80 300.00 1.885.00 1.626.95 335.00 4,846.40 1,554.15 2,434.90 286.80 821.60 375.70 1.466.40 680.00 1.221.35 1.604.85 112.60 935.35 S69.581.85 TELEGRAPH AND TELEPHONE COMPANIES 215 TABLE XVIS31 Statement of the Assessment of Telegraph Property as Fixed by the Executive Council, July 26, 1909 Names of Companies and Counties Western Union Telegraph Co. — 4200 Robt C. Clowry; A. R. Brewer, New York City. Adair Adams Allamakee Appanoose Audubon Benton Black Hawk Boone Bremer Buchanan Buena Vista Butler Calhoun Carroll Cass Cedar Cerro Gordo Cherokee Chickasaw Clarke Clay Clayton Clinton Crawford Dallas Davis Decatur Delaware Des Moines Dickinson Dubuque Emmet Fayette Fremont Floyd Franklin Greene Grundy Guthrie Hamilton Hancock Hardin Harrison , Henry Howard Humboldt Ida Iowa Jackson Mileage Assessment Per Mile 38. 29. 64. 145. 28. 31. 73. 63. 30. 50. 95. 76. 95. 85. 63. 82. 138. 55. 33. 46. 109. 133. 165. 156. 69. 65. 96. 75. 61. 50. 91. 73. 97. 70. 65. 66. 47. 57. 53. 76. 107. 148. 112. 75. 24 90 40 57 88 34 86 55 25 21 43 11 03 32 31 88 71 22 13 44 78 82 87 38 42 87 53 44 26 26 83 71 45 97 04 03 83 84 40 24 81 18 77 27 48 70 98 28 64 .38 .66 38 93 .68 80.00 Total Assessment 83,067.20 2.388.80 5,164.00 11,620.00 2.256.80 7,314.40 5.848.80 5,042.40 2,425.60 4,024.80 7.670.40 6.136.80 7.617.60 6.810.40 5.075.20 6.622.40 11.105.60 4.469.60 2,670.40 3.713.60 8.789.60 10,682.40 13,235.20 12,500.80 5,540.80 5,266.40 7,736.80 6,036.00 4,957.60 4,003.20 7.282.40 5.906.40 7.827.20 5,632.00 5,219.20 4,544.80 3.774.40 4,621.60 4.261.60 6.118.40 8.616.00 11.918.40 8.982.40 6.051.20 1.950.00 7.252.84 3.230.40 4,634.40 7,094.40 216 HISTORY OF TAXATION IN IOWA TABLE XVI— Continued Names of Companies and Counties Western Union Telegraph Co. — Continued Jasper Jefferson Johnson Jones Keokuk Kossuth Lee Linn Louisa Lucas Lyon Madison Mahaska Marion Marshall Mills Mitchell Monona Monroe Montgomery Muscatine O'Brien Osceola Page Palo Alto Plymouth Pocahontas Polk Pottawattamie Poweshiek Ringgold Sac Scott Shelby Sioux Story Tama Taylor Union Van Buren Wapello Warren Wayne Webster Winnebago Winneshiek Woodbury Worth Wright Washington Total Mileage 101. 87. 72. 96. 153. 146. 160. 152. 73. 49. 110. 33. 158. 106. 116. 90. 38. 113. 101. 48. 109. 97. 57. 101. 75. 93. 31. 137. 160. 96. 79. 107. 100. 60. 137. 122. 122. 55. 43. 80. 115. 82. 79. 165. 59. 83. 175. 45. 117 129, 8,804.24 Assessment Per Mile 80.00 $80.00 Total Assessment 8.159.20 7.001.60 5,780.80 7,680.00 12.316.80 11,695.20 12,806.40 12,184.00 5.867.20 3.971.20 8,828.00 2,641.60 12,648.00 8.492.00 9,348.00 7.273.60 3.072.00 9.092.80 8.140.80 3.873.60 8.765.60 7.801.60 4,570.40 8,120.80 6,024.80 7,440.80 7,283.20 11.002.40 12.859.20 7,687.20 6.387.20 8,602.40 8,079.20 4,854.40 10,988.40 9.828.80 9,780.80 4.400.00 3.493.60 6,404.00 9.233.60 6.617.60 6.352.00 13.260.00 4,724.00 6.668.00 14,016.80 3,678.40 9,427.20 10,332.00 8704,339.20 TELEGRAPH AND TELEPHONE COMPANIES 217 TABLE XVIP32 Statement of the Assessment of Tklegbaph Property as Fixed by the Executive Council, July 26, 1909 Names op Companies and Counties Mileage Assessment Per Mile Total Assessment American Telephone and Telegraph Co. C. R. Banfe's, M. Egleston , New York City. Adair 13.57 27.48 11.33 23.62 53.19 23.61 41.65 20.07 1.58 31.70 23.74 23.38 10.11 11.12 28.. 38 57.72 29.10 1.24 51.62 20.11 32.31 37.86 22.29 22.17 62.14 49.39 54.32 29.41 38.59 14.12 .52 18.97 $80.00 $1,085.60 Benton 2,198.40 Bremer 906.40 Butler 1,889.60 Black Hawk. . . . . . 4,255.20 Cass 1,888.80 Cedar 3,332.00 Cerro Gordo 1,805.60 Dallas 126.40 Des Moines ... . 2,536.00 Floyd 1,839.20 Fremont 1.870.40 Grundy 808.80 Guthrie 889. 6C Iowa 2,270.40 Jasper 4,617.60 Johnson 2.328.00 Jones 99.20 Lee 4,123.60 Louisa 1,608.80 Linn 2,584.80 Marshall 3,028.80 Madison 1.783.20 Mills 1.773.60 Muscatine 4,971.20 Polk 3,999.20 Pottawattamie 4.345.60 Poweshiek 2,352.80 Scott 3,087.20 Tama 1,123.60 Warren 41.60 Worth 1,517.60 Total 887.01 $80.00 $70,960.80 ing districts of Chickasaw County for the year 1908. At- tention is especially called to the striking regularity of variation in the column giving the actual value of railroad, telegraph, and express companies, respectively. New Hamp- ton township, which has the largest railway valuation, $401,352, also has the largest valuation for telegraph and express companies; Washington township ranks second, 218 HISTORY OF TAXATION IN IOWA TABLE XVIII533 Valuations of Chickasaw County, Iowa, for 1908 Townships Utica Jacksonville Washington Deerfield Chickasaw Dayton New Hampton Stapleton Fredericksburg Dresden Richland Bradford Nashua City Fredericksburg City Lawler City New Hampton City Ionia Corp Bassett Corp North Washington Corp. Alta Vista Corp Totals Actual Value Lands and Lots $1247730 1148423 1228529 1278980 775164 843640 875673 892082 853511 769130 842956 779761 525330 116784 169236 837352 92688 37664 26612 94796 $13325625 Value of Per- sonal Proper- ty $121668 134305 145524 162184 117088 62356 110016 100568 97444 107792 96914 99976 400804 149720 98664 476036 51604 17125 13232 80320 Value of Rail- roads $57768 342904 186092 217752 401352 114208 137232 110984 56408 26432 23404 45484 81348 28220 17596 19532 $2643940 $1866716 O oj $130 628 442 480 821 257 251 203 334 156 44 102 164 64 40 36