SOUTH DAXOTA. TAX COMMISSTOW. ASSESSMENT AMD TAXATION. I91U . QJnrnpU ICawi ^rlynnl ICtbrata ASSESSMENT AND TAXATION IN SOUTH DAKOTA Cornell University Library KFS3478.A87 Assessment and ^>»tioi,!!?,,,^,!f,%,i'ilfi|'ifi 3 1924 024 707 899 Compiled and Publlstiediry We TAX COMMISSION MEMBERS G. M. HENRY, CSiairman H. G. PRESTON, HfJGH SMITH, H. F. GHAPMAN, Secretary Pierre, South Dakota, January 1st, 1914 FULIi VALUATION For years prior to the enactment of the Tax Commission Act, the administration of the assessment laws of this state was practically a farce. The Constitution and laws were disregarded and disobeyed, and illegal methods of assessment were resorted to contrary to such plain commands of the statute as: "It shall be the duty of the as- sessor to determine and fix the true and full value of all items of property," "That all property shall be assessed at its true and full value in money" and that "in determining the true and full value the assessor shall value each article, or description of property by itself and at such a sum or price as he believes the same to be fairly worth in money." Section 2085 of the Political Code reads: "All property shall be assessed at Its true and full value in money. In determining the true and full value of real and personal property the assessor shall not adopt a lower or dif- ferent standard of value because the same is to serve as a basis of taxation, nor shall he adopt as a criterion of value the price for which said property would sell at auction or at a forced sale, or in the aggregate with all property in the town or district; but he shall value each article or description of property by itself and at such a sum or price as he believes the same to be fairly worth in money. In assessing any tract or lot of real property, the value of the land, exclusive of improvements, shall be determined; also the value of all improvements and structures thereon, and the aggregate value of the property, including all structures and other im- provements, excluding the value of crops growing upon culti- vated lands. In valuing any real property upon which there is a coal or other mine, or stone or other quarry, the same shall be valued at such a price ais such property, including the mine or quarry, would sell at a fair voluntary sale for cash. Money, whether in possesision or on deposit, shall be ' en- tered in the statement at the full amount thereof. Every credit for a sum certain, payable either in money, property of any kind, labor or services, shall be valued at the cur- rent price of the same so payable; if for a specific article or spe- cific number or quantity of any article of property, or for a cer- tain amount of labor, or tor services of any kind, it shall be valued at the current price of such property, or for such labor or services at the place where payable." The Constitution says: "The legislature shall provide for taxing all moneys, credits, investments in bonds, stocks, joint-stock companies, or other- wise; and also for taxing the notes and bills discounted or pur- chased; moneys loaned and all other property, effects or dues of every description; of all banks and of all bankers so that all property employed in banking shall always be subject to a taxa- tion equal to that imposed on the property of individuals." ASSESSMENT AND TAXATION 3 Chapter 42, Laws of 190 5, provided for a meeting to be held each year by the State Board of Equalization, with the county auditors for counsel and conference with reference to the duties of the as- sessors and the lawful methods for making assessments, providing further, that "It shall be the duty of each county auditor at the annual conference of the assessors with the county commissioners and county auditor (on the first Tuesday in each April) * * * * to instruct and direct such assessors in the performance of their duties, fully and explicitly in accordance with the laws of this state, and the instructions given and imparted to them by said state board of assessment and equalization." This Act was an emergency ineasure, the legislature saying therein that "The present methods of assessment have resulted in gross inequalities and the omission of property from assessment and taxation, and it being essential that the next annual assessment shall be properly and uniformly made, an emergency is hereby declared to exist." This law, however, failed to produce the looked-for results. The constitutional and statutory provisions were disregarded and auditors and assessors were instructed by the State Board of Equalization to adopt a lower and different standard of value than that required by law — full value. Regarding these illegal methods of assessment, our Supreme Court, in December, 1909, (24 S. D. 433) officially declared: "Under our law it is the duty of assessors to assess property at its true value, and the duty of all equalizing boards to correct errors and irregularities by raising property to its true value, where it has been valued too low by assessors. * * * * This Court will take judicial notice that the taxing oiiijcers of this state from the assessors to the State Board of Equalization, dis- regarded the clear mandate of the law in the placing values upon property for taxation purposes, but that is no reason why the Courts of this state should connive at such acts, or become active parties thereto." Nevertheless, regardless of the provisions of law and the deci- sions of our Supreme Court, the taxing officers each year continued to violate the laws, and disregard the expressions of the Supreme Court. In 1912, Hon. H. B. Anderson, State Auditor, acting as secretary and member of the State Board of Equalization, issued the following instructions: "STATE OF SOUTH DAKOTA, Auditor's Office, Pierre March 26, 1912. TO COUNTY AUDITORS AND ASSESSORS: — At the annual meeting of the State Board of Assessment and Equalization, held at the State Capitol on March 26 for counsel with and instruction of the County Auditors as required by Chapter 42, Laws of 1905, at which meeting Auditors from fifty counties were present, the following valuations were recommended as a basis for assessment for 1912: 4 ASSESSMENT AND TAXATION PERSONAL PROPERTY Each Horses under three years old and over six months old ^ l^-"" Horses three years old and over '^•"" Stallions and jacks twenty times service lee Cattle under two years old and over six months ''^•"" Cows two years old and over "'•^ All other cattle two years old and over l^-"® Mules and asses of all ages over six months old 35.00 Sheep of all ages over three months old 1-^ Swine of all ages over three months old ^'^ Wagons and Carriages, one-third of actual value Automobiles, one-third of actual value Melodeons and organs 5.00 Pianofortes 60.00 All property not enumerated in the above is to be assessed at one-third of its actual value. LANDS Per Armstrong . . . Aurora Beadle Bennett Bon Homme . Brookings ... Brown Brule Buffalo Butte Campbell Charles Mix . Clark Clay Codington ... Corson Custer Davison — Day Deuel Dewey Douglas Edmunds Fall River . . . Faulk Grant Gregory .... Hamlin Hand ■ Hanson Harding Hughes Hutchinson Acre Per Acre 3.00 Hyde 6.00 8.50 Jerauld $ 7.50 8.50 Kingsbury 10.00 4.00 Lake 12.00 13.00 Lawrence 5.50 11.00 Lincoln 14.00 9.00 Lyman 4.50 7.00 McCook 12.00 5.50 McPherson 6.50 5.00 Marshall : 7.50 5.50 Meade 3.50 10.00 Mellette 4.00 8.75 Miner 10.00 14.00 Minnehaha 14.00 10.00 Moody 13.00 3.50 Pennington 4.00 3.00 Perkins 4.00 10.50 Potter 5.50 8.50 Roberts 9.00 9.50 Sanborn 8.50 3.20 Shannon 3.00 10.50 Spink 9.50 6.50 Stanley 3.25 3.00 Sully 5.50 7.00 Todd 3.50 9.50 Tripp 5.00 6.00 Turner 13.50 10.00 Union 14.00 7.00 Walworth 5.50 11.00 Washabaugh 3.00 3.50 Washington 3.00 5.30 Yankton 13.50 12.50 Ziebach 3.20 The equalized valuation from the counties should not fall below the figures given above." Again, in a decision filed April 2d, 1912, this state said: the Supreme Court of ASSESSMENT AND TAXATION 5 "It is confessed by the demurrer herein that the state board of equalization in March, 1910, held, with the several county auditors, the meeting provided for by the law of 1905, and ap- parently set its seal of approval upon the practices, theretofore prevailing, by deliberately and intentionally entering upon a scheme for the assessment of property within this state absolutely in eonflilct with the constitutional and statutory provisions we have referred to. It appears that the state board, after counseling with the auditors from neairly every county in the state, sent forth its recommendations as to the value to be used as basis for the assessment of each class of property, wherein the fixing of an arbitrary basis was possible; for example, the value of horses three years old and over was fixed at $35 each and of wagons and carriages at $14 each, with proportionate values placed upon the items of the remaining classes. A list of the counties was given with a valuation per acre of the land In each. It is confessed that the value as so arbitrarily fixed was not to exceed one-third of the true value in each case. All other property, except bank stock, was directed to be assessed at one-third of its actual value, and bank stock at 40% of its value. Commenting upon such conditions, the Supreme Court in 1912, said (See 29 S. D. 157.): "In spite of such plain and mandatory provisions of the law designed for effecting a true and full valuation of each item of property assessed, and thus bringing the uniformity and equal- ity guaranteed by the constitution, a general custom became es- tablished under which every item within the several classes of property was almost invariably assessed at some one fixed ar- bitrary price, regardless of the real value thereof. There also became established a custom of assessing all property at a small fraction of its true value; this latter was accomplished by arbi- trarily fixing a certain per cent, of the true value at which prop- erty should be assessed, such ' per cent, being different for the different classes-" ASSESSORS' RETURNS Every assessor is required by law to make oath that he will, in particular, assess all property assessed by him at its true cash value, according to his best knowledge and judgment. He is also required, in returning the record of his work of assessment, to make oath that the values attached to each parcel and description of land and each article of personal property is, as he verily believes, the "full and true cash value thereof." The want of compliance with the law led assessors to disregard their oaths. Some assessors refused to take the oath required; others, in very many instances, refused and failed to attach the required oath to their assessment returns; while others erased certain portions of the form so as to avoid swearing they had assessed property at its true cash value, the result of which was that their assessment was un- lawful. Speaking of this failure oin the part of the local assessors, our 6 ASSESSMENT AND TAXATION Supreme Court, in the case of Richardson vs. Howard, (23 S. D., 86), in April, 1909, officially stated that: "In an assessment of property for taxation, it is competent for the legislature to prescribe such a method of proceeding as it may deem proper and where it has prescribed the form of oath required to be taken by the assessor, the statute is mandat- ory and the oath must be substantially in the form prescribed." In this case the court held that the erasure of the word "cash" from the prescribed oath rendered the pro<;eedings defective and the tax deed issued thereon voidable. In the case of A. C. Brink vs. J. G. Dann, as treasurer of Hughes County, South Dakota, decision having been filed Dec. 31st, 1913, the Supreme Court fully discussed this question: Did the County Treasurer of Hughes County have the right to introduce oral evidence, either to correct the assessor's return, or to prove what should have appeared from such return, where no return was ever attached to the assessment roll? On this point the Court said: "Oral evidence is admissible to prove the contents of a writ- ten return that has been lost, but not admissible to supply a return or defects in return as made. The return is an integral part of the assessment and such assessment must stand or fall as made and returned." On the question: What is the effect upon the validity of the assessment of the assessor's failure to make a return, or of his making faulty return, and doeis such lack of return or defect in return render the assessment invalid, the Court held: "The Courts uniformly hold that statutory provisions, regu- lating assessments, which are enacted for the benefit or protec- tion of the taxpayer, are mandatory and that an assessor's failure to comply therewith renders the assessment void. This Court held in Richardson vs. Howard, 23 S. D. 86, that an assessor's failure to substantially comply with the statute in the form of oath used was a marked departure from the provisions of the law and renders the assessment void. In the case at bar, it ap- pears that there was no oath 'attached' to the assessor's return for the year 1900. There was evidence that an oath was written out and laid in the assessment roll, but no satisfactory evidence as to its contents and no proof that it remained in the book. There was certainly no presumption that it remained there, when it was not 'attached' as provided by the statute. See definition of 'attach' as given by Webster. The evidence as to the oaths that had been torn out was very unsatisfactory, as it failed to show that the oath taken was the one provided for by law then in force. There are involved herein assessments for several years. In certain years the oath as returned was the identical oath condemned in Richardson vs. Howard (cited above) ; in other years the form of oath attached to the real estate return was the one which should have been attached to the personal return, and was, therefore, a more glaring departure from the requirements of the statute than that found in the Richardson case; in some years no oaths seem to have been attached to real property re- turns. With the possible exceptions of assessments for 1901 and 1903 the assessments were invalid for want of proper oaths. The Supreme Court of North Dakota held in Baton vs. Bennett, (87 N. W. Reporter, 188) and cited a vast number of cases from various states in support thereof, that the rule that mandatory ASSESSMENT AND TAXATION 7 provisions of the statute must be substantially observed by taxing officers and that the disregard or violation of such provisions is fatal to a tax and defeats the jurisdiction of the taxing officers, is well settled in this state, and has become, therefore, practically a rule of property, and hence a rule which this court is bound to uphold until the same has been modified by constitutional leg- islatiory The authorities cited will fully sustain the following propositions: First: that a valid assessment evidenced by an official return is essential to a valid tax, and that fatal defects in the record of an assessment cannot be aided by evidence aliunde. Second: a tax deed based on a void assessment is itself void and does not operate to start running the statute of limita- tions. Third: where the statutes require an assessor to authenti- cate his assessment roll by annexing thereto an affidavit in the prescribed form, it wHl be fatal to omit such affidavit of authen- tication." Such a demoralized condition resulted in an inequality of assess- ment of property, and equality is the essential in the work of assess- ment and taxation. The failure to enforce the law was the result of the want of a taxing head — the need of a commission with ample power to oversee and substantially enforce the assessment laws. To correct these abuses, and enforce the laws of the state, was the purpose of the legislature in passing the Tax Commission Act. TAX COMMISSION In providing for a Tax Commission the legislature of this state was not trying an experiment. The states which at that time had either a Tax Commission or a Tax Commissioner were: Alabama, Arizona, Arkansas, Colorado, Connecticut, Idaho, Indiana, Kansas, Massachu- setts, Michigan, Minnesota, New Hampshire, New Jersey, Nevada, New York, North Dakota, Ohio, Oregon, Rhode Island, Vermont, Washing- ton, West Virginia, and Wisconsin. On or about the date of the cre- ation of such a board here, special Tax Commissioners were engaged in preparing reports in the istates of Kentucky, Florida, Maryland, Tennessee and North Carolina. Bills for the creation of commissions were pending, at that time, in Iowa, Illinois, Nebraska, New Mexico, Oklahoma and Utah. In some of the states first mentioned the taxing system had been under the control of a Tax Commission for twenty years and 'the plan was satisfactory. Power is conferred upon the Tax Commission of this state to have and exercise general supervision over the administration of the assessment and tax laws of the state, over town, county and city boards of review and equalization, and all other assessing officers in the per- formance of their duties, to the end that all assessments of property be made relatively just and equal at true value in substantial compli- ance with law. The first duty of the Tax Commission was to determine the law. 8 ASSESSMENT AND TAXATION then follow its requirements and see to it that all other assessing and taxing officers did likewise. Regardless of the fact that the law of 1905, requiring county auditors to meet at Pierre, had been repealed, the Commission called a meeting of County Auditors, to be held at Pierre on Jlarch 25th, 1913. Over 50 counties were represented. H. C. Preston, member of the Tax Commission, addressed the meelting on behalf of the Com- mission and instructed the Auditors with reference to the assessment of 1913. To indicate the position taken by this Commission with re- ference to the enforcement of the assessment and taxation laws of the state, at the very beginning of its work, we quote portions of that address: "The methods heretofore used in this state In the manner of assessing property and determining the valuation for that pur- pose, has been entirely contrary to the express provisions of the law. I am safe in saying that no class of pro- perty in the state has ever been assessed at its true and full cash value in money, but rather at a certain per cent, thereof, the result of which has been that no property has been valued as the law requires. The per cent, of valuation has been from twenty- five to fifty per cent, of its supposed value . Under such a syste n inequality has been the result. One of the main purposes of this commission is to get the taxing system out of that rut and bring it up to a more complete compliance with the law. There is no legitimate reason why property should not be assessed at its true and full cash value. "* * * * The important thing is that the property in the assessor's district shall be listed and valued upon the same basis; that is, it shall be measured by the same yardstick, to the end that equality shall be obtained, so that one man's property shall not be under-valued and another man's over-valued; that he who has been paying too much shall pay less, and that he who has been paying too little will pay his share.. To obtain that result, it is iinportant that all property shall be assessed at its true value in money. ■<**** rpjjjg Commission is firmly of the opinion and it will use its best efforts to bring about an assessment of property at its full cash value, as is required by law. «* * « * You are to inform the assessors that equality and justice in taxation under the law depends almost entirely upon them and upon their fairness and good judgment, which they are presum- ed to exercise; if they make assessment in the way the law requires, approximate justice will prevail among the individual taxpayers in the district. Every effort should be made by the assessors to render 'the assessment complete and just. ••**** The point this Commission urges upon you is that you are to try and convince the assessors that the assessor and not the taxpayer is the one to fix the valuation of and assess all classes of property. ■ * * * « Impress upon all concerned that all that is to be done to obtain equality is for the assessor and the taxpayer to perform their duties as the law requires." ASSESSMENT AND TAXATION 9 Immediately following this meeting the commission issued the following instructions to assessors: "Assess all land at its true and full value in money. The term "true and full value" means the usual cash selling price at the time of the assessment. Do not adopt a different stand- ard of value. The assessor must value each tract of land by itself, at such a sum or price as HE believes the same to be FAIRLY WORTH IN MONEY. In assessing any tract or lot of real property, the value of the land, exclusive of improvements, shall be determined; also the value of all improvements and structures thereon, and the ag- gregate value of the property including all structures and other improvements, excluding the value of crops growing upon cul- tivated lands. • In valuing any real property upon which there is a coal or other mine, or stone or other quarry, the same shall be valued at such a price as such property, including the mine or quarry, would sell at a fair voluntary sale for cash. Assess all personal property at its true and full value in mon- ey, just as the law provides; the only basis of valuation is "true and full value in money" — not one-third or any other per cent, of valuation — not what it would sell for at auction or forced sale or in the aggregate with all of the property in the assessor's district. Assess each article by itself, and at such sum or price as the assessor believes the same to be FAIRLY WORTH IN MONEY. Get all property on the list. Do not assess four articles as three articles, and so on. It is the duty of the assessors to determine the value of all property lisited, and to enter the amount of each item in the pro- per column; the owner lists the property; the assessor must fix the value." See that all oaths are properly administered. Study the laws of assessment as contained in tha pamphlet sent you. If any person neglects or refuses to list his property, it is the duty of the assessor to list and assess it according to his best judgment, and for that purpose the assessor may examine any person or persons, supposed to have knowledge thereof, and the assessor shall make a note of such refusal, on the list. Equality and justice in taxation under our laws depends almost entirely upon the assessor. If he makes his assessment in the way the law provides, approximate justice will prevail among the individual taxpayers in his district. If property is assessed at its full valuation, the rate of tax- ation will be lower than heretofore so the result will be that the honest individual taxpayer will pay no more taxes than here- tofore. In order to obtain equality, so that the poor man will not bear the rich man's burden, the assessors and tax payers should perform their duties as the law requires." Referring to the foregoing instructions to local assessors it is stated that the only person that determines the valuation of any or all classes of general property is the assessor. The Tax Commission has no power to fix a schedule of valuations. 10 ASSESSMENT AND TAXATION RESULTS OF 1913 ASSESSMENT The results of the assessment of 1913 have proven very satis- factory to the Tax Commission. We are indebted largely to the effi- cient work of the assessors, and the various boards of equalization. There appears to have been a uniform desire on the part of the taxing officers to comply with the requirements of law which the Tax Commis- sion insisted was the only proper method that could be used in the assessment of all property, under the laws of this state. Whatever may have been the results of former assessments, un- lawfully made as they were, they were wholly ignored by the Tax Commission. So let it be understood that in considering the assess- ed value of property for the year 1913, this* Commission gave no con- sideration to the values and practices established in 1912 and prior years. Its chief aim was, and still is, to secure full and complete ob- servance of the existing laws of this state, insofar as they refer to assessment and taxation. If it is contended that the tax on any spe- cific property or class of property is higher in 1913 than the tax of 1912 on the same property, the reply which answers such a con- tention is that the 1912 tax was based on an unlawful assessment and cannot, therefore, form the basis of any legitimate comparison with that of 1913. However, as a matter of interest, we append the following table, which shows the total assessment of all properties, by counties, based upon the instructions for determining lawful valuations for the year 1913; also the valuations as determined in 1912, under an unlawful method of assessment: ASSESSMENT AND TAXAT: 1912 Aurora Beadle Bennett Bon Homme Brookings . . Brown Brule Buffalo Butte Campbell Charles Mijf . Clark Clay Codington . . Corson Custer Davison Day Deuel Dewey Douglas .... Edmunds ... Pall River . . Faulk Grant Gregory .... Hamlin Hand Hanson Harding .... Hughes Hutchinson . Hyde Jerauld Kingsbury . . Lake Lawrence . . . Lincoln Lyman McCook McPherson . . Marshall .... Meade Mellette Miner Minnehaha . . Moody Pennington . Perkins Potter Roberts Sanborn .... Spink Stanley Sully Tripp Turner Union Walworth . . . Yankton .... Ziebach Unorganized Total . Increase 17,224,769, 35,528,871, 970,883, 28,045,771, 30,836,331 57,667,949, 16,469,187, 2,746,189, 7,440,499, 9,455,103, 28,073,447, 25,903,062. 19,932,201, 29,515,564. 7,696,636, 5,265,672, 24,428,977, 27,196,704. 17,471,672, 4,186,534 14,629,409. 17,544,752, 9,416,318, 15,840,157, 23,825,270, 19,687,976, 16,202,673 22,206,532, 16,559,635, 4,191,189, 11,425,042, 34,370,768, 9,450,266, 11,415,383, 28,844,400, 23,716,371 35,426,230 29,702,358, 18,253,230, 23,686,104 13,224,343, 16,931,029, 12,324,208, 1,452,152, 19,391,789 62,237,482, 22,981,067, 18,323,981, 11,890,831, 10,800,532, 24,588,514 15,919,175, 41,774,227 20,985,548, 11,075,441, 12,254,925 30,756,326 22,631,672 12,222,338 27,632,552 1,617,353 2,189,684, 5,009, 10,114, 326, 7,022, 8,357, 18,090, 4,990, 1,089, 3,071, 3,090, 7,768, 7,370, 5,193, 8,583, 2,166, 1,863, 6,390, 7,642, 5,102, 1,124, 3,836, 5,833, 3,292. 5,854, 5,733, 5,196, 4,748, 7,416, 4,157, 1,760, 4,926, 8,793, 3,376, 3,542, 7,566, 6,793, 8,929, 7,617, 8,575, 6,201, 4,942, 4,659, 5,188, 540, 4,894, 16,448, 5,880, 6,898, 5,285, 3,513, 6,801, 4,465, 12,949, 9,025, 3,802, 3,297, 8,071, 6,550, 3,999, 7,213, 412, 831.00 482.00 518.00 418.00 611.00 968.00 971.00 248.00 267.00 075.00 112.00 716.00 750.00 226.00 569.00 893.00 618.00 109.00 781.00 962.00 465.00 794.00 081.00 066.00 298.00 842.00 205.00 463.00 266.00 319.00 436.00 321,00 347.00 475.00 403.00 079.00 679.00 961.00 173.00 626.00 534.00 748,00 006.00 465.00 133.00 078.00 241.00 352.00 144.00 610.00 748.00 574.00 240.00 421.00 013.00 203.00 295.00 994.00 907.00 984.00 881.00 762.00 $1,195,465,243.00 $ 354,278,413.00 $ 841,176,830.00 As a further subject of interest, we give a compaiPative state- ment showing the amount of taxes raised for state purposes alone. 12 ASSESSMENT AND TAXATION The amounts for 1912, are arrived at by applying the 4 mill levy made in 1912 to valuation of lands, lots, and personal property, as shown by the State Auditor's report of that year. For 1913 the amount of taxes are arrived at by applying the cur- rent 1 mill levy to the valuation of the same classes of property for 1913 as shown by Tax Commission records. The column headed "de- crease" clearly shows the gross inequality that existed between the various counties in 1912: 19X2 1913 Decrease Aurora .... Beadle .... Bennett . . . Bon Homme Brookings Brown .... Brule Buffalo ... Butte Campbell . Charles Mix Clark Clay Codington . Corson .... Custer Davison . . . Day Deuel Dewey .... Douglas . . . Edmunds . . Fall River . Faulk Grant Gregory . . . Hamlin . . . . Hand Hanson . . . . Harding . . . Hughes . . . . Hutchinson Hyde Jerauld . . . . Kingsbury . Lake Lawrence . . Lincoln . . . . Lyman McCook . . . . Mcpherson . Marshall . . . Meade Mellette Miner Minnehaha . Moody Pennington Perkins . . . . Potter Roberts . . . . Sanborn . . . Spink ..;... Stanley . . . . Sully Tripp Turner Union Walworth . . Yankton . . . Ziebach . . . . ( 19,005 36,170 1,306 26,023 30,559 64,939 18,876 4,391i 11,542 11,76 29,600 26,581 19,702 30,340 4,098 5,506 23,652 28,070 18,693 2,667 14,541 20,820 9,385 20,534 24,066 19,464 17,292 28,619 15,390 7,038 16,800 33,290 12,807 13,656 27,737 24,736 31,335 27,828 30,705 22,631 18,668 17,396 19,792 2,155 17,786 59,475 22,171 21,101 20,939 13,019 25,794 16,339 46,447 30,823 14,671 12,582 29,122 20,541 13,275 26,083 1,190 ( 16,133 31,027 970 25,735 27,829 50,072 15,351 2,740 6,791 9,028 26,628 23,323 18,716 25,634 3,503 3,223 22,284 24,725 15,605 2,375 13,798 15,064 5,43 13,383 20,967 18,354 14,652 21,098 15,246 4,190 8,739 32,184 8,812 10,947 23,722 21,214 31,093 26,718 15,370 21,178 12,323 15,718 11,370 1,445 17.391 55,524 21,484 13.467 11,706 9,839 23,286 14.346 36,564 16,588 10,496 11,609 27.203 20,704 9,531 24,563 1,170 ASSESSMENT AND TAXATION 13 THE GENERAL PROPERTY LAW The laws of assessment and taxation of this state contemplate what is known as the GENERAL PROPERTY TAX. By this is meant that system which requires the taxation of all property according to its value in money at a uniform rate regardless of kind, location, owner- ship or the economic or business use to which it is put. The system and its application is expressed clearly in Section 2 of Article XI of our state Constitution, which provides that "all taxes shall be uniform on all property and shall be levied and collected for public purposes only." This constitutional provision confines the legislature to the taxation of all property at a uniform rate and by uniform methods of valuation. It permits of no classification which will allow the methods and rates of taxation to be adjusted to the requirements of the various classes of taxable objects. The reasons for the classification of property are: First: All kinds of property are not equally productive. Second: All kinds of property do not benefit equally from pub- lic expenditures. Third: All kinds of property are not equally tangible or visible and therefore are not equally capable of assessment, without the co- operation of the tax-payer. Fourth: All kinds of property are not equally subject to re- moval from a given taxing district, if property owners feel that the burden of taxation is excessive. The most difficult and perplexing problem under the General Property Tax system is that which relates to the taxation of intan- gible property. In the assessment of moneys and credits there are the most flagrant evasions of the law relative to the returning and listing of such property by the owners, and it appears to the Tax Com- mission that it is well justified in saying that, concerning this class of property, the general property tax has absolutely broken down. The inequalities arising out of the evasion of this class of property has been commented upon by the United States Circuit Court of Appeals (40 Circuit Court Appeals, 257), as follows: "There is uniformity in the reports of the failures of every system attempted, however stringent may be the legislation or however arbitrary or despotic may be the powers with which the assesors mjiy be clothed. The heavy hand of the tax-gather al- ways falls upon the widow and the orphan, upon trustees and guardians, whose estates are required by law to be revealed in the courts of probate, and upon those only whose consciences are unusually scrupulous, and who having least exp^ience in business are least able to bear the burdens; while the most in- adequate returns are invariably made by the rich, who are usually most ingenious in evasion and most fertile in expedients to escape taxation. The result is that always and everywhere no appreciable part of such intangible property is leached by laws however ingeniously framed or severely enforced." The various tax commissions of other states join in condemning the General Property Tax Law. The Wisconsin Commission said: "Experience demonstrates that constitutional provisions for the taxation of all classes of property at an equal and uniform rate have been one of the principal causes for the breaking down of the general property tax, and the escape of Intangible prop- 14 ASSESSMENT AND TAXATION erty from the tax roll. * * * * The amendment of the consti- tutions of those states where such provisions exist, to give the legislatures power and authority to make reasonable classifica- tions of personal property for taxation, will remove some of the worst abuses in the present system of taxation." And referring to the plan of classifying propertys says, the state "among other benefits will secure far more revenue from intangible wealth than is obtained under present meth- ods." The United States Supreme Court, (142 U. S. 351), Justice Lamar delivering the opinion, said: "A system which imposes the same tax upon every species of property irrespective of its nature, condition or class, will be destructive of the principle of uniformity and equality in taxation, and of a just adaptation of property to its burdens." The Supreme Court of Pennsylvania (62 Pa. 494), in referring to the general property tax system theory, said: "Practically no more unequal system could be contrived." Prof. Chas. J. Bullock of Harvard University said of the Gen- eral Property Law: "It places the taxpayer in the position of circumventing the law, and does not foster habits of good citizenship. The latter is the cause of fearful demoralization, here, again, official docu- ments abound in testimony to the evils of the system. It is de- clared to be debauchioag to the conscience and subversive of public morals — a school of perjury promoted by law; it puts a premium upon perjury and a penalty on integrity; it debauches the moral sense, produces widespread demoralization and encourages eva- sion and dishonesty. This is severe, but no one familiar with the facts can doubt its truth." Prof. Seligman of Columbia University, in his work on taxation, "Practically the general property tax, as actually admin- istered today is, beyond all peradventure, the worst tax known to the civilized world. It puts a premium on dishonesty and de- bauches the public conscience. It reduces deception to a system and makes a science of knavery. It presses hardest on those least able to pay. It imposes double taxation on one and grants entire immunity on the next. In short, the general property tax is so flagrant and inequitable that its retention can be ex- plained only through ignorance." ASSESSMENT AND TAXATION 15 CLASSIFICATION OF PROPERTY In Maryland, as an example, the constitution permits classifica- tion. In 1896 an act passed, limiting the tax rate to 3 mills on the dollar — three dollars on one thousand dollars. The result was a marvelous gain in actual revenue, due to the large increase in amount of property returned to the assessor. In the city of Baltimore alone the assessed values of securities taxed were: 1896 $ 6,000,000 1902 $ 89,900,000 1897 55,000,000 1903 94,300,000 1898 55,000,000 1904 85,900,000 1899 61,900,000 1905 104,200,000 1900 65,800,000 1906 120,400,000 1901 68,900,000 1907 150,900,000 Prof. Bullock, referring to this Maryland law, says: "It will be seen that the reduced rate has yielded far more revenue than could ever have been coll€cted under the old con- fiscatory rate of taxation. But it has done far more than this. It has made tax-dodging unfashionable, removed a fruitful cause of public demoralization, and stimulated honesty in all matters relating to taxation. The tax officials no longer feel that they are enforcing an unjust and odious law, while public opinion fully supports the law and frowns on any attempted violation of it. Taxpayers generally are given an opportunity to pay a reasonable tax and assessors have a law which they could strictly enforce without perpetrating fearful injustice upon helpless per- sons, unable to evade it. Prom the financial point of view the gains are considerable; from the political and moral they are incalculable." Laws or constitutional provisions that require each and every class of property to be taxed uniformly and proportionately are im- possible of administration with any certain degree of justice and equal- ity. The laws of this state are stringent in order to bring about the proper listing and full valuation of all classes of property, but ex- perience has demonstrated that the more drastic the law, the more apparent is the failure to secure revenue from this class of intangible property. 16 ASSESSMENT AND TAXATION CONCLUSIONS The Tax Commission has no hesitancy in saying that in place of a tax on moneys and credits, stocks and bonds, etc., at the same rate as all other taxable property, a classification which would permit of an adjustment of the rate of tax to the income of such capital, or the income which it might reasonably be expected to produce, would be more just and the state would profit by an increased revenue from this source. Not only moneys and credits, but other classes of personal property might well be separately classified for the purpose of levying a different rate of taxation than that imposed upon all classes of personal property under the present system. In consideration of the views expressed by the Courts and others high in authority, together with the fact that the Tax Commissfon made effort in 1913 to enforce the law requiring the assessment of moneys and credits at full value, we recommend constitutional changes. Our present constitutional provisions long ago served their day. The requirement that all property, tangible and intangible, shall be as- sessed by uniform rule is inapplicable to present conditions. It is not to be understoori, however, that because of any defect or defects in the existing tax laws of this state, the Tax Commission will relax its efforts to assess all property, tangible and intangible, at full value as required and demanded by the present Constitution and laws of the state, so long as they are in effect. RECOMMENDATIONS The Tax Commission is required to make recommendations for improvement in the system of taxation in this state, together with such measures as may be formulated for the consideration of the next legislaturei and with that object in view we have already passed and spread upon the records of the Commission the following reso- lution : "'Whereas, it is the judgment of the Tax Commission that our revenue laws governing the assessment and taxation of pro« perty are defective and inadequate to meet present conditions; that under our present constitutional restrictions, it is difficult to enforce many of our constitutional provisions which are seri- ously obnoxious to a large and increasing public sentiment. Con- ditions are ever changing so that the general welfare demands constitutional provisions affecting the public revenues that are sufiiciently flexible to permit the people, through the legislature, to enact such laws as will meet the needed changes from time to time. "Whereas, the general revenue laws of this state have been amended from time to time until as now standing upon our statute books in many respects are incomprehensible and con- flicting, resulting in misunderstanding and doubtful interpreta- tion; and that attempted enforcement thereof is cumbersome and grossly expensive. "Resolved, That the Tax Commission proceed to formulate for the consideration of the people and the legislature at its next session, constitutional amendments so as to permit the classification of property for assessment and taxation purposes, and to provide more liberal exemptions of property from taxa- tion, and which will also permit the people, through the legis- lature, to amend its revenue laws so as to meet changing condi- tions as necessarily arise from time to time." TAX COMMISSION, C. M. Henry, Chairnrajn H. C. Preston, Hugh Smith. * ■ v