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CORNELL UNIVERSITY LIBRARY 3 1924 092 550 114 562 ;|\XATION OF CORPORPONS PART III-EASTERN CENTRAL STATES REPORT OF THE COMMISSIONER OF CORPORATIONS ON THE SYSTEM OF TAXING MANUFACTURING, MERCAN- TILE, TRANSPORTATION. AND TRANSMISSION CORPORATIONS IN THE STATES OF OHIO, INDIANA, ILLINOIS. MICHIGAN. AND WISCONSIN JULY 31, 1911 WASHINGTON : : GOVERNMENT PRINTING OFFICE : : 1911 TAXATION OF CORPORATIONS PART III-EASTERN CENTRAL STATES REPORT OF THE COMMISSIONER OF CORPORATIONS ON THE SYSTEM OF TAXING MANUFACTURING, MERCAN- TILE, TRANSPORTATION, AND TRANSMISSION CORPORATIONS IN THE STATES OF OHIO, INDIANA, ILLINOIS, MICHIGAN, AND WISCONSIN JULY 31, 1911 WASHINGTON : : GOVERNMENT PRINTING OFFICE : : 1911 I Cornell University f Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://archive.org/details/cu31924092550114 CONTENTS Page. Table of cases v Explanation of abbreviations vi Letters of transmittal yii Letter of submittal ix Introduction i Purpose, plan, and sources of information i The fraction of the United States that has been covered 2 Tendency away from local taxation of corporations 2 The arguments for and against state machinery for corporate taxation 2 Undertakings adapted to central machinery for taxation 4 Undertakings not adapted to central machinery for taxation 4 The arguments for and against the retention of corporate taxes by the State . 5 Undertakings peculiarly taxable for state purposes ., S Tabular vie w of state collection and retention of corporate taxes — Table A . 6 , 7 , 8 , 9 The kinds of taxes collected from corporations 7 Another tabular view: Things taxed and modes of collection and of distri- bution—Table C 10 Generalizations from Tables B and C 10 General property tax 11 Special taxes 12 Capital-stock. method 12 Receipts or earnings tax 13 Mileage method _ 13 Corporate excess 13 Corporate-loan, lump-sum, and state business-license methods 13 The importance of the mode of collecting and distributing corporate taxa- tion 14 The revenue derived from corporations 14 The basis of the tabular view of receipts from taxes — Table D 14, 16, 17 The chief results of the investigation 17 Abstract by States 19 Ohio 19 Indiana 19 Illinois 20 Michigan 21 Wisconsin 22 Systems by States 23 Ohio 23 General view 23 Constitutional provisions 25 Statutes 26 Financial results 3° Comments 31 Bibliography 39 IV CONTENTS. Systems by States — Continued. Page. Indiana 4° General view 4° Constitutional provisions 4^ Statutes , 42 Financial results 46 Comments ■ 48 Bibliography S^ Illinois S3 General view S3 Constitutional provisions 55 Statutes 55 Financial results 59 Comments 60 Bibliography 68 Michigan ^ 69 General view 69 Constitutional provisions 71 Statutes 71 Financial results 77 Comments 78 Bibliography 8g Wisconsin go General view 90 Constitutional provisions 92 Statutes 93 Financial results 98 Comments 99 Bibliography 104 Index 105 TABLE OF CASES. Page. Adams Express Co. v. Ohio State Auditor, 165 U. S., 194 (1897) 28, 35 Adler-w. Whitbeck, 44 O. S., 539, 565 (1886) 25 Attorney General v. St. Bd. of Assessors, 143 Mich., 73 (1906) 72 Auditor v. Iron & Steel Co., 129 Ind., 70 (1891) • 45 Bacon v. Board of State Tax Commissioners, 126 Mich., 22 (1901) 77 Board of Commissioners v. State, 155 Ind., 608 (1900) 42 Chicago & North Western Ry. Co. v. Forest County, 95 Wis., 80 (1897) 92 Chicago & North Western Ry. Co. -v. State, 128 Wis., 553 (1906) 94 City of Jeffersonville v. L. & J. Bridge Co., 169 Ind., 657 (1908) 46 Clark V. Vandalia R. R. Co., 172 Ind., 411, 413, 419 (1909) 42, 43 Cleveland, etc., Ry. Co. v. Backus, 154 U. S., 444, 445 (1894) 43 C, N. O. & T. P. Ry. V. Hynicka, 17 Ohio Nisi Prius Dec, 163, 77 O. S., 628 (1908) 26 Consolidated Coal Co. v. Miller et al., 236 111., 149 (1908) 55. 56 Darnell -v. State, 90 N. E., 769 (igio) 46 Detroit Citizens Street Railway Co. v. Detroit, 125 Mich., 673, 684 (1901) 7-, 76 Detroit ■;;. Donovan, 127 Mich., 604 (1901) 76 Fargo V. Hart, 193 U. S., 501 (1904) 44 Hasely v. Ensley, 40 Ind. App., 598 (1907) 46 Hub V. Hanberg, 211 III., 43 (1904) 56 Indiana v. American Express Co., 7 Biss., 227 (1876) 49 Indiana v. Pullman Palace Car Co., 16 Fed. Rep., 193 (1883) 49 Kneeland v. Milwaukee, 15 Wis., 454, 691 (1862-1863) 92 Lenawee County Savings Bank v. Adrian, 66 Mich., 273 (1887) 77 Louisville & N. A. R. Co. v. State, 25 Ind., 180 (1865) 42 Michigan Central R. R. Co. v. Powers, 201 U. S., 245 (1906) 82 Moerlein Brewing Co. v. Hagerty, 8 C. C, 330 (1894) 29 Nunnemacher v. State, 129 Wis., 220 (1906) 92 Plank Road Co. v. Detroit, 81 Mich., 562 (1890) 76 People V. Board of Equalization, 205 III., 296 (1903) 58 People ex rel. Thompson v. Ravenswood Hospital, 238 111., 137 (1909) 56 Pittsburg Ry. Co. u. Backus, 154 U. S., 430, 431 (1894) 43 Seward v. City of Rising Sun et al., 79 Ind., 351 (1881) 46 Sims, Treasurer, v. Best, i C. C, 41 (1903) 30 Smith V. Rude Bros. Co., 131 Ind., 150 (1892) 45 Southern Gum Co. et al. v. Laylin, 66 O. S., 578 (1902) 29,30 State Board of Equalization v. People ex rel. Goggin, 191 111., 52S (1901) 56 State V. Bell, 91 Wis., 271 (1895) 92 State ex rel. v. Jones, 51 O. S., 492 (1894) 28 Stated). Frame, 39 O. S., 414(1883) 25 Stroh V. City of Detroit, 131 Mich., 109 (1902) 7i> 77 Union Tank Line Co., In re., 204 111., 347 (i9°3) S^ Western Union Tel. Co. v. Mayer, 28 O. S., 521 (1876) 25 Western Union Tel. Co. v. Taggart, 163 U. S., 26 (1896) 44 Wisconsin Central R. R. Co. v. Taylor County, 52 Wis., 37 (1881) 92 Wisconsin Tel. Co. v. City of Oshkosh, 62 Wis., 32 (1884) 97 V EXPLANATION OF ABBREVIATIONS. Biss. — Bissell, United States Circuit Court, Seventh Circuit. C. C— Circuit Court Reports. e. g. — ^for example. et al . — and others. et seq. — and the following. ex rel. — ^upon the relation of. Fed. Rep. — United States Federal Reporter. Ibid. — the same. i. e. — that is. 111. — Illinois Supreme Court Reports. In re — In the matter of. Ind. — Indiana Supreme Court Reports. Ind. App. — Indiana Appellate Court Reports. Mich. — Michigan Supreme Court Reports. N. E. — Northeastern Reporter. O. S. — Ohio State Supreme Court Reports. Rev. Stats. — Revised Statutes. St. Bd.— State Board. Stats.— Statutes. Wis. — Wisconsin Supreme Court Reports. VI LETTERS OF TRANSMITTAL. Department ok Commerce and Labor, Office of the Secretary, Washington, July ji, igii. Sir : I have the honor to transmit herewith Part III of a Report of the Commissioner of Corporations on Taxation of Corporations, said part dealing with the systems of corporate taxation in the States of Ohio, Indiana, Illinois, Michigan, and Wisconsin. Very respectfully, Charles Nagei., Secretary. The President. Department of Commerce and Labor, Bureau of Corporations, Washington, July ji, igii. Sir: I have the honor to transmit herewith Part III of a Report on Taxation of Corporations, made to the President under your direction, and in accordance with the law creating the Bureau of Corporations. This part deals with the systems of corporate taxation in the States of Ohio, Indiana, Illinois, Michigan, and Wisconsin. I desire to mention as especially contributing, under my direction, to the preparation of this report, my assistant, Mr. M. Markham Flannery. Very respectfully, Herbert Knox Smith, Commissioner. To Hon. Charles Nagel, Secretary of Commerce and Labor. LETTER OF SUBMITTAL. Department oe Commerce and IvAbor, Bureau of Corporations, Washington, July 31, igii. Sir: I have the honor to submit herewith Part III of the Report on State Taxation of Corporations, dealing with the Eastern Cen- tral States. Parts I and II, already issued, covered the New England and Middle Atlantic States. These reports afford a concise comparison between the tax laws of the States, in the light of judicial decisions, practical adminis- tration, and revenue retiurns. The Eastern Central group differs from the Middle Atlantic group in using much more extensively the general property tax for state revenue. V/isconsin alone approaches a separation of sources of revenue, and its special taxes yield sufficient revenue for ordinary state expenses. Ohio applies special taxes and the general property tax to the same corporations for state purposes. Indiana and Illinois levy practically no special taxes on corporations. Michigan and Wisconsin make elaborate physical valuation of steam and street railway property, which, with earning capacity, forms the basis of state-administered ad valorem taxes. Revers- ing the tendency almost universal elsewhere, these two States have, with respect to the taxation of railroads, gone from the modern gross earnings method to the ad valorem tax. They also use extensively the "average rate" method, i. e., applying to cer- tain public-service corporations a rate which is the average of the state and various local rates. All of this group exempt shares of stock in the hands of holders, when the corporate property is taxed. Wisconsin derives about 71 per cent of its total state taxes from corporations; Ohio, 52 per cent; Indiana, 19 per cent; Illi- nois, 34 per cent. In Michigan, revenue from special corporation 2 TAXATION OF CORPORATIONS. The Fraction of the United States that Has Been Covered. This series of reports (Parts I, II, and III) now covers the region north of the Potomac and east of the Mississippi. In area this region is only a small fraction of the United States — not more than a seventh — but in population it is a much larger fraction, in fact one-half; and, as it is the region in which business has most largely gone into the corporate form, the systems of corporate taxation there used have an importance wholly out of relation to the number of square miles, and even greater than would be indi- cated by the population. In other words, although this investi- gation of corporate taxation has covered only a small part of the area of the United States, the Bureau has nevertheless collected more than half — if, indeed, such matters can be reduced to a mathematical ratio — of the important facts. Consequently there can be no doubt that anyone who examines these reports can find safe material upon which to base preliminary generalizations. Tendency Away from Local Taxation of Corporations. In the early days of corporations it was the practice, as was inevitable, to tax corporations precisely as if they were natural persons. Their land, their tangible personalty, and their intangi- ble personalty were taxed for state and local purposes through the local assessors precisely as in the case of individuals. There is now a marked tendency away from that practice. To a large extent the taxation of corporations is in the hands, not of the localities, but of the State. This is a matter well worthy of discussion; and in presenting it there is a necessity for separating two related but distinct series of facts, namely, facts showing that in some States the machinery of corporate taxation is operated more or less by the States rather than by the localities, and related but independ- ent facts showing that, however the machinery is operated, whether by States or by localities, the proceeds of corporate taxa- tion are to some extent devoted to state purposes and to some extent are retained by localities or returned to them for local use. In other words, there are two questions — first, methods of collec- tion, and second, distribution of proceeds. The Arguments for and against State Machinery for Corporate Taxation. Two objections have been raised against state machinery for corporate taxation. One is that any departure from the general system of taxation results, and is intended to result, in giving to INTRODUCTION. 3 the excepted class an exceptional benefit or burden. It is also often contended that central state machinery can be too easily controhed in the interest of the excepted class or against that interest. The obvious answers are that in this instance the excepted class really is an exceptional class, composed of artificial entities created by the State and enjoying special privileges, and that in case justice demands the treatment of this class through a central authority the dangers of this treatment must be squarely met, and that, at any rate, along with the dangers come certain bene- fits — for example, pubhcity and the ease of placing responsibility. To these answers the reply is, substantially, that in these days corporations should be considered, not as abnormalities, but as normal and necessary forms for doing business in the It^rge and permanent manner required for the benefit of society; that hence in creating corporations a State should be considered as perform- ing a duty rather than as granting a privilege ; that while doubtless the State should make some charge for the clerical and similar services performed in connection with creating corporations, and should also compel the fiUng of such reports as will prevent the corporations from abusing their powers, and should receive fees covering the cost of this work, nevertheless the property and the business of the corporations, except in so far as that property and that business differ from those of natural persons, should be taxed with no exceptional machinery. To this reply may be made a rejoinder, as lawyers would term it, to the effect that corporations, or at least some of them, do have privileges, property, and business largely differing from those of private individuals, as will be developed hereafter, and that hence there should be, at least as to such property and busi- ness, exceptional machinery for taxation. All these points have weight. The conclusion of the whole matter, if one may rely upon the practice of most of the States as indicating the proper effect of all these considerations upon the minds of legislators, seems to be: That a central office of the State should exact from all corporations fees for issuing a charter and for filing reports — fees which are really not taxes in the ordinary sense, for they pay the expenses of services rendered and yield no income for general purposes, and also that as to exceptional sorts of property or of business there may well be central machinery for taxation, not because a corporation is concerned but because 4 TAXATION OP CORPORATIONS. the property or the business is exceptional, and that if such prop- erty and such business be as a matter of fact usually in the hands of corporations no harm is done by practically treating the exceptional nature of these undertakings as being due to the feature of incorporation. Undertakings Adapted to Central Machinery for Taxation. What are the undertakings peculiarly adapted to being appraised or otherwise measured, for purposes of taxation, by state machinery rather than by machinery of a local nature ? Among the most obvious examples both by theory and from the practice of the States is the railroad. Perhaps a still more obvious one is the telegraph. The value of a railroad line or of a telegraph line does not consist of the total of the values of the several miles. On the contrary, the value of the mile consists in some fraction of the value of the whole line. It is as a whole, and in almost no other respect, that the line possesses any value at all. Consequently, the whole line must be appraised at once, if just results are to be attained; and so likewise the receipts or the earnings of the whole line must be ascertained, if there is an attempt to determine the receipts or the earnings per mile. Yet the determination of items as to the whole line means practically that there must be deter- mination by machinery representing the State . as distinguished from the several localities. It is clear, of course, that when a railroad or telegraph passes through several States the same reasoning suggests interstate cooperation. Further, a railroad's rolling stock is not permanently in one locality, and for various practical reasons it can not be appraised conveniently by local assessors. It is unnecessary to emphasize that fact, for the grounds already explained are quite enough to show that railroads, telegraphs, and the like should be the subject of state machinery ; and they are in fact so regarded by most of the States. Undertakings not Adapted to Central Machinery for Taxation. Not so of corporations — at least of most of them — engaged in manufacturing or in mercantile business. They have their land, buildings, machinery, materials, and stock in one place or in a few places; and even when the property is somewhat scattered, and when it is admitted that the value of each item depends partly upon its being a fraction of an entire concern, to appraise each item separately and to determine the whole value can not be INTRODUCTION. 5 considered a task too difficult for a local assessor. For these reasons manufacturing and mercantile corporations are usually not taxed through central agencies of the State, but through local agencies only. So much for the first question, that of the method of collection. The Arguments for and against the Retention of Corporate Taxes by the State. And now for the distinct though related topic, the retention by the State, for state purposes, of the proceeds of the taxation of corporations. The arguments as to this matter are much the same as the argu- ments for and against taxation through machinery operated not by the localities but by the State. The conclusions also are the same — at least in form — namely, that fees for clerical services performed by the State in relation to the formation and super- vision of corporations should be retained by the State, and that as to certain kinds of property and business pertaining to corpora- tions the State, rather than the localities, may properly retain the proceeds of taxation. Yet it does not follow that all the taxes collected from the properties or business properly taxable through state machinery should be retained by the State, nor that all the taxes collected from properties or businesses properly taxable through local machinery should be retained by the localities. On this matter theory and the practice of the States agree. Undertakings Peculiarly Taxable for State Purposes. It will be remembered that railroads and telegraphs were speci- fied as easy examples of properties and businesses best taxable through the machinery of the State. Should the proceeds of that taxation remain with the State or be apportioned among local- ities? And if apportioned among localities, to what localities should the proceeds go? The localities of which one naturally thinks are the localities through which the railroads or the tele- graphs run. Yet would anyone think that the jurisdictional boundaries of the very townships, school districts, or other small- est municipal subdivisions have conclusive value in determining the regions which through taxation should profit peculiarly by the presence of the railroad or of the telegraph? It certainly seems that anyone would call attention to the benefits or the burdens, as D TAXATION OP CORPORATIONS. the ease may be, accruing to the other subdivisions not far away. Should the counties, then, be selected as the units? Here again the same point must be taken, though to be sure not so emphat- ically, for undoubtedly the larger the units the weaker the con- tention that other neighboring units receive a similar burden or benefit. Arguments are so evenly balanced that the proper result for practical purposes has been deemed by most of the States to be some sort of compromise. Tabular View of State Collection and Retention of Corporate Taxes — Table A. The practice as to collection and distribution of taxes on cor- porations by the several jurisdictions north of the Potomac and east of the Mississippi is briefly indicated by the accompanying table (Table A) , devoted to the New England States, the Middle Atlantic States, and the Eastern Central States. The table is elucidated further in Tables B and C and in the accompanying comments, but it should be borne in mind that the brief presenta- tions in tables should not be relied upon as substitutes for the more detailed information contained in the full accounts of the systems of corporate taxation in the several States. The purpose of Table A is, in fact, simply to enable the reader to see at a glance roughly to what extent the several States agree in treating some sorts of corporations as proper subjects for state taxation machinery and as proper subjects for state revenue. It will be found that usually the practice agrees closely with the classification which would be pointed out by theory; that is to say, that a thoughtful attempt is made to distinguish between such corporations as railroads, for instance, and those engaged in manufacturing. Five States, nSmely, Vermont, New York, Pennsylvania, Del- aware, and Michigan, practically agree in that the taxes (except purely local taxes, no part of which the State receives) paid by all of the classes of corporations compared, except manufacturing companies, are collected and retained by the State for state pur- poses. Five States limit the selection of classes for state taxation as follows: Maine, New Hampshire, and Massachusetts to car companies only, Connecticut to raikoad and express companies, and Maryland to railroads. INTRODUCTION. 7 To the extent that the State collects but part of the state taxes and retains all of its collections, lo States agree in their treatment of one or more of the six classes under consideration. Thus, the method whereby the State collects part and retains all of its col- lections is followed in Ohio as to each of the six classes ; in Mary- land as to all except railroads; in Indiana as to car companies only; in Maine, Massachusetts, New Hampshire, and Rhode Island as to express companies; in Rhode Island, Connecticut, and New Hampshire as to telegraph and telephone companies ; in Wisconsin as to telephone companies; and in Maine and Vermont as to manufacturing companies. In Pennsylvania such manu- facttu-ing companies as have a portion of their capital invested in property not used in the manufacturing business are subject to state taxation on such property. As to certain classes of corporations two States collect but part of the tax and retain only a part of the amount collected. Maine thus treats railroad, telegraph, and telephone companies, and Massachusetts thus treats the same classes and manufacturing companies also. The only instances in which the State collects all and retains but part of its collections are found in the treatment of railroads by New Hampshire and New Jersey. In Illinois there is no state collection from any of the six classes, except from the Illinois Central Railroad. The same is true in Indiana of all but car companies; in Rhode Island of railroad, car, and manufacturing companies; in Connecticut of car and manufacturing companies; and in New Hampshire, New York, New Jersey, Michigan, and Wisconsin of manufacturing corporations. The Kinds of Taxes Collected from Corporations. The several States impose upon corporations several different kinds of taxes, and the same kinds are not adopted uniformly as to all corporations by any one State. For purposes of comparison, the kinds of taxes are briefly described and enumerated in the condensed tabular view (Table B). The abbreviations affixed to the respective taxes indicate (by reference to the key preceding the table) how the principal kinds of corporations discussed by this series of reports are taxed in the several States thus far ex- amined, the tabulation covering both the kinds of taxes and the mode of collection and of distribution. 91740° — II 2 8 TAXATION OP CORPORATIONS. Tablb a. — Showing Whether the Tax from Specified Corporations is Col- lected BY THE State and Whether All or Part of it is Used for State Purposes, in Seventeen States." [The letters " GP " in this table mean "general property tax."] Steam railroads. Car companies. Express companies. State. I. State collects directly. II. State retains from its collec- tions. III. State receives independ- ently of its own collec- tions. I. State collects directly. II. State retains from its collec- tions. III. State receives independ ently of its own collec- tions. I. State collects directly. II. State retains from its collec- tions. III. State receives independ- ently of its own collec- tions. New England Group: Part b . . Allc. . . Allc.. . Part . . . Part . . Part . . All. . . . Part . . PartGP. None c . . Nonec .. PartGP/ PartGP. None c . None None — None None None PartGP. Part GP PartGP. None c . . None « . All All All All!?.... All. . . . All. . . . AH..,. AIU . . None None. . . . None None. . . . None None... . None None None None PartGP. PartGP. PartGP. PartGP. None e . . None p. . Parts. . Part . . . All « . , . Part . . . Part . . . Allc .. . All All All All Part . . . Part . . . None All. . . . All. . . . All. . . . All. . . . All. . . . All.... All. . . . All.... All. . . . All. . . . All. . . . AH.... New Hampshire. . Part.GPd Massachusetts. . . . Part. GP Part.GPd Connecticut Allc... All All All All / . . . All Part . . . None. . . All. . , . All. .. Part . . All t . . All.... All. . . . All. . . . Middle Atlantic Group: New York New Jersey Pennsylvania All. . . . Alii... All All Part . . . Part . . . Part '1 . . All. . . . All. . . . All. . . . All. . . . All.... All.... All.... None. None. None. Maryland. . Part GP District of Colum- bia. '« Eastern Central Group: Ohio . . Part GP Indiana Part GP None 0. All« .. . AMe .. . All. . , . AH.... Part. GP Michigan Wisconsin AUe . . AllP,.. All.... All.... All e . . . Ally.. . All. . . . All. . . . None.c None.p o From laws in force Oct. i, 1910. The answers ignore those local taxes from which the State receives nothing, and also — save as indicated in footnotes — taxes on property not used in the corporation's business. ^ The answers for corporations chartered in Maine, but operating wholly without the State, would be 'All " in Columns I and II and " None" in Coliunn III. c Except State's share of general property tax on real estate not used in the business. d On real estate only. fi Except State's share of general property tax on property not used in the business. / StaLc'<; share of general property tax on real estate and machinery outside roadbed 82? 2 feet wide. 9 Excise tax (maximum $2,000) from foreign corporations doing an intrastate business (now only one). A Except that a part of state tax on corporate excess of a domestic car company would be distributed to certain localities, i Except that cars of freight-car companies are taxed to railroads as part of rolling stock. * Except the distribution by the State to certain counties, through which the Erie Railroad was extended, of Sro.ooo paid annually by the railroad to the State for the privilege of such extension. i Railroads pay to the State sums fixed by law in lieu of all regular state taxation. "1 The District of Columbia is a municipal corporation and collects its taxes for the purposes of the District in general. n Cars transporting freight. Eor cars transporting passengers. Columns I and II would read "None." o Except tax, collected and retained by State, on gross receipts from original lines of the Illinois Central Railroad. P Except State's share of general property tax on personal property not used in the business. INTRODUCTION. 9 Table A.— Showing Whether the Tax from Specified Corporations is Col- lected BY THE State and Whether All or Part op it is Used for State Purposes, in Seventeen States «— Continued. Telegraph companies. Telephone companies. Manufacturing companies. State. I. State collects directly. II. State retains from its collec- tions. III. State receives independ- ently of its own collec- tions. I. State collects directly. II. State retains from its collec- tions. III. State receives independ- ently of its own collec- tions. I. State collects directly. 11. State retains from its collec- tions. III. State receives independ- ently of its own collec- tions. New England Group: Part&.. Part . . . All « . . . Part . . . Part. .. Part . . . All All AU AU Part . . . Part . . . Part . , AU. . . . AU. . . . Part.. AU.... AU.. . PartGP. PartGPd None «. . PartGP. PartGPs PartGPs None None None None PartGP. PartGP. PartGP. PartGP. Nonee. . Nonee. . Part i . . Part . . . Alle... Part . . . Part . . . Part . . . AU AU AU AU Part . . . Part . . . Part . . AU. . . . AH. . . . Part . . AU. . . . AU. . . . AU. . . . AU. . . . AU. . . . AU. . . . AU. . . . AU.... PartGP. PartGPii None e . . PartGP. Part OP PartGPo None None None None PartGP. PartGP. PartGP. PartGP. None e . . None I . . Part 6 e None.. AU. . . . Part. GP Part. GP New Hampshire. . Vermont Massach- '.setts. . . . Rhode Island Part . . . Part . . . AU. . . . Part . . Part.GP Part. GP Part. GP Connecticut Part.GP Middle Atlantic Group: New York New Jersey Pennsylvania Delaware AU.. AU.. AU.. AU.. AU None * - None * . AU AU Part . . . Part . . , None . None . AU. . . . AU. . . . All. . . . AU. . . . None. None. None. Maryland Part GP District of Colum- bia, fc Eastern Central Group: Ohio ... AU. . . . Part GP Part. GP Part GP AU c. . . All e . . . AU.... AU. ADe... Part . . . AU. . . . AU.... Part. GP Part. GP «Froni laws in force Oct. i, igio. The answers ignore those local taxes from which the State receives nothing, and also — save as indicated in footnotes — taxes on,property not used in corporation's business. ^The answers for corporations chartered in Maine, but operating wholly without the State, would be "AU" in Colums I and II and "None" in Column III. c A foreign manufacturing corporation would pay only the local general property tax, and the answers therefor would be: "None " in Column I, no entry in Column II, and " Part ^^" in Column III. d On real estate not assessed by state board. « Except State's share of general property tax on property not used in the business. / For the past few years the only state general property tax has been the state highway and school tax. s On real estate only. ^ There is a state tax on intangible personalty at a low uniform rate, of which manufacturing corpora- tions can take advantage. *In New York, to escape state taxation, manufacturing corporations must have 40 per cent of capital stock invested in manufacturing, and in New Jersey, 50 per cent; otherwise, they pay to State a capital- stock tax. fcThe District of Columbia is a municipal corporation and collects its taxes for the purpose of the Dis- trict in general. i Except State's share of general property tax on real estate not used in the business. lO TAXATION OF CORPORATIONS. It must be understood that occasionally taxes bearing different names, and sometimes differing slightly in other respects, but sub- stantially identical in principle, are here placed under one head; that the list is confined to taxes paid by the corporations them- selves, as distinguished from taxes paid by stockholders and bond- holders; and that for details reference must be made to the full accounts as to the several States. In using Table B, any one in search of a general picture of the systems of taxation will do well to pay attention chiefly to the main divisions — general property, capital stock, receipts or earnings, mileage, corporate excess, corporate loans, lump sum, and state business license — and to disregard the subdivisions. In other words, for ordinary purposes a sufficiently accurate concep- tion can be gained from noticing simply the letters as dis- tinguished from the numbers annexed to them. The minute subdivisions indicated by the numbers differ from one another, to be sure, but often the difference is so slight that the distinc- tion is of little practical consequence, and sometimes it is so delicate that there is question whether a particular tax belongs in one subdivision rather than in another. Consequently, only a person interested in minute details should concern himself with the subdivisions; and such a person should bear in mind, as has been so often pointed out, that a tabular view can not present the whole truth with exactness, and that any one wishing to act in reliance upon a tabular view is expected to examine those digests of the laws, State by State, upon which the tabular view is based and of which it gives a rapid and broad summary. Another Tabular View of Things Taxed and Modes of Collection and of Distribution — Table C. For the purpose of further facilitating comparisons and general- izations, the material condensed in Table B is presented in a differ- ent form in Table C. Each of these tables indicates the things taxed and the modes of collection and of distribution, but Table B is arranged according to States. Table C is arranged upon the basis of the nature of the tax. Generalizations from Tables B and C. From Tables B and C it is possible to deduce many interest- ing generalizations as to the basis — whether property, capital stock, receipts, etc. — adopted by various States as to the several sorts of corporations. A few of these generalizations will now be given, and the reader will thus see for himself some of the uses to which the tables can be put. Table B.— Condensed Tabular View Showing How the Principal Sorts op Corporations are Taxed in the Several States thus far Examined, THE Tabulation Covering Both the Kinds op Taxes and the Mode qf Collection and of Distribution. 1. general property tax. Collected locally, for local purposes: GP I. On all property. GP 2. On all property not used in the business. GP 3. On special franchises as to use of streets and highways, taxed as real estate (assessed by the State but collected and used locally). Collected locally except as to GP 9, and in each instance used for local and state purposes ; GP 4. On all property. GP 5. On real estate only. GP 6. On all property not used in the business. GP 7. On real estate only, not used in the business. GP 8. On property and also on good will (nonphysical or so-called franchise value), the valuation in most cases excluding property not used in the business. GP 9. Same, collected by State. Collected by State , for state purposes : GP 10. On property and also on good will (nonphysical or so-called franchise value), the valuation in most cases excluding property not used in the business. GP II. On all property used in the business. GP 12. On intangible personalty, called chose-in-action tax. II. capital-stock tax. With the exception of CS i, each tax is collected by State for state purposes: CS I. On aggregate value of shares of stock, less deductions for real-estate tax, collected in part locally for local purposes and in part by State for state purposes. CS 2. On appraised value of capital stock, based on many factors, and represented by property employed in business within State. CS 3. On capital stock employed in State (in some cases par value and in other cases market or actual value) with the rate varying according to divi- dends paid, market price of stock, and net assets. CS 4. On par value of authorized capital stock. CS 5. On par value of capital stock issued and outstanding. CS 6. Tax graduated according to the amount of authorized capital. CS 7. Tax graduated according to amount of authorized capital stock less value of real and personal property in State . CS 8. On proportion of authorized capital stock represented by property owned and used and business transacted in State. III. RECEIPTS or earnings TAX. Collected locally, for local purposes: RE I. Gross receipts tax, for privilege of using streets and highways, assessed by State. Collected by State, for local and state purposes: RE 2. Gross receipts or earnings tax. Collected by State, for state purposes: RE 3. Gross receipts or earnings tax. IV. MILEAGE TAX. Collected by State, for state purposes: Mi. Route mileage tax. M 2. Wire mileage tax. V. CORPORATE EXCESS TAX. Collected by State, each tax except CE i for state purposes: CE I. On "corporate excess," for local and state purposes. CE 2. On " corporate excess. " CE 3. On the sum of market value of the stock and funded and floating indebt- edness. VI. CORPORATE LOANS TAX. Collected by State, for state purposes: CL. On corporate loans. In theory the tax is on the holder of the obligation ; but in practice it is paid by the corporation. VII. LUMP-SUM TAX. Collected by State, each tax except LS i for state purposes: LS I. Lump sum, distributed among certain counties through which the rail- road runs. LS 2. A lump-sum commutation of state taxes upon steam railroads in lieu of all other state taxes. LS 3. Lump-sura license tax. VIII. STATE BUSINESS LICENSE TAX. Collected by State, for state purposes: BL. A graduated license tax, based on aggregate cost value of real and personal property located within the State and used in production or manufacture. Steam rail- roads. New England Group: Maine GP 5» . . CS66. RE 2. New Hampshire ' GP7.., I GPg. Vermont ' GP 7. . . GP 10. c CS6. RE 3-= Massachusetts. Rhode Island . Connecticut. GP4i CEi. GP5". GP7... CE I. Middle Atlantic Group: New York GPi... GP3. CS3. RE 3. GP2... GP9.3 CSs-' New Jersey. Pennsylvania GP 2«. CS2. RE 3. CL. LSi.' Maryland . District of Columbia . Eastern Central Group: Ohio Indiana. Illinois. GP 10. LS2. GP I... RE 3. GP4. RE 3. GP8. GPS"",*' RE3.<^« Car com- panies. CS 66 . . RE 3. GP 10. , GPlodec GP6 CS6./ Express compa- nies. Tele- graph compa- nies. GP5... CS6.I> RE 3. GPs... GPio. CS6. RE 3 <*'« M I. CS 4 ^. . CEi. RE 2. GPs... GPio. GP6... CS6. RE 3.!' M 2.Sh GP4*. CEi. GPs... RE 3. GPs... M 2. it " GPi... GP3. CS3. RE3. GP I... CS 5> RE I. GP2... CS2. RE3. CL. GP I.... M 2.'t RE 3. GP4!'.. CSi.'i RE 3. GP4.... RE 3. GPS.... RE 3. GPS.... GPS 66 GPii«'!. GPii««, GP 6. GP 6. GPiie«. GP 7... . GP 6. I RE 3.917 GP4. CS6. GP4. GP4. CS6. GP4. CS4.i CELii GP4. GP4. GP 12.0 GPi. CS3.'' GPi. CSs-' GPi. CL. CS2.H GPi. CS 7." BL .^ GP4.y CSi.'i GP4. GP4. CSs.-i CSS. I GPS. GP 4. May be paid instead of listing intangible personalty under ad valorem tax on property, but this is not availed of to any great extent. P If less than 40 per cent of capital stock is invested in the State. Q The cars of freight-car companies are taxed to railroads as part of rolling stock. r Domestic companies, if less than 50 per cent of capital stock is invested in the State. ' In Philadelphia and Pittsburg certain railroad real property is subject to local taxation though used in the business. ' Paid only by Erie Railroad Co.. which is relieved from local taxation in districts through which its lines are located. » Applies only to capital stock represented by property not used in manufacture. " From Pullman Co., as a repairer and builder of railroad cars; commutation in lieu of all other state taxes. «' Applicable only to companies incorporated in T5elaware since Mar. ro, 1899, and having more than 50 per cent capital invested outside the State. a: In addition such companies pay a tax of $5 per annum to the State for state purposes. y Applies only to foreign companies. Domestic would pay GP 5. 2 Sleeping-car companies only. <><» As to Illinois Central Railroad, only property acquired subsequent to charter is subject to this tax. 66 Domestic only. Foreign are subject to GP 4. ": Applies only to gross receipts from original lines of Illinois Central Railroad. iM Nominally subject to GP 8, but practically pay as indicated. " Franchise is considered in assessing the property, but is not directly assessed. In .Michigan the revenue from this tax is applied to the primary-school fund only. // On personal property only. SS Part is collected and used locally. 91740° — II. (To face page 10.) INTRODUCTION. 1 1 General Property Tax. The general property tax is applied to a part or to the whole of the property of practically all six classes of corporations men- tioned in the tables. The only exceptions are car companies in Maine, Connecticut, Rhode Island, and Massachusetts. Even in these States car companies would undoubtedly be required to pay the general property tax on property permanently located in the State. When this tax apphes, it is usually imposed differently upon cor- porations and upon individuals, the differences being chiefly in the manner of assessment and in the rate. Thus, with respect to certain corporate property in New Hampshire, New Jersey, Michi- gan, and Wisconsin, the average rate is applied to a valuation which includes nonphysical elements, and is determined by a central state board. The assessment of certain corporations in Indiana and Illinois is accomplished in like manner, the rate being the same as that applied to the property of individuals. In some States the application of the general property tax to certain cor- porations is limited to real property; in some States, so far as railroads are concerned, it is limited to real property outside of the right of way, and in others it is limited to property not used in the corporation's business. In New Hampshire, Indiana, and Michigan all the six classes of corporations dealt with are subject to the general property tax only. The remaining States supplement the general property tax by one or more special methods as follows. Rhode Island, Illinois, Wisconsin, and the District of Columbia employ the receipts or earnings method; Maine, New York, New Jersey, Maryland, and Ohio both the receipts or earnings and the capital-stock methods; Vermont" adds to these the mileage method; Pennsylvania em- ploys the capital-stock, receipts or earnings, lump-sum, and corporate-loans methods; Connecticut has the corporate-excess, receipts or earnings, and mileage methods; Massachusetts the corporate-excess and capital-stock methods, and Delaware the capital-stock, receipts or earnings, mileage, lump-sum, and state business license methods. The extent to which any of these methods is applied in various States is indicated in Tables B and C, under the subheadings "Receipts or earnings," "Capital stock," etc. For details, how- ever, reference must be made to the full text of the reports as to the several States. The general property tax is applied for both state and local purposes to all of the six classes of companies in Ohio, Indiana, » In Vermont railroads may elect to pay a gross-receipts instead of a general prop- erty tax 12 Taxation op corporations. Illinois, Michigan, and Wisconsin; and similarly in the District of Columbia; to all but car companies in Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and Connecticut ; to all but railroads in Maryland, and to none but railroads in New Jersey. In two States certain property of some corporations is subject to a general property tax collected by the State for state purposes, and other property of the same corporations is subject to a general property tax collected locally and used for local purposes only. This happens as to railroad, car, express, telegraph, and telephone companies in Michigan, and as to the same classes, except tele- phone companies, in Wisconsin. In three States (New York, Pennsylvania, and Delaware) the general property tax is not levied on corporations for state pur- poses. It applies, however, in these States for local purposes to all of the six classes of corporations treated. This was formerly true of Connecticut, but in 1909 the state general property tax law was reenacted. Special Taxes. Of the various forms of special taxation, the capital-stock method is used in 9 States, the receipts or earnings in 13, the mileage in 3, the corporate excess in 2, the corporate loan in i, the lump sum in 2 , and the state business license in i . Capital-Stock Method. This method is applied thus: In Vermont, New York,"^ and Pennsylvania * to each of the six classes of corporations treated in the above table ; in New Jersey "■ to all six classes operating exclusively outside the State; in Maine to all domestic manufac- turing corporations and to domestic corporations of the other five classes operating exclusively outside the State; in Maryland to each domestic company, except railroads; in Massachusetts to none but foreign car companies (doing an intrastate business) and foreign manufacturing companies; in Ohio to foreign and domestic manufacturing companies, and in Delaware " to certain domestic manufacturing companies. In Maryland the capital-stock tax is for state and local purposes. Collection is partly by the locaUties and partly by the State. In the other eight States it is collected by the State for state pur- poses. a In Delaware and New Jersey the capital-stock tax applies to manufacturing companies if less than 50 per cent of capital stock is invested in manufacturing in the State, and in New York if less than 40 per cent. bin Pennsylvania manufacttiring companies are subject to capital-stock tax on capital stock represented by property not used in manufacturing. Table C— Showing thb Naturb op Taxes for Each op the Classes op Corporations Mentioned; Whether Collected Locally OR BY THE State or Both; and Whether por Local or State Purposes or Both: New England, Middle Atlantic, and Eastern Central States. Nature of tax. How collected. Purposes. Steam railroads. Car com- panies. Express compa- nies. Tele- graph compa- nies. Tele- phone compa- nies. Manufac- turing compa- nies. General property tax: Locally Locally State Local N. Y.... Del./.... Md Me.o/. N. Y.... Del N. Y.... N.J Del Me.o.... N. H.o. . Mass .... R. I.o... Md.o e . . D. C... N. Y. . . . N.J Del Me.o. . ,, N. H.o. . Mass.!/ . . R. I,o. .. Conn.o , , Md,o e . . D, C,,,. N. Y.... N.J Del Me.o N. H.O., Mass.!" . . R. I.O, ,, Conn,o, . Md,o e . , D. C, , , . N. Y. State and local. . . . State N.J. Pa. Del. Me. Mass. c . . R.L"">.. D. C... Ohio .... 111.".. . Md.a e . . D. C... Ohioo N. H. Vt. Mass. R.I. Conn. Md.o e D. C. Ohio. 111. <«, . , Ind,"'", , Ohio , , , , Mich.!-.. Wis.«. . . N. J.ft... Pa 111. "... Mich. « . . Wis.» . . . Pa Vt Conn.o. . Mich.... Wis. " . . Ohio Ind lll.ti N. H.... Ill, ", , . Mich. . . Wis.*... Pa Vt Mich.... Wis Ohio. ... Ind 111.0 N. H.... N. Y.Ji.. 111. "... Mich. V , . Pa Vt Mich,,,, Wis.o . . . Ohio Ind Ill.O N. H.... N.Y.P. 111. CO Mich. Wis. Locally Locally Locally State State Locally State State and locally . . Mich, f . . Wis.t. .. N.J Pa. ** . . . N. H.".. State and local .... General property tax on property and also on good will (nonphysical or so- called franchise value), the valuation in most cases excluding property not used in the business. Mich.... Wis Mich.... Wis. «■ . . State and local. . . . State Ind lU.dm... N. H.... N. J.o... Ind.».... Ill.ti N. H.... Vt.zii*.. Ind.ft.... Ind. Local Vt.2 N. Y.P . . Conn, tid .State State and local .... State Me.' Vt. so... N. Y.... N.J.i... Pa Md.d.... Ue.l Vt.toa.. Mass. ii. Md. From Pullman Co. as a builder and repairer of railroad cars. X A ti-ix of $5 per annum to the State for state purposes. y But lines located on streets and highways are assessed by the State in assessing the corporate-excess tax, and are not taxed locally. 2 Railroad and domestic freight-car companies may elect to pay cither the ad valorem or gross-earnings tax. Railroads actually pay the gross-earnings tax. aa License tax on par value. bh On authorized capital stock of companies incorporated in Delaware since Mar. 10, 1899. having more than 50 per cent capita! invested outside the State. cc Nominally subject to taxation on property plus nonphysical value, but practically pay as indicated. dd May be paid instead of listing intangible personalty under ad valorem tax on property, but apparently this alternative is not availed of by corporations; i. e., manufacturing companies do not actually pay the chose-in-action tax. ec- Foreign only. // Paid only by Erie Railroad Co., which is reheved from local taxation in districts through which its lines arc located. QO Applies only to wires over which interstate business is transacted. Aft Applies only to capital stock represented by property not used in manufacture. a On personal property only. ;; Forci,gn only, doing an intrastate business; i. e., only the Pullman Co. at present. kk In Philadelphia and Pittsburg certain railroad real property is subject to.k:cal taxation, th-tugh used in the business. 91740- (To face page 13.) INTRODUCTION. 1 3 Receipts or Earnings. In none of the 17 States treated does the receipts or earnings method apply to manufacturing companies. It appHes in Maine, New York, Pennsylvania, and Maryland to railroad, car, express, telegraph, and telephone companies; to the same classes of com- panies, except express companies, in Vermont; except railroads and freight-car companies in New Jersey, and except car com- panies in Ohio. In Rhode Island it appUes to express, telephone and telegraph companies; in lUinois, to original lines of the Illinois Central Railroad; in Connecticut to express companies; in Dela- ware to both express and telephone companies, and in Wisconsin and the District of Columbia to telephone companies. This tax is collected chiefly by the State for state purposes, the exceptions being that in Maine collection is by the State, but receipts from railroad, telegraph, and telephone companies are for both state and local purposes, and that in New Jersey the tax from telegraph and telephone companies is collected locally for local purposes. Wisconsin is peculiar in that the tax on telephone com- panies is collected in part locally and in part by the State. Mileage Method. This method applies to express, telegraph, and telephone com- panies in Vermont and to the last named two classes in Connecticut and Delaware. In each of these States the tax is collected by the State for state, purposes. Corporate Excess. Massachusetts and Connecticut are the only States shown in the table as using the corporate-excess method. In Massachusetts the tax is collected by the State for state purposes from express com- panies, and by the State for state and local purposes from the other five classes of corporations treated. In Connecticut it appUes alone to raihoads and is collected by the State for state purposes. Corporate-Loan, Lump-Sum, and State Business-License Methods. The lump-sum method applies to railroad, car, and express companies in Delaware and to the Erie Railroad in Pennsylvania. The corporate-loan tax is pecuUar to Pennsylvania and applies to all six classes of corporations. The state business-license tax is pecuUar to Delaware, applying to manufacturing companies. The corporate-loan tax is theoretically a tax on the holders of the obli- gations, but in practice it is paid by the corporation. These taxes are paid to the State for state purposes, except the lump-sum tax on the Erie Railroad. 14 TAXATION OP CORPORATIONS. The Importance of the Mode of Collecting and Distributing Corporate Taxation. The importance of the mode of determining corporate taxation lies in the fact that unless the proper mode is selected justice is not done. That theoretical point is enough; but perhaps it is made clearer by calling attention to the vastness of the business now done through corporations, and also to the very large part of the state and local revenue now collected from them. The im- portance of the mode of distributing the revenue thus derived lies in the danger of taking from the localities the revenue which they need for ordinary local activities, with the result that those activi- ties will either be stunted or will be turned over to the central- ized state. Here again the point is emphasized by drawing atten- tion to figures. Consequently, for the purpose of showing con- cretely the importance of proper methods of both collection and distribution, there is given a tabular view (Table D) of the income which the States, as distinguished from the localities, receive from corporations, from the State's share of the general property tax, from inheritance taxes, from liquor taxes, and from miscellaneous taxes. The Revenue Derived frorn Corporations. From Table D and from those passages in this part and its prede- cessors which exhibit the financial results of the taxation of corpo- rations it is obvious that the revenue thus derived is vast. It is impossible to give the results accurately and to compare the re- sults from State to State ; for although in some States the whole of the taxation of corporations, or at least of some classes of corpo- rations, is in the hands of one central office, and to that extent the financial results can be readily ascertained, in some States, and perhaps in all, the taxation of some corporations, or at least of some of their property — e. g., their land — is largely or wholly left to local authorities, and the results are practically unascertainable. The Basis of the Tabular View of Receipts from Taxes — Table D. The amounts appearing in the first column of the following table (Table D) are somewhat less than actual collections from corpora- tions in 8 of the 17 States treated, namely, Maine, New Hamp- shire, Massachusetts, Rhode Island, Maryland, Indiana, Illinois, and Michigan; for there are not adequate data as to the amount INTRODUCTION. 15 received by the States from the local collection of the general prop- erty tax so far as it applies to corporations. The sums shown as coming from corporations in the New Eng- land and Middle Atlantic groups (except the District of Colum- bia) represent special taxes only, as distinguished from the general property tax. Special taxes in Maine, New Hampshire, Massa- chusetts, Rhode Island, and Maryland include but part of the total state taxes paid by many corporations, and none of the taxes paid by some — notably manufacturing corporations. This is also true of one State in the Eastern Central group, namely, Michigan. Special taxation in Michigan, however, is not strictly state taxation, for though collection is by the State the rev- enue is distributed to local school districts. In Michigan taxa- tion for purely state purposes is provided by the general property tax collected locally, no part of which appears in the table as coming from corporations. Under ordinary conditions state revenue in Wisconsin is almost wholly from corporations. The States in which it is possible to determine the total amotmt of state taxes paid by corporations are Vermont, Connecticut, New York, New Jersey, Pennsylvania, Delaware, Ohio, and Wis- 'consin, and, as can be seen from Table D, corporations pay over 50 per cent of the total state taxes in all of these States except New York. In view of this fact it may reasonably be inferred that corporations pay not less than 50 per cent of these taxes in the States where no such segregation can be made, namely, in Maine, New Hampshire, Massachusetts, Rhode Island, Vermont, Indiana, and Illinois. The District of Columbia has no separate revenue for state purposes. Each of the 17 States, except Rhode Island, the District of Co- lumbia, and Indiana, has an inheritance tax. From this source New York receives approximately $7,000,000, or 24 per cent of her state taxes; Pennsylvania, $1,700,000, or 7 per cent; Massachu- setts, $1,450,000, or 13 percent; New Jersey and Illinois, each over $500,000, or 8 and 6 per cent, respectively; Connecticut, over $300,000, or 9 per cent, Maryland, Wisconsin, and Michigan, be- tween $250,000 and $300,000, or 7, 5, and 2" per cent, respec- tively. " Specific taxes collected for school purposes reduce this percentage in Michigan . See use of term "Specific taxes," as applied in Michigan (p. 72). i6 TAXATION OF CORPORATIONS. The liquor tax is a very important item of state revenue in New York. It is also important in Ohio, Pennsylvania, Delaware, and Massachusetts; less important in the District of Coltunbia and Maryland ; and comparatively unimportant in Maine, Rhode Island, Vermont, and Michigan. The remaining States of these groups have no state tax on liquor. Table D. — Total State Taxes, and Amounts, and Percentages Contributed BY Certain Specified Sources of Taxation: New England, Middle Atlantic, and Eastern Central Groups. [The figures are mainly for 1909.] NEW ENGLAND GROUP. Maine New Hampshire Vermont Massachusetts Rhode Island Connecticut MIDDLE ATLANTIC GROUP. New York New Jersey Pennsylvania , Delaware Maryland District of Coliunbia EASTERN CENTRAL GROUP. Ohio Indiana Illinois Michigan Wisconsin Corpora- tion tax. 51,270,794 302,751 924,053 5-o8i,335 878, 529 3.066,681 9.442,933 6,791,794 16,839,338 293, 506 I, 108,405 903,195 /5- 208, 544 / 1,420,849 f 2,820, 255 5-387.530 4,155.492 General property tax. $667,807 456, 489 739 4, 500,000 748,307 It 042, 780 1,255.360 « 4> 298, 308 2,687, 272 6, rog. 254 4,836,592 6, 112,436 1.254,561 Inheritance tax. . $77,957 125,129 65,860 .447.926 6,962,615 569.450 1.739.853 3,444 257,089 45,139 556,257 258,320 283,567 Liquor tax. $34, 984 62,441 674,960 •^ 169, 290 1,741,130 71,591 372,772 464, 898 2,045, 138 Miscella- neous tax receipts. $153,498 24.605 156,082 399, 859 ''7,737,084 1,996,697 106, 231 453. 8'i6 116, 014 114, 104 159.857 117,152 132,023 Total state taxes. $2, 205,040 884,369 1.077,697 II, 704,221 1,952, 208 3,807,99s 29, 283, 182 7,361,244 23,359,798 473,772 3,447.442 5,782,415 10, 100, 197 7,530,103 8.372,961 11,893,647 5, 82s, 643 « Includes some taxes other than those on liquor. I" State general property tax imposed by the legislature of 1909 on the list of 190S yielded S461. 036.17, but this was not included in the receipts of the fiscal year ended Sept. 30, 1909. (Report of State Tax Com- missioner. 1909-10.) c Receipts for five months only. d Of this amount, $5,355,546.16 came from stock-transfer tax and $1,844,821.45 from mortgage tax. e Certain public-service corporations paid $253,530 general property tax in addition to this amount, which is included under corporation tax. The total general property tax is $4,551,838, or about 79 per cent of the District taxes. f Includes State's share of general property tax collected locally from certain corporations. (See table of financial results under each State.) With the exception of the District of Columbia, as noted above, it is impossible, practically, to ascertain or estimate from the information available the amount thus received from corporations in the States included in this table. INTRODUCTION. 17 TABi,e D. — Total State Taxss, and Amounts, and Percentages Contributed BY Certain Specified Sources op Taxation: New England, Middle Atlantic, and Eastern Central Groups— Continued. PER CENT OF TOTAL STATE TAXES. State. Corpora- tion tax. General property tax. Inheritance tax. Liquor tax. Miscella- neous tax receipts. Total state taxes. NEW ENGLAND GROUP. Per cent. 57 34 86 43 45 80 32 92 72 62 32 16 ft 52 bi9 «34 45 71 Per cent. 30 52 Per cent. 4 14 6 13 Per cent. Per cent. 7 Per cent. Vermont 6 6 9 2 Massachusetts , 38 38 Rhode Island 8 II 26 9 24 8 7 I 7 MIDDLE ATLANTIC GROUP. 18 New Jersey 5 7 15 II 8 20 9 13 2 I Delaware Maryland 37 a 74 27 81 58 51 22 EasterIn central group. 6 2 5 2 I 2 " Certain public-service corporations paid $253,530 general property tax in addition to this amount, which is included under corporation tax. The total general property tax is $4,551, S38. or about 79 per cent of the District taxes. & Includes State's share of general property tax collected locally from certain corporations. (See table of financial results under each State.) With the exception of the District of Columbia, as noted above, it is impossible, practically, to ascertain or estimate from the information available the amount thus received from corporations in the States included in this table. The Chief Results of the Investigation. From the results embodied in this introduction, even more than from the results given heretofore, emerge clearly the interesting facts that in taxing corporations there is great diversity and that the diversity, though not invariably capable of defense, is far from unintelhgent. It is certainly not supposed that the investi- gation demonstrates fully, either by reason or by authority, what principles will eventually gain general acceptance. Yet some deductions are now possible; and, more specifically, it is clear that, naturally enough, manufacturing corporations are usually reached by a general property tax, collected locally for state and IS TAXATION OP CORPORATIONS. local purposes, much as in the case of individuals or firms, with the addition in some cases of a tax based on capital stock and collected and used by the State, and that carriers are usually — though not invariably — reached partly by a general property tax collected locally for state and local purposes, and partly by a state tax on capital stock or earnings or both. The chief diver- sity among the States is as to the carriers, and as to these there are some interesting experiments based on mileage and also on corporate excess. Leaving out of account the various forms of general property tax, the most common forms of tax which the 17 States apply to the 6 selected kinds of corporations are these: Railroads, receipts or earnings tax in 7 States; car companies, capital- stock tax in 7; express companies, receipts or earnings in 9; tel- egraph companies, receipts or earnings in 8; telephone compa- nies, receipts or earnings in 11, and manufacturing companies, capital stock in 9. Taking into account all forms of tax, including general property taxes, it is found that in the following instances all the taxes paid by certain corporations, with occasional exceptions of prop- erty not used in the business, are collected by the State and retained for state purposes: Railroads, in Vermont, Connecticut, Pennsylvania,'' Michigan, and Wisconsin; car companies, in Maine, New Hampshire, Vermont, Pennsylvania, Michigan, Wisconsin, and New Jersey; express companies, in Vermont, Connecticut, Pennsylvania, Michigan, and Wisconsin; telegraph companies, in Vermont, Pennsylvania, Michigan, and Wisconsin, and telephone companies in Vermont, Pennsylvania, and Michigan. As to manufacturing companies, none of the 17 States collect and retain all the taxes. Finally, it is found that the taxes commonly collected for local purposes only, or for both state and local purposes, are forms of the general property tax, and, on the other hand, that the taxes commonly collected for state purposes only are taxes on capital stock and on gross earnings or gross receipts. a Pennsylvania collects $10,000 a year from the Erie Railroad Co., which is distrib- uted locally. ABSTRACT BY STATES. Ohio. The total state revenue from taxation in 1909 was a little more than $10,000,000. Of this amount, over 52 per cent was from corporations. State and local taxation of corporations is by the ad valorem method, supplemented by special methods of state taxation. Thus, in addition to the state tax on property, railroads pay on gross earnings; express, telegraph, and telephone companies on gross receipts ; and mercantile, manufacturing, and miscellaneous corporations on capital stock. While the rate of the capital-stock tax is comparatively low, it yields about $1,200,000 annually. It is levied on the par value of issued capital stock of domestic corporations and on that por- tion of authorized capital stock of foreign corporations which is represented by property within the State. The new law of 19 10 provides for the most highly centralized administration found in any of the States thus far studied. The State Tax Commission has wide administrative powers. It assesses thd property of practically all public-service corporations and apportions its value among counties and local districts. It fixes the amount upon which the State collects taxes on corporate earnings and capital stock and has supervisory and adminis- trative authority over local officials, with additional power to change local assessments upon its own initiative. The largest items of revenue from taxation in 1909 were from general property tax, other than corporations, $2,687,000; liquor tax, $2,000,000; gross earnings on steam railroads, $1,300,000; capital-stock tax, $1 ,200,000, and insurance companies, $1 ,100,000. The amount received from inheritances is comparatively small, 5,000. Indiana. The total state revenue from taxation in 19 10 was a little more than $7,500,000. Of this amount, approximately 19 per cent was from corporations assessed by the State. Taxes paid by important classes of corporations assessed by county boards can not be estimated. 10 20 TAXATION OF CORPORATIONS. State and local taxation of corporations is almost wholly by the general property tax, or ad valorem method. Special cor- porate taxation is applicable to certain financial, insurance, navi- gation, and car companies only. Administration is centralized to the extent that the more important classes of public-service corporations (such as railroad, express, telegraph companies, etc.) whose property usually derives additional value from state-wide and interstate operations, are assessed by a central state board. Other corporations are as- sessed by county boards. Shares of stock in domestic corporations (except banks) are not taxable when the property of the corporation is taxed. Shares in foreign corporations are taxable to the holder. The largest single item of revenue from state taxes in 1910 was from steam railroads, something more than $650,000; the next was from insurance companies, $474,000; and the third from incorporation fees, $111 ,000. Illinois. The total state tax receipts in 19 10 were about $8,000,000. Of this amount corporations paid approximately 34 per cent, general property in the State 58 per cent, and inheritances 6 per cent. The lUinois system applies special taxation to no corporations except to the lUinois Central Raihoad and to certain kinds of insurance companies. All other corporations pay the general property tax locally for state and local purposes. Property is assessed at one-third full value. State assessment is Umited. It reaches only the excess of capital-stock value over the value of tangible property of domestic corporations and the value of certain physical property of rail- roads. Of the property assessed by the State the equaUzed value of "main track," "rolling stock," and excess of capital stock of railroads and also the excess of telegraph companies are distributed on the mileage basis to the counties through which the routes pass. The tangible property of all corporations other than raihoads is assessed locally. Original lines of the Illinois Central Raihoad are taxed by the State for state purposes on gross receipts and property. Shares of stock in domestic corporations are exempt. Shares of stock of foreign corporations are taxed to the holder when the property is not taxed in the State. Bonds of foreign and domestic corporations are taxed to the holder. ABSTRACT BY STATES. 21 Of the total collected from corporations in 1 9 1 o (about $3 ,000,000) railroads paid approximately $1,800,000, or 64 per cent, and insurance companies, $459,323, or 16 per cent. Collections under the capital-stock tax, including about $10,400 from railroads, amounted to less than $135,000. Michigan. The total state revenue from taxation in 19 10 was nearly $12,000,000. Of this amount 45 per cent was from corporations. The important corporation tax in Michigan is the state-admin- istered ad valorem tax. It is levied at the average rate of taxa- tion and applies to railroads, telegraph, telephone, express, and car companies. Other state taxes on corporations, though com- paratively unimportant, are levied at specified rates upon the paid-up capital stock of canal and river improvement companies and upon the net profits of plank and gravel road companies. Taxation by any of these methods is, in Michigan, denominated by statute "specific taxation." Revenue therefrom is, by con- stitutional provision, applied to the primary school fund only. Revenue for support of the State is from the general property tax. Double taxation has been judicially declared tmconstitutional. Where the corporate property is taxed shares are exempt. Spe- cific taxation is in lieu of other taxes on property used in the opera- tion of corporate franchises. Administration in Michigan was for a short period as highly cen- tralized as it now is in Ohio. From 1899 to 1905 the State Board of Tax Commissioners had power to change of its own motion any and all local assessments not made at true cash value. It can do so now only upon appeal. The trend, elsewhere almost tmiversal, from the ad valorem to the earnings method was reversed by Michigan. Corporations which formerly paid on gross earnings are now taxed on the ad valorem basis. Wisconsin has followed this change. Michigan was the first to value all railroad property within the State according to the "inventory method supplemented by a consideration of the effective earning capacity." Probably the physical valuation of railroad property for taxation purposes had never before been attempted on so large a scale. Taxes collected from railroads in 1910 amounted to about $4,400,000 (37 per cent of the total state revenue from taxation), insurance companies over $480,000, telephone companies $324,000, other corporations about $183,000, and the general property tax something over $6,000,000. 22 TAXATION OF CORPORATIONS. Wisconsin, Of the total state tax receipts in 1910 (nearly $6,000,000), 71 per cent was from corporations, 22 per cent was from general property, and 5 per cent was from inheritances. There is a tendency toward separation of sources of taxation. Income from special sources is generally sufficient for ordinary state expenses without resort to the general property tax. At present, the support of schools and the building of a new statehouse occasion the only state levies on general property. Peculiar to Wisconsin is the fixing, by statute, at the state capital, of the legal situs (for purposes of taxation) of all real and personal property of corporations subject to the state ad valorem tax. The rate is the average rate of taxation and is in lieu of all other taxes on property necessary to the operation of the corporate franchise. Following the example of Michigan, Wisconsin annually values the physical property of railroads. This is done under the direc- tion of competent engineers. In Michigan the original valuation was made by the State; in Wisconsin, largely by the railroads and verified by the State. The physical valuation, together with the average market prices of the securities, forms the basis for determining as an entirety the true value of each steam and street railroad within the State. Administration is exceptionally centralized. County super- visors are under the direct control of the State Tax Commission. These supervisors direct the attention of county boards to omitted or undervalued property, and they have power to cause the removal of local assessors. Local assessments, however, can not be changed by the tax commission, except upon appeal. An independent state assessment of all property is made annually by the State Tax Commission. Records of realty sales as reported by the commission's agents and assessed valuation of property conveyed form the basis of real-estate valuations. Personal prop- erty is independently valued by county supervisors. This assess- ment serves for the state levy on general property and also as the basis for ascertaining the average rate of taxation. Since 1901 state assessments have each year greatly exceeded the total of local assessments. In 1 9 10 there was received by the State from railroads about $3,200,000, from insurance companies about $725,000, from vari- ous other classes of corporations $168,000, and from incorpora- tion fees $95,000. Total state tax receipts were nearly $6,000 000. OHIO. I. GENERAL VIEW. Chief Features. First. The taxing of practically all corporations for state pur- poses on both property and earnings. Second. The method of valuing, as a unit, the entire property, wherever located, of express, telegraph, and telephone companies for the purpose of determining the tax value of such property within the State. Third. Gross-receipts or gross-earnings taxes on certain trans- portation and transmission companies. Fourth. A state capital-stock tax on commercial and industrial corporations. General Property Tax. All corporate property, unless exempt^ is taxed at one or more rates for local purposes, at another rate for county purposes, and at a third rate for state purposes, the total making the final rate on property. Railroads Taxed on Property and Gross Earnings. All property of steam, street, suburban, and interurban railroad companies, as assessed by the State Tax Commission, is taxed locally for state and local purposes under the general property tax. Real estate necessary to the daily operation of the railroad is treated as personalty; other real estate is taxed like that of indi- viduals. In addition to the general property tax, railroads pay to the State for state purposes a tax on gross earnings. Express, Telegraph, and Telephone Companies Taxed on Property and Gross Receipts. The entire property of such companies, wherever located, is valued as a unit by the State Tax Commission on the basis of the market value of the capital stock. Then the proportional value of the property within the State is determined on a mileage basis and is taxed under the general property tax as personal property for state and local purposes after deducting the value of the real estate owned and taxed in Ohio. In addition, such companies pay to the State for state purposes a tax on gross receipts. 91740°— II s ^3 24 TAXATION OF CORPORATIONS. Freight Line, Equipment, and Sleeping-Car Companies Taxed on Capital Stock. Such companies are taxed by the State for state purposes on that proportion of the capital invested in rolling stock, and other property, which the number of miles of track traveled by their cars in Ohio bears to the entire number of miles of track traveled in Ohio and elsewhere, less the value of any real estate assessed locally. Other Public-Service Corporations Taxed on Property and Gross Receipts. Electric -light, gas, natural-gas, pipe-line, waterworks, messen- ger or signal, union-depot, heating, cooling, and water-transporta- tion companies are taxed on gross receipts within the State. This tax is paid to the State for state purposes. These companies are also taxed under the general property tax for state and local purposes. Mercantile and Manufacturing Companies Taxed on Property and Capital Stock. Mercantile and manufacturing corporations are taxed under the general property tax on the average amount of goods and stocks on hand. In addition, they pay to the State for state purposes a capital-stock tax levied on the par value of outstanding capital stock of domestic corporations, and on the proportion of the authorized capital stock of foreign corporations, represented by property owned and used in business transacted in Ohio. Stockholders and Bondholders. Shares of stock in domestic corporations, and shares of stock of such foreign corporations as pay taxes in Ohio on two-thirds of their corporate property, are exempted from taxation. Otherwise shares of stock of foreign corporations, like bonds of foreign and domestic corporations owned in the State, are taxable to the holder for state and local purposes. Foreign Corporations. Foreign corporations are, in general, taxed in the same manner and at the same rate as similar domestic corporations. Administration. The State Tax Commission, composed of three members appointed by the governor, has wide administrative powers. It assesses the property of practically all public-service corporations and appor- OHIO. 25 tions its valuation among counties and local districts entitled to share in such distribution. It fixes the amount upon which the State collects taxes on corporate earnings and has supervisory and directive authority over local officials, with power to change assess- ments. The general property tax for state and local purposes is collected by county treasurers. Special taxes for state purposes are paid to the state treasurer." II. DETAILS AS TO THE CONSTITUTION AND STATUTES. Constitution. The constitutional grant of legislative power includes the power to collect revenue for public purposes.* The principal limitation with reference to taxation provides in part as follows: "Laws shall be passed, taxing by a uniform rule, all moneys, credits, investments in bonds, stocks, joint stock companies, or otherwise; and also all real and personal propert)^ according to its true value in money j"^ excepting bonds of the state of Ohio, bonds of any city, village, hamlet, county, or township in this State, and bonds issued in behalf of the public schools of Ohio * * * , which bonds shall be exempt from taxation." It is further provided that the property of corporations shall be taxed in the same manner as the property of individuals."* "■ Sources of revenue in Ohio: Municipal and local districts. — (a) General property tax; (i) business taxes and licenses; (c) poll tax for roads and streets. County. — (a) General property tax ; (6) business taxes and licenses; (c) inheritance taxes; (d) fees. State. — (a) General property tax; (6) business taxes and licenses; (c) corporation taxes; (d) inheritance taxes; (e) fees. 6 Constitution 1851, Art. II, sec. i. This section of the constitution was so construed in W. U. Tel. Co. ii. Mayer, 28 O. S. 521 (1876). <: Constitution, Art. XII, sec. ^, as amended in 1905. The power of taxation is limited, but not conferred, by sec. 2, Art. XII, of the consti- tution. It is included in the legislative power conferred on the general assembly by sec. I, Art. II, of that instrument. The limitation is on the power to raise revenue by the taxation of property; all other recognized modes of exercising the power may in addition be resorted to by the legislature. Adler -v. Whitbeck, 44 O. S. 539, 565 (•1886). This section of the constitution furnishes the governing principle for all laws levying taxes for general revenue, whether for state, county, township, or municipal purposes. It by no means follows, however, that no moneys can constitutionally come into the public revenues except such as are raised by such taxation. State v. Frame, 39 O. S. 414 (1883). <* Constitution, Art. XIII, sec. 4 26 taxation of corporations. Statutes." General Property Tax. All tangible and intangible corporate property, unless exempt, is subject to the general property tax.* Real estate necessary to the daily operation of public-service corporations is, for purposes of taxation, held to be personal property. Other real estate is taxed like that of individuals.'' The general property tax, state and local, is paid to county treasurers. '^ The rate of taxes shall not exceed lo mills except in emergency cases. In emergency cases the total rate can not exceed 15 mills. In event of insufficient revenue it can be further increased in any taxing district by a majority vote."* Railroad Companies Taxed on Gross Earnings and on Property. Steam railroads pay to the State for state purposes a tax of 4 per cent, and street, suburban, and interurban railroad companies a tax of 1.2 per cent, on intrastate gross earnings.^ In addition, the property of these companies, including moneys and credits, is subject to the general property tax collected locally for state and local purposes./ Right of way and other realty necessary to the daily running operation of such roads are taxed as personal property.'' Assessments for the general property tax (except on property not used in the operation of the road) and for the gross-earnings tax are made by the State Tax Commission. The statute directs that " the commission shall be guided by the value of the property, as determined by the information contained in the sworn state- ments" made by the roads "and such other evidence and rules as will enable it to arrive at the true value in money of the entire property" within the State.'' From the entire value is deducted the value of real and personal property otherwise taxed in Ohio. « Except as indicated, the references herein are to the General Code of igio. b Code, sees. 5328, 5404. c Ibid., sees. 2595, 2596, 2632. d Laws 1910, p. 430. - Ibid., p. 413, sees. 62, 64. / Ibid., p. 414, sees. 72-78. g Ibid., p. 417, sec. 73. Roadbed and realty necessary to the daily operations of a railroad are made personal property for the purpose of taxation. C, N. O. and T. P. Rvvy. v. Hynicka, 17 Ohio Nisi Prius Dec. 163, 77 O. S. 628 (1908). ft Laws igio, p. 417, sec. 73. The statute from which the above is quoted was passed in May, igio, and such "rules as will enable it [the commission] to arrive at the true cash value in money of the entire property" had not been formulated at the time the commission was interviewed by a representative of this Bureau (October 1910). OHIO. 2 7 The assessed valuations are apportioned by the State Tax Commission among the several counties and taxing districts in the proportion which the length of the road in each bears to the whole length of the road in the State." The value of the property within the State of interstate roads is determined by taking that proportion of the entire value which the mileage in the State bears to the total mileage.'' Each road is required to furnish the commission with annual sworn statements showing the total mileage and value per mile, the value of all buildings, .structures, and machinery in each county, the gross earnings within and without the State, and the amount of moneys, credits, undivided profits, and reserve funds, together with such other information as the commission may require." Express, Telegraph, and Telephone Companies. Domestic and foreign express and telegraph companies are required to pay to the State, for state purposes, a tax of 2 per cent, and telephone companies 1.2 per cent on intrastate gross receipts.'^ In addition the property of these companies, including moneys and credits, is subject to the general property tax for state and local purposes. Assessments for the general property tax (except on real estate which is assessed locally) and gross-receipts tax are made by the State Tax Commission. Every such company is required to file annually with the com- mission information as to the amount, number, and value of its shares of capital stock, the total length, location, and names of lines over which it operates, and other facts required in such form as may be prescribed by the commission. Assessment is based on these reports and is determined in the following manner: (a) The entire property of each company, wherever located, is valued as a unit upon the basis of the market value of the capital stock and other evidence. If there is no market value, the actual value of the capital stock is taken as such basis. (b) The taxable value of the property within the State is then estimated by taking that proportion which the length of the route or line in Ohio bears to the total length of such route or line. (c) From the value thus obtained is deducted the value of real estate which is assessed locally; the remainder is taken as the value of the personal property within the State, and is taxed to a Laws 1910, p. 418, sec. 77. ~ Ibid., p. 414, sec. 72. b Ibid., p. 419, sec. 78. <*Ibid., p. 412, sees. 61, 63. 28 TAXATION Olf CORPORATIONS. the company in the same manner and at the same rate as personal property belonging to an individual. The value of such property of express companies is apportioned by the commission among the several counties in the proportion which the gross earnings in each county bear to the entire gross earnings in the State. The valuation of the property of telegraph and telephone com- panies is apportioned among the counties through which the route passes in the proportion which the length of lines within the county bears to the total length of lines within the State." Freight Line, Equipment, and Sleeping-Car Companies. Such companies are taxed by the State for state purposes 1.2 per cent upon that portion of capital invested in rolling stock, and other property, owned or operated in Ohio, in the proportion which the number of miles of track traveled by the cars in Ohio bears to the entire mileage wherever traveled, less the value of real estate taxed locally.' Other Public-Service Corporations Taxed on Property and on Gross Receipts. Blectric-light, gas, natural-gas, waterworks, messenger or sig- nal, union-depot, water-transportation, heating, and cooling com- panies pay to the State for state purposes a tax of 1.2 per cent, and pipe-line companies a tax of 4 per cent, on intrastate gross receipts. "^ In addition, such companies pay the general property tax locally for state and local purposes on personal property, which is held to include real estate necessary to their daily oper- ation."^ The valuation and assessment of such property is based on sworn reports from these companies and on such other evidence as will o Laws 1910, p. 404, sees. 31, 38. The Nichols law, which provided for the taxing of express, telegraph, and telephone companies, and allowing the value of the capital stock to be used as a guide with other evidence in valuing the property within the State, is not void for want of uni- formity or for not taxing according to value as required by sec. 2 of Art. XII of the state constitution. State ex rel. v. Jones, 51 O. S. 492 (1894). The property of corporations engaged in interstate commerce, situated in several States through which their lines or business extends, may be valued as a unit for purposes of taxation, taking into consideration the ttses to which it is put and all the elements making up aggregate value ; and a proportion of the whole fairly and prop- erly ascertained may be taxed by the particular State, without violating any Federal restriction. Adams Express Co. v. Ohio State Auditor, 165 U. S. 194 (1897). 6 Laws 1910, p. 407, sees. 40-45. clbid., p. 412, sees. 61, 65. <2Ibid., p. 417, sec. 73. OHIO. 29 enable the tax commission to arrive at the true value in money of the entire property within the State. From the value of prop- erty within the State is deducted the value of real and personal property otherwise taxed in Ohio. The remainder is first appor- tioned between the several counties wherein the property is located and then among the several taxing districts in each such county. When the property is located in more than one State, the statute directs the commission to employ such methods of valuation as will equitably determine the value of the property in Ohio.'' Capital-Stock Tax. All corporations, except public-utility companies (specifically discussed above) and certain financial companies, pay to the State for state purposes a tax of three-twentieths of i per cent on capi- tal stock. This tax is levied on the par value of outstanding capital stock of domestic corporations and on the proportion of the authorized capital stock of foreign corporations represented by property owned and used in business transacted in Ohio. The minimum amount to be paid under this tax is $10.^ Mercantile and Manufacturing Companies. Mercantile companies are taxed locally for state and local pur- poses under the general property tax on the average monthly value of stock on hand during the preceding year. Manufactur- ers are taxed in the same manner on the average value of all articles purchased, received, or otherwise held for the purpose of manufacturing, combining, rectifying, or refining, together with the average value of articles changed in any form by manufacture during the previous year ; also on the value of all engines, machin- ery, tools, and implements.'^ Real estate is taxed locally under the general property tax in the same manner as that of individuals.'' In addition, these corporations pay to the State for state pur- poses the capital-stock tax above described.'' a Laws 1910, p. 417, sees. 73, 74, 79. b Ibid., p. 421, sees. 82-87. The tax on the subscribed or issued and outstanding capital stock of corporations is a franchise tax and not a tax on property. Such a tax is constitutional. Southern Gum Co. et al. v. Laylin, 66 O.S. 578 (1902). "Code, sees. 5381-5386. The act of 1891 taxing the average monthly value of raw- materials and articles in the process of manufacture, and of the finished articles, does not cause double taxation and is, therefore, valid. Moerlein Brewing Co. v. Hagerty, 8 C. C. 330 (1894). <*Ibid., sec. 5328. eLaws 1910, p. 421, sees. 82-92. 30 TAXATION OF CORPORATIONS. Stockholders and Bondholders. Shares of stock in domestic corporations and shares of stock in such foreign corporations as pay taxes in Ohio on two-thirds of their corporate property are exempted from taxation. Otherwise the shares of foreign corporations are taxable to the holder." Bonds of foreign and domestic corporations are taxable to the holder as personal property.'' Foreign Corporations. Foreign corporations are, in general, subject to the same pro- visions of corporate taxation as are similar domestic corporations. '^ m. FINANCIAL RESULTS. Classification of Revenue. The proportion of total state taxes for state purposes derived from corporations for 1909 was 52 per cent. Total State Receipts, Taxes from Corporations, Other Taxes, and Receipts PROM Sources Other than Taxes, Year ended November 15, 1909. <* Total state receipts, all sources $11, 187, 316. 65 Special taxes from corporations: Steam railroads" $1,363,435.45 Street, suburban, and interurban railroads « 303, 113. 10 Gas companies « 220, 452. 88 Electric-light, heating, and cooling companies e . . . 47, 826. 54 Pipe-line companies « 19, 200. 87 Telephone companies « no, 823. 06 Express companies « 18, 970. 77 Telegraph companies " ^, 476. 84 Sleeping-car companies f 7, 781. 25 Freight-line and equipment companies « 8, 436. 03 Waterworks companies ^ 8, 868. 35 Water-transportation companicj f 1, 815. 16 Messenger and signal companies « 2, 758. 01 Insurance companies / 1,121,121.66 o Code, sec. 192. 6 Ibid., sec. 5328 c Laws 1910, p. 412, sees. 61-65; P- 422, sees. 85-87. A franchise tax may be imposed by the general assembly upon corporations, domestic and foreign, doing business in Ohio, and a foreign corporation can do business in tlie State only upon such terms and conditions as the State may impose. Soutliem Gum Co. et al. V. Laylin, 66 O. S. 578 (1902). The residence of a foreign corporation, having its principal office in a county of this State, from which all its business is transacted, is for purposes of taxation in such county. Sims, Treasurer, v. Best, i C. C. 41 (1903). (i Reports of Auditor of State, 1908 and 1909. « Report of Ohio Tax Commission, 1910, p. 9. /This amount includes fees and fire-marshal tax. OHIO. 31 Special taxes from corporations — Continued. Building and loan associations $7, 151. 00 Capital-stock tax 1,199,656.72 Organization fees 212, 371. 51 Total special taxes from corporation • $4, 656, 259. 20 General property tax from corporations (estimated) ;« Steam railroads & 210, 872. 55 Suburban and interurban railroads 6 18, 402. 13 Telephone companies c 20, 916. 63 Telegraph companies <• 3, 107. 16 Express companies c 1, 634. 47 National banks b ^j^ yog, j2 State banks (incorporated)'' 47, 347. 90 Miscellaneous corporation- 174, 297. 01 Total general property tax, from corporations 552, 284. 37 Total state ta.xes from corporations 5, 208, 543. 57 Other taxes: Collateral inheritance 45, 139. 22 Liquor tax 2, 045, 138. 41 Miscellaneous taxes and license fees 114, 104. 47 General property tax <* 2,687,271.56 Total state taxes not from corporations 4, 891, 653. 66 Total taxes for state purposes, all sources . . .' 10, 100, 197. 23 Receipts from sources other than taxes : Interest 157,362.02 United States Government, aid for O. S. and S. O. Home 132, 729. 75 Convict labor 257, 826. 74 Miscellaneous receipts, fees, fines, etc 539, 200. 91 Total receipts from sources other than taxes i, 087, 119. 42 Total state receipts, all sources 11, 187, 316. 65 IV. COMMENTS. Historical. The development of the Ohio tax system commenced prior to the State 's organization, under the laws of the Northwest Territory. The first territorial tax was in the nature of a " faculty tax, ' ' « based "■ Computed by applying the state rate of 1.345 mills to the assessed values of the property as reported by the auditor of state. b Report of Auditor of State, 1909, pp. 586-622. <■• Ibid., pp. 681-720. d This amount does not include general property tax paid by certain corporations as above estimated. « This law reads as follows: "The assessors are required to assess the individuals of their village or district according to their best judgment in just proportion to their wealth in the county and ability to pay either in money or specific articles, agreeably to the order of assessment they shall receive from the commissioners. ' ' Laws of N. W. Territory, 1792, p-. 18. 32 TAXATION OI'' CORPORATIONS. upon the ability of the inhabitants to pay, and this was followed by a tax on property and business licenses. The state constitu- tion adopted in 1 802 only limited the taxing power by prohibiting poll taxes. During the period between the adoption of the constitution in 1802 and the adoption of the present constitution in 1851 corpo- rations were created by special laws and were generally taxed on dividends. A tax was declared on bank dividends in 181 5 and a similar tax was imposed on insurance and bridge companies in 1830 and 1 83 1. "The property of * * * bodies corporate; * * * all capital employed in merchandise and by exchange brokers in this State; all grist, oil, and sawmills; all manufactories of iron, glass, paper, clocks, and nails; all distilleries, breweries, and tanneries, all iron, brass, and copper foundries; all money loaned at interest; all stocks or capital invested in steamboats" were made subjects of taxation in 1831." In 1846 railroad, canal, and slack-water navigation companies were required to return their capital stock for taxation, and in 1852 corporations generally were required to list their real and personal property at actual value in money, which is substantially the present law.' Among, the first laws taxing railroad companies was a special act passed in 1836, which provided for a tax on dividends of the Little Miami Railroad when they exceeded 6 per cent. A general law for the incorporation of .railroads was enacted in 1848, which reserved the right to tax all railroads created under its authority.' Railroads were not taxed on property, however, until 1852, and the method of appraising railroad property on a mileage basis was not adopted until 1862.'' A general property tax was provided under the law of 1846, and this system is still in use. Express and telegraph companies were first taxed in 1862 on receipts less expenses as reported by agents of the company. The present method of valuing the prop- erty of express, telegraph, and telephone companies as a unit on the basis of the market value of the capital stock was first intro- duced in Ohio under the Nichols law, enacted in 1893. This method of valuation has not been provided for other corporations. In 1896 a gross-receipts tax was imposed on railroad and other public-utility corporations, and in 1902 the capital stock of certain domestic and foreign corporations was taxed. a Laws 1831, ]). 272. r Laws 1862, p. 197. b Evans on Taxation in Ohio, 1906. d Ibid., pp. 88-qo. OHIO. 33 Present System. The Ohio system resembles the New York system, inasmuch as both tax certain classes of corporations for state purposes under two methods. Railroads, for example, are taxed in Ohio on property and gross receipts; in New York on capital stock and gross receipts. Ohio has also followed Wisconsin and Michigan in their centralizing tendencies, going much further than either by giving state authorities power to change local assessments. A general revision and reenactment of the Ohio tax laws affect- ing corporations was made in 1910 under the Langdon Tax Act." This law provides for a state tax commission with authority to value and assess corporate property of public-utility corporations and to determine the amount of gross receipts and capital stock upon which taxes are collected. The scope of the commission's authority is wide, and substantially all corporations, with the excep- tion of insurance and certain financial corporations, are required to report to it under such regulations as it may require. The commission has general supervisory and directive authority over local tax officials with power to change local assessments upon its own initiative. Another important tax law was enacted in 19 10, which provided a maximum rate for ad valorem taxes throughout the State. The intent of the law is to secure an equitable valuation of property for taxation by limiting the rate. The rate is much lower than was the average rate throughout the State in previous years, but, with the increased valuations of taxable property under the appraise- ment of 19 10, it is intended to produce practically as much revenue in each taxing district as was formerly levied.'' The legislatures of 1909 and 19 10 provided for a quadrennial appraisement of real estate. Prior to this real' estate had been appraised decennially." The present tax system of Ohio as applied to corporations is mainly an ad valorem or general property tax supplemented by certain forms of special taxation. Section 2 of Article XII of the Constitution provides that laws "shall be passed, taxing by a uniform rule" all tangible and intangible property "according to its true value in money. " Section 5328 of the General Code follows this mandate with a provision that all property whether real or personal in this State, and whether belonging to individuals a Laws 1910, p. 399. "= Laws 1909, p. 81; Laws 1910, p. 7. b Ibid., p. 430. 34 TAXATION Olf CORPORATIONS. or corporations, shall be subject to taxation, except only such as may be expressly exempted therefrom. Public-Utility Corporations. The term " public utility " as defined by the Langdon Act means and embraces each corporation, company, firm, individual, and association referred to in the act as express, telephone, telegraph, sleeping-car, freight-line, equipment, electric-light, gas, natural- gas, pipe-line, waterworks, messenger, signal, union-depot, water- transportation, heating, and cooling companies; street, steam, suburban, and interurban railroad companies; also any plant or property owned or operated by any such companies, corporations, firms, individuals, or associations." Railroads. Previous to the passage of the Langdon Act, in 19 lo, railroad property was assessed by the auditors of the counties through which the railroad passed, after which the assessments were equal- ized and apportioned to the counties and taxing districts by a state board of equalization. Under the Langdon Act this board was abolished and the Stat-e Tax Commission was given authority to assess the property of railroad and other corporations and appor- tion such assessments to the local taxing districts to be taxed under the general property tax. This act also provides for an increase of the annual tax on the gross earnings of railroads from i to 4 per cent, but as will be shown later (p. 38) , this increase in rate has not resulted in an increase of revenue. In the report of the Honorary Tax Commission, appointed to investigate the tax laws of the State, considerable comment was made on the inequalities between the owners of real and personal property and the owners of corporate property. Attention was called to the wide differences between the assessed value of the property of all corporations used in business in the State, esti- mated at $300,000,000, and the total value of the stocks and bonds of all corporations in the State, estimated at $2,000,000,000; also to the assessed valuation of the property of steam railroads in 1907 at $152,402,717, while the gross earnings of such companies in the State for the same year were $153,173,965. The comparison between the valuations of the property of public-service corpora- tions for the purposes of taxation and the amount of their gross earnings as reported to the State is referred to by the commission '' as being interesting, and to illustrate this with reference to rail- a Laws 1910, p. 429. b Report of State Tax Commission, 1908, p. 29. OHIO. 35 roads the following table is given. It compares the gross earnings and the assessments of Ohio railroads and covers, by selected years, the period from 1897 to 1909: Comparison of Gross Earnings and Tax Values of Ohio Railroads, 1897, 1901, 1905, AND 1909. 1897. 190 1. 1905. 1909. Increase, 189 7-1909. Assessments a Gross earnings ^ Mileage fr 8105-739.840 60, S99, 608 8,730 $116,894,393 89,699, 278 8,730 §138,669,294 122,686, 137 8,922 §156,782,563 136,872,081 9.133 Per cent. 48.0 125. 4.6 a Reports o£ State Auditor, 1897, 1901, 1905, and 1909. 6 Ohio Railway Reports, 1897, 1901, 1905. and 1909. Express, Telegraph, and Telephone Companies. The Nichols law, enacted in 1893 and amended in 1894, provided for an annual assessment of the property of such companies by a state board of appraisers and assessors, the board in assessing the property being guided by the value of the capital stock of the com- pany and such other evidences as enabled it to arrive at the true value in money of the entire property of the company wherever located. From this is calculated the value of the property in the State. The Langdon Act of 19 10 made similar provisions for the assess- ment of the property of such companies, substituting the State Tax Commission for the state board of appraisers and assessors. The constitutionality of this method of assessing the property of these companies, namely, as a unit on the basis of the market value of the capital stock, was upheld by the Supreme Court of the United States."* The legislature of 19 10 increased the tax on gross receipts of express and telegraph companies from i to 2 per cent and on tele- phone companies from i to i| per cent. Recommendations of the Honorary Tax Commission. The Honorary Tax Commission, above mentioned, made in 1908 the following recommendations : "First. An amendment of the constitution of Ohio aboHshing the general property tax now required in section 2 of Article XII, and giving to the legislature a freer hand to deal with such sub- jects as franchises, stocks, bonds, cash, mortgages and other intan- gible property. a Adams Express Co. v. Ohio State Auditor, 165 U. S. 194 (1897). 36 TAXATION OF CORPORATIONS. "Second. The establishment of a state tax board of three mem- bers to be appointed by the governor, to administer all laws for the collection of state revenues and to make such recommenda- tions upon the general subject of taxation as investigation and experience may from time to time suggest. "Third. A more frequent appraisement of real estate. "Fourth. The abolishment of the present state levy upon real and personal property and the complete separation of state and local revenues at the earliest practicable date. "Fifth. That authority be given to local communities to secure publicity in taxation in such manner as they shall deem best." In accordance with the first recommendation , the legislature of 1908 by joint resolution authorized the submission of a proposed constitutional amendment at the November election of that year. This was done, but the amendment failed of adoption. Its pur- pose was to place in the general assembly broader powers of taxa- tion by removing the constitutional limitation, which provided that all property " should be taxed by a uniform rule." The pro- posed amendment was in part as follows : "The general assembly shall have power to establish and main- tain an equitable system for raising state and local revenue. It may classify the subjects of taxation so far as their differences justify the same in order to secure a just return from each. All taxes and other charges shall be imposed for public purposes only and shall be just to each subject." ° The legislatures of 1909 and 1910 followed the second and third recommendations of the commission by creating a permanent State Tax Commission and by changing the period of appraisement of real estate from decennial to quadrennial appraisements of such property. These laws and the law fixing a maximum general property tax rate for all purposes have done considerable toward improving the Ohio tax system. First Report of Permanent State Tax Commission.'' Following the provisions of the act of May 10, 1910, the mem- bers of the tax commission appointed by the governor organized on July I of that year and commenced, among other things, the work of the supervision of the quadrennial appraisement of real property and the appraisement of the property of express, tele- graph, and telephone companies. The commission states that the forms of report in use by express, telegraph, and telephone com- panies furnished very incomplete information concerning either -' Report of State Tax Commission, 1908, p. 36. b Ibid, igio OHIO. 37 the physical or the financial condition of the reporting companies, and the commission, within the time at its disposal, was unable to enter upon an extensive examination of the books or the property of such companies. While the values fixed by the commission do not represent the true values, nor the values at which they should be assessed in future years, when property of other classes is to be assessed at the true value, the commission believes that for the present year the property of express, telegraph, and telephone com- panies is assessed proportionately as high as, if not higher than, other classes of property in the State. Values for 1910 were considerably increased over those of 1909, as shown by the following table: Valuations op Express, Telegraph, and Telephone Property in Ohio, igog AND igio. Companies. Number. 1909. ; 1910. Increase. Express Telegraph .... Telephone . . . 8 3 S18 Si, 215,216 2.310.154 IS. 551. 398 $1,461,960 2, 734, 72s 21,705,739 S246, 744 424,571 6. 154.341 Total . . . . 529 19,076, 768 25,902,424 6,825,656 An important ruling was made by the commission in reference to the tax paid by foreign corporations upon the proportion of authorized capital stock, represented by property owned and used in Ohio. Formerly, the secretary of state, following the ruling of the attorney -general, calculated the proportion upon the basis of the tangible property alone, the business transacted not being used as a factor in the determination. The commission refused to follow this ruling and required foreign corporations to report the amount of business transacted during the preceding twelve months, both within and without the State, and in determining the propor- tion of the authorized capital stock of such companies considered both property and business. Opposition was made to furnishing this information, but the result was to increase considerably the fees payable by foreign corporations to the State. Under the act of 1910 public-utility corporations were only required to report and pay taxes upon their gross receipts or gross earnings derived from the public utility. <» Many of these companies had large incomes from other business, and the com- mission held that these companies should report and pay taxes upon their gross receipts or gross earnings, as the case might be. "■ The law provides for the taxing of "gross earnings' ceipts" of other public utilities. of railroads and "gross re- 38 TAXATION OF CORPORATIONS. from whatever source derived. Some companies owned and oper- ated large office buildings and others were interested in the manu- facture and sale of ice, dealing in coal, etc., which accounted in a great measure for the excess of 1910 over the previous year for electric-light, gas, natural-gas, pipe-line, and street, subiurban, and interurban railroad companies, shown in the following table: Taxes on Gross Receipts of Pubuc-Utiuty Corporations in Ohio, 1909 and 1910. Nature of companies. Electric liglit Gas and natural gas Pipe line Waterworks Kxpress Telegraph Telephone Messenger or signal Water transportation Heating or cooling Street, suburban, and interurban railroad ^ Railroad (steam) 6 Sleeping car Freight hue and equipment Total $47. 220, 19, 303: 1.363: 1 452. S8 200. 87 868.3s 97°. 77 476. 84 823.06 758. 01 815. 16 724.32 113.10 435-45 781.25 436-03 $73,849.32 272, 251. GO 91,082.88 10,932.01 42,499.12 51415.70 140,835.08 3.736.42 1,705.21 1,205. 56 397.387.80 1,570,525.84 11,143.23 10,638.30 S26, 747. 10 51, 798. 12 71,882.01 2, 063. 66 23.528.3s 2,938.86 30,012. 02 978.41 o 109. 95 481. 24 94,274.70 207,090. 39 3.361-98 2, 202. 27 2.115.958.31 2.633,207-47 "^ 517. 139-21 6 Gross earnings. c Net increase. Railroads are required under the laws of 1910 to report the amount of their gross earnings on intrastate business for the preceding year. Previous to June, 1910, however, their accounts showed no such separation, and the commission reports that many of the railroads were unable to furnish this information. After several hearings the commission agreed to accept an esti- mate from such companies as were unable to report their actual intra- state earnings, such estimate to be based upon the mileage method used in former years. By this adjustment the State received in 1910 proportionately as much from these companies as it had been receiving in the past, "and more than it probably will in the future under the present law." "A comparison of the returns of such companies as were able to report actual intra- state earnings for the present year [19 10], with the amounts returned in former years, indicates that the total intrastate earn- ings of the steam railroads in Ohio is" less than 25 per cent of the total earnings as determined by the old mileage method."" " Report of State Tax Commission, 19 10, p. 7. OHIO. 39 The tax laws of Ohio require all corporations for profit doing business in the State or incorporated under the laws of the State to pay either the tax based upon the capital stock or upon gross income. The commission reports that "many large corporations are escaping the payment of such taxes, and the amount due the State from this source, exclusive of penalties, is estimated at not less than $1,500,000. The class of companies thus escaping taxes are what is known as the 'underlying' or 'holding' companies, commonly public-service corporations that have leased their properties to operating companies. The operating company reports as a public utility and pays its * * * tax under the so-called Cole law. The owning company, no longer being engaged in the business of operating the public utilit)-, is not required to report as such or pay an excise tax. It is, how- ever, none the less a corporation for profit, and as such exercises all the franchises granted it by the State, except the right to operate its plant, * * * ^nd should * * * p^y ^ franchise tax." An opinion to that effect was rendered by the attorney-general in 1906 and suits in the nature of test cases were begun in several of the larger counties. Two of the suits have been dismissed, and the others are pending upon preliminary motions. None has been brought to an issue, although insti- tuted several years ago, and this is cited as a reason why the tax commission should be given supervision over the collection of delinquent taxes." Bibliography. The following is a list of the more important publications, in addition to the constitution, the statutes, and the court reports, of value in the study of corporate taxation in Ohio : Reports of State Auditor, 1908, 1909. Taxation in Ohio, by Nelson W. Evans, 1906. Taxation in Ohio, Annals of the American Academy of Political and Social Sciences, September, 1899, by Frederic C. Howe. Report of Ontario Commission on Railway Taxation, 1905. Reports of Tax Commission of Ohio, 1908 and 1910. Reports of the Secretary of State (Ohio Statistics), 1897, 1901, 1905, and 1909. Ohio Railway Reports, 1897, 1901, 1905, and 1909. Bar Association Proceedings (Ohio), 1906, 1908, and 1909. State and Local Taxation, Addresses and Proceedings, Inter- national Conferences, 1907-19 10. " Report of State Tax Commission, 1910, p. 17. 91740°— II 4 INDIANA. I. GENERAL VIEW. Chief Features. First. State and local taxation of corporate property under the general property tax, supplemented by special state taxes on freight-car, navigation, and certain financial companies. Second. Taxation of railroads on tangible property only. Prac- tically all other corporations are subject to taxation on property, including the difference in value between tangible property and capital stock. General Property Tax. All property, real and personal, unless exempt, is taxed at one or more rates for local purposes, at another rate for county pur- poses, and at a third rate for state purposes, the total of the three making the final rate on property. This tax is collected locally for state and local purposes. Steam and Street Railway Companies. These companies pay the general property tax on tangible prop- erty only. Such property is separated into two classes, namely, that assessed by the State Board of Tax Commissioners and that assessed locally. Express, Transmission, Mercantile, M'anufacturing, Pipe-Line, and Miscellaneous Corporations. These companies are subject to the general property tax on real and personal property, including the, difference in value between tangible property and capital stock. Bonded indebtedness is included in the assessment of express, transmission, and inter- county pipe-line companies, but not in the assessment of mercantile and manufacturing companies. Certain property of express, telephone, telegraph, and inter- county pipe-line companies is assessed by the State Tax Commis- sioners. The remaining property is assessed locally. Car Companies. Car companies transporting freight pay to the State for state purposes a tax based upon the difference in value between the pro- portion of their capital stock represented Ijy property used in the 40 INDIANA. 41 State and the value of real estate taxed locally. Personal property, as such, is not taxed to these companies. Car companies transporting passengers (such as sleeping-car companies) are taxed and assessed in the same general manner as express and transmission companies. Navigation Companies. Navigation companies pay to the State for state purposes a tax based on the registered net tonnage of vessels. All other property is subject to the general property tax. Stockholders and Bondholders. Shares of stock of foreign corporations (except national banks) are taxed to the holder. When the property of domestic corporations (other than banks) is taxed to the corporation, or is exempt, the stock is not taxable to the holder. Bank stock is taxable to the holder. Bonds of both foreign and domestic corporations are taxed to the holder. Foreign Corporations. Foreign express, telegraph, telephone, car, pipe-line, and navi- gation companies are taxed like similar domestic corporations. Other foreign corporations of the classes herein treated pay the general property tax on tangible property only. Administration. The State Board of Tax Commissioners consists of the secretary of state, auditor of state, and three additional members appointed by the governor. This board has supervisory powers over local assessors. A county assessor in each county exercises supervisory authority over township assessors. The county assessor has power to make assessments where the local assessor fails to do so. The county board of review has primarily the duty of equalizing taxable values and holding regular conferences at which policies to be fol- lowed are agreed upon. Appeals lie from the actions of the county boards to the State Board of Tax Commissioners. State and county taxes, under the general property tax, are paid as one item to the county treasurer. " "■ Sources of revenue in Indiana: Municipal and local districts. — (o) General property tax ; (b) poll tax; (c) business tax and licenses. County. — (a) General property tax; ib) poll tax; (c) business tax and licenses. State. — (a) General property tax; (6) poll tax; (c) corporation taxes and fees; [d) business tax and licenses. 42 TAXATION OF CORPORATIONS. II. DETAILS AS TO THE CONSTITUTION AND STATUTES. Constitution." The constitution declares that the general assembly shall pro- vide, by law, for a uniform and equal rate of assessment and taxa- tion; and shall prescribe such regulations as shall secure a just valuation for the taxation of all property, both real and personal, except such property for mimicipal, educational, literary, scien- tific, religious, or charitable purposes as may be specially exempted by law. * Statutes. ' General Property Tax. All corporate property, unless otherwise provided by law, is tax- able at true cash value under the general property tax for both state and local purposes. ^ All property except that subject to apportionment among coun- ties (such as "rolling stock," "railroad track," telegraph line, etc.) is assessed locally. Property subject to such apportionment is assessed by the State Board of Tax Commissioners. Both assess- ments and rates are reported to the county auditors who compute all taxes levied under the general property tax. The county treas- urers collect all such taxes." Steam and Street Railways. Steam and street railways, domestic and foreign, pay the general property tax locally, at the same rate and in the same manner as individuals, for both state and local purposes.^ a Constitution of 1851. 6 Constitution, Art. X, sec. 1. "The Indiana constitution does not require a uniform method of valuation of prop- erty, but only such regulations as shall secure a just valuation for taxation of all prop- erty. * * * The legislature must use a discretion as to the best method of securing a just valuation." Louisville and N. A. R. R. Co. v. State, 25 Ind. 180 (1865). Under Art. X, sec. i, a tax for a state purpose must be uniform and equal tliroughout the State, a tax for a county purpose must be uniform and equal throughout the county, and a tax for a township purpose must be uniform and equal throughout the township. Board of Commissioners v. State, 155 Ind. 608 (igoo). It is plainly evident that it was the legislative intent to differentiate the valuation and appraisement of railroad property for taxation from that of individuals. The method best calculated to secure equality and uniformity in assessment and taxation is left to the judgment of the legislature, and the decision of that body must be followed by all taxing officers. Clark -y.Vandalia R. R. Co., 172 Ind. 411, 413 (igog). <: Statutes herein referred to are Burns' Annotated Indiana Statutes, Revision of igoS. 2S8 i?9.S7S.?63 S660, 172, 175 430,428,775 428,450.338 23,776,414 224,987,78s 1,577,422,660 I 1,767,815,487 5 See Indiana Auditor's Report, 1909, p. 476; and Proceedings of the State Board of Tax Commissioners, 1910, p. 467. 52 TAXATION OP CORPORATIONS. Bibliography. The following is a list of the more important publications, in addition to the constitution, the statutes, and the court reports, of value in the study of corporate taxation in Indiana : Biennial Report of the Attorney-General, 1 900-1 902. Biennial Report of the Department of Statistics, 1907-8. Report of Treasurer of State, fiscal year ended September 30, 1909. Reports of Auditor of State, fiscal years ended September 30, 1909 and 1910. Report of Proceedings, Annual Conference Convention, State Board Tax Commissioners and the County Assessors (19 10). Centralizing Tendencies in the Administration of Indiana, \V. A. Rawles, vol. 17, Columbia University Studies in Political Science (1903)- ILLINOIS. I. GENERAL VIEW. Chief Features. First. General property tax for state and local taxation of corporations. Second. Taxation of domestic corporations on the excess of capital-stock value over the value of tangible property. This is taxed in addition to and in the same manner as tangible property. Third. Special state taxation for state purposes on the original lines of the Illinois Central Railroad in lieu of other taxes. General Property Tax. All property, real and personal, unless exempt, is taxed at one or more rates for local purposes, at another rate for county pur- poses, and at a third rate for state purposes, the total of the three making the final rate on property. All property, tangible and intangible, is assessed at one-third full value. Capital Stock, Including Franchise. All domestic corporations are subject to taxation on the excess of capital stock and franchise value over the value of tangible property. The excess is determined upon the basis of the value of the stock plus bonded and other indebtedness (except for cur- rent expenses) less value of tangible property. The excess of manufacturing, coal-mining, stock-breeding, and publishing com- panies is assessed locally; that of all other domestic corporations is assessed by the State Board of Equalization. This excess is taxable locally under the general property tax for state and local purposes in the same manner as tangible property. Corporations in Gefleral. All mercantile, manufacturing, transportation, and transmission corporations, except the Ilhnois Central Railroad, are subject to the general property tax only. Assessment of domestic corpora- tions includes the excess described in the paragraph above. The 53 54 TAXATION OP CORPORATIONS. Illinois Central Railroad Company pays a special tax to the State for state purposes on the gross receipts and property of its original lines. This is in lieu of other taxes on such lines. Lines not con- templated by its original charter are taxed like all other railroads, namely, upon property, and, if incorporated under IlUnois laws, upon property, including excess of capital stock and franchise over tangible property, for both state and local purposes. Certain classes of railroad property and the excess of capital-stock value of domestic railroad and telegraph companies are distributed on a mileage basis among the counties through which their routes pass. Stockholders and Bondholders. Stock of domestic corporations, except banks, is not taxable to the holder. Stock of foreign corporations is exempt in the hands of the holder when the property is taxed in Illinois. Bonds of foreign and domestic companies are taxed to the holder. Foreign Corporations. Foreign corporations, except certain financial companies, pay the general property tax on tangible property only, which is assessed in the same manner as like property of similar domestic corporations. Administration. The State Board of Equalization, elected every four years, is composed of 26 members, one from each Congressional district, and the Auditor of Public Accounts. It assesses certain property of railroads denominated "railroad track" and "rolling stock," and the capital stock of all dorriestic corporations except those organized for manufacturing, coal mining, publishing, and stock breeding. The excess of these corporations is assessed locally. The tax on the Illinois Central Railroad is paid to the state treas- urer. Other corporate taxes are collected by local officials for state and local purposes." " Sources of revenue in Illinois: Municipal and local districts. — (a) General property tax; (6) business taxes and licenses; (c) poll tax for road purposes. County. — (a) General property tax ; (6) business taxes and licenses. State. — (a) General property tax; (b) business taxes and licenses; (c) inheritance tax; {d) special tax on the Illinois Central Railroad. iLUNOis. 55 11. DETAILS AS TO THE CONSTITUTION AND STATUTES. Constitution. The general assembly is directed to provide for such revenue as may be needful by so levying a tax that every person and corpo- ration will pay in proportion to the value of property owned. Telegraph and express interests, and persons or corporations owning or using franchises and privileges, are to be taxed in such manner as the legislature from time to time shall direct, by general law, uniform as to classes upon which it operates." The property of the State, counties, and other municipal corpo- rations, both real and personal, and such other property as may be used exclusively for agricultural and horticultural societies, or for school, religious, cemetery, and charitable purposes, may be exempted by general law. * "No contract, obligation or liability whatever of the Illinois ■Central Railroad Company, to pay any money into the state treas- ury, nor any lien of the State upon, or right to tax property of said company in accordance with the provisions of the charter of said company, approved February lo, 1851, shall ever be released, suspended, modified, altered, remitted, or in any manner dimin- ished or impaired by legislative or other authority ; and all mone3^s derived from said company, after the payment of the state debt, shall be appropriated and set apart for the payment of the ordi- nary expenses of the state government, and for no other purposes whatever." <^ Statutes. "^ General Property Tax. All property (unless exempted), including the excess value of capital stock and franchise over the value of tangible corporate property, is subject to the general property tax at one-third full value. This tax is paid locally for state and local purposes. The full value of real property is estimated at selling price obtained by « Constitution 1870, Art, IX, sec. i. bibid., Art. IX, sec. 3. The enumeration of the property which may be exempted from taxation by this section is a limitation upon the power of the legislature to exempt any other properly, either by general or by speciallaw. Consolidated Coal Co. v. Miller et al., 236 111. 149 (1908). c Constitution, separate section following Art. XIV. ^ Except as otherwise indicated, the references herein are to Kurd's Revised Statutes (1909). 91740°— II 5 56 TAXATION OP CORPORATIONS. fair voluntary sale. Deductions from' gross credits are allowed for bona fide indebtedness." Tax on Capital Stock, Including Franchise. All domestic corporations, except those noted in the following paragraph, are subject to assessment by the State Board of Equalization on the excess value of capital stock and franchise over tangible property. The entire value of capital stock and franchise is based on a consideration of the market value of the shares, or on the value of same as reported to the State by the corporations, and on such other information as the board may obtain. To the total value of shares is added bonded and other indebtedness except that incurred for current expenses. From this amount is deducted the equalized value of tangible property. One-third the remainder, if any, is taxed locally for state and local purposes in the same manner as other property.' The excess value of capital stock and franchise of companies organized for manufacturing, mining and selling coal, printing, publishing newspapers, and breeding stock is not assessed by the state board, but is assessable by local officials in like manner as described in the preceding paragraph." - Rev. Stats., chap. 120, sees. 1, 27, 312. All property, as a general rule, is liable to taxation except such as the legislature may exempt by general law. People ex rel. Thompson v. Ravenswood Hospital, 238 111. 137 (1909). Credits of a foreign corporation payable at its home office and subject to taxation there are not taxable in Illinois. In re Union Tank Line Co., 204 111. 347 (1903). Persons or corporations are not entitled to deduct obligations given to insurance companies on account of premiums; to religious, literary, charitable, or scientific institutions on account of unpaid subscriptions ; to companies on account of subscrip- tions to capital stock. Rev. Stats., chap. 120, sec. 28. 6 Rev. Stats., chap. 120, sees, i, 3, 32, 108; Report of State Board of Equalization, 1909, p. 9. To ascertain the fair cash value of the capital stock of a corporation, including the franchise, the market or fair cash value of the shares of stock should be added to the market or fair cash value of the debt of the corporation, excluding indebtedness for current expenses, and if from the sum so obtained the equalized or assessed valuation of the tangible property of the corporation be subtracted, the remainder will be the net assessed valuation of the capital stock of the corporation, including the franchise, over and above the assessment of its tangible property. State Board of Equalization ■V. People ex rel. Goggin, 191 111. 528 (1901). <: In practice no capital stock assessments are made on such corporations. Taxation and Revenue System of Illinois, Fairlie, 1910, p. 17. A law exempting from taxation the capital stock of these corporations was declared unconstitutional. Consolidated Coal Co. v. Miller et al., 236 111. 149 (1908). The capital stock of a corporation and shares of stock represent the same thing — the money invested in the corporation — and the capital stock of these companies, including franchise, is lawfully assessed by the local assessor to the corporation itself. Ibid. Corporations organized for these purposes are liable to taxation upon their capital stock and franchises the same as are the corporations the duty of assessing which devolves upon the State Board of Equalization, the difference being that the former are to be assessed by the local assessors. The Hub v. Hanberg, 211 111. 43 (1904). ILLINOIS. 57 Transportation, Transmission, Manufacturing, and Mercantile Com- panies. All companies of these classes, except the Illinois Central Rail- road, are subject to the general property tax.« The excess value of capital stock, including franchise of domestic corporations, is assessed and taxed like other property. The assessment of foreign companies is on tangible property only.* Special Tax Applicable to Illinois Central Railroad. The Illinois Central Railroad Company pays to the State, for state purposes, a tax of 5 per cent on gross receipts derived from the original road and branches authorized to be built under its charter. In addition, it pays a tax on property at the state rate on general property. If this rate exceeds three-fourths of i per cent, the excess collected thereunder may be deducted from the tax on gross receipts,*^ but the minimum to be paid under any circumstances must equal 7 per cent of the gross receipts from the original lines. This is in lieu of other taxes on lines contem- plated to be built under its original charter. Acquired lines not contemplated by its original charter are subject to the general property tax and assessable in the same manner as other railroads. '^ Steam and Electric Railroads. All steam and electric railroads, except the Illinois Central Railroad, are subject to the general property tax for both state and local purposes.* To the assessed valuation of domestic roads is added the assessment of the excess value of their capital stock, including franchise.^ With respect to assessments, steam and electric raihoad property may be classified as — I. Property (including "capital stock and franchise") assessed by the State Board of Equalization; and II. Property assessed locally. Class I consists of — (a) "Railroad track," which is taxed as real estate, and em- braces right of way, including all tracks, superstructures, build- oRev. Stats., chap. 120, sees. 6-17. 6 Ibid., sees. 40-55. clbid., sees. 364, 365. i If the amount of tax levied for state ptirposes added to the 5 per cent exceeds an amount equal to the 7 per cent of the gross receipts of the company, the state tax must be paid notwithstanding. Report of Attorney-General, 1905-6, p. 108. «Rev. Stats., chap. 120, sec. 109. /Report of State Board of Equalization, 1909, p. 123. 58 TAXATION OP CORPORATIONS. ings, and improvements located thereon. The value of buildings and the value per mile of main, second main, and side tracks are separately assessed by the board. Distribution to counties through which the road passes is made upon the basis of the length of various kinds of track in each county, multiplied by their respective assessed values per mile, plus the assessed value of buildings therein.'^ (b) "Rolling stock;" and (c) "Capital stock, including franchise." Both {b) and (c) are taxed as personal property and distributed in such proportion as the length of main track in each county bears to the total length of main track in the State.'' Distributions by county officials to municipalities and local dis- tricts are made on a basis similar to distributions by the state board to counties.'^ Class II consists of all property not included in Class I, and is assessed locally."* Annual reports are received from railroads by the State Board of Equalization. "^ Railroads are also required to furnish reports to county auditors, who in turn furnish the proper local assessors with information relative to assessable property within their par- ticular jurisdictions.-'^ Telegraph Companies. Assessment of "excess of capital stock, including franchise," of domestic telegraph companies is made by the state board and is subject to distribution among counties in like manner as "railroad track" is apportioned. The property, including excess, is then taxed at the same rate and in the same manner as the property of individuals.^ Stockholders and Bondholders. Stock of domestic corporations, except banks, is not taxable to the holder.'^ "Rev. Stats., chap. 120, sees. 42, 43, 109. The revenue act, in so far as it requires the State Board of Equalization to assess "railroad track," and that the assessment be apportioned to the several taxing bodies through which the road runs in the manner pointed out by the statutes, is clearly constitutional. People v. Board of Equaliza- tion, 205 III. 296 (1903). b Rev. Stats., chap. 120, sees. 44, 45, no. c Ibid., sec. 109. ^ Ibid., sees. 46, 47. - Ibid., sec. 50. / Ibid., sec. 41. g Ibid., sees. 54, no. 'ilbid., sec. 3. II^UNOIS. 59 Stock of foreign corporations is exempt in the hands of the holder when the property is taxed in Illinois." Bonds of domestic and foreign corporations are taxed to the holder.^ Foreign Corporations. Foreign corporations, except certain financial companies, are subject to the general property tax on tangible property only, which is assessed in the same manner as like property of similar domestic corporations. III. FINANCIAL RESULTS. Classification of Revenue. The proportion of total state taxes for state purposes derived from corporations for 1910 was 34 per cent. Total State Receipts, Taxes from Corporations, Other Taxes, and Receipts FROM Sources Other than Taxes, Year ended September 30, igio. "^ Total state receipts, all sources $9, 873, 112. 82 Special taxes from corporations: Illinois Central Railroad $1, 197, 280. 02 Domestic corporation fees ^ 313, 850. 44 Foreign corporations for licenses <* 34, 776. 76 Annual reports of corporations <* 14, 072. 10 Miscellaneous corporation fees $1,765, 914 ^ 161,431,576 7,217,126 Tangible property, state assessment Tangible property, local assessment Total steam roads 100,454,419 170,414,616 Electric roads: Corporate excess Tangible property, state assessment Tangible property, local assessment .... 0991,270 ■=8,557,631 «394. 504 '> 1,209,367 f7 14,252,017 a 638, 540 Total electric roads 9,943,40s 16,099,924 Aggregate steam and electric 110,397,824 186,514,540 Other corporations: ''18,683,448 '^ 61, 941, 830 ^35,394,441 »* 110,957,464 Total 80,625,278 146,351,905 « Report State Board of Equalization, 1908, y. 115. ^ Ibid., 1909, p. 123. "Ibid.. 1908, pp. 151, 156, "Railroad track" and "Rollins slock." d Ibid., 1909, p. 159. clbid., 1908, appendix, pp. IxK.Ki, Ixxxvi. /Ibid., 1909, appendix, p. Ixxxii. 9 Ibid., 1909, appendix, p. Ixxxviii. ft Ibid., igoS, pp. 83, 113. ^ Ibid., 1909, pp. 85, 121. The combined total assessment per mile of steam and electric railroads (except the original lines of the Illinois Central Railroad) was, in 1908, $8,517; in 1909, $14,389.'' Total Taxable Property. The total equalized assessment of taxable property was, in 1898, $778,000,000; during the following ten years there was a gradual growth to $1,263,000,000. The maximum increase between any two years did not exceed 24 per cent; in 1909, however, there was an increase over the previous year of $895,000,000, or 71 per cent.'' This was due very largely to the fact that in 1 909 equalized assess- ments were increased from 20 to 33 >^ per cent of true value. The increase in true value for 1909 was $158,000,000, or 2^ per cent.*^ - Report, State Board of Equalization, folder opp. p. 115, 1908; ibid., p. 123, 1909. ^ Ibid., appendix, p. lii, 1908 and 1909. - Ibid., p. lii. Based on valuation for 1908 multiplied by 5; valuation for 1909 multiplied by 3. ILUNOIS. 65 Recommendation of Revenue Commission of 188S. In 1885 a special committee was appointed by the governor, under a joint resolution of the legislature, to revise the revenue laws.'' The committee made the following deductions as to the principal defects in the operation of the Illinois system: "First. The gross inequality in the assessments of different pieces of property of the same kind, owned by different individuals in the same community, and of different kinds of property, regard- less of ownership; as, for instance, real estate and personalty — a large proportion of the personalty escaping all taxes. "Secondly. The arbitrary and unjust operation upon individual assessments of the system of equalization between counties by the state board. "Thirdly. The low rates of assessments. "Fourthly. The high rate of taxation permitted by law. "Fifthly. The inadequacy of existing methods to discover and estimate valuable interests which have grown out of the inventions and refinements of modern commerce. "Sixthly. The want of a central and efficient supervision of the administration of the revenue laws throughout the State."'' With reference to corporations, the compiission commented as follows : "There are vast aggregations of capital employed in business enterprises of such nature that their value is hard to measure by the methods applicable to other kinds of property. Several hun- dred million dollars are invested in railroads in this State, repre- sented by incorporated companies. Such corporate property can not be estimated in like manner as the acres of a farm, a herd of cattle, or a stock of goods. Much of its value is intangible, con- sisting in the exercise of special franchises. Our present system endeavors to separate the tangible property of the corporation from the intangible. * * * I'he separation can not be ration- ally made. The two elements of value belong together. * * * A railroad company should be treated for taxation as a whole, as far at least as the state limits will permit; and it should be esti- mated in some methods consistent with its nature and the extent and complexity of its affairs. So with telegraph, telephone, express, and insurance companies, all of which are peculiar and not well gauged by the existing method of valuation." " The commission recommended a separation of the state revenue from local taxation, and that the tax on railroads, telegraph, telephone, express, and insurance companies be paid directly into " Report of Revenue Commission, 1886, p. i. b Ibid., p. ii. c Ibid., pp. V, vi. 66 Taxation of corporations. the state treasury, for state purposes, unless there should be a surplus, in which case provision was made for the distribution of the surplus to the counties and for a contribution from the counties should there be a deficiency. Gross receipts of railroads were recommended as being the true criterion of their value and the best basis for their taxation, gross receipts being preferred to net receipts for greater certainty and because it is found in the reports of railroad companies that rela- tive proportions of gross receipts to net receipts vary in different roads, and in different years, within narrow limits. The proposed law also provided for a tax on the wire mileage of telegraph companies, on instruments of telephone companies, and on gross receipts of express companies. The commission recommended numerous other changes with a provision for the appointment of a tax commission by the governor for the supervision and control of the revenue system of the State, but the recommendations were not adopted and the general property tax still prevails in Illinois. Special Tax Commission of 1909. A law of 1909 provided for the appointment by the governor of a special tax commission of seven persons, whose duty was "to inquire into the subject of assessment and taxation for state and local purposes, the operation and effect of the laws relating thereto, and the expediency of revising and amending such laws so as to establish a more equal and just system of raising necessary public revenues." The general conclusions of a report published by the commission in 1910 were as follows; "i. That the aggregate assessed valuation of property for purposes of taxation is only a small part of the true value of tangible taxable property in the State; that the assessed valua- tion is much less than the fractional part of true value provided for in the revenue law, and that the inevitable result of such undervaluations is not only an unnecessary increase in the nominal tax rate but also marked inequalities in assessments as between different classes of property and persons. "2. The most serious difficulties appear in the assessment of intangible personal property, such as moneys and credits, mort- gages, bonds, and stocks. The assessment of such holdings on the same basis as tangible property appears to be impossible; while, if possible, the result would be highly unjust and inequita- ble. The experiences of other States show that special taxes on ILLINOIS. 67 corporations and on mortgages and other kinds of intangible holdings are more equitable and, at the same time, more successful as means of raising public, revenue. "3. Large inequalities are also evident in the assessment of tangible personal property, amounting practically to considerable exemptions at the discretion of assessing officers. "4. Even in regard to real property, there are considerable undervaluations and inequalities in the basis of assessment. "5. Considerable criticism has been made of the local assess- ment machinery in counties under township organization, and also some criticism of the county boards of review. Important changes should be made in the local administration of the revenue laws so as to secure more expert and more responsible ofl&cials, and to eliminate political and local influences. " 6. The State Board of Equalization is a clumsy and ineffective body, much too large for either the work of equalization or the valuation of railroad property or capital stock. It has ceased to attempt any equalization of local assessments; under its valua- tions of railroad property the taxes paid by railroads have been declining in proportion to railroad earnings and in comparison with the total taxes levied in the State, while the assessment of capital stock of corporations has been practically limited to a small number of public-service corporations in Cook County. "7. The study of tax officials in other States shows the tendency toward small permanent tax commissions, with large powers of supervision over local tax officials and important powers of assess- ing the property of public-service corporations, and that such commissions have proven effective in bringing about large improve- ments in the administration of the tax laws. "8. The aggregate of property taxes in the State of Illinois from i860 to 1904 has not increased at any greater rate than the esti- mated true value of property. State and county taxes since 1870 have increased much less than the increase in the true value of property; but city, school, and other local taxes have been rapidly increasing. The total state revenue of Illinois is much less than that of other States with which it ranks in population, wealth, and industrial development. "9. Special taxes for state purposes have been developed to some extent in Illinois in recent years. But the corporation fees and inheritance tax produce only a small revenue in comparison with the revenue from corporation taxes, inheritance taxes, etc., in the large Eastern States. "10. There are numerous minor license, inspection, and exami- nation fees, which produce little or no net revenue, and some of which are not included in the accounts of the state treasurer or auditor. ' ' 68 TAXATION OF CORPORATIONS. Bibliography. The . following is a list of the more important publications, in addition to the constitution, the statutes, and the court reports of value in the study of corporate taxation in Illinois: Report of the Attorney -General, 1905-6. Report of the Auditor of Public Accounts, 1910. Report of the Revenue Commission, 1886. Report of the Secretary of State, 1910. Reports of the State Board of Equalization, 1908, 1909. Report on Taxation and Revenue System of Illinois (Fairlie), 1910. MICHIGAN. I. GENERAL VIEW. Chief Features. First. The broad application of the general property tax. Second. The exclusive apphcation of all taxes from certain public-service corporations to the primary school fund. Third. The abandonment of the gross receipts and return to the general property tax method. Property Tax. General Property Tax. — All corporations, except those pay- ing the state property tax and those taxed on capital stock and net profits, are subject to the general property tax, assessed and collected locally, for both state and local purposes. State Property -Tax. — A state property tax (designated by statute a "specific tax") is assessed against certain classes of im- portant public-service corporations. This tax differs from the general property tax only in that (o) it is assessed and collected by the State for the benefit of the primary school fund; (b) it is applied at the average rate of taxation; and (c) it is in lieu of all other taxes except on property not used in the business. Corporations Subject to the State Property Tax. Railroad, telegraph, telephone, express, and car companies are subject to the state property tax on all tangible and intangible personal property and on such real property as is necessary for the exercise of their corporate franchises. Corporations Subject to Taxation on Capital Stock and on Net Profits. Canal and river-improvement companies are taxed on paid-up capital stock; plank and gravel road companies on their yearly net profits. These taxes are in lieu of other taxes and are payable to the State for the benefit of the primary school fund. Corporations Subject to the General Property Tax. Manufacturing, mining, mercantile, waterworks, light, heat, electric power, and all corporations other than those before men- 69 yo TAXATION OF CORPORATIONS. tioned are subject to the general property tax for both state and local purposes. Stockholders and Bondholders. Stock of domestic corporations is not taxed to holders. Stock of foreign corporations is taxable, but only to the extent that the shares represent untaxed property in the State. Bonds of foreign and domestic corporations are taxable to holders. Foreign Corporations. Foreign corporations are practically taxed in the same manner as domestic corporations. Administration. The Board of State Tax Commissioners, consisting of three - members, appointed by the governor, has general supervisory power over supervisors and assessors. The cardinal duties of this commission may be summarized as follows: (i) To see that all property subject to the state property tax, and the general property tax, is assessed at true cash value. (2) To review assessment rolls and correct assessments upon hearings granted. (3) To make recommendations for amendments to tax laws. This board, together with the governor, constitutes a state board of assessors which assesses the property of railroad, car, express, telegraph, and telephone companies. Laws providing taxation on earnings (i. e., capital stock and net profits) are administered by the auditor-general. The auditor- general also prepares a statement showing the amount of tax to be raised for state purposes and apportions the same among the counties in proportion to the valuation of the taxable property therein as determined by the State Board of Equalization. All property in the State liable to taxation (except that which is subject to the state property, the capital stock, or the net earn- ings taxes) is assessed locally. The township supervisor and two electors in townships, and city cotmcils in cities, constitute the board of review with authority to correct and approve local assess- ment rolls. The assessing officers collectively constitute the county board of supervisors, which has authority to equalize the assessment rolls between the townships, wards, or cities. A state board of equalization, consisting of the lieutenant- governor, auditor-general, secretary of state, state treasurer, and MICHIGAN. 71 commissioner of the land office, meets every five years and equal- izes the assessment of all property taxed under the property tax laws. Taxes levied under the state property tax, and general property tax, are collected by township and city treasurers; all other taxes are collected by the state treasurer."' II. DETAILS AS TO THE CONSTITUTION AND STATUTES. Constitution. The chief constitutional provisions with reference to corporate taxation may be summarized as follows:' The legislature shall provide for annual taxes sufficient, with other resources, for the payment of state expenses. All assessments shall be at cash value. Taxation shall be uniform, except on property paying specific taxes, '^ and taxation of property paying specific taxes (state property tax, capital stock tax, and taxes on net profit '^) must be uniform as to the class upon which they operate. The revenue derived from these taxes shall apply to the primary school fimd. The legislature may provide for assessment, by the State Board of Assessors, of railroad, telegraph, telephone, express, and car companies. Property so assessed, however, must be taxed at the average rate actually levied upon the general property in the State. The power of taxation shall never be surrendered by any grant or contract to which the State or any municipal corporation shall be a party. Statutes.' Property Tax. The general property tax applies to all property in the State except exempted property and the property of corporations "■ Sources of revenue in Michigan : Municipal and local districts. — (a) General property tax; (b) business taxes and licenses; (c) poll tax. County. — (a) General property tax; (b) business taxes and licenses. State. — (o) General property tax; (b) corporation taxes; (c) inheritance taxes; (d) business taxes, licenses, and fees. b Constitution 1909, Art. X, sees. 1-9. cThis clause has been held to prohibit double taxation. Stroh v. City of Detroit, 131 Mich. 109 (1902). d These are the only "specific taxes " at present applicable to the classes of corpora- tions herein treated, except an insignificant tax on gross earnings of certain plank and gravel road companies, the total of which amounts to less than $100. e Except as otherwise indicated, the references given herein are to tlie Compiled Laws of 1897. 91740 -II- 72 TAXATION OF CORPORATIONS. subject to the state property tax, the tax on capital stock, and the tax on net profits. It is assessed and collected locally for both state and local purposes. Bona fide indebtedness is deducted from credits of both indi- viduals and corporations." Certain classes of important public-service corporations are assessed by the State Board of Assessors and taxed at the aver- age rate actually levied upon general property in the State. This tax is designated by the constitution and statutes as a "specific tax." Since, however, this term distinguishes the method and purpose rather than the principle upon which the tax is based, it is herein referred to as the state property tax. The use of all revenue now derived from this tax, the tax on capital stock, and the tax on net profits is by constitutional provision applied to the primary school fund.* The average rate of taxation is the rate which the State Board of Assessors shall ascertain and determine as the average rate actually levied upon general property in the State. '' Railroad and Depot Companies. Railroads are valued as a unit and taxed under the state property tax at the average rate of taxation upon all property owned by them in Michigan,'' except real estate not necessarily used in operating the road. Such real estate is subject to the general property tax for both state and local purposes. * Franchises are not directly assessed, but their value is considered by the board of assessors,/ to which the railroads report annually the number, par, and market value of shares of capital stock, the length of line, and value of all tangible and intangible property both within and without the State, the total gross receipts, and such other information as the board may deem necessary to the proper valuation of such property. s' " Compiled Laws, sec. 3842. The special provision for the assessment of corpora- tions in general, that the value of stock, less the real estate, should be assessed, as well as the cash value of all personal property, less bona fide indebtedness, is unconstitu- tional and void. Detroit Citizens Street Railway Co. v. Detroit, 125 Mich. 673 (igoi). ''Constitution, Art. X, sec. i. c Attorney-General v. State Board of Assessors, 143 Mich. 73 (1906). <* Laws 1909, act 49. « Laws igog, act 49, sec. 5, and act 309, sec. 8. " Railroad property is also subject to assessment for local improvements. Laws 1909, act 309, sec. 7, subsec. 8. / " Franchises not to be directly assessed but to be taken into consideration in deter- mining the value of other property." Laws 1909, act 49, sec. 5. S Laws 1909, act 49, sees. 5, 6. MICHIGAN. 73 The value of property of interstate railroads within the State is determined on the mileage basis method, namely, by ascertaining the proportion which the number of miles of main track within the State bears to the entire mileage of main track wherever located." The difficulties met by the board in applying the commercial value to the proportion of railroad property within the State is stated as follows in its report of 1907-8, page 46c ''The fact that a large majority of the properties under the jurisdiction of this board conduct an interstate business and have frorn approximately 2 per cent to 98 per cent of their properties outside the State, is an important and puzzling factor in deter- mining the commercial value that should be applied to that por- tion of such properties as are found subject to the taxation laws of Michigan. * * * The board is convinced that no hard and fast rule can be laid down for ascertaining the value of properties with which it has to deal. All possible facts concerning these properties, including physical values, financial conditions, future probabilities, and successful management should be at its command for consideration, each to be given due weight. "It is along these lines the board has endeavored to work out the problem of the commercial value, and equality of taxation as between all properties within its jurisdiction where discretionary powers are granted to it by the statute." Union station and depot companies are taxed under the same provisions of this act and in the same manner as railroads. Express Companies. These companies are subject to taxation by the State at the average rate of taxation upon the true cash value of all property used in the express business in Michigan.* Property not used in the exercise of their franchises is subject to the general property tax for both state and local purposes."^ The value of the property of express companies within the State is determined by the State Board of Assessors as follows : (a) Cash value of capital stock plus bonded indebtedness deter- mines the true cash value of the entire property. (b) From the entire value is deducted the value of all real prop- erty and the value of personal property not used in the express "■ Laws 1909, act 49, sec. 9. An appraisal of Michigan railroad property was made in 1901 based on reports of Prof. M. E. Cooley and Prof. H. C. Adams. These reports are known as the "Michigan Railroad Appraisal." (See "Comments.") b Laws 1909, act 49, sec. 14. clbid., sec. 5. 74 TAXATION OF CORPORATIONS. business. The remainder divided by the aggregate length of route gives an average value per mile. (c) This average value per mile multiplied by the length of route in Michigan, plus the value of real property used in the business within the State, equals the assessable value subject to taxation by the state board.'* All express companies are required to file annually with the State Board of Assessors a statement showing the number, par and market value of shares of capital stock ; the total amount of bonded indebtedness; amount, value, and location of their real and per- sonal property, including money and credits; the length and names of railroad, ocean, and other routes over which the company has done business during the past year ; and such other information as the state board may deem necessary. * If the ocean routes of any company so differ in character from its other routes as to result in an unfair apportionment on the mileage basis, the State Board of Assessors may make such allow- ances as in its judgment will place all routes of the company on a parity. " Car Companies. Car companies are taxed by the State at the average rate of taxation on the value of property owned by such companies in Michigan.'' Real estate not necessary to the exercise of the franchises of such companies is subject to the general property tax for both state and local purposes." Car companies contracting to furnish cars to railroads for the transportation of passengers are denominated "sleeping-car companies."/ The value of the personal property within the State devoted to the sleeping-car feature of the business is determined by the State Board of Assessors as follows: The aggregate value of all cars owned by each such company is multiplied by the length of the route in Michigan; this amount is divided by the entire length of the route over which the cars were operated during the year; the quotient represents the taxable value of the cars oper- ated in the State.-'' "- Laws igog, act 49, sec. g. d Ibid., sees. 13, 14. * Ibid., sec. 6. « Ibid., sec 5. "Ibid., sec. g. ''Laws 1905, act 282, sec. 7. MICHIGAN. 75 Each such company is required to report annually to the State Board of Assessors, the value of its franchise, the market or actual value of its shares of capital stock and the amount of same invested in cars, the amount of mortgage indebtedness upon its cars, the total length of main line over which the cars are operated, and the length of the same within the State." Car companies contracting to furnish cars to railroads for the transportation of freight are assessed in practically the same man- ner and taxed at the same rate as sleeping-car companies. These companies are required to report annually to the State Board of Assessors certain data specified in the statute, and any additional data required.* Telegraph and Telephone Companies. Each such company whose annual gross receipts within the State exceed $500 is subject to the state property tax, at the average rate of taxation, upon the true cash value of all property owned by it in Michigan,'^ except real estate not necessary to the exercise of its franchise.'^ Such real estate is subject to the general property tax for both state and local purposes."^ The value of property in Michigan is determined by the State Board of Assessors according to the mileage basis, namely, by taking that proportion which the length of the line owned, leased, or otherwise controlled within the State bears to the entire length of hnes wherever owned, leased, or otherwise controlled." The annual reports made by these companies are similar to those required of the companies hereinbefore treated, with some addi- tional items peculiar to their particular line of business.-'^ Canal and River Improvement Companies. Canal companies pay to the State a tax of three-fourths of I per cent ; ^ and river improvement companies i per cent on their paid-up capital stock.* These taxes are in lieu of other taxes, except the general property tax for state and local pur- "Laws 1905, act 282, sec. 7. «Ibid., sec. 9. b Laws 1909, act 49, sec. 6. /Ibid., sec. 6. <=Ibid., sees. 13, 14. ^Compiled Laws, sec. 3992. <*Ibid., sec. 5. A Ibid., sec. 6745. 76 TAXATION 01*' CORPORATIONS. poses on real estate not necessary to the exercise of the corpo- rate franchise. Plank and Gravel Road Companies. Plank and gravel road companies organized under the laws of 1848 pay to the State a tax of 5 per cent on their yearly net profits. Such companies organized under the laws of 1851 pay to the State a tax of 2X per cent on gross earnings. These are in lieu of all other taxes, except that real estate not necessary to the operation of the corporate franchise is subject to the general property tax for both state and local purposes." Corporations Subject to the General Property Tax. All corporations other than those above treated, including manufacturing, mining, mercantile, street-railway, waterworks, light, heat, and electric-power companies, are subject to the general property tax for both state and local purposes.* All personal property, including mains and wires, of gas, electric-light, waterworks, and hydraulic companies is assessed at its situs. Tracks, roads, and bridges of street railways and bridge companies are also assessed at their situs, but other per- sonal property of street-railway and bridge companies is assessed at the place where the principal office is situated. Real property of all corporations, except that assessed by the State Board, is assessed as to an individual.'^ " Compiled Laws, sees. 6560, 6610. Property owned by a plank-road company and used as a toll house and residence for the keeper, although not within the right of way, is exempt from ordinary taxation while so used. Plank Road Co. i;. Detroit, 81 Mich. 562 (1890). 6 One particular waterpower company incorporated under act 39, Laws 1883, as amended by act23i, Laws 1899, may, by giving notice to the local assessor and attorney- general, elect to pay to the State for state purposes a tax of i per cent upon its author- ized capital stock in lieu of all general taxes. (^Compiled Laws, sees. 3828, 3831, subsec. 16. The legislature has provided that the track shall be assessed as personal property. In our opinion, this term should be construed to include not only the ties, spikes, rails, and switches, but also the right to use the bed upon which they are placed. Detroit Citizens Street Railway Co. v. Detroit, 125 Mich. 684 (1901). The franchise of a street-railway company by which it acquires the right to use the streets of a municipality should be treated as a part of the railroad and taxed as personal property. Detroit v. Donovan, 127 Mich. 604 (1901). MICHIGAN. 77 Stockholders and Bondholders. Shares of stock in domestic corporations, except banks," are exempt.* Shares of stock in foreign corporations, except national banks, are taxed to the holder for state and local purposes when the property of such corporations is not taxed in Michigan.'' When a part of the property is taxed in Michigan, the shares are subject, in the hands of the holder, to taxation in proportion to the value of the remaining property. Bonds of domestic and foreign corporations are taxed to the holder. " Foreign Corporations. Foreign corporations are generally subject to the same pro- visions of corporate taxation as are similar domestic corporations. III. FINANCIAL RESULTS. Classification of Revenue. The proportion of total state taxes for state purposes derived from corporations for 1910 was 45 per cent. Total State Receipts, Taxes prom Corporations, Other Taxes, and Receipts FROM Sources Other than Taxes, Year ended June 30, 1910.'' Total state receipts, all sources Si 2, 866, 701. 52 Special taxes from corporations : e Railroad companies $4, 398, 810. 32 Telephone companies 323, 636. 72 " The value of the real estate is deducted from the value of property of banks and the balance assessed as stock to the holder. Lenawee County Savings Bank v. Adrian, 66 Mich. 273 (1887). b Compiled Laws, sec. 3831, subsecs. 7-9; also Opinions of Attorney-General, 1900, p. 169, and igo2, p. 125. Where a part of the property of a foreign corporation is situated within the State and is taxed thereon, the shares of stock of such corporation are taxed to the holder after allowance has been made for the value of the property so taxed. Taxation of shares of stock of a foreign corporation held by residents of this State, all of whose property is situated and taxed in this State is double taxation, within the prohibition of the constitution requiring a uniform rule of taxation. For the purposes of taxation, a corporation and its shareholders are not different persons, or the corporate property and shares different property. Stroh v. City of Detroit, 131 Mich. log (1902). The question whether the capital stock of a foreign corporation was taxed in the State where it was organized is immaterial since the stock of such corporation in the hands of residents acquires a situs in fefichigan for the purpose of taxation. Bacon v. Board of State Tax Commissioners, 126 Mich. 22 (igoi). "Compiled Laws, sec. 3831, subsec. 8, par. 6; Compiled Laws, sec. 3842, subsec. 19, par. S- a Report of State Treasurer, igio, p. 13. ^ Practically all special taxes from corporations are distributed pro rata among the various counties for the support of primary schools. 78 'TAXATION Olf CORPORATIONS. Special taxes from corporations — Continued. Express companies $26, 606. 96 Freight, refrigerator, and car-loaning companies. . 23, 543. 23 Sleeping-car companies 10, 336. 66 Waterpower companies 5, 150. 00 Telegraph companies 21, 120. 82 River-improvement companies 618. 80 Plank and gravel road companies 141. 05 Fire-insurance companies " 235, 658. 66 Life-insurance companies b 225, 489. 92 Miscellaneous insurance companies 22, 460. 98 Franchise fees 93, 956. 13 Total special taxes from corporations $S, 387, 530. 25 Other taxes: Inheritance tax 25S, 320. 05 Nonresident wholesale liquor licenses ■. 18, 208. 45 General property tax c (less $275,897.27 distrib- uted to counties t') 6, 112, 436. 01 Hunters' licenses 44, 392. 19 Motor vehicle licenses 58, 369. 65 Fisherman licenses 11, 555. 00 Peddler licenses 2, 835. 00 Total state taxes not from corporations 6, 506, 116. 35 Total taxes for state purposes, all sources 11, 893, 646. 60 Receipts from sources other than taxes : Sales of state lands, etc 179, 355. 98 Interest 71, 427. ;}^ Sundry fees, trespass collections, etc 123, 512. 51 Miscellaneous receipts, escheats, dividends, etc . . . 322, 861. 83 Total receipts from sources other than taxes 697, 157. 65 Total state taxes and receipts for state purposes 12, 590, 804. 25 Total receipts distributed to counties 275, 897. 27 Total state receipts, all sources 12, 866, 701. 52 IV. COMMENTS. Historical. A distinctive feature of the Michigan system is that after having passed through the early period when corporate property was taxed like that of individuals, then through the years when the capital stock and gross receipts taxes were collected from corpora- p Fire-insurance companies pay 3 per cent on gross premiums received within the State. 6 Life-insurance companies pay 2 per cent on premiums received within the State. - Part of this comes from local taxation of corporations, but it is impossible practi- cally to ascertain the amount thtts received. ^ to 3 per cent on gross receipts. The Board of State Tax Commissioners, in its report for 1900, said that for at least twenty years legislative controversies had taken place over dissatisfaction with the gross-earnings method of taxing rail- roads. In order to effectually reestablish the ad valorem system of taxing railroads, a detailed physical valuation and a valuation of the nonphysical or intangible element was made with respect to all railroads operating in the State. The methods used in making the valuation of railroad property in Michigan, the problems encountered, etc., will be taken up. Before doing so, however, it is well to note the chief reasons ascribed by the Board of State Tax Commissioners for rejecting some of the familiar methods of railroad taxation which had been suggested. (i) To tax stock at its par value the commission thought would be without precedent and unfair as values go, the variation in stock values ranging, as they do, from 3 to 1 50 per cent. (2) The method of taxing the actual value of stock alone as shown upon the market would not take into consideration bonded indebtedness and would in but few cases approach actual value. (3) As to market quotations of both stocks and bonds, it was found that stocks and bonds of but nine Michigan railroads were upon the market; that the stocks and bonds of all others were unknown to the open market, and that such a method of valuation could not be applied except in a few cases. (4) Gross or net earnings would offer a sufficient basis upon which to estimate the tax, but constitute only one of the elements from which values can be ascertained. Moreover, the State could not know that reports of net earnings were always correct. Again, "if the State adopt such method for railroads, should it not adopt a like course with every other corporation and for other MICHIGAN. 8 1 taxable properties?" On the basis of net earnings, if a company should show no net earnings in any year, it would escape taxation entirely, though having millions of dollars in physical property. The net-earnings tax puts the railroad in the position of assessing itself." Results of the Change from the Earnings to the ad valorem System. As has been stated, the ad valorem method was applied to rail- road, express, and car companies in 1901. Telegraph and tele- phone companies were included later. The effect of the change in method was, in the case of railroad companies, to increase the taxes paid to the State by these companies from $1,483,906.95 in 1901 to $3,288,162.06 in 1902, or 121 per cent.'' The following table shows the amount of taxes levied annually for four years upon such companies under each system: Tax on gross earnini^s of railroads. 1898 $1,091,526.39 1899 1,240,745.27 1900 1,356,857.96 igor 1,483,906.95 Total 5, 173,036. 57 Ad valorem tax on railroad p^npcr■^■. 1902 $3,288,162.06 1903 3,756,149.42 1904 3.330,350.59 190S 3,527,059.61 Total 13,901, 721. 68 In determining the value of property in Michigan a difficulty was met in the form of a claim by express companies to the effect that oceanic mileage should be considered as valuable per mile as the average of railroad routes over which their cars traveled. In other words, a certain company claimed 137,390 miles of ocean route as well as 6,022 miles of European railroad route, 1,324 miles of Canadian rail and water route, and 42,068 miles of rail and water route in the United States.'' The average valuation on this basis was $49.62 per mile, but disregarding the ocean mile- age it would be $184.86 per mile, or an increase from $292,045 to $968,278 in the total valuation of this particular company's prop- erty in Michigan. As a result of the elimination of all ocean mileage in 1 905 by the board, on the ground that such mileage did not constitute a o Report of Board of State Tax Commissioners, 1900, pp. 67 et seq. 6 Ibid., 1905-6, p. 36. c Report of Board of State Tax Commissioners and State Board of Assesscjrs, 1905-6, pp. 38-40- 82 TAXATION Olf CORPORATIONS. route within the meaning of the law, legal provision was made in 1909" for an allowance in the mileage apportionment where it appeared that the inclusion of the full mileage of ocean routes of the company would be unfair. * The railroads attacked the method of ascertaining the rate of taxation, contending that the fixing of the rate is a legislative function. The statute prescribes, as a rate of taxation upon rail- road property, the average rate of taxation on all other property subject to ad valorem taxes. The Supreme Court of the United States held, however, that where a legislature enacts a specific rule for fixing a rate of taxation, by which rule the rate is mathe- matically deduced from facts and events occurring within the year and created without reference to the matter of that rate, there is no abdication of the legislative function, but, on the contrary, a direct legislative determination of the rate.*^ Methods and Results of the Railroad Appraisal in Michigan. (A) Vai^uation of Physical Properties. — The following statement, by Mortimer B. Cooley, who had charge of the physical valuation of railroad property, is taken from Michigan Political Science Association Publications : '^ "A careful consideration of the different methods of appraising corporate properties led to the selection of the plan of finding, first, the cost of reproducing, rebuilding, or reacquiring the sev- eral elements entering into and constituting the property as a whole, assuming the location and the conditions governing such cost as they exist to-day; and, second, to affect such of the ele- ments as can wear and depreciate with use by percentage factors representing the present condition as found by actual inspection in the field, the value of a new element bedrig considered 100 per cent. The first of the values will be referred to as the 'cost of reproduction,' the second as the 'present value,' in both cases of the physical properties only. "Viewed from the engineer's standpoint, the advantage of this plan will be speedily recognized. Aside from the financiering, the building of a railroad is largely an engineer's problem. The natural and simple course was therefore to proceed in the same manner as if a new road were projected in the exact location of the present road, and compute the cost of building and equip- ping this road to the extent already existingj everything being Jiew, «■ Laws 19Q9, act 49. ^ Reports of Board of State Tax Commissioners and State Board of Assessors, 1905-6, p. 40; 1907-8, p. 47. ^Michigan Central Railroad v. Powers, 201 U. S. 245 (igo6). ^Vol. IV, pp. 285-292 (igoi). MICHIGAN. 83 and then fix other values representing the actual or present con- dition of those elements subject to change with time. In other words, the first part of the work has been done in the same manner as would be required by the railroads themselves if projecting new work. * * * "The plan of organization of the work was as follows: Expe- rienced men were selected to act as chief inspectors in charge of the more important divisions of the work. To these men fell the task of directing operations in the field and in the office. * * * The railroad appraisal embraced the two divisions of civil and mechanical engineering. "Suitable blank forms having been prepared, a force of men was detailed to secure from the records on file in the engineers' offices all available data relating to surveys, right of way, and station grormds, real estate, grading, tunnels, bridges, trestles and culverts, rails, fencing, station buildings and fixtures, shops, roundhouses, and turntables, water and fuel stations, grain ele- vators, warehouses, docks and wharves, and miscellaneous struc- tures. This information, properly entered upon the blank forms, was put in the hands of experienced railroad engineers, who pro- ceeded over the road by means of hand cars or on foot and made a personal inspection of all the separate items, adding to and per- fecting the records as might be found necessary. At the same time the condition of the ties, rails, track fastenings, frogs, switches and crossings, ballast, track laying and surfacing, fencing, cross- ings, cattle guards and signs, interlocking and signal apparatus was noted, a complete record of all observations being made in a field book provided for the purpose. The data obtained in the office and in the field correspond to that which would have been obtained by actual surveys. "After the field inspection all data and information thus far obtained were turned into the computing office, where separate items were worked up and the costs of these items new and their present values obtained. To expedite the work and insure more uniform results, a set of tables was compiled, showing unit prices for all the different elements. By this means it was possible, hav- ing carried the work to a certain point, to pick from the tables the prices needed, thus obtaining directly the cost of the different quantities. The utility of these tables can not be too highly emphasized, and the work required in their preparation saved many weeks of time and made it possible to use less experienced men in the computing office. "The results obtained in the computing office were then sent to the compiling office, where they were carefully arranged under their respective headings, the final record being a complete inventory of practically everything found belonging to the railroad. For con- venience and in order that the results might be more clearly under- stood they were compiled in accordance with the ' Classification of construction accounts ' prescribed by the Interstate Commerce 84 TAXATION OF CORPORATIONS. Commission. A few additional items were found necessary, mak- ing in all thirty-seven different accounts. * * * "Under the head of mechanical engineering a careful inventory and inspection was made of all shop machinery and tools, loco- motives, passenger, freight, and miscellaneous equipment, and of stores and supplies. This work was very thoroughly done and included the inspection of practically every locomotive and pas- senger car belonging to Michigan roads. About 33,000 freight cars were inspected, and of these nearly 15,000 belonged to Mich- igan roads, the others being foreign cars and private-line cars. An important question arose in the division of rolling stock be- longing to interstate roads. Should it be divided in proportion to the main-track mileage, the total track mileage, the car mileage, or the gross earnings? A careful consideration of the several plans led finally to the selection of car mileage as the most suit- able basis for division of passenger and freight equipment and of locomotive mileage for the locomotive department. Where it was impossible to obtain the car or locomotive mileage data, main-track mileage was used as the basis for division. In those cases where a single arm or division of a large system pro- jected into the State, the problem was confined to this arm or division. "The telegraph and telephone lines belonging to the railroads also proved to be a difficult problem, as it was necessary to sepa- rate the lines used exclusively by the railroads from those belong- ing to the telegraph companies, and to still further separate those owned jointly. Every mile of telegraph was inspected and the condition of the poles, wires, and instruments determined by frequent examination. "Perhaps no part of the work involved so much discussion as the matter of right of way, station grounds, and real estate. It is well known that a railroad right of way costs considerably more than the value of the land for other purposes. The question at issue was whether the railroad should be charged for what the right of way actually cost or for what it was worth for other pur- poses before it was purchased. There could be no question, it would seem, that the first cost or cost of reproduction should include the actual price paid for the right of way. Certainly this is one of the elements for which money must be raised the same as engineering, legal expenses, interest and discount, and mis- cellaneous expenses, including the expenses of organization and contingencies. Theoretically, at least, the cost of reproducing may be considered to represent the value of a legitimate bond issue, and to such extent the value of a railroad. "The question whether the increased cost of right of way over and above the value as determined by contiguous property may properly be included in the present value of a railroad is a matter about which there may be difference of opinion. The true cash value of a thing has been defined as the price upon which a pur- chaser and a seller mutually agree, and at which an actual transfer MICHIGAN. 85 takes place. If an attempt were made to purchase an existing right of way — as, for example, an entrance into a city — if the owner were willing to sell at all he surely would take into con- sideration what it would cost the purchaser to get into the city by any other route, and the prospective purchaser would surely consider what it would cost him by another route. "The conclusion finally reached was to add to the value of the right of way as determined by contiguous property an amount fairly representing the actual cost to the railroad. A very careful examination was made of records on file at county seats and else- where, showing the transfer of a large number of pieces of property, both to railroads and to other purchasers. As a result of this examination throughout the State, it was found that the actual price paid by the railroad was from 100 to 125 per cent in excess of the value as determined by adjacent property. "Special inspectors, experts in land values, were assigned to the task of determining the value of the lands through which the railroads run, and for this work the commissioners are greatly indebted to a large number of citizens who very courteously entered upon the task of filling out the blanks requesting informa- tion as to the value of properties in their respective localities. The reports from these gentlemen were so complete as to leave no doubt as to the thoroughness of their investigation. Having in this way determined the value of the different kinds of land, it becomes necessary to determine the amounts of each kind be- longing to the several roads. In this much assistance was re- ceived from the local engineers, who, on account of their familiarity with their runs, were able to give, with considerable accuracy, the extent of the lands of different grades on their respective lines. "In order that there might be no question as to the suitability of the methods employed, a board of review was appointed, con- sisting of Messrs. Octave Chanute and Maj. G. W. Vaughn, of Chicago; Mr. Charles Hansel, of New York; and Prof. Charles E- Greene, of Ann Arbor. All these gentlemen are members of the American Society of Civil Engineers, Mr. Chanute being a past president of the society. With years of experience to ripen their judgment, and with minds free from all details, they were asked to consider the different questions arising in the work about which there might be doubt, and to formulate rules for procedure in those cases admitting of a variety of opinions, as, for example, the division of rolling stock on interstate roads, the value of a right of way, the percentages to be added for the items of engineer- ing, legal expenses, interest and discount, organization and con- tingencies, and many others. "The actual work of field inspection of railroads was begun about September 15 and finished December 15. Complete results were obtained for all the roads in Michigan and submitted to the board of tax commissioners the last of January, 1901. These results were completely rechecked and very elaborately compiled in several large volumes, the final work being completed May i. 86 TAXATION O:^ CORPORATIONS. It is proper to add in this connection that the cordial assistance of the railroads themselves aided greatly in expediting the work. "The following table shows the results obtained for all the in- corporated railroads of Michigan : Summary of all Railroads. MILEAGE. Main track.. . Second track. Branches Spurs anc VALUE OF PHYSICAL PROPERTIES. 7,082.35 164.8? Spurs and sidings 2,904. 70 Subject. Cost of re- production. Present value. Engineering, 4 per cent, items to 25, inclusive, and 33 Right of way and station grounds Real estate Grading Tunnels Bridges, trestles, and culverts Ties (cross and switch ties) Rails Track fastenings Frogs, switches, and crossings Ballast Track laying and surfacing Fencing Crossings, cattle guards, and signs Interlocking and signal apparatus ' . Telegraph (30) telephones Station buildings and fixtures Shops, roundhouses, and turntables Shop machinery and tools Water stations Fuel stations Grain elevators Warehouses Docks and wharves , Miscellaneous structures Locomotives Passenger equipnient , . , Freight equipment = ..,..-... Miscellaneous equipment Ferries and steamships Electric plants Terminals Legal expenses, 0.5 per cent, items 2-25, inclusive, and 33. Interest, 3 per cent, items 1-34, inclusive Miscellaneous expenses: Organization, 1.5 per cent Contingencies, 10 per cent Total cost of construction and equipment. Value of nonphysical properties Total value of physical and nonphysical properties . Stores and supplies S51386, 772 27^745-313 863,337 21,699,995 1, 148,070 8,027,119 11,139.924 28,703,012 3.845,030 1,469, 781 3,723.55s 6,555,638 2,763,595 607, 542 501,883 258,98s 4, 108, 736 2, 157,228 I, 107,910 725,670 303, 289 1,336,794 258, 646 5,531,919 i» 234, 345 9,021,517 3,197,473 19, 734, 246 702,940 1,725,000 93,061 o 673,349 5, 290, 549 2,645,277 18,428,759 202, 716,262 %, 386, 772 27,745,313 863,337 21,693, 024 1,093,445 6,337,819 6, 148, 748 21,865,994 2,987,982 1,040, 120 3,723,558 6, 400, 972 1,627, 790 428, 474 448, 686 134, 797 3,111,103 I, 467, 569 882,634 522,135 201,461 1,009,043 183,910 3,831,934 856, 253 5,092,053 2,277,271 13.690.587 423,689 1,095.500 673.349 5, 290, 549 2.645,277 IS, 127, no 166,398, 156 35,814,043 20:, 212, 199 ,474,829 1,474.829 MICHIGAN. 87 (B) VaIvUATion op the NonphysicaIv Element. — The follow- ing statement, by Henry C. Adams, who had charge of the non- physical valuation of railroad property, is also taken from Michigan Political Science Association Publications : '^ "The task assigned to me by the Board of State Tax Commis- sioners was the appraisal of the nonphysical or intangible element in railway property. To appreciate the conditions under which this was done, it must be understood that the commission had already provided for the valuation of the tangible elements of rail- way property before the valuation of the nontangible elements was taken up. Professor Cooley, imder whose direction this appraise- ment was carried through, has explained to you the method which he adopted, and no one familiar with the details of this appraisal can express too strongly his appreciation of the work. "The theory upon which the computation of intangible values rests is that all property assigned to a productive purpose secures its value from the fact that it is the source of current income. Many other extraneous influences, of course, affect this value, but in the long run the 'true cash value ' must be the capitalization of an assured income. A certain portion of this value is taken up by the worth of the tangible property; the remainder, if there be an}', must be regarded as traceable to the earning power of the business. Such, at least, was the theory upon which I proceeded in appraising the intangible value of Michigan railways. "Two or three important questions arise in working out this theory. The one which first suggested itself pertains to the period that should be accepted for the purpose of arriving at average net earnings. Railway earnings are subject to violent fluctuations from year to year, and on this account a road of considerable value one year might be deprived of its value the next year should the net earnings of each year be made the basis of successive capitali- zation. Not only would this result be incorrect as representing the 'true cash value' of the property appraised, but it would be the occasion of great inconvenience to the State attempting to use such valuations as the basis of a system of taxation. To obviate this, the average earnings of ten years were accepted as the basis of computation. The reason for extending this average over ten years, in all cases where the history of the road enabled so long a period, is that ten years is commonly accepted as con- stituting an industrial cycle; it includes years of prosperity and years of adversity. "A second question pertained to the rate of interest to be used in the computation. In general, the form of the ordinary income account was followed, with this exception, however, that in place of the interest on bonds and dividends on stocks, which the ordi- nary income account allows as a deduction from earnings before <» Vol. IV, pp. 293-296. 91740°— II 7 88 TAXATION OF CORPORATIONS. a surplus is declared, there was substituted a deduction of 5 per cent of the physical appraisal of the property. This 5 per cent represents a i per cent tax upon the physical value of the prop- erty and a 4 per cent allowance to the investor. Why i per cent was accepted as the rate of tax allowance becomes evident when one recognizes the nature of the problem presented to the Board of State Tax Commissioners. As you are aware, railway property in Michigan is now taxed on the basis of gross earnings, and for some time the people of Michigan have desired to learn whether or not this specific tax imposes a burden upon railway property equal to the burden imposed upon other property. * * * In this case the rate accepted is 7 per cent, which results in giving an intangi- ble value which pays a return of 6 per cent to the investor and a I per cent tax to the State. The reason for allowing 4 per cent to the investor upon the physical value of property and 6 per cent upon the intangible value is that the former is not exposed to the many risks to which the latter is exposed. While there have been no cases bearing directly upon this point, it is believed that the trend of judicial opinion would not permit a legislature or a rail- road commission to reduce railway rates to such a point that the}' were incapable of supporting a 5 per cent profit on physical valuation. It is not so clear, however, what the courts might be inclined to say with regard to intangible values. These are certainly less stable than physical values, and under the ordinary rule that the rate of interest demanded by investors increases with the risk, it was believed that a higher rate of capitalization was justified in the case of intangible values. This entire subject is somewhat complicated, but possibly these few statements will suggest to your minds the line of reasoning which has been fol- lowed. "A third question of some importance pertains to permanent improvements. It is of course possible for a road to charge all of its improvements to operating expenses, or directly to the income account, as well as to the capital account, and in either case net earnings to be capitalized, and consequently the amount of intangible value discovered will be reduced accordingly. Much to my surprise, it was found that the ratio of operating expenses to gross earnings in Michigan railways is unusually high. This is explained, in part at least, by the fact that Michigan railroads apply the rule of charging all possible improvements to operating expenses. This is no place to enter into a discussion of the pro- priety of such a method of accounting. Much may be said on both sides of the question. It may be interesting, however, to remark that the computation of intangible values submitted to the Board of State Tax Commissioners accepted the accounts in this par- ticular as they were made to the state railroad commissioner. It is evident that lack of uniformity upon these points must result in an unequal appraisal as between the railways themselves, and, should the ad valorem system of taxation be substituted for the MICHIGAN. 89 present system of taxation on gross earnings, the legislature would be under the necessity of providing a statutory rule for charging expenditures incurred for permanent improvements. " Many other questions of a technical sort arose in working out the rule thus cursorily described, but these perhaps would not be of sufficient interest to warrant further remark upon this occasion. " Primary School Fund. In his inaugural message of January 3, 1907, the governor drew attention to the fact that all revenues from "specific taxes"" must be credited to the primary school fund, now that the state debt had been extinguished, and must be used solely for the payment of teachers' salaries. He also stated that the amount of these taxes annually exceeded the needs of this particular object. The governor recommended the consideration of an amendment of the constitution providing that from the primary school fund all in excess of $3.50 annually for each child of school age in the State be apportioned on a just basis among the university, agri- cultural college, college of mines, the three normal colleges, and the several county normal schools.'^ The new constitution, adopted February 21, 1908, does not, however, contain a provision for the distribution of the surplus to the other educational funds men- tioned, but specificially leaves the primary school fund sole benefi- ciary of the taxes in question.* Bibliography. The following is a list of the more important publications, in addition to the constitution, the statutes, and the court reports, of value in the study of corporate taxation in Michigan : Opinions of Attorney-General, 1900, 1902. Michigan Political ScienceAssociation Publications, Vol. IV, 1901. Michigan Railroad Appraisal, 1901. Smith's Tax Laws of Michigan, 1898. Reports of State Tax Commissioners, 1905-6, 1907-8. Report of State Treasurer, 19 10. a Second Inaugural Message of Governor Fred M. Warner. b Constitution, 1909, Art. X, sec. i. c See p. 72. WISCONSIN. I. GENERAL VIEW. Chief Features. First. The taxing of property rather than earnings of certain classes of pubHc-service corporations. Second. The assessment of the real estate and franchises of such corporations as personalty and the fixing of the legal situs thereof at the state capital. Third. The application of the general property tax for state and local purposes to all other corporations for profit in the same manner as applied to individuals. Property Tax. Certain corporate property is taxed by the State for state pur- poses, in lieu of other taxes. All other property, unless exempt, is taxed under the general property tax at one or more rates for local purposes, at another rate for county purposes, and at a third rate for state purposes. This tax is collected locally for state and local purposes. At pres- ent the only assessment under the general property tax for state purposes is that for the support of schools and for building a new statehouse. Corporations Subject to Taxation for State Purposes. All property of railroad, telegraph, express, and car companies, which is necessary to their operation is taxed by the State at the average rate of taxation. River-improvement companies are taxed on gross earnings. Taxes assessed locally on property used in business are deducted from the amount of the gross-earnings tax. Road companies are taxed on gross receipts by the State for state purposes. These taxes, except the tax on river-improvement companies, are in lieu of other taxes. Corporations Subject to Taxation for State and Local Purposes. Street railways operated by mechanical power, and electrical companies connected therewith, are taxed on property by the State for state and local purposes at the average rate of taxation. Such taxes are in lieu of other taxes. 90 WISCONSIN. 91 Telephone companies are taxed on gross receipts at specified rates in lieu of other taxes. Eighty-five per cent of this tax on exchange service is collected and used locally; the remaining por- tion of the tax on exchange service, and all of the tax on toll-line service, is paid to the State for state purposes. Manufacturing, mercantile, mining, and miscellaneous corpora- tions are subject to the general property tax for both state and local purposes. Stockholders and Bondholders. Shares of stock in practically all foreign and domestic corpora- tions, except banking companies, are exempt from taxation. Shares of stock in express, car, telephone, and road companies are taxable in theory only. Bonds of foreign and domestic corporations are taxable to the holders. Foreign Corporations. Foreign corporations are in general taxed like similar domestic corporations. Administration. The State Tax Commission, consisting of three members ap- pointed by the governor for terms of eight years, assesses all taxes which are levied at the average rate of taxation. The gross receipts and gross earnings taxes are based on annual reports to the state treasurer. The members of the commission are required to devote their whole time to the service of the commission. They value the entire property in the State for the purpose of the state levy on general property. This valuation also serves as the basis for cal- culating the average rate of taxation. All of the real estate is assessed at true value, chiefly upon the basis of statistics of bona fide sales. Such statistics are gathered by agents of the com- mission. The valuation of all personal property in the State is based principally upon independent assessments by county super- visors. A county supervisor of assessment is chosen in each county by the county board but is tmder the supervision and direction of the State Tax Commission. The statute places local assessors and local boards under the supervision and direction of the State Tax Commission, but fails to give the Tax Commission power to change assessments for local taxation except in cases of appeal, initiated by the taxpayer. 92 TAXATION OF CORPORATIONS. The commission fixes the state rate on general property, directs proceedings for enforcement of the law, and recommends legis- lation. The general property tax for local purposes is assessed locally. The entire general property tax is collected by local treasurers." II. DETAILS AS TO THE CONSTITUTION AND STATUTES. Constitution. The constitution provides that the rule of taxation shall be uniform, and taxes shall be levied upon such property as the legis- lature shall prescribe.* No special or private laws may be enacted for the assessment or collection of taxes, or for extending the time for the collection thereof,'' but general laws are to be passed therefor, which shall be uniform in their operation throughout the State.'' The legislature is to provide for an annual tax sufficient to defray the estimated expenses of the State for each year;^ and it is made the duty of this body to restrict the power of cities and incorporated villages in the matter of assessment and taxation so as to prevent abuses.^ Taxes may be imposed on incomes, privileges, and occupations, which taxes may be graduated and progressive; and reasonable exemptions may be provided.^ "■ Sources of revenue in Wisconsin : Municipal and local districts. — (a) General property tax; (6) poll tax; (c) licenses and fines ; {d) special taxes on corporations. County. — (a) General property tax; (6) inheritance tax; (c) licenses and fines. State. — (a) General property tax; (6) special taxes on corporations; (c) fines and licenses ; [d) inheritance tax . (e) suit tax ; (/) sales of state lands. i Constitution 1848, Art. VIII, sec. i. A law of 1854 imposing a tax on gross earnings of railroad companies in lieu of all other taxes was held constitutional in Kneeland v. Milwaukee, 15 Wis. 454, 691 (1862- 1863). The legislature has power to prescribe not only the property to be taxed, but the rule by which it must be taxed; and the only limitation of that power is that the rule shall be uniform. Wisconsin Central Railroad Co. v. Taylor County, 52 Wis. 37 (1881). This provision applies to the taxation of property only and is not intended to pro- hibit the taxation of privileges or occupations which manifestly can not be uniform in the sense in which property taxation may be uniform. Nunnemacher d. State (inheritance tax case), 129 Wis. 220 (1906). c Constitution, Art. IV, sec. 31. State v. Bell, 91 Wis. 271 (1895); Chicago and North Western Rwy. Co. v. Forest Count)', 95 Wis. 80 (1897). (^ Constitution, Art. IV, sec. 32. ■: Ibid., Art. VIII, sec. 5. /Ibid., Art. XI, sec. 3. g Ibid., Art. VIII, sec, i, as amended by Laws 1907, chap. 661, and approved and ratified at the general election of November, 1908. See Laws 1909, p. 857. wisconsin. 93 Statutes." Taxes on Property and on Earnings. All taxable property, real and personal, except that noted in the following paragraph, is subject under the general property tax to assessment at true cash value for state purposes by the State Tax Commission, and for local purposes by local assessors.'' Cor- porate property subject to the general property tax is assessed to corporations as to an individual. Such taxes are payable to local treasurers. All property necessary to the operation of certain public-service corporations is taxed by the State at the average rate of taxation. The method chiefly employed is in substance a general property tax, namely, that of taxing, at the average rate of taxation, all property necessarily used in the exercise of their corporate fran- chises. The legal situs of all such property (including real estate and franchises) is, for the purposes of taxation, the state capital. It is there taxed as personalty. The gross-receipts and gross- earnings methods are also used, but to a very limited extent. All taxes thus levied at the average rate of taxation and at specified rates on receipts and earnings, except as to river-improvement com- panies, are in lieu of other taxes on property necessarily used in the exercise of corporate franchises. Average Rate of Taxation. The tax commission determines the average rate of taxation by dividing the aggregate taxes levied on the general property in the State for all purposes (except assessments for local improvements) by the true cash value of such property as ascertained b}' the commission. The quotient thus obtained constitutes the average rate of taxation.'' Railroads. Railroad companies, both foreign and domestic, are taxed by the State at the average rate of taxation for state purposes, on prop- erty exclusively used in and necessary to the conduct of the a The statutes herein referred to are Wisconsin Statutes of i8g8, Sanborn and Berry- man's Annotations, 2 vols. 6 Stats., sec. 1034; also sec. 1052, as amended by Laws 1907, chap. 520; sec. 1055; I Laws 1903, chap. 315, as amended by Laws 1905, chap. 427. '■ Laws 1903, chap. 315, sec. 7; Laws 1909, chap. 53. ^ Laws 1903, chap. 315, sec. 7; Laws 1909, chap. 53. Chicago and North Western Rwy. Co. t;. State, supra. WISCONSIN. 95 Wisconsin, together with any other information which the com- mission may deem necessary. Street Railways. All property (including real estate and franchises) necessary to the conduct of street railways operated by electrical or mechanical power is assessed and taxed by the State at the average rate of taxation in practically the same manner as railroad property." Electric-light, heat, and power companies operated by or in connection with street railways are taxed with, in the same man- ner as, and as part of, such street railways. This tax is paid to the State; 15 per cent is retained for state purposes and the remaining 85 per cent is distributed locally in proportion to gross receipts from the operation of such companies in each town, city, and village. Each street railway company is required to furnish detailed annual reports to the tax commission, which values and assesses all property taxable at the average rate of taxation. Water, Gas, Electric-Light, Heat, and Power Companies. Electric-light, heat, and power companies, not operated by or in connection with a street railway, are assessed and taxed in the same manner as individuals, namely, under the general property tax, for both state and local purposes. Gas and water companies owned by municipalities are not subject to taxation. Such companies owned by private interests are taxable imder the general property tax. Property necessarily used in the operation of the franchises of companies of the above-named classes is taxed as personal prop- erty, at -the place where the company's principal office, place of business, or works may be located. If any such company has no principal office, place of business, or works, the poles, pipes, etc., are taxed at their situs.* Express and Car Companies. Express companies, domestic and foreign, are taxed by the State for state purposes at the average rate of taxation upon the true cash value of property in Wisconsin. <= The value of property within the State is determined by the State Tax Commission as follows: The true cash value of the entire property of each such company, including franchise, is first a Laws 1905, chap. 493. 6 Stats., sec. 1037a, as amended by Laws 1899, chap. 283. « Laws 1899, chap, in, sec. 4. 96 TAXATION OP CORPORATIONS. ascertained. From this is deducted the actual value of all real estate situated without the State, and the actual value of all its personal property not used in the express business. The amount representing the value of the remainder is then divided by the entire length of route over which the company did business. The quotient represents the value per mile, which, multiplied by the length of route within the State, equals the taxable value of the company's property in Wisconsin. Each company is required to file annually with the tax commis- sion a statement showing the number and par and market value of shares of capital stock; the amount, value, and location of its real and personal property, including money and credits; the length and name of railroad, water, and stage routes over which the company has done business during the past year, and such other information as the commission may require." This tax is in lieu of all taxes except on the property not necessary to the business. Freight-line, equipment, and sleeping-car companies are taxed at the average rate of taxation and assessed by the same commis- sion in practically the same manner as express companies. * Telegraph and Cable Companies. All property in Wisconsin necessary to the operation of the elegraph and cable business, including real estate and franchises, is deemed personalty. Such property is taxable by the State for state purposes at the average rate of taxation.*^ This tax is in lieu of all other taxes except the general property tax on property not necessary to the conduct of the business of telegraph and cable companies. The value of property within the State is determined by the State Tax Commission on practically the same basis and accord- ing to the same principles applicable to the valuation of railroad property. Telephone Companies. Both domestic and foreign telephone companies pay a graduated tax, based on total gross receipts from both exchange and toll-line service wholly within the State, and on that portion of gross receipts from interstate toll-line service which the mileage within the State bears to the total mileage over which such service was = Laws 1899, chap, iii, sees. 2, 4, as amended by Laws 1905, chap. 477, and Laws 1909, chap. 53. <> Laws 1899, chaps. 112, 113, 114, as amended by Laws 1905, chap. 477, and Laws 1909, chap. 53. ^ Laws 1905, chap. 494. WISCONSIN. 97 rendered. The rates, based on total gross receipts, are as follows: 2% per cent when the annual gross receipts are less than $100,000; 3 per cent when such receipts amount to $100,000 and are less than $300,000; 3K per cent when they equal $300,000 and are less than $500,000, and 4 per cent when they equal or exceed $500,000.'' The tax on the entire taxable receipts from toll-line service, together with 15 per cent of the tax on receipts from exchange service, is paid to the State for state purposes. The remaining 85 per cent of the tax from exchange service is paid to each city or town wherein an exchange is located.'' The property of such companies is exempt from other taxation, except real estate not exclusively used in the conduct of their busi- ness.* Such real estate is subject to the general property tax for state and local purposes. River-Improvement Companies. Dam and boom companies organized for driving or storing logs, operating in navigable waters of the State, pay to the State for state purposes a tax of 2 per cent on their gross earnings, less deductions for taxes on such property as is used in their business and assessed locally. '^ Road Companies. Such companies pay to the State for state purposes a tax of 3 per cent on gross receipts. This tax is in lieu of all other taxes. "^ Manufacturing, Mining, Mercantile, and Miscellaneous Companies. The property of these companies is subject to the general prop- erty tax for both state and local purposes. The personal property of such companies is assessed locally; in general it is assessed where the principal office or place of business is located.*^ In the absence of such office or place of business, or of an agent in charge of the personal property of foreign corporations, the same is assessed where located.-'' o stats., sec. 1222a, as amended by Laws 1905, chap. 488, and Laws 1909, chap. 535. 6 Stats., sec. 1038, subdiv. 27, as amended by Laws 1905, chap. 488, sec. 3. The city of Oshkosh attempted to impose on a telephone company a license fee for the privilege of using its streets and alleys. The court held that such a fee could not be charged without express legislative authority, as the gross-receipts tax is in lieu of all other taxes. Wis. Tel. Co. u. City of Oshkosh, 62 Wis. 32 (1884). c Stats., sees. I222g and 12221. ^ Ibid., sec. 1222m. - Ibid., sec. 1041. / Ibid., sec. 1040, as amended by Laws 1909, chap. 70. 98 TAJXATION OP CORPORATIONS. Stockholders and Bondholders. Shares of stock in practically all foreign and domestic corpora- tions, except banking companies," are exempt from taxation.* The exemptions, however, do not seem to extend to stock in cor- porations not situated and doing business in the State. The law is not specific as to exemptions of shares of stock of telephone, express, car, and road companies, but in practice they are not taxed. Bonds of foreign and domestic corporations are taxable to the holder.*^ Foreign Corporations. Foreign corporations are in general taxed like similar domestic corporations. III. FINANCIAL RESULTS. Classification of Revenue. The proportion of total state taxes for state purposes derived from corporations for 1910 was 71 per cent. Total State Receipts, Taxes prom Corporations, Other Taxes, and Receipts From Sources Other than Taxes, Year ended June 30, 1910.'' Total state receipts, all sources $9, 737, 278. 07 Special taxes from corporations; Railroad companies $3, 163, 443 Street-railway and electric-light companies « 63, 204. Telegraph companies 21, 504. Telephone companies S3; 259 Express companies 9, 400. Sleeping-car companies 5, 771 Freight-line and equipment companies 3, 705 Boom and improvement companies 191 Plank roads 263 Fire-insurance companies / 146, 455. Life-insurance companies g 462, 043 Guarantee and accident companies '' 29, 590. 70 93 93 47 96 53 02 28 23 01 74 " It is the general custom for banks to pay the tax on stock for stockholders. *> Stats., sec. 1038, subdiv. g. Exemptions: Steam-railroad stock, Laws 1903, chap. 315, sec. 25; street-railway stock. Laws 1905, chap. 493, sec. 25; telegraph and cable companies'. Laws 1905, chap. 494, sec. 25. c Stats., sec. 1036, as amended by Laws 1899, chap. 346. ^ and 4 per cent, respectively. The present law* further class- ifies gross receipts and provides rates ranging from 2>^ to 4 per cent. The State Treasurer's Report, 1907-8, states, = especially with reference to farmers' mutual companies, that some more equitable system of taxing telephone companies should be devised whereby the State would derive its just share of taxes. This statement is supported by statistics which show that 38 companies pay no taxes to the State, 10 companies pay from 2 to 7 cents each, and 54 com- panies pay over 7 cents and less than $1 each. One company reporting nearly 10,000 miles of wire within the State pays a total tax of $25.72. The governor, in his message of 1909, advocates the application of the ad valorem method to these companies. ** Bibliography. The following is a list of the more important publications, in addition to the constitution, the statutes, and the court reports, of value in the study of corporate taxation in Wisconsin: Reports of Wisconsin State Tax Commission, 1898, 1901, 1903, 1907, and 1909. Biennial Reports of the State Treasurer, 1907-8, 1909-10. Biennial Reports of the Secretary of State, 1907-8, 1909-10. Messages of the Governors of Wisconsin, 1901, 1903, and 1909. Instructions to Assessors and Boards of Review, issued by the Wisconsin State Tax Commission, 1908. The Financial History of Wisconsin, Raymond Vincent Phelan, Bulletin of the University of Wisconsin, No. 193, January, 1908; Economics and Political Science Series, vol. 2, No. 2, pp. 183-475. The Taxation of the Gross Receipts of Railways in Wisconsin, Guy Edward Snider; Publications of the American Economic Association, November, 1906, third series, Vol. VII, No. 4. Proceedings of the Annual Meetings of the Supervisors of Assessments, 1902 to date. » Laws 1905, chap 488. '' Laws 1909, chap. 535. <•' State Treasurer's Report, 1907-8, pp. 12-13. -A- later discussion will be found in State Treasurer's Report, 1909-10, pp. 3-4. <* Governor's message to legislature, Jan. 13, 1909, p. 12. INDEX. -A^bstracts of taxation: Page. Illinois 20 Indiana ig Michigan 21 Ohio 19 Wisconsin 22 Adams, Henry C, railroad valuation, ^richi- gan 87 Administration of tax laws: Illinois 54 Indiana 41 Michigan 70 Ohio 24 "^'isconsin gi Ad valorem method, change from receipts or earnings method : Indiana 49 Michigan 79^81 Wisconsin 94n.g9 Railroads, revenue comparisons 102 Assessment: Illinois — By State board 62 Revenue commissions' reports 65,66 Table 64 Total taxable property 64 Indiana — Comparison of taxable property 51 Domestic corporations 50 Transportation and transmission companies 48, 51 Michigan, public-service corporations.,.. 73, 79,80-89 Ohio, by State Tax Commission 23, 26, 27 Wisconsin — Railroads 94, loi State assessment 100 Bank of Indiana. State 48 Bibliography on taxation: Illinois 68 Indiana 52 Michigan 89 Ohio 39 Wisconsin 104 Bondholders. See Stockholders and bond- holders. Bridge companies: Indiana 45 Foreign bridge and ferry companies 46 Michigan 76 Business corporations. See Manufacturing and mercantile corporations. Cable companies, Wisconsin g6 Canal and river improvement companies, Michigan 75 Capital, State, Wisconsin, taxationsitus 90,93 Capital-stock tax: Page. Deductions from Tables B and C 12 Illinois 53>56 Michigan 69, 7i> 75, 76n Ohio 24,29,32,37 Car companies; Illinois, transportation companies 57 Indiana 40, 44 Assessnaent comparisons 50, 51 Historical notes 49 Michigan 74 Unique application of ta.x on 7g Ohio 24, 28 Wisconsin 90,95 Centralization of administration. Arguments for and against Illinois 20 Indiana 20, 48 Michigan 21 Ohio 19-33 Wisconsin 22 Undertakings adapted to 4 Not adapted to 4 Chicago & Alton Railroad 63 Classification of revenue. See Financial re- sults. Cole law, Ohio 39, Collateral inheritance tax. See Inheritance tax. Collection of taxes: Illinois 54 Indiana 41.43 Michigan 71 Ohio 25, 26 Wisconsin 92 Importance of mode of collection and dis- tribution 14 Table A 8,9 Comments on taxation systems. Sec par- ticular State. Constitutional provisions on taxation. See particular State. Cooley, Mortimer E., railroad valuation, Michigan 83 Cooling companies, Ohio 24, 28 Corporate excess: Comparison of theories in Connecticut. Illinois, Indiana, and Massachusetts 61 Illinois, assessments 63 Indiana 40, 44. 50 Corporate loan tax, deductions from Tables B andC 13 Death duties. See Inheritance tax. Defects in Illinois noticed by revenue com- mission 65 Depot companies. See Station companies. 105 io6 INDEX. Distribution of taxes: Page. Tirichigan, primary school fund .. 72,770., 79, 89 Wisconsin 9Sf 103 Diversity of methods of taxation 17 Domestic corporations, Indiana, assessment of 50 Double taxation, ilichigan 7m learnings. See Receipts or earnings tax. Electric companies. See Lighting and power companies; Street railwajs. Equalization boards. See Administration. Equipment companies, Ohio. See Car com- panies, Ohio. Erie Railroad, Pennsylvania 13 Excise tax: Ohio. See Capital-stock tax, Ohio; Re- ceipts or earnings tax, Ohio. Indiana, car companies 49 Express companies: Illinois — Constitutional provision 55 Recommendation by revenue com- mission 66 Indiana 40, 43 Assessment comparisons 5°, 51 Foreign 41.46 Michigan 73 Assessment of 81 Unique application of tax on 79 Wisconsin 90, 95 Express, telegraph, and telephone companies: Ohio 23 , 2 7 Appraisement by State officials 35136 Gross-receipts tax increased 35 Historical notes 32.35 iPeatures, chief, of corporate taxation. See particular State. Eees, corporation, Illinois, report State tax commission 67 Field investigation i Financial corporations. See Financial results under particular State, Financial results. See particular State. Foreign corporations: Illinois 54, 59 Indiana 41,46,48 Michigan 70, 77 Ohio 24, 30 Capital-stock tax 29,37 Wisconsin 91.98 Fraction of United States covered 2 Franchise: llUncis, included in capital-stock tax. 53- 56, 56n Indiana 45n Michigan 72, 76n Wisconsin, certain public-service corpora- tions 93 Frauchisetax: Ohio, capital-stock tax. 29n,3on,39 Freight-Une companies. See Car companies. Gas companies. See Lighting companies. General business corporations. See Manufac- turing and mercantile corporations. General property tax. See Property tax; Statt general property tax. 45 24; 28 95 60 Page. General view of corporate taxation. See par- ticular State. Gross receipts. See Receipts or earnings tax. I-I eating companies: Indiana .- Ohio Wisconsin Historical notes on corporate taxation: Illinois Indiana 48 Michigan ^g Ohio 31 Wisconsin 99-103 "Holding" companies, Ohio 39 Honorary Tax Commission, Ohio 34' 35 Illinois: Abstract of corporate taxation system. . . 20 Comments on system 60 Constitutional provisions 55 Features, chief 53 Financial results 59 General view 53 Statutory provisions 55 lUinois Central Railroad Company 9, 53, 55, 57, 61 Indiana: Abstract of taxation 19 Comments on system 48 Constitutional provisions 42 Features, chief 40 Financial results 46 General view 40 Statutory provisions 42 ' ' Indiana system, ' ' the 49 Inheritance tax revenue in 17 States 16, 17 See also Financial results, under particu- lar State. Insurance companies. See Financial results, under particular State. ISIinds of taxes in 17 States 7 Langdon tax act, Ohio 33-34.35 Lighting companies: Indiana 45 Michigan 76 Ohio. 24,28 Wisconsin, 95 Liquor tax revenue in 17 States 16, 17 Little Miami Railroad, Ohio 32 Local taxation of corporations, tendency away from 2 Lump-sum tax, deductions from Tables B and C 13 Manufacturing and mercantile corporations; Illinois 53-57 Indiana 40, 45, 50 Michigan 69. 76 Ohio 24.29 Wisconsin 9i> 97 Mercantile corporations. See Manufacturing and mercantile corporations. Messenger or signal companies, Ohio 24, 28 Michigan: Abstract of corporate taxation system.. 21 Comments on system 78 INDEX. 107 Michigan— Continued. Page . Constitutional provisions 71 Features, chief , 69 Financial results 77 General view 69 Statutory provisions 71 Middle Atlantic States, tabular comparisons . 8,9; facing p, 10; facing p. 13 Mileage tax, deductions from Tables B and C . 13 Mining corporations: Illinois 56 Indiana 45 Michigan 69, 76 Wisconsin 9ij97 Miscellaneous corporations: Indiana 40, 45 "Wisconsin 91,97 Mode of collection and distribution, impor- tance of 14 >iavigation companies: Illinois, transportation companies 57 Indiana 41,45,46 Michigan. See Property tax, iMichigan. Ohio 24, 28 Wisconsin. See Property tax, Wisconsin. Net profits tax, Michigan 69, 71 , 76 New England States, tabular comparisons. . . 8,9; facing p. 10; facing p. 13 Nichols law, Ohio 28 n, 35 Ohio: Abstract of corporate taxation system. . . 19,33 Conunents on system 31 Constitutional provisions and limita- tions 2S;33,35 Features, chief 23 Financial results 30 General view 23 Statutory provisions 26 Ohio taxation system, resemblance to oth- ers 33 Oskosh, Wis., telephone license fee 97n ^Percentages of state revenue from certain taxes 15, 16, 17 See also Financial results; Abstracts of taxation. Per cent of state revenue from corporations: Illinois 59 Indiana 46 Michigan 77 Ohio 30 Wisconsin 98 Personal property: Wisconsin — Includes certain corporate real estate and franchises 90, 93 State assessment of 100 See also Property tax. Pipe-line companies: Indiana 40; 43 Assessment comparisons , . 50, 51 Foreign 41 j 46 Ohio 24, 28 Plank and gravel road companies, jMichigan. 76 Plan of report i Power companies: Page. Indiana 45 ^Michigan 76 Wisconsin 95 Primary school fund, Michigan. 69,71, 72, 77n, 79,89 Printing companies, Illinois 56 Property tax: Deductions from Tables B and C ii Illinois .* 53j5S Indiana 40, 42 Michigan 69, 71, 76, 79 Ohio 23 , 26 Wisconsin 90, 93 Proportion of revenue from corporations. See Per cent, etc. Public service corporations. See particular class. Public utility corporations: Ohio, defined by Langdon act 34 See also particular class. Purpose of report i Kailroads: Central taxation arguxnents 4, 3 Illinois, steam and electric 57> 63, 65 Indiana 40, 42 Assessment comparisons 50, 51 Michigan 72 Unique application of tax on 79 Valuation of 72, 79,80,81,82-89 Ohio *. 23, 26,32 Assessment comparisons 34. 35 Wisconsin 93 Revenue comparisons 102 \'"aluation of 94, loi Rate of taxation: Ohio 26,33,36 \\'isconsin 93 Real estate, Wisconsin, state assessment of . . . 100 See also Property tax. Receipts, state. See Financial results, under particular State. Receipts or earnings tax: Deductions from Tables B and C 13 Illinois — Illinois Central R. R. Co 54. 57-6i Recommendations by revenue com- mission 66 Indiana — Change to ad valorem method 49 Foreign bridge and ferry companies. 46 Michigan- Changed and compared to ad valorem tax 69, 79, 81 Road companies 71 n, 76 Ohio- Railroads 23,26,32,35,38 Express, telegraph, and telephone companies 23,27,35,38 Other public service corpora- tions 24,28,37,38 Wisconsin 90, 91 Change to ad valorem metnod, .... 94n,9g Little used 93 Railroads, revenue comparisons 102 River improvement and road com- panies 90, 97 io8 INDEX. Page. Region where most important corporate tax- ation 2 Results, chief, of investigation 17 Retention, state. See State retention. Revenue commissions, Illinois, reports 65, 66 Revenue, sources. See Sources of revenue. Revenue, state. See Financial results under particular State; Abstracts of taxation; Table D. Revision, revenue laws, Illinois, recommen- dation by commission 65 River improvement and canal companies, Michigan 75 River improvement companies, Wisconsin,. 90,97 Road companies: Michigan 76 Wisconsin 90, 97 School fund, Michigan. See Primary school fund. Scope of investigation i Separation, sources state and local revenue: Illinois, recommended 65 Indiana, considered 50 Ohio, recommended 36 Wisconsin, tendency toward 22 Sources of information i Sources of revenue: Illinois'. 54 n Indiana 41 n Michigan 71 n Ohio 25 n Wisconsin 92 n Special taxation, Illinois. IlHnois Central Railroad Co 9- 54? 55) .'i7-6i 'Specific tax, " Michigan 69- 7r Unique application of 79 State business license tax, deductions from Tables B and C i, State centralization. See Centralization of administration. States' collection and retention of all or part of taxes, Table A 8,9 Discussion of 6,7.18 State machinery for corporate taxation, argu- ments for and against 2 State purposes, undertakings peculiarly taxa- ble for 5 State retention of corporate taxes 7, 18 Arguments for and against 5 Table A 8,9 Discussion of 6 State tax commissions: Illinois, state board of equalization 54 Indiana, 41.43.45,51 Michigan ^o Ohio 24,26,33,34,35,36 Wisconsin 91, 93, too Station companies: Michigan , 72, 71 Ohio 24.28 Statutory provisions on taxation. See par- ticular State. Steamboat companies, Indiana 41,45,46 Stockholders and bondholdr=rs: Illinois 54,-8 Indiana 41,46 Stockholders and bondholders — Continued. Page. Michigan 70, 77 Ohio., 57 24.30 Wisconsin 91,98 Street railways: Illinois Indiana. See Railroads, Indiana, Michigan 76, 76n Ohio. Sec Railroads, Ohio. Wisconsin Succession tax. Sep Inheritance tax Summary of method of taxation in 17 States 90. 95. 102 17 Tables: A — States' collection and retention of all or part of taxes Discussion of 6, B — Taxation methods in 17 States, ar- ranged according to corporations, facing C — Taxation methods in 17 States, ar- ranged according to things taxed, facing Discussion of Tables B and C Capital-stock method Corporate-excess method Corporate-loan method General property tax Lump-smn method Mileage method Receipts or earnings method , . . State business license method D — State revenue and percentages from certain taxes Corporation taxes Discussion of General property taxes Inheritance taxes Liquor taxes Miscellaneous taxes See also Financial results. Assessment and levy comparisons: Illinois, railroads and certain domes- tic corporations Indiana Michigan, railroads Ohio- Express, telegraph, and telephone companies Public service corporations Railroads Wisconsin, railroads Receipts from taxes. See Financial re- sults. Tonnage tax, Indiana Tramways. See Street railways. Transmission corporations. See particular class. Transportation corporations. See particular class. Telegraph companies: Central taxation arguments Illinois 55, Indiana Assessment comparisons Foreign Michigan Unique application of tax on p. 13 10-13 12 13 13 II 13 13 13 13 16,17 16,17 14-16 16.17 16,17 16,17 16, 17 64 51 81,86 37 38 IS 102 4iS 58,66 4°. 43 5°; SI 41,46 75 79 INDEX. 109 Telegraph companies— Continued. Page . Ohio. See Express, telegraph, and tele- phone companies, Ohio. Wisconsin 96, 103 Telephone companies, Illinois: Recommendation by tax commission 66 Indiana 40. 43 Assessment comparisons 50, 51 Foreign 41,46 Michigan 75 Unique application of tax on 79 Ohio. See Express, telegraph, and tele- phone companies, Ohio. Wisconsin 9i> 96, 103 XJnion station companies. See Station com- panies. Valuations. See Assessment. Page. "\?V^ater companies: Indiana 45 Michigan 76 Ohio 24, 28 Wisconsin 95 Water transportation companies. See Na^'i- gation companies. Wisconsin; Abstract of corporate taxation system. . . 22 Comments on system 99 Constitutional provisions 92 Features, chief 90 Financial results 98 General view 90 Statutory provisions 93 O - - — ■ — : T ^ /-• jft- 15 I&13 TAXATION OF IBRPORATIONS PART IV-WESTERN CENTRAL STATES REPORT OF THE COMMISSIONER OF CORPORATIONS ON THE SYSTEM OF TAXING /MNUFACTURING, MERCAN- TILE, TRANSPORTATION, AND TRANSMISSION CORPORATIONS IN THE STATES t)F MINNE- SOTA, NORTH DAKOTA, .SOUTH DAKOTA, IOWA, NEBRASKA, KANSAS, AND MISSOURI NOVEMBER 29, 1912 WASHINGTON : : GOVERNMENT PRINTING OFFICE : : 1912 TAXATION OF CORPORATIONS PART IV-WESTERN CENTRAL STATES REPORT OF THE COMMISSIONER OF CORPORATIONS ON THE SYSTEM OF TAXING MANUFACTURING, MERCAN- TILE, TRANSPORTATION, AND TRANSMISSION CORPORATIONS IN THE STATES OF MINNE- SOTA, NORTH DAKOTA, SOUTH DAKOTA, IOWA, NEBRASKA, KANSAS, AND MISSOURI November: 29, 1912 WASHINGTON : : GOVERNMENT PRINTING OFFICE : : 1912 CONTENTS, Page. Table of cases v Explanation of abbreviations vii Letters of transmittal ix Letter of submittal xi Introduction i This report one of a series i Scope of the introduction to the previous reports i Scope of the introduction to this report 2 The relative importance of taxation of corporations — Table A 3,4 The great importance of railway taxation 5 Analysis of state corporation taxes for 1910 — Table B 6 Importance of definite rules for valuing railways g Corporate excess system not successful when administered by local officials . g Advisability of a low rate on intangible personalty 10 Basis of Table C 10 Table C 12 Low rate on intangible personalty in Minnesota and Iowa 14 Low rate on intangible personalty in Pennsylvania, Connecticut, and Mary- land 14 New York method of treating intangible personalty 15 Kinds of intangible personalty subject to the low rate method 15 Collection and distribution of the low rate taxes 16 Success of the low rate method 16 Classification of taxes paid by corporations — Table D facing p. 17 Importance of uniformity throughout the United States 17 Abstract by States 19 Minnesota 19 North Dakota ig South Dakota 20 Iowa 21 Nebraska 21 Kansas 22 Missouri 22 Systems by States 24 Minnesota 24 General view 24 Constitutional provisions 26 Statutes 26 Financial results 34 Comments 35 Bibliography 50 IV CONTENTS. Systems by States — Continued. • p^gg North Dakota '. . . rj " General view , ji Constitutional provisions 53 Statutes 54 Financial results 59 Comments 60 Bibliography 64 South Dakota 65 General view 65 Constitutional provisions 66 > Statutes 66 Financial results 71 Comments 72 Bibliography 76 Iowa \. . . 77 General view 77 Constitutional provisions 78 Statutes 78 Financial results 83 Comments 84 Bibliography 8g Nebraska 90 General view go Constitutional provisions 92 Statutes 93 Financial results 100 Comments loi Bibliography 105 Kansas 106 General view 106 Constitutional provisions 108 Statutes * 108 Financial results 113 Comments 114 Bibliography 120 •Missouri 121 General view 121 Constitutional provisions 122 Statutes 125 Financial results . 130 Comments 131 Bibliography 136 Index 137 TABLE OF CASES, Page. Aachen & Munich. Fire Insurance Co. v. City of Omaha, 72 Nebr., 518 (1904) . . 92 Adams County 1). Kansas City & O. Railroad Co., 71 Nebr., 549 (1904) 95 Arnold v. Hawkins, 95 Mo., 569 (1888) 124 Cape Girardeau v. Riley, 72 Mo., 220 (1880) '. 129 Cedar Rapids & M. C. Ry. Co. v. Cummins, 125 Iowa, 430 (1904) 80 C. B. & Q. R. R. Co. V. Richardson County, 61 Nebr., 519 (1901) 94 Chicago Great Western Ry. Co. v. Minn., 216 U. S., 234 (1910) 27 C. M. & St. P. Ry. Co. V. Phillips, iii Iowa, 377 (1900) 80 C. M. & St. P. Ry. Co. V. Cass County, 8 N. Dak., 18, 22 (1898) 55 C. R. I. & P. Ry. Co. V. City of Davenport, 51 Iowa, 451 (1879) 80 City of St. Louis v. Savings Bank, 49 Mo., 574 (1872) 123 Commonwealth of Pennsylvania v. Delaware Division Canal Co., 123 Pa., 594, 2 L. R. A., 798 (1889) 26 Coimty of Ramsey 7;. C. M. & St. P. Ry., 33 Minn., 537 (1885) 28 County of Todd -v. St. Paul, M. & M. Ry. Co., 38 Minn., 163 (1888) 28 Express Co. v. City of St. Joseph, 66 Mo., 675 (1877) 123 Fargo &S. W. Ry. Co. v. Brewer, 3 N. Dak., 34 (1892) 60 Fitterer -v. Crawford, 157 Mo., 51 (1900) 124 Foster-Cherry Commission Co. ^. John Caskey et al., 66 Kans., 600 (1903) 113 Glasgow V. Rowse, 43 Mo., 479 (1869) 123 Great Northern Ry. Co. v. Minn., 216 U. S., 206 (1910). 27 Heman Construction Co. v. Wabash Railroad Co., 206 Mo., 172, 179 (1907) 125 High School District v. Lancaster County, 60 Nebr, , 147 (-1900) 92 Hunt-!;. Board of County Commissioners of Allen County, 82 Kans., 824 (1910). 112 Judy V. Beckwith, 137 Iowa, 24 (1908) 83 Kansas City v. Building and Loan Association, 145 Mo., 50 (1898) 124 Lancaster County -v. MacDonald, 73 Nebr., 453 (1905) 93 Leavenworth v. Ewing, 80 Kans., 58 (1909) m Lehigh Valley v. Peimsylvania, 145 U. S., 202 (1891) in Lincoln Traction Co. tj. City of Lincoln, 84 Nebr., 327 (1909) 96 McConaughyi;. Secretary of State, 106 Minn., 392 (1909) 26 Mercantile Incorporating Co. v. Junkin, 85 Nebr., 561 (1909) 99- loS Morrill v. Bentley, 150 Iowa, 677 (1911) 83 M. St. P. & Sault Ste. Marie Ry. Co. v. Dickey County, 11 N. Dak., 107 (1902) . 55 M. St. P. & Sault Ste. Marie Ry. Co. v. Oppegard, 18 N. Dak., i (1908) 55 Mutual Benefit Life Ins. Co. v. County of Martin, 104 Minn., 179, 181 (1908). . 26 Nebraska Tel. Co. ■:;. Hall County, 75 Nebr., 405 (1906) 95 Nebraska Tel. Co. v. City of Lincoln, 82 Nebr., 59 (1908); 84Nebr., 325 (1909). 96 Northern Pacific R. R. Co. v. Barnes, 2 N. Dak., 310 (1892) 60 Northern Pacific Railroad Co. v. McGinnis, 4 N. Dak., 494 (1894) 60 Northern Pacific Railroad Co. v. Raymond, 5 Dak. Ter., 356, j. L. R, A., 732 (1888) ^° Olesoni/. Cuming County, 81 Nebr., 209 (1908) 93 Pacific Express Co. v. Seibert, 142 U. S., 339 (1892) 128 Patterson v. Wilson County, 83 Kans., 224 (1910) 113 V VI TABLE OF CASES. Page. Railroad Co. v. State Board of Equalization, 64 Mo., 294 (1876) 124, 135 Scandinavian Mutual Association v. Kearney County, 81 Nebr. , 468, 473 (1908) , 93 St. P., M. & M. Ry. Co. v. Howard, 23 S. Dak., 34 (1909) '68 St. Louis Mutual Life Ins. Co. v. Board of Assessors, 56 Mo., 503 (1874) 123 State V. Duluth Gas & Watej: Co., 76 Minn., 96; 57 L. R. A., 63 (1899) 40 State V. Duluth and Northern Minnesota Railway Co., 102 Minn., 20 (1907) .... 27 State V. Holcomb, 81 Kans., 879 (1910) 112 State V. Lesser, 141 S. W. Rep., 888 (1911) 129 State V. Linn County Court, 44 Mo., 504 (1869) 124 State ■;;. Luther, 56 Minn., 156 (1894) 37 State V. Minn. & International Ry. Co., 106 Minn., 176 (1908) 29 State V. Minneapolis & St. Paul Suburban Ry. Co., 130 N. W., 71 (1911). . . .'. . 32 State V. Northwestern Telephone Exchange Co., 84 Minn., 459 (1901); 96 Minn., 389 (1905); 107 Minn., 390 (1909) 28,29 State V. Railroad, 77 Mo., 202 (1883) 123 State V. St. Paul & Duluth R. R., 81 Minn., 422 (1900) 28 State 1). St. P., M. &M. Ry. Co., 30 Minn., 311 (1883) 28 State V. St. Paul Union Depot Co., 42 Minn., 142 (1889) 29 State V. U. S. Express Co., 131 N. W., 489 (1911) 29 State V. Vinsonhaler, 74 Nebr., 675 (1905) 105 State V. Western Union Tel. Co., 96 Minn., 13 (1905); iii Minn., 21 (1910). ... 30 State V. Western Union Tel. Co., iii Minn., 21 (1910) 28 State ex rel. Ahem v. Walsh, 31 Nebr., 469, 474 (1891) 92 State ex rel. -v. Alt, 224 Mo., 493 (1909) 129 State ex rel. American Express Co. v. State Board of Assessment and Equaliza- tion, 3 S. Dak., 338 (1892) 68 State ex rel. City of Springfield v. Smith, 138 Mo. , 645 (1897) 123 State ex rel. v. Fleming, 70 Nebr., 523, 529 (1903) 93 State ex rel. v. Heman, 70 Mo., 441 (1879) 124 State ex rel. v. Metropolitan Street Ry. Co., 161 Mo., 188 (1901) 127 State ex rel. v. Railroad, 92 Mo., 137 (1887) 123, 124 State ex rel. v. Railroad, loi Mo., 120 (1890) 124 State ex rel ■v. Railroad, 135 Mo., 618 (1896) 125 State ex rel. v. Railroad, 162 Mo., 391 (1901) 125 State ex rel. v. Railway Co., 123 Mo., 72 (1894) 132 State ex rel. v. Savage, 65 Nebr., 714 (1902) '. 93 (State ex rel. v. Sheldon, 79 Nebr., 455 (1907) 94 State ex. rel. v. Western Union Tel. Co., 165 Mo., 502 (1901) 128, 129 Steams v. Minnesota, 179 U. S., 223 (1900) 38 Valle V. Ziegler, 84 Mo., 214 (1884) 123 Valley Inv. Co. v. Board of Review, 152 Iowa, 84 (1911) 79 Waterloo & C. F. R. T. Co. v. Board of Supervisors, 131 Iowa, 237 (1906) 80 Weis V. Stubblefield, 85 Kans., 199 (191 1) 112 Western Union Tel. Co. v. Dodge County, 80 Nebr., 18 (1907) 96 Western Union Tel. Co. ■j;. Kans., 216 U. S., i (1910) no Western Union Tel. Co. v. Omaha, 73 Nebr., 527, 539 (1905) 92,93i9S>98 EXPLANATION OF ABBREVIATIONS. Dak. Ter.— Dakota Territory. et seq. — and the following. ex rel. — upon the relation of. Gen. Stats. — General Statutes. Ibid. — the same. Iowa. — Iowa Supreme Court Reports. Kans. — Kansas Supreme Court Reports. L. R. A. — Lawyers' Reports Annotated. Minn. — Minnesota Supreme Court Reports. Mo.^ — Missouri Supreme Court Reports. Nebr. — Nebraska Supreme Coiul; Reports. N. Dak. — North Dakota Supreme Court Reports. N. W. — Northwestern Reporter. Pac. Rep. — Pacific Reporter. R. L. — Revised Laws. R. S.— Revised Statutes. S. Dak. — South Dakota Supreme Court Reports. Stats.— Statutes. Sup . — Supplement. LETTERS OF TRANSMITTAL. Department of Commerce and Labor, Office of the Secretary, Washington, November 29, igi2. Sir: I have the honor to transmit herewith Part IV of a Report of the Commissioner of Corporations on Taxation of Corpora- tions, said part dealing with the systems of corporate taxation in the States of Minnesota, North Dakota, South Dakota, Iowa, Nebraska, Kansas, and Missouri. Very respectfully, Chari.es Nagei., Secretary. The President. Department of Commerce and Labor, Bureau of Corporations, Washington, November 29, igi2. Sir: I have the honor to transmit herewith Part IV of a Report on Taxation of Corporations, made to the President under your direction, and in accordance with the law creating the Bureau of Corporations. This part deals with the systems of corporate taxa- tion in the States of Minnesota, North Dakota, South Dakota, Iowa, Nebraska, Kansas, and Missouri. I desire to mention as especially contributing to the preparation of this report, Mr. M. Markham Flannery of this Bureau. Very respectfully, Luther Conant, Jr., Commissioner. To Hon. Charles Nagel, Secretary of Commerce and Labor. LETTER OF SUBMITTAL. Department of Commerce and Labor, Bureau of Corporations, Washington, November 29, igi2. Sir: I have the honor to submit herewith Part IV of the Bureau's Report on State Taxation of Corporations. This part deals with the Western Central States, namely, Minnesota, North Dakota, South Dakota, Nebraska, Iowa, Kansas, and Missouri. Parts I to III, already issued, covered the New England, Middle Atlantic, and Eastern Central States. The subject covered by Part IV is presented as of January i, 191 2. This part of the report is presented in substantial uniformity of arrangement with the parts already issued, and like those it is almost entirely confined to a concise exposition of facts, with practically no conclusions as to theories of taxation. Such con- clusions are reserved until the facts have been developed for other sections of the country. Taking the Western Central States as a whole, a noteworthy feature of their -tax systems is that they depend in the main upon the general property tax and rely to a comparatively small extent upon special taxes from corporations as compared with States in the three groups already studied. Minnesota is a notable excep- tion, securing two-thirds of its revenue from special corporation taxes. Taxation of inheritances and of liquor privileges, which figure conspicuously both in the other groups as a whole and especially in individual States of those groups, forms, with prac- tically a single exception (that of the liquor tax in Missoiu-i), a very unimportant factor in the state revenues of the Western Central group. Of corporation taxes in these western States, those from railroad companies are the most important, although insurance companies contribute largely to such taxes. Another characteristic of taxation in these States is the almost universal failure to tax the "corporate excess" of mercantile xt XII LETTER OP SUBMITTAL. and manufacturing companies. Four States — Minnesota, North Dakota, South Dakota, and Kansas — have laws providing for such taxation, but either there is no attempt whatever to enforce them, or their application is a practical failure. Kansas, which ostensibly endeavors to enforce its corporate excess tax law, collects only about $13,000 annually from this source. Each State in this group exempts shares of stock in the hands of holders when the property of the corporation is taxed in such State. Minnesota is perhaps the most interesting member of this group. A conspicuous' feature of its tax system is the taxation of gross earnings of railroad and other public-service corporations. The gross-earnings method is here applied more extensively and yields a greater percentage of state revenue than in any other State thus far studied. It is regarded by the State as one of the most satisfactory features of its tax system. The taxation of ore properties by Minnesota is another interesting feature. As a result of a new system, which taxes ore in the groimd, the taxable value of such property and the revenue therefrom have increased enormously. In contrast with the great dependence placed by Minnesota upon the gross-earnings method, the people of South Dakota in 1 9 10 refused to adopt an amendment to the state constitution pro- viding for such a tax. In that State the general property tax is the chief rehance, contributing 89 per cent of the total state — as distinguished from local — revenue from taxes, as against 10 per cent from special corporation taxes and fees, and i per cent from miscellaneous sources. In North Dakota the general property tax is likewise the chief reliance, here also furnishing 89 per cent of the state tax revenue as against 1 1 per cent from special corporation taxes, fees, etc. Nebraska, in 1910, secured 87 per cent of its total state tax revenue from the general property tax. Nebraska is the only State of this group which has a capital stock tax. This is levied at low graduated rates on issued capital stock, and is applicable to practically all corporations. Kansas and Iowa secure 86 per cent and 70 per cent, respectively, of their state tax revenue from the general property tax. Mis- souri, however, obtains only 52 per cent from this source. The relatively low percentage from this tax in Missouri is apparently due to the large revenue from inheritance and liquor taxes. LETTER OF SUBMITTAL. XIII Mention may be made of the severe restrictions on taxation imposed by the constitution of the State of Missouri. These restrictions, in the opinion of many, have seriously embarrassed the conduct of the State's finances. Only two of these Western Central States — Minnesota and Kansas — have permanent tax commissions whose members de- vote their entire time to taxation matters. In the remaining States the tax boards are composed of state officials who usually can devote but a fraction of their time to such duties. Separation of the sources of state from local revenue, although agitated in several States of this group, has not been carried far, except in Minnesota. In Missouri a proposed constitutional amendment providing for such a division of revenue was recently defeated. Minnesota and Iowa have recently adopted the system of taxing intangible personalty at a low uniform rate. Dtiring the first year of the operation of this tax in Minnesota,, assessments of intangible personalty increased more than ninefold. In other States where this tax has been adopted, namely, Connecticut, Pennsylvania, and Maryland, it has been found successful, not alone in equalizing to a very considerable degree the tax burden, but in yielding a materially increased revenue from property which in large me&stu-e formerly escaped taxation. It may be noted that the State of New York has recently endeavored to reach intangible personalty by its "mortgage recording" and "secured debts" taxes. These taxes impose a low rate, in reality a recording fee, on bonded and other secured indebtedness. They are, however, differentiated from low tmiform rate taxes in that they are paid but once, the securities thus taxed being thereafter exempt from all further taxation. The operation of the low uniform rate tax and a comparison of results obtained under it in different States are discussed in the introduction to this part of the report. Very respectfully, Luther Conant, Jr., Commissioner of Corporations. The President. TAXATION OF CORPORATIONS IN THE WESTERN CENTRAL STATES. INTRODUCTION. This Report One of a Series. This is the fourth number of a series of reports dealing with certain features of state taxation of corporations. The purpose of this report, like that of each of its predecessors, is to describe the methods employed by each one of a group of States in taxing manufacturing, mercantile, transportation, and transmission corporations, and such securities as those corpora- tions may issue. The plan, as in preceding reports, is to deal with each State separately, and to present the facts as to each State in foiu: sub- divisions, the first giving a general view, the second giving the constitutional and statutory provisions in detail, with annota- tions covering the principal decisions of the courts, the third giv- ing the financial results, and the fourth giving comments, largely based upon the reports or oral statements of state officials. The starting point for the investigation has been, as heretofore, an examination of the various state constitutions and laws; but in this matter of taxation so much depends upon practice that before any of the material has been put into final form, each of these States, as was done in the case of each of the States in pre- ceding reports, has been visited by a representative of the Bureau, with the result that from officials and other persons much infor- mation has been obtained which was not heretofore in print. Scope of the Introduction to the Previous Reports. In the introduction to the report regarding New England, the competing theories as to taxation in general were stated, and it was explained that the diversities in the modes of taxing corpora- tions are due partly to the competition between those general theories, partly to difficulties peculiar to corporations, and partly to the difference between one kind of corporation and another. In the introduction to the report on the Middle Atlantic States, it was shown that the diversities in the modes used by the several 62466° — 12 1 I 2 TAXATION OF CORPORATIONS. States for taxing the same sort of corporation are so great as to tend to influence capitalists in their choice not only of the State wherein their projected company should be incorporated, but also the State in which the corporation should carry on its business; and besides to influence stockholders in their selection of a State of residence. In the same introduction a few of the problems underlying anj'- attempt to frame a system, of taxation for cor- porations were stated, without any suggestion of solutions, but rather with the idea that the mere statement of the problems would give rise to enlightening discussion. In the introduction to the report on the Eastern Central States, there was a more minute presentation of some of the important problems as to the modes of measuring, collecting, and distrib- uting corporate taxes, with special reference to the questions whether the machinery for such taxation should be local or state, and whether the proceeds should be used by the State or by the localities. There were accompanying tabular views, showing in considerable detail the methods employed by the States north of the Potomac a,nd east of the Mississippi. Table D of the intro- duction to the present report consolidates these tables and extends them so as to cover the Western Central States, comprising this group. Scope of the Introduction to this Report. The present report carries the investigation almost to the Rocky Mountains : States containing much more than half of the popu- lation of the United States have now been studied — roughly speaking, the whole region north of the latitude of the city of Washington and east of Denver, covering 23 States and the Dis- trict of Columbia. It might seem that it would now be practi- cable, in the light of the information gleaned from so wide a field, to outline some of the chief features of such a system of corporate taxation as would be approximately a composite photograph of the systems now in use, with indications here and there of reforms which by persons of experience have been suggested as desirable and practicable. This, however, is not attempted for the reason that still further information is needed. Instead, the taxation of intangible personal property at a low uniform rate is, by reason of public interest at the present moment and the increas- ing extent of its application, made a special feature of this intro- duction. INTRODUCTION. 3 The Relative Importance of Taxation of Corporations. In state, as distinguished from local, taxation, the ratio of taxes from corporations to other sources of state income is usually greater in the East than in the West. In 12 of the 24 jurisdictions covered by this report and its predecessors, the state tax on cer- tain corporations was at least half of the income realized from state as distinguished from local taxation. The amounts and the ratios are presented in Table A. As explained in the introduction to the Eastern Central States, however, the amounts appearing in the first column of Table A are somewhat less than actual collec- tions from corporations in certain States covered by the table, since there are no adequate data as to the amount received by the States from the local collection of the general property tax so far as it applies to corporations. It will be seen from the table that the percentage of state taxes received from corporations is lower in this than in any other group thus far treated, and that a correspondingly higher per- centage of state revenue is received from the general property tax. The only State of this group which receives more than 50 per cent of its total taxes from special taxation of corporations is Minnesota. Inheritance taxes are important in Iowa, Missouri, and Minnesota, yielding between 6 and 7 per cent of- the state taxes. The liquor tax is large in Missouri only, where it yields 30 per cent. 4 TAXATION OI^ CORPORATIONS. Table A. — Total Stats Taxes, as Distinguished prom Local Taxes, with Amounts and Percentages Contributed by Certain Specified Sources of Taxation, for 1910: New England, Middle Atlantic, Eastern Central, and Western Central Groups. [This table relates only to state revenue from taxation.] States. NEW ENGLAND GROUP. Maine New Hampshire Vermont Massachusetts Rhode Island Connecticut MIDDLE ATLANTIC GROUP. New York New Jersey Pennsylvania Delaware Maryland Bistrict of Columbia EASTERN CENTRAL GROUP. Ohio Indiana Illinois Michigan Wisconsin WESTERN CENTRAL GROUP Minnesota North Dakota South Dakota Iowa Nebraska Kansas Missouri Corpora- tion tax. , 267, 088 598.312 988, 174 :,520, 796 926, 041 , 44S> 945 1, 120,316 I, 717,580 ■,254,588 3i9>675 , 179,867 ^971.977 , 764, 507 , 420, 849 , 820, 255 .3S7-530 .155,492 ;. 373,414 3 387, 640 3 273,776 3 863, 296 3 660, 777 3941,655 ■ 031,574 General property tax. $804, 997 725,511 5, 500,000 840, 421 453,535 2 1,108,475 1,224,000 4,416,171 2 , 646, 465 6, 109, 254 4, 836, 592 6, 112,436 1,254,561 2, 160,636 1,207,774 1,242,423 2,070,757 1,945,052 2,087,482 * 2, 294, 000 Inheri- tance tax. $138, 250 145, 620 88, 969 1,671,716 439, 850 8,212, 736 63 2 , 089 1,803,088 1,778 293,994 16,757 556,257 258,320 283,567 508, 882 4,143 215,473 8,828 314,288 Liquor tax, $113,558 59, 989 810, 380 161,591 9, 589, 779 I, 752,982 434, 660 458, 275 18, 208 Miscella- neous tax receipts. $19, 893 76,686 62,963 34, 669 93,034 520, 874 7,516,955 59, 506 2,451,080 151,962 471,688 121,910 160,463 159.857 117, 152 132, 023 38,909 3,841 17, 464 166,811 9,309 31,528 Total state taxes. $2-343,786 1,546,129 1,200,095 13,537,561 2,021,087 4, S60, 204 35,439,786 7i 409, 175 24,370,213 473,41s 3,604,209 5,968,333 10,667,231 7, 530, 103 8,372,961 11,893,646 5, 825, 643 8, 135, 595 1,599,255 1,537,806 3,316,337 2,615,138 3,037,965 5, 249, 297 1 Of this amount, $4,635,443.20 came from stock-transfer tax and Si. 931. 848.39 from mortgage tax, 2 Tax on personal property. 3 Includes State's share of general property tax collected locally from certain corporations. (See table of financial results under each State. ) With the exception of the District of Columbia, as previously noted it is impossible, practically, to ascertain or estimate from the information available the amount thus received from corporations in the States included in this table. ''Includes some miscellaneous license fees. INTRODUCTION. Tablb a. — ToTAi, Stats Taxes, as Distinguished from Local Taxes, with Amounts and Percentages Contributed by Certain SpEcn^iED Sources of Taxation for igio: New England, Middle Atlantic, Eastern Central, and Western Central Groups — Continued. PER CENT OF TOTAL STATE TAXES. States. NEW ENGLAND GROUP. Maine New Hampshire. , Vermont Massachusetts Rhode Island Connecticut MIDDLE ATLANTIC GROUP. New York New Jersey Pennsylvania Delaware Maryland District of Columbia. , EASTERN CENTRAL GROUP. Ohio Indiana Illinois Michigan "Wisconsin WESTERN CENTRAL GROUP. Minnesota North Dakota South Dakota Iowa Nebraska Kansas Missouri Corpora- tion tax. 46 91 71 67 33 1 16 ^54 I19 ^34 45 71 66 1 18 »26 I25 ^31 General property tax. Inheri- tance tax. Liquor tax Miscella- neous tax receipts. Total state taxes. 100 100 100 100 100 100 zoo 100 100 too 100 100 100 100 TOO 100 100 100 100 IQO 100 100 100 100 * Includes State's share of general property tax collected locally from certain corporations. (See table of financial results under each State. ) With the exception of the District of Columbia, ar previously noted, it is impossible, practically, to ascertain or estimate from the information available the amount thus received from corporations in the States included in this table. The Great Importance of Railway Taxation. In this, as in the three groups preceding, the most important source of income from the taxation of corporations is from rail- roads. The details as to the amounts and as to the ratios among the various classes of corporations are given in Table B, which is an analysis of the items appearing in the first column of Table A, and shows the classes of corporations respecting which it was possible to ascertain or estimate the taxes accruing to the State TAXATION OP CORPORATIONS. z o .a J < « o o 1" (A (^ o |o ft -> W « Wo w g S w cq '^ (KB 5« C CO s < o ^ 8 S 3 n «i a "S 3 m bo cd a a « « a "^ o X a •3 " a; § w « a n ^5 9. ?. ^^ % 2 o w a a ^^ o tn - ■§l2 S^ E a s^ i^ 2; ^•■ii « a ■a| S w ?i K o^ w H 5 O t^ ■* Oi Oi *^ O* n CO s 8 00 o ■* CO 0\ €, o s 1 1 1 to 5 11 1 ^ ■s CO 0^ ? ■-* Ol ■^ Ol rO S >o m c?s lo 3 3 S Oi ^ r* O CO O VO vO 00 W Oi t* I- -o Oi c^ a i !? ft B S n INTRODUCTION. 4J T3 O S ^ I I & ^ di a Q C s'^ -S^ ^ 1 Z "> ^s H O el trf «o n 2 <- S z H Bt UU n d o « Jy V Sg J, cfi w u w ><1 ,n^ < w „ H ss I? 2 . Bi Oi W H o Ph Z f^ » rr( X(J o l^. M w H fL <- <: H ai ►J H r? < < 2 g ft O z; « ss 0) _ p< SG Z en fe f W <; On JH H W « H O T pq (a t< ij s a M a> o o ■« 9 o S ^ *i Q. eg o o hi m a aa 5 0, g g a '0 (U g-a Wl -O Oi 00 fOlo»O00f* C0lO^ < S Z >. O rt ■■a a o a t; + + + + n ^ fo . i. 0) .^ " P. « t, 2S e a ,„ i ids'" o -d .•a a « is o ■§ e •3 S S INTRODUCTION. 13 3 J M O E= £ ? Z .3 a >• 8 8 ■3 B Q J Q a a 5 9. S '-.1 a ° t; -o S -' S- 8 .9 if ii ^ a ja s 3 X -a a J3 Ul (U :; .a M »- S ^ p: a ..- in M a-a . Of en ii •a ca <1 S.3€ a oj 14 TAXATION OP CORPORATIONS. Low Rate on Intangible Personalty in Minnesota and Iowa. In 191 1 Minnesota and Iowa adopted the uniform-rate method. Minnesota in 191 1 increased assessments 829 per cent over those of the previous year without, however, increasing the revenue. Data showing results of the operation of the uniform-rate law in Iowa are not yet obtainable, as the law forbids the application of the uniform rate to the 191 1 levies. A peculiar feature of this law is seen jn an interpretation by the state auditor in his instructions to assessors. He directs that intangible personalty subject to the uniform rate shall be assessed at full value. It would seem that assessment of this property at full value while other property is by statute assessable at one-fourth value would defeat, in part at least, a chief purpose which prompts the adoption of the low-rate method, namely, the inducement of greater returns by the imposi- tion of lighter taxation. Low Rate on Intangible Personalty in Pennsylvania, Connecticut, and Maryland. The effect of reducing the rate on intangible personalty and providing improved administrative machinery in Pennsylvania is shown in an increase in assessments from $155,107,000 in 1885 to $390,750,000 in 1886, or 152 per cent;, at the same time revenue increasedfrom$6io,6o8 to$i,i72,250, or 92 percent. The average increase for the five years following (1887-1891) was 57 per cent in both assessments and receipts. In 1892 the rate was changed from $3 to $4. During the five years following (1892-1896) the average assessments increased to $839,565,000, or 37 per cent, and revenue increased to $3,358,260, or 82 per cent. In 1910 assess- ments amounted to $1,741,865,000 and revenue to $6,967,460, an increase in each case of 107 per cent over Jie yearly average for the 1 892-1 896 period. The Connecticut plan gives the option of paying locally the general-property tax at the regular rates. Amounts assessed and paid locally are shown separately from those assessed and paid to the State at the uniform rate. The percentage of increase is, however, based on the total of both. The low uniform rate was adopted by the State of Connecticut in 1890. For the following seven-year period (1890-1897) the average yearly assessments increased over the assessments for 1889 from $12,983,000 to $27,836,000, or 1 14 per cent, while revenue decreased from $162,288 to $133,107, or 18 per cent. During 1898 the uniform rate was raised to $4. This resulted in decreasing assessments 14 per cent INTRODUCTION. 1 5 and decreasing revenue 2 per cent. This decrease, however, was overcome, and in 1910 assessments amounted to more than $45,060,000, an increase over 1898 of 89 per cent, and revenue to approximately $230,000, or an increase of 76 per cent during this period. Figures for the entire State of Maryland are not available, and those given in the table are for the city of Baltimore only. The effect of the inauguration of the low rate in 1897 was to increase assessments from $6,000,000 to $58,704,000, or 878 per cent, and revenue from $130,650 to $280,312, or 115 per cent over the pre- vious year. Between 1897 and 191 1 assessments increased to $165,834,000, or 182 per cent, and revenue increased to $862,337, or 208 per cent. New York Method of Treating Intangible Personalty. In 1911 New York extended its method of commuting taxes on certain classes of intangible personal property through the "Se- cured Debts" law. As noted in Part II, under the "Mortgage- Recording Tax " law, bonds and other obligations secured by New York realty mortgages upon which the recording tax has been paid are exempt from all other taxation. The "Secured Debts" law provides a tax of one-half of i per cent on the face value of bonds, notes, and other debts secvtred by mortgages of property in any State other than New York. This tax is for state purposes, and, like the mortgage-recording tax, when paid once, it exempts such secured debts from further state, county, or mtmicipal taxa- tion. While the rate charged for such commutation is low — very low, indeed, when the life of a bond or other sectired debt extends over a long period of years — clearly it is not an equivalent of an annual rate, for the term of years may vary with each secured debt. Hence it can not be considered as a low uniform rate tax, and it has not been so treated in this discussion. Kinds of Intangible Personalty Subject to the Low Rate Method. Pennsylvania, Minnesota, and Iowa tax at a uniform rate practically all kinds of intangible personalty, with the few excep- tions noted in the text and in the table. In Maryland the rate appUes to interest-bearing obligations of all corporations and also to dividend-paying shares of foreign corporations. In Connecticut there are important exceptions. Bonds of steam and street rail- ways operating in that State are considered in taxing the corporate excess of such companies, and they are not taxable to the holder 1 6 Taxation of corporations. under the uniform rate. Shares of stock are not taxable in Con- necticut. This probably explains in some measure the seemingly unfavorable showing with respect to assessments for the whole State of Connecticut as compared with those for the city of Balti- more, namely, in 1910 the Connecticut assessment was a little more than $45,000,000, while that for the city of Baltimore exceeded $158,000,000. Collection and Distribution of the Low Rate Taxes. In Pennsylvania, the State collects and retains all the taxes on corporate loans and receives one-fourth of the tax on other intangible personalty, which is collected locally. In Connecticut, the State collects and retains all of the tax. In Maryland, the uniform rate is collected and retained by the locality; and the same property is subject 'o the state rate on general property. In Minnesota it is coUecttd locally, and one-sixth is transmitted to the State. In Iowa it will be collected locally and distributed for both state and local purposes in the same manner as the tax on general property. Success of the Low Rate Method. Diu-ing the 12-year period (1898-1910) the percentages of increase in assessments for three States were as follows: Penn- sylvania, 95 per cent; Connecticut, 89 per cent; Maryland (for Baltimore only), 161 per cent. The percentages of increase in revenue during the same period were: Pennsylvania, 95 per cent; Connecticut, 76 per cent; and Maryland (for Baltimore), 152 per cent. l/ooking only at the results obtained in Baltimore (those for the whole State not being available) , the low uniform rate method of taxing intangible personalty may be regarded as having worked more successfully in Maryland than in Pennsylvania and Con- necticut, notwithstanding the higher Maryland rate. Notwithstanding this favorable showing in Maryland, it is inferable from an official report * that much intangible personalty which is subject to the uniform rate law still escapes taxation in that State. Minnesota has the lowest, and Maryland (including the state tax) has the highest rate on such intangible property. ' Report of the Advisory Committee on Taxation to the Mayor of Baltimore, 1908, p. 147. Table D.-^ORPORATE Taxation Systems in the 24 States thus par Treated, as those Systems Affect Railroad, Car, Express, Telegr.iph, Telephone, and Manufacturing Corporations, on January i, 1912. [This table shows what tax or taxes each class of corporation pays in each State; also whether the tax is collected locally or by the State or partly by each, and whether for state or local purposes or both.] Note.— "RR." is used for railroads, "Car " for car companies, "Exp." for express companies, "Telg." for telegraph, "Telph." for telephone, and "Mfg." for manufacturing companies. Nature of tax. How collected. Purposes. New England Group. Middle Atlantic Group. j Eastern Central Group. Western Central Group. Me. N. H. Vt. Mass. R.L Conn. N. Y. N.J. Pa. Del. 1 Md. B.C. Ohio i Ind. 111. • Mich. Wis. Minn. N. Dak S.Dak Iowa. Nebr Kans Mo. GENERAL PROPERTY TAX: /On all property , Locally Locally State i . RR.. . Car... . RR. . RR . . , Car2>' i . RR. . Car 8.9.. Car On property used in the business State and local . . . State .' RRl' . Exp2. . Telg 2. . Telph 2. Mfg.... i Telg 2. . Telph 2. Mfg.... Car . Car. . Exp. . Telg. . Telph. .- Mfg. . RR3... . Exp . Telg 11.. Telph 11 ! Mfg 12. . ., RR2>«.. j } Exp2. . Exp — Telg. . . . . Telph.. Mfg.... . Exp. . . . . Telg.... . Telph.. . Mfg.... . Mfg.... 1 Exp2. . Car 2,6.. . CarO... .i.. . Car 9,n .j Exp2.6. ^ Telg 2,6. .; Telph2,6 . Mfg2.«. . - Exp . - Telg. . Telph Mfg. . Exp^ . Exp.. . Exp. i Telg 2.. Telg 2. . Tdg.3 Telph'. Mfg 3... . Telph. . . Mfg.... . Mfg.... ' Telph 2. Mfg.... Carl".. Telph 2. Mfg.... 2 Jifg.... Mfg . Mfg.... . Mfg.... . Mfg.... . Mfg.... State State i 1 ■| j RRi\ . Carl'-.,. Exp 15.. Telg 15.. Telph. 15 i RR. ... Car.... Exp — { Telg ^ Telph... RR.15,« Car 15... Exp.i5 Telg.15 RR Car".... j Exp 19... Telg.... Telph 2.. Carlo,". RR. ... Car Car." RR. RR.... Telg... Telph. Mfg. 25 Car. Exp... On property not used in the business Locally Locally Locally State." Local RR. . .. Car'... RR.18 Car. Exp. Telg. Telph. Car....;' 1 ! State and local . . . . RR2.... i 1 i RR2... - RR2.... State and local .... Telg» . . Telph 29. Car. Exp. Telg. Telph. RR''2^. Exp.... Telg 22 . , Telph... RR... Exp. Telg . . Telph. Exp.... 1 Exp Telg Telph. . . . . i On property and also on nonphysical or so-called franchise value, the valuation in most cases exclud- ing property not used in the business. Telg.... . Telg Telph . • RR 20,21. Car.20 Exp 20 . . RR23 RR * RR i Exp. . Telg . . Telph . Car 21 . Exp . . Tcl.g . Telph . Jffg... Exp 23 Telg 2" . . Telg 23 Telg.. Telph. Telph 20. JIfg 20-13 Telph 23. Car.io Exp. Telg. State State RR_.2' Car',20,27. Car' - Car' Locally State and locally . . State tocal Exp. 1 Telg....i I ;iAL FRANCHISE TAX (franchise valued as prop- Telg. RR. Car. Exp. Telg. Telph. Mfg. SPE Telph, RR.28 Telg.28 Telph.28 Car.20 Exp.2o Telg.2o Telph.20 Mfg.20 - i - ert CAP! TAL-STOCK TAX** State and local ' State RR3« RR 31 RR Car Exp.... Telg. ... Telph... Mfg 34... RR3». . . Car 30. .. Exp 30 . . Telg 3» . . I Telph 3». Mfg3i... Telg.2s Telph.28 j Locally State and locally . . State . . . Local Car 30. .. Car si,s2 . Exp 31 . . Car 33. .. Car Exp 3» . . Telg »' . . Tel.g 31 . . Telg.... • Telph 31. Mfg Telph 31 , Mfg 3" . . . \ Telph... Mfgs.... Mfg3«... Mfg 3'... Mfg 1 GROSS-EARNINGS and GROSS-RECEIPTS TAXES. . i j j Telph. RR. Car 16 y ,, ■ i State and local .... State and local .... State RR. Telg. Telph. RR2'... RR RR RR i State ' Car Car',2»,2;. Car Exp. .. . Telg Carlo. .. Exp .... Car Car Exp .... Exp .... Telg.. .. Exp .... Exp. . .. Telg Exp .... Exp. . . . Exp :.. . Telg 3s . . Telg Telg. Telph. . Telph. ■ ■ ■ V Telph 39. Telph . . . Telph. . . . Telph. . . Telph... Telph... Telph. MILEAGE TAX. SPECIAI^ FRANCHISE TAX (franchise valued as prop- erty)* I CAPITAL-STOCK TAX**. GROSS-EARNINGS and GROSS-RECEIPTS TAXES. MILEAGE TAX. On wire-mileage , Locally . State and locally . State. Locally ...... State and locally . State State Local . State and local . RR3». Car 33. Exp 33 Telg 3' Telph 3 Mfg... Local . State. . On route-mileage State. , CORPORATE-EXCESS TAX State. , TAX ON CORPORATE LOANS . State. State., (For the taxation of corporate securities at low uniform rate in States other than Pennsylvania, sec Table C.) LUMP-SUM TAX. , State. . STATE BUSINESS-LICENSE TAX of one-twentieth of I per cent on value of property in state used in produc- tion or manufacture. INCOME TAX, levied on gross incomcless certain deduc- tions. Locally . State and local . State and local . State. . State. , State State and local . Local . State and local . RR. Telg. Telph. Car. . Exp. RR31. . Car 31.32 ! Exp 31 . Telg 31 . Telph 31 Mfg 3" . . E R K C-drh'-ii Telg 3S . Telph 35 Telg 4' . Telph a. Exp. Mfgs RR.M Telg.28 Telph.28 RR. Telg. Telph. Mfg.»,« Exp. . . Exp. . Telg. . Telph. Exp. RR Car. .. . Exp . . . Telg... Telph. . Mfg34.. RR.. Car. .. Exp. . Telg. . Telph. Telg. Telph«.« RR30. , Car". . Exp 3» . Telg 30 . Telph 30 Mfg35. . Telg.M Telph.»i Carlo. Exp.. RR: .. Car. .. Exp.. Telg. . Telph. Mfgso. Car.'o Exp.20 Telg. 20 Telph.M Mfg.2» RR Car Exp. . .. Telg.... Telph... RR.<3 Car.<3 Exp.« Telg.<3 Telph.<3 Mfg.« Mfg3 RR.. Car. . Exp .... ! Exp . j Telg. Telph...! Telph... Telg. Telph." RR." Car i, 524. 21 Telephone ^ 4, 8g6. 96 Express^ i, 649. 14 Street railroads '' 203. 50 lusurance taxes and fees 140, 023. 63 Incorporation fees 28, 931. 00 Private car lines i, 084. 29 Total state taxes from corporations 387, 640. 12 Other taxes: Creamery licenses 1, 770. 00 Elevator licenses 2, 071. 00 General property tax ' 1, 207, 774. 03 Total state taxes not from corporations 1,211, 615. 03 Total taxes for state purposes, all sources i, 599, 255. 15 Receipts from sources other than taxes: Land sales 832, 617. 34 Interest on public funds, bonds, farm loans, etc. . . . i, 185, 471. 18 Leasing 76, 849. 13 Twine plant and trolley line 212,924.06 Maintenance, state institutions 80, 100. 95 Oil inspection fees 59, 345. 69 Game and fish fund 22, 464. 70 Redemption of bonds 73, 450. 00 Five per cent of Government land sales ^^, 167. 40 Miscellaneous 131, 160. 37 Total receipts from sources other than taxes 2, 729, 550. 82 Total state receipts, all sources 4, 328, 805. 97 ' Report of State Treasurer, 1910, and of State Board of Equalization, 1909. ^ Estimated by applying the total state rate of 5.2 mills to the assessed valuations of the property as shown by the report of the State Board of Equalization, 1909, P- 239- * Part of this comes from local taxation of corporations, but it is impossible practi- cally to ascertain the amount thus received, except the amounts above estimated, which are not included in this item. 6o TAXATION OP CORPORATIONS. IV. COMMENTS. Historical. Minnesota adopted the revenue laws of New York and Ohio, and later North Dakota took from Minnesota that part of her laws relating to taxation. ^ The taxation of corporations as distinguished from the taxa- tion of individuals was confined during the Territorial government almost wholly to telegraph and railroad companies. The system of taxing telegraph companies at a specified rate per mile of route in lieu of other taxes was adopted in i88i.^ Railroad property in Dakota Territory prior to 1879 was taxed in the same manner as that. of individuals. The legislature in that year adopted a gross-earnings tax which was in commutation of taxes on operating property only. ^ Foiu: years later the law was amended so as to include among the commuted taxes those on land-grant property.^ The result was to exempt from taxa- tion a considerable portion of the area now forming the State of North Dakota. The validity of this commutation was sustained in 1892 by the supreme cotirt of North Dakota.^ Two years later, however, the same court reversed its former decision and declared that the Territorial legislature was without authority to exempt these lands from taxation." Under this law (I^aws, 1883, chap. 99) the Territory attempted to collect taxes on interstate earnings, but that part of the act relating to interstate earnings was judicially declared unconstitu- tional.' The restrictions thus imposed resulted in diminishing the prospective amount of railroad taxes in this case by nearly 85 per cent.* The laws of 1889 repealed the act of 1879 (as amended 1883) and provided that railroads, at their option, could pay either the general property tax as applied to individuals, or an amount ' North Dakota State Tax Association Bulletin No. i, Dec, igio. ^ Laws, 1881, Dak. Ter., chap. 132. ^ Laws, 1879, Dak. Ter., chap. 46. The tax rate was 2 per cent for the first five years, and 3 per cent thereafter. * Laws, 1883, Dak. Ter., chap. 99. '•> Northern Pacific R. R. Co. v. Barnes, 2 N. Dak., 310 (1892); Fargo & S. W. Ry. Co. V. Brewer, 3 N. Dak., 34 (1892). " Northern Pacific Railroad Co. v. McGinnis, 4 N. Dak., 494 (1894). ' Northern Pacific Railroad Co. v. Raymond, 5 Dak. Ter., 356; i L. R. A., 732 (1888). * Ibid. Interstate receipts of the Northern Pacific were stated in this case as $2,654,756; within the Territory, $395,330. NORTH DAKOTA. 6 I equal to a certain percentage of their state and interstate gross earnings, in lieu of other taxes.' The present method of taxing railroads on the ad valorem basis and assessment of railroad property by the State Board of Equali- zation was adopted by the first state legislature.^ At the same session, laws were passed providing that express companies should pay a state license graduated according to the number of people inhabiting each place where an agency was located ,=' and that sleeping car companies should pay an annual license of $ioo for each car operated.* The act of 1901 made express, telegraph, telephone, freight- line, and equipment companies assessable by the State Board of Equalization and taxable on franchise and property.'^ In 1905 electric, interurban, and street railways were required to be assessed and taxed in the same manner as steam railroads.' Levies and Assessments. In 1900 the total of taxes levied for both state and local pm^Joses was approximately $3,400,000. In 1910 this had increased to a little more than $10,000,000. Of the taxes collected in 1900 about $500,000 was from railroads. No other corporations, as such, paid taxes at that time. Of the $10,000,000 received in 19 10 the following approximate amounts were paid by corporations : Rail- roads, $1,500,000; telephone companies, $40,000 ; express companies $13,000; telegraph companies, $12,000; and street railways, $2,000.' The total assessed valuation of all taxable property increased from approximately $92,000,000 in 1897 to $278,000,000 in 1910, or about 200 per cent. Railroad assessments for the same period increased from $3,150 per mile to $9,483 per mile, or about 200 per cent.* Telephone, telegraph, and express companies were first assessed by the State Board of Equalization in 1 901 . Between that year and 1910 the assessments have increased as follows: Tele- phone companies from $108,000 to $1 ,074,000; telegraph companies ' Laws, 1889, Dak. Ter., chaps. 105, 107. The rate on earnings was 3 per cent for five years and 2 per cent thereafter. - Laws, 1890, chap. 135. ^ Ibid., chap. 136. ■• Ibid., chap. 137. ^ Laws, 1901, chap. 26. " Laws, 1905, chap. 151. ' Data from state auditor, Aug. 23, 1911. * The railroad mileage, exclusive of sidings, was in 1897, 2,536, assessed at approxi- mately $8,000,000; in 1910, 4,247, assessed at approximately 1140,000,000. 62 TAXATION OF CORPORATIONS. from $287,000 to $325,000; express companies from $139,000 to $360,000. The following table shows for selected years the total assessed valuation of all property by class, railroad mileage, state levy, and amount of state taxes : Classes. Real estate Personal Railroad Telephone Telegraph Express Street railway. , Total valuation, all assessed property Railroads; Main and branch lines miles. . Sidetracks do.. Tax levy, state only mills. , State taxes dolls. . 1897 $62,816,904 20,920,559 7,985,527 91,722,990 2,536 237 4.4 403,581 $77,989,198 28,085,797 17,983,367 108,017 287, 290 139, 220 124,592,789 2,785 367 7 872, 149 $113,127,196 37,097>598 22,477,987 466, 650 207,917 156, 154 17,575 173,551,077 3,218 482 5-3 919, 820 $184,589,989 51,909,379 40, 276, 266 1,074,033 325,833 359,713 58,980 278, 594. 193 4,247 76s 4.4 1,225,814 The State Board of Equalization made a general increase of over 21 per cent in all assessments for 1910 as compared with i9o8.> Local Assessments Unsatisfactory. After emphasizing the extent of popular disfavor with the sys- tem of local assessment, advocating assessment of all property at actual cash value, and condemning injustice due to unequal assessment, the governor, in his message to the legislature of 1901,^ proposed the following remedy " It would be a great step in the right direction if there were but one assessor in each county, and he should be appointed for a term of four years by the judge of the district court in which that county is located, the appointments to be approved by the county commissioners, who should also decide the number of deputies that he should have, and should also approve his selec- tions. .By having the appointment of the assessor made by the judge and for a period of four years, he is removed from tempta- tion to favor parties for their political influence, and he would be far more independent in his attempts to discover property that is withheld from assessment. "Today we have quite an army of assessors, largely men of little practical experience, elected for one year, and dependent for their reelection upon the men whose property they are valuing. ' Interview with deputy state auditor, Aug. 23, 1911. ' House Journal, 1901, p. 19. NORTH DAKOTA. 63 In view of this condition, I would suggest not a change in the existing law, but a change in the manner of executing it." The governor's messages to the 1907 and 1909 legislatures,' also recommended the assessment at actual value of all property, in order that it might pay in just proportion for the support of gov- ernment which safeguards property rights. Necessity for Physical Valuation of Public Service Corporation Property. A special Public Service Inquiry Commission consisting of the governor, lieutenant governor, and speaker of the house, was appointed by the 1907 legislatm-e. The commission investigated, and reported to the legislature certain detailed information with respect to corporations for the purpose of enabling it to enact laws for the more efficient regulation and safer operation of public- service corporations, and to furnish the state board information for use in assessing public-service! corporations. The unpublished report of the commission, filed with the secre- tary of state, contained considerable information with respect to the property of railroad and express companies, which was said to be of great value to the last Board of Equalization in that it formed a basis for the increase of $1,000 per mile in the assessed valuation of raihoads. The commission stated that the value of the property owned by express companies as reported to it is not a just basis for assess- ment and taxation, considering the large business and profits of these companies. With respect to its inability to obtain information as complete as it desired, the commission concluded that "the State will never be able to acquire accurate information until such time as some one with special fitness and training, acting for and by the author- ity of the State, shall make an exhaustive physical examination of the properties of the different public-utilities corporations." " The commission sought information relative to the actual value of all property, mileage, capitalization, bonded indebtedness, gross earnings, operating expenses, fixed charges, and other data affect- ing rates of carriage and transmission, of each railroad, car, express, telegraph, and telephone company doing business in the State. Objections to furnishing the information were made by some of the railroad companies on the ground that it was impossible to estimate the proportional value of their property in North Dakota as forming part of a system extending through several States. ' Governor's Message, 1911, p. 17. ' House Journal, 1909, p. 1026. 64 TAXATION OP CORPORATIONS. The following abstracts taken from the statement of the com- mission's conclusions presented to the 1909 legislature illustrate the unsatisfactory character of the data obtained from corporations : ' The Great Northern Railroad reported that it had 690.63 miles of main line and 853.42 miles of branch lines, which the company valued at $3 1 ,000 and $20,000 per mile, respectively. The Northern Pacific Co. estimated the cost per mile of repro- ducing the 1,462.53 miles of its main and branch lines and sidings in the State at $40,794 per mile. The Chicago & North Western estimated its 14.28 miles at $17,946 per mile. The Chicago, Milwaukee & St. Paul reported that it did not know the value of its 153.31 miles. The Farmers' Grain & Shipping Co., with 53 miles, reported a cost of $10,627.48 a mile. The Minneapolis, St. Paul & Sault Ste. Marie, with a mileage of 1,083.41, did not value its lines. The Great Northern Express Co. operated over 1,562.59 miles; has personal property to the value of $15,092 ; its earnings on local business in 1907 were $96,801.86, and cost of operating, $95,161.68. The Northern Express Co. operated over 1,164 miles, and its personal property was valued at $10,613.60. It did not give its earnings. The United States Express Co. mileage was 256.22, value of per- sonal property $485.85, gross earnings in 1907 on local business $41,186.05, and operating expenses $41,576.86. The Western Express Co. reported a mileage of 1,171.82, value of personal property $1 , 799.04. No earnings in the State were given. Bibliography. The following is a list of the more important publications, in addition to the constitution, the statutes, and the cotut reports, of value in the study of corporate taxation in North Dakota: Messages of the Governor, 1901, 1907, 1909, and 1911. House Journals, 1901, 1909. Report of the State Treasurer, 1910. Proceedings of the State Board of Equalization, 1908, 1909, 1910. North Dakota State Tax Association Bulletin No. i , December, 1910. State and Local Taxation, Addresses and Proceedings, Inter- national Conference, 1907-19 10. ' House Journal, 1909, p. 1023, et seq. SOUTH DAKOTA. I. GENERAL VIEW. Chief Features. First. The broad application of the general property tax. Second. The assessment of practically all state-wide public- service corporations by a central state board. Third. The taxation of the property of certain public-service corporations at the average rate of taxation. General Property Tax. Corporations, domestic and foreign, are subject to the general property tax only. Assessment of operating property of rail- road, express, telegraph, telephone, and sleeping car companies is by the State Board of Assessment and BquaHzation. The tax on railroad and telephone companies is paid locally for state and local ptu^oses at the general property tax rates. The tax on tele- graph, express, and sleeping car companies is paid to the State for state and local purposes at the average of state, county, and local rates. Street railway, road, bridge, gas, water, mercantile, and manu- facturing corporations pay the general property tax Ideally for state and local purposes. Assessment is by local officials. All property is assessed at about one-third the full value. Stockholders and Bondholders. When the property of the corporation is taxed in South Dakota the shares are not taxed to the holders. Bonds of foreign and domestic corporations are taxable in the hands of the holders. Foreign Corporations. Foreign corporations of the classes herein considered are taxed in practically the same manner as similar domestic corporations. Administration. The State Board of Assessment and Equalization, consisting of the governor, state auditor, secretary of state, state treasurer, and commissioner of school and public lands, assesses annually the property of domestic and foreign railroad, telegraph, tele- phone, express, and sleeping car companies. It acts as a state 62466°— 12 5 65 66 TAXATION OP CORPORATIONS. equaKzing board as between counties, and determines the state rate of taxation. Payment under the general property tax, except in the case of corporations subject to the average rate of taxation, is made to county treasturers. Taxes assessed at the average rate are paid to the state treasiu-er.^ II. DETAILS AS TO THE CONSTITUTION AND STATUTES. Constitution. The constitution requires that the legislature shall provide for an annual tax to defray ordinary expenses, ^ and that taxation shall be uniform on all real and personal property, so that every person and corporation shall pay a tax in proportion to the value of property owned. The legislature is required to "provide by general law for the assessing and levying of taxes on all corporation property, as near as may be by the same methods as are provided for assessing and levying of taxes on individual property." ^ The power to tax corporations and corporate property can not be sturendered or suspended by any contract or grant to whieh the State is a party .^ Statutes.' General Property Tax. Corporations, domestic and foreign, except as otherwise pro- vided, pay locally the general property tax for state and local purposes.^ In theory the excess of aggregate market value ' of shares of stock over tangible corporate property is taxable under ' Sources of revenue in South Dakota: Municipal and local districts. — (o) General property tax; (6) poll tax; (c) business taxes and licenses; (d) fines, fees, etc. County. — (a) General property tax; (6) corporation taxes (from corporations other than those treated herein); (c) poll tax; (d) business taxes and licenses; (e) fines, fees, etc. State. — (a) General property tax; (6) corporation taxes (from corporations other than those treated herein); (c) business taxes and licenses; (d) fines, fees, etc. ' Constitution, 1889, Art. XI, sec. i. 3 Ibid., Art. XI, sec. 2. ' Ibid., Art. XI, sec. 3. * Except as otherwise indicated, the references herein are to the Revised Political Code, 1903. * Code, sees. 2053-2059. A provision for the deduction of debts when listing prop- erty for taxation was declared unconstitutional. Advisory opinion of supreme court rendered to gpvemor. 4 S. Dak., 6 (1893), ' Code, sec. 2079. SOUTH DAKOTA. 67 the general property tax, but in practice this excess is not reached.' The principal place of business is made the situs of personal prop- erty for taxation purposes.^ The law provides that assessment of property in general shall be at full value,' but in practice property is usually assessed at about one-third of full value.' Improvements made by others than owners upon land belonging to corporations, whose property is assessed in a manner different from other property, are not taxed to the owners of the land as realty, but are taxed to the owners of the improvements as per- sonalty.* Railroads. Domestic and foreign steam railroads pay the general property tax locally for state and local purposes.^ Property used in opera- tion, namely, rolling stock, right of way, roadbeds, bridges, cul- verts, depots, etc., is assessed by the State Board of Assessment and EquaUzation. The state board assesses separately for main line and branches the value per mile of property of each railroad company situated outside the incorporated cities and towns. This valuation is apportioned on the mileage basis among the counties through which the lines pass. The state board also assesses the property of railroads located in incorporated cities and towns. With this assess- ment is included a mileage-proportion valuation of rolling stock. The assessments are based on reports from the railroad com- panies, showing mileage, valuation per mile, value of rolling stock, and numerous details with respect to the value of all operating property." One- third of this valuation is assessed and certified by the state board to the counties and incorporated cities and towns, and is there taxed for both state and local purposes. Franchise is not assessed to railroads.. Property not used in operation is subject to local assessment.' ' Interview with state auditor, Aug. 28, 191 1. 2 Code, sec. 2059. ' Code, sees. 2052 2085,. * Code, sec. 2055. * Laws, 1907, chap. 64, sees. i-io. ^ The report of the Board of Railroad Commissioners is made too late for use in a cur- rent year's assessment, but reports of previous years are sometimes consulted by the State Board of Assessment and Equalization in assessing railroad property. Interview with state auditor, Aug. 28, 1911. ' This rule extends to property not actually necessary to present operation, held for futtu-e use in railroad business. St. P., M. & M. Ry. Co. v. Howard, 23 S. Dak., 34 (1909)- 68 TAXATION OF CORPORATIONS. Express, Car, and Telegraph Companies. Domestic and foreign companies of these classes pay to the State, for state and local purposes, a property tax ' at the average rate of taxation.^ The assessment includes only property used in the business, and the tax is in lieu of all other taxes on such property. Express companies are assessed on the value of their tangible and intangible property. Assessment by the State Board of Assessment and Equalization is based on reports showing, among other items, total value of all property and total gross earnings. The method of determining the value of intangible property could not be ascertained,^ but the following illustration taken from records of the state auditor shows that intangible values of express companies exceed, by a considerable amount, the value of tangible property as reported to the board.* Thus: "The Wells-Fargo Express Co. reported the value of its property at $19,891. They were assessed at $333,358, which last figure is supposed to be one- third of the true value." Sleeping car companies are also assessed on the value of tangible and intangible property. The valuation of tangible property is based on the value of the average number of cars operated in the State. As in other instances, the method of determining the value of intangible property could not be definitely ascertained, but another illustration from the records of the auditor- shows that the value of tangible property of a certain sleeping car company was reported at $40,000 and the gross earnings at $22,000. This com- pany was assessed at $50,000. Freight-car companies are not taxed. ^ The assessment of telegraph companies is accomplished in practically the same manner, namely, upon the reported value of ' Laws, 1907, chap. 64, sees. 12-23; Laws, 1911, chap. 248. ^ The average state, coiiiity, and local taxes throughout the State combined. Laws, 1907, chap. 64, sec. 17. ^ Interview with state auditor, Aug. 28, 1911. The statute requires the State Board of Assessment and Equalization to value and assess property of express companies and their valuation and assessment is final. State ex rel. American Express Co. t;. State Board of Assessment and Equalization, 3 S. Dak., 338 (1892). ^ The constitutionality of this method of assessment is now being tried in court. Interview with state auditor, Aug. 28, 1911. See also Comments under subheading "Improvements Recommended in Tax System." ' Interview with state auditor, Aug. 28, 1911. SOUTH DAKOTA. 69 the tangible property plus an amount which more or less approxi- mates the annual gross earnings. Taxes on express, telegraph, and sleeping car companies are paid to the state treasurer, who retains that part of the tax which is represented by the state rate, and the remainder is distributed among the coimties and incorporated cities and towns through which the lines or routes pass, in that proportion which the value of property of said companies in each locality bears to the entire value of such property in the State. ^ Telephone Companies. Domestic and foreign telephone companies pay the general property tax locally for state and local purposes.^ Telephone property used in operation is for purposes of assessment classified as toll lines, rural lines, and property located in incorporated cities or towns. Assessment of toll and rural lines by the state board is based on reports from telephone companies showing, by counties, the aver- age value per mile of wire and poles, the number of instruments and location of exchanges used outside of incorporated cities and towng for toll and rural-line service. These reports make a heavy allowance for depreciation.^ From these data the state board compiles a table of equalized values per mile which imder the classifications " poles " and " wire " includes the various items essential to operation.' Property of telephone companies located within incorporated cities and towns and used in operation is also assessed by the state board. Ex- changes are assessed on the basis of the number of telephones operated from each exchange.* Real estate, buildings, etc., used in operation are separately assessed by the state board. Assessment of toll and rural lines is apportioned on a mileage basis among the counties through which the Hues extend, and assessment of exchanges, lines, etc., located within incorporated ' Interview with state auditor, Aug. 28, igii. 2 Laws, 1911, chap. 84. ' Interview with state auditor, Aug. 28, 191 1. For 191 1 the equalized valuations were: For toll lines — poles, $25 per mile of route; copper wire, $10 per mile of wire; iron wire, $4 per mile of wire. For rural lines — 20 poles per mile, $10 per mile of route; 25 poles per mile, $15 per mile of route; iron wire, $4 per mile; copper wire, $10 per mile. * The 1911 assessment per telephone was as follows: 50 telephones or less, $10; 50 to 100 telephones, $12.50; 100 to 200, $15; 200 to 300, $17.50; 300 or more, $20. Inter- view with State auditor, Aug. 28, 1911. yo TAXATION OP CORPORATIONS. cities or towns is apportioned to these municipalities.^ Property not necessary to the operation of telephone companies is assessed locally.^ Street Railway, Road, and Bridge Companies. Domestic and foreign companies of these classes pay the general property tax locally for state and local purposes. In theory the excess of aggregate market value ^ of shares of stock over tangible corporate property is taxable under the general property tax, but in practice this excess is not assessed. The principal place of business is made the situs of personal property for taxation pur- poses, and tracks, roads, and bridges are taxed as personal prop- erty.* Gas and Water Companies. These companies, whether domestic or foreign, pay the general property tax, and are assessed in the same manner as street rail- way, road, and bridge companies. Personal property of gas and water companies, which by statute includes mains and pipes, is, however, listed where located.' Manufacturing, Mercantile, and Miscellaneous Corporations. Domestic and foreign corporations of these classes pay locally the general property tax for state and local purposes. In theory the excess of aggregate market value ^ of shares of stock over tangible corporate property is taxable under the general property tax, but in practice this excess is not taxed. Stockholders and Bondholders. Shares of stock in corporations, domestic and foreign, whose property is taxed in South Dakota are not taxed in the hands of holders. Shares of stock in other corporations and bonds of domestic and foreign corporations are taxable to holders.' Foreign Corporations. Foreign corporations of the classes herein considered are taxed in practically the same manner as similar domestic corporations. ' Laws, igii, chap. 84. * Ibid., sec. 2062. " Code, sees. 2057, 2058. ^ Ibid., sec. 2061. ' Ibid., sec. 2079. * Ibid., sec. 2058. SOUTH DAKOTA. 7 I III. FINANCIAL RESULTS. Classification of Revenue. The proportion of total state taxes for state purposes derived from corporations for 1910 was 18 per cent. Total State Receipts, Taxes prom Corporations, Other Taxes, and Receipts FROM Sources Other than Taxes, Year ended June 30, 1910.' Total state receipts, all sources $3, 182, 913. 87 State taxes from corporations: Railroad companies^ $122, 000. 40 Telephone companies '' 3, 868. 54 Telegraph companies ^ i, 292. 87 Express companies ^ i, 702. 06 Car companies ^ 168. 00 Insurance companies 117, 337. 11 Fire marshal tax 7, 715. 98 Corporation fees ' 19, 691. 25 Total state taxes from corporations 273, 776. 21 Other taxes: Inheritance tax 4, 143. 28 Dairy tax 1, 213. 02 Bee tax 3S- 67 Hotel licenses 2, 296. 00 Hunters' licenses 13, 659. 35 Opera house licenses 260. 00 General property tax ■* i, 242, 422. 6g Total state taxes not from corporations i, 264, 030. 01 Total taxes for state purposes, all sources i; 537) 806. 22 Receipts from sources other than taxes: United States Government Soldiers' Home aid 20, 060. 75 Land sales 667, 388. 86 Five per cent sales of Government lands 40, 567. 34 Lease of lands 287, 122. 05 . Interest on deposits 15, 549. 49 Miscellaneous interest 374, 155. 37 Miscellaneous receipts 240, 263. 79 Total receipts from sources other than taxes i, 645, 107. 65 Total state receipts, all sources 3, 182, 913. 87 '/Reports of State Treasurer, State Auditor, and Secretary of State. ' Estimated by applying the state rate of 4 mills to the assessed values as shown in Report of State Auditor, 1910, p. 113. ^ Estimated. * Part of this comes from local taxation of corporations, but it is impossible practi- cally to ascertain the amount thus received, except the amounts above estimated, which are not included in this item. 72 Taxation op corporations. IV. COMMENTS. Historical. The act of March 2, 1861, organizing the Territory of Dakota, provided that no "discrimination be made in taxing different kinds of property; all property subject to taxation shall be in proportion to the value of the property taxed." ^ The first session of the legislature of the Dakota Territory provided for: (i) Assessment of all corporate property and of shares of stock at full cash value; (2) a tax of 2 per cent on insur- ance premiums ; ^ (3) exemption from taxation of woolen manu- factures for a term of 15 years, cotton manufactures for a term of 20 years, and one-half the value of all other " manuf actmres " for a term of five years.' This session also provided a general law for incorporating manufacturing, mining, lumbering, agriculttual, mechanical, and chemical companies.* Six years later (1868) the incorporation laws were broadened so as to include " any lawful business."^ In this year the first approach toward centralization of administra- tion is also noted, namely, in the passage of an act requiring rail- road, canal, and certain other corporations to list their property with the territorial auditor when such property was located in more than one county. The auditor was required to certify the value of property so listed to the respective county clerks, such . valuations being equaUzed by the county commissioners." From 1879 to organization under state government (1889), rail- roads were taxed on gross earnings.' This method of taxing rail- roads was not in accordance with the state constitution, and the system of corporate taxation established by the first state legis- lative session, namely, according to the general property tax, with but few changes, is still in force.^ Incorporation. The low flat rate charged for the issuance of charters prior to 1903 bade fair to make South Dakota popular as an incorporating State. Taken in biennial periods, the number of charters issued ' Laws, Dak. Ter., 1862, p. 24. ^ Ibid., chap. 69. ' Ibid., chap. 40. * Ibid., chap. 11. ^ Ibid., 1867-68, chap. 15, p. 196. " Ibid., 1868-69, chap. 25, p. 269. ' Laws, Dak. Ter., 1879, chap. 46; 1883, chap. 99; 1889, chap. 107; see also North Dakota comments. " Laws, S. Dak., i8go, chap. 21, sec. i. SOUTH DAKOTA. 73 increased from 263 in 1894-1896 to 2,196 in 1900-1902. A revi- sion of the law in 1903 seems to have checked this increase. This revision, however, and another in 1907, resulted in a greatly in- creased yield of revenue from charter granting. The poUcy of abandoning the low flat rate and substituting a graduated scale based on authorized capitalization and of remov- ing, in part at least, the incentive to seek South Dakota charters, is shown in the following abstract from the 1902 report of the secretary of state : ' "The uniform charter fee of $10, as now provided for all corpo- rations organized for profit, is inadequate and unjust. Corpora- tions organized with a small authorized capital stock, which are incorporated by residents of this State for operating and con- ducting a legitimate business within the borders of our State, thereby developing its resources and adding property to the assessment rolls of the localities where their business is carried on, are required to pay the same charter fee as the concerns of large capitahzation, * * * which concerns, with few if any exceptions, never transact a dollar's worth of business within this State nor bring any property into the State that can be assessed for taxation. " Otur laws should be so amended as to establish a graduated charter fee, to be graded upon the authorized capital stock pro- vided for in the articles of incorporation." Following this recommendation the legislatiu-e provided a grad- uated scale with a minimum fee of $10, applicable when the authorized capital stock was $25,opo or less, and a maximum fee of $40, applicable when it equaled or exceeded $1,000,000. In 1907 the scale of fees was extended so as to place the maximum at $175 when the authorized capital stock equaled or exceeded $5,000,000. The minimum fee remained the same. This law, however, modified requirements as to resident directors by reduc- ing the number from 3 to i . The following table shows the estimated number of charters issued, the total revenue, and the average yield per charter, for the period- preceding the amendment of 1903, and for the periods preceding and following the amendment of 1 907 : Periods. Number of char- ters. Revenue. Average per char- ter. 2, ig6 2,008 1-643 $21,960 39.357 27,931 ^ Page iii. 74 TAXATION Olf CORPORATIONS. As shown by the above table, the 2,196 charters issued during the period just preceding the change from the flat to the graduated rates yielded $21,960, or $10 per charter. During the period just preceding the 1907 increase the 2,008 charters issued yielded $39,357, or $19.60 per charter. During the period following the 1907 increase the charters issued, 1,643 in number, yielded $27,931, or $17 per charter.^ Physical Valuation of Railroads. Following Michigan and Wisconsin, South Dakota, under an act of the 1907 legislature, caused a physical valuation to be made of all railroads operating in the State. An important dis- tinction, however, between the methods employed is that South Dakota in making its appraisal placed no valuation upon the intangible assets of any company, while in the valuations of both Michigan and Wisconsin careful consideration was given to earn- ings, capital stock values, and all factors entering into the non- physical element of railroad valuation. The entire railroad property in South Dakota, 3,953 miles, was valued at $91,695,132, or $23,196 per mile.^ The assessed value would be about one-third of this. Railroad Assessments. As shown by the following table, the 2,800 miles of railroads in South Dakota in 1895 were assessed at $3,282 per mile. In 1900 the mileage was practically the same, but the assessment' per mile had risen to $4,545, or by 38 per cent. Two hundred and forty-six additional miles of road had been reported by 1905, an increase of 8 per cent. The increase in assessment per mile for the same period was 6 per cent. From 1905 to 1910 mileage increased from 3,048 to 3,932 miles, or 29 per cent, while assess- ments increased $2,937 P^r mile, or 60 per cent. The greatest increase was made during the years 1907 and 1908. The 19 10 assessment, $7,767 per mile, was approximately one-third the physical valuation found by the Railroad Commission. ' Reports of Secretary of State, 1900-1910. ^ Report of Board of Railroad Commissioners, 1910, p. 33-c. SOUTH DAKOTA. 75 ToTAi, Mileage, Valuation, and Assessment per Mile of Railroad Property IN South Dakota, for the Years 1895, 1900, 1905, and 1910.' 1900 190S 1910 Mileage. 2,800 2,S02 3.048 3,932 Total valu- ation. «9, 193,247 12,741.397 14,725,659 30, 544, 200 Assessment per mile. $3,282.41 4. 545- 86 4, 829. 84 7, 767. 00 Improvements Recommended in Tax System. Necessity for Gross-Earnings Method. The difficulty of adequately taxing express companies under the present, law is the subject of the following comment by the state auditor: "The assessment of express companies has been the hardest problem for the state board to solve. These companies have very little tangible property in the State, but take a large amount of money out of the State every year in earnings. By taking their earning power into consideration, the board has placed on their property what it considered a fair assessment, and although they pay what I consider a small tax, considering their earnings, the American Express Co. and Wells-Fargo Express Co. have refused to pay their taxes for 1909, and the matter is now in court. It is to be hoped that the tax amendment to be voted upon at the coming election, which is intended to cover such cases, will carry, so that the legislatture can place an earnings tax on corporations of this kind." ^ The constitutional amendment referred to was defeated by the electors of the State in the 19 10 election. It proposed that fran- chises and licenses to do business in the State, gross earnings, and net income should be considered in taxing corporations. Broader Equalization Powers Desired. — The state auditor recommends that the State Board of Assessment and Equaliza- tion be given authority to order reassessments of particular classes of property. In support of his recommendation, the auditor states that a number of banks in a certain county Usted their undivided profits, while others refused. The board was then compelled to raise the assessment of the stock of all banks within that county. This resulted in an unjust assessment to those banks which had listed their undivided profits. Permanent Tax Commission. — ^The state treasurer in 1908 recommended the creation of a nonpartisan appointive tax com- 1 Reports of State Auditor, 1895, p. 201; .1901, p. 214; 1906, p. 275; 1910, p. 113. 2 Report of State Auditor, 1910, letter of transmittal. 76 TAXATION OP CORPORATIONS. mission which, among other duties, should perform the work of the present State Board of Assessment and Equalization. In this connection the treasurer states : " Millions of dollars in moneys, credits, and personal property are never assessed and never will bear their just proportion of taxes till a commission of this kind is provided."^ Some verification of the treasurer's statement is found in the fact that the state auditor calls attention to the very small amount of moneys and credits reached for taxation.^ Bibliography. The following is a hst of the more important publications, in addition to the constitution, the statutes, and the court reports, of value in the study of corporate taxation in South Dakota : Reports of State Auditor, 1895-1910. Reports of State Treasurer, 1908, 19 10. Report of Board of Railroad Commissioners, 1910. Reports of Secretary of State, 1894-1910. ' Report of State Treasurer, igo8, p. 3. ^ Report of State Auditor, 19 10, letter of transmittal. IOWA. I. GENERAD VIEW. Chief Features. First. The absence of special taxes on corporations here consid- ered. Second. The assessment of state- wide pubhc-service corporations by a central state board. General Property Tax. Domestic and foreign corporations of the classes herein treated, except freight car and equipment companies, pay the general property tax locally for state and local purposes. Freight car and equipment companies pay to the State for state piurposes a property tax at the average rate of taxation. The assessment of personal property of domestic corporations not specifically provided for by statute is in theory based on the value of the capital stock of the corporation (supposed actual value and not market price), less exempted property and less assessed value of real estate. While this tax on the excess value of capital stock is not entirely inoperative, it is seldom enforced. Practically all property subject to taxation in Iowa is by statute assessed at 25 per cent of actual value. Stockholders and Bondholders. Shares of stock in domestic and foreign corporations whose property is taxed in Iowa are with few exceptions exempt -from taxation in the hands of holders. If, however, a domestic corpora- tion actually pays the tax on the excess value of capital stock, it may charge same to the stockholders. Bonds of domestic and foreign corporations and stock in certain corporations are assessed at actual value and taxed to holders, locally for state and local purposes, at the low uniform rate of 5 mills on the dollar. Foreign Corporations. Foreign public-service corporations doing a state-wide business and foreign manufacturing and mercantile corporations are taxed like similar domestic corporations. Other foreign corporations, except certain financial corporations, pay the general property tax locally for state and local purposes on tangible property only. 77 78 TAXATION OP CORPORATIONS. Administration. The property of steam and interurban railroad, express, tele- graph, telephone, freight car, and equipment companies is assessed by the State Executive Council, which is composed of the governor, secretary of state, state auditor, and state treasurer. Other cor- porations are assessed by local assessors. Taxes in general are collected by county treasurers, but the state gross premiums tax on insiu^ance companies and the state ad valorem tax on freight car and equipment companies are paid to the state treasturer. Members of the State Executive Council constitute also the State Board of Review.^ II. DETAILS AS TO THE CONSTITUTION AND STATUTES. Constitution. It is provided in the constitution that ' ' the property of all corpo- rations for pecuniary profit shall be subject to taxation the same as that of individuals," 2 and that the laws pertaining to the assess- ment and collection of taxes for state and local purposes shall be general and of uniform operation throughout the State. The gen- eral assembly is prohibited from passing local or special laws for the assessment and collection of taxes for state, county, or road purposes.' Statutes.^ General Property Tax. Domestic and foreign corporations of the classes herein treated (except freight car and equipment companies) pay locally the general property tax for state and local purposes. In' theory the assessment of personal property of domestic cor- porations not specifically provided for by statute is based on the value of capital stock of the corporations (supposed actual value and not market price) less exempted property and assessed value ' Sources of revenue in Iowa: Municipal and local districts. — (o) General property tax; (6) poll tax; (c) business taxes and licenses; (d) fines, fees, etc. County.— (a) General property tax; (6) business taxes and licenses; (c) fines, fees, etc. State.- — (a) General property tax; (6) inheritance tax; (c) corporation taxes (from corporations other than those treated herein); (d) business taxes and licenses; (e) fines, fees, etc. " Constitution, 1857, Art. VIII, sec. is. 3 Ibid., Art. Ill, sec. 30. * Except as otherwise indicated, the references herein are to the 1897 edition of the Code and to the 1907 Supplement. IOWA. 79 of real estate.^ In practice the excess over the value of real estate and tangible personalty is seldom reached.^" Verified annual statements of all necessary facts are required to be furnished by the corporations to the local assessors, and they have the power to fix arbitrarily the value of the. capital stock for taxation purposes. This tax is assessed to the corporation at its principal place of business and is paid to the coimty treasurers by the corporations, which, having paid the tax, have a lien upon the stock and unpaid dividends for reimbursement from the stockholders. This method of assessment is applicable to very few kinds of corporations, as the assessment of transportation, transmission, manufacturing, and mercantile corporations is otherwise provided for by statute. Personal property taxed in this manner is not otherwise assessed. Real estate of corporations is taxed locally in the same manner as that of individuals.^ Buildings erected by other than the owners of the real estate upon which they are located are not assessed to the owners of the land as realty, but assessed to the owners of the build- ings as personalty.* Ferry franchises and toll bridges are considered real property for purposes of taxation.^ Moneys and credits, with certain exceptions, are taxable to the owners locally for state and local purposes at the low imiform rate of 5 mills on each dollar of actual value. This tax is collected by the cotmty treasurers and divided between the various funds on the same pro rata basis as other taxes collected in such taxing dis- tricts.' Property subject to taxation in Iowa is by statute assessed for taxation at 25 per cent of actual value.'' In practice the assess- ment is somewhat lower, probably about 18 per cent of actual value. Steam and Interurban Railroad Companies. These companies, foreign and domestic, pay the general property tax locally for state and local piurposes. '■ Code, sees. 1323-1325. A domestic corporation, having fully paid-up capital stock of $98,000, actually invested $98,000 in real estate. This real estate was assessed at $go,ooo, which amount was deducted from the capital stock valuation, $98,000, leaving the corporate excess to be assessed at $8,000. Assessment held valid. Valley Inv. Co. v. Board of Review, 152 Iowa, 84 (1911). ^ Interview with state tax officials, Sept. 12-14, 1911. 'Code, sec. 1327. *Ibid., sec. 1350. ^ Ibid., sec. 1308. 'Laws, 1911, chap. 63. ' Code Supplement, sec. 1305. Actual value of property is the market value in the ordinary course of trade. 3o TAXATION OF CORPORATIONS. Railroad property used in operation is in general assessed by the State Executive Council.^ Real estate not used exclusively in operation, railway bridges crossing the Mississippi and Missouri Rivers, and grain elevators, are assessed locally.^ The Executive Council does not make public the exact method used in determining valuations, but in general assessments are based on verified statements from railroads showing detailed data with respect to railroad values and earnings. Intangible values are, to some extent, determined by a consideration of gross receipts. Apportionment to counties through which the roads pass is on the basis of main-track mileage.^ A similar apportionment is made by county boards of supervisors to minor taxing districts.* The value of rolling stock used partly without the State is deter- mined principally upon the proportion which the railroad's busi- ness within the State bears to its entire business.^ In other States such values are usually based on a proportion of mileage instead of a proportion of business. Passenger-Car Companies. Operating equipment belonging to these companies is taxed to the railroad over which they operate. The average number of sleeping, parlor, and other passenger cars used in the State during the year is valued by the Executive Council. The valuation is based upon that portion of the entire value which the number of miles operated in the State bears to the aggregate number of miles operated. It is then added to and assessed with the value of that part of the railroad over which the cars are run.' The 'Code, sec. 1336; Code Supplement, sees. 1333b, 1334. The tax here provided for is on real and personal property without discrimination, and therefore a sewer district tax which can only be enforced against real property within the sewer district is not enforcible against the real property ot a railroad company which is included in its general assessment for taxation. Chicago, M. & St. P. Ry. Co. Ti. Phillips, III Iowa, 377 (igoo). An interurban line which includes a city street car system may be taxed by the Executive Council as a unit. Waterloo & C. F. R. T. Co. v. Board of Supervisors, 131 Iowa, 237 (1906); Cedar Rapids & M. C. Ry. Co. ti. Cummins, 125 Iowa, 430 (1904). ^Code, sec. 1342. The taxation of railroad property is subject to the rule that "property can not be taxed until authority therefor be conferred by the legislature, and the manner of impos- ing taxes prescribed by law must be followed ; no other way of taxation can be lawfully pursued." C, R. I. & P. Ry. Co. v. City of Davenport, 51 Iowa, 451 (1879). ^ Code Supplement, sec. 1337. ^Code, sees. 1338, 1339. ^Code, sec. 1336. ' Code, sec. 1341. IOWA. 8 1 railroad companies pay this tax, but they are reimbursed by the companies owning the cars. Freight-Car and Equipment Companies. Domestic and foreign freight-car and equipment companies pay to the State for state purposes a property tax at the average rate of taxation ^ on cars necessary to carry on their business in the State.^ This tax is in Ueu of other taxation upon such property. Assessment of cars is by the Executive Council. Real estate and permanently located personal property are subject to the general property tax, assessed locally for state and local ptuposes. The value of any cars which may be assessed locally is deducted by the Executive Coimcil in assessing the state tax. State assessment is based upon information furnished by the companies in annual reports to the Executive Council and upon any other information available.^ The Executive Council also determines the average rate. Telegraph and Telephone Companies. Foreign and domestic telegraph and telephone companies pay locally the general property tax for state and local purposes on tangible and intangible property. Property used in the telegraph and telephone business is assessed by the Executive Council. Its method of determining values could not be ascertained.^ In general, however, assessments are based chiefly upon annual reports filed with the state auditor. These reports contain details with respect to property and busi- ness, both within and without the State, and the statute specifi- cally provides that the valuation of all property, including fran- chises and the use of the property in connection with lines outside of the State, shall be considered in assessing these companies. The assessable value having been determined, it is reduced to a valuation per mile of line, and apportionment on this basis is made to the counties and minor local taxing districts.^ Property of telegraph and telephone companies not used exclusively in the telegraph or telephone business is subject to assessment and taxation by the local taxing authorities upon the same basis as that of individuals." ' The average state, county, and local tax throughout the State combined. ^ Code Supplement, sees. I342d, I342e. ' Code Supplement, sees. I342b-i342e. * Interview with secretary of the Executive Council, Sept. 12, 1911. * Code Supplement, sees. i33o-i33od. ^ Code Supplement, sec. i33oe. 62466°— 12 6 82 TAXATION OP CORPORATIONS. Telegraph lines owned and operated by railroad companies exclusively for their own business are taxed with other railroad property and are exempt from further taxation.' Express Companies. Domestic and foreign express companies pay locally the general property tax for state and local purposes. Property used in the business within the State is valued by the Executive Council ; and franchise, earnings, and all other factors which influence value are given consideration. The assessed valuation is then apportioned upon the mileage basis among the localities through which the routes pass and the general property tax applied by the localities.^ The assessment is based upon information furnished by the com- pany in annual reports to the Executive Cotincil and any other information available.^ Real and personal property of express companies not used in the business is subject to assessment and taxation by the local taxing authorities in the same manner as the property of individuals.^ Street-Railway, Water, Gas, and Electric Companies. These companies, whether domestic or foreign, pay the general property tax locally for state and local purposes.^ Assessment is by local officials. Real estate, including lands, buildings, machinery, tracks, poles, wires, etc., is assessed in the taxing dis- trict where situated. Personal property, including rolling stock, is assessed in the taxing district where such property is usually kept. In theory domestic companies of these classes are taxable also, under the general property tax, on the excess value of capital stock over tangible property,^ but in practice this excess is seldom taxed. Manufacturing and Mercantile Corporations. Domestic and foreign manufacturing and mercantile companies pay the general property tax locally for state and local purposes. Raw material of manufacturing corporations is assessed at the average taxable value of such stock on hand during the preceding year. Machinery used in manufacture is, for taxation purposes, regarded as real estate, and this, with all other real estate, is separately assessed. •= Lands, mills, and machinery, used in the manufacture' of sugar from beets grown in Iowa, are exempt from taxation until 191 7.' ' Code, sec. 1332. ^ Code, sec. 1343. ^ Code Supplement, sees. I346e-i346g. ° Code, sec. 1319. ^ Code Supplement, sees. 1346a, I346d. ' Code Supplement, sec. 1304a. * Code Supplement, sees. I346d, 1346?. IOWA. 83 Mercantile corporations are assessed on stocks of merchandise at the average values of such stocks during the preceding year.* Stockholders and Bondholders. Shares of stock in domestic and foreign corporations whose property is taxed in Iowa are, with few exceptions, exempt from taxation in the hands of holders. Domestic corporations required to pay the general property tax on excess of value of capital stock over value of real estate may charge same to the stockholders.^ This excess as already stated is seldom assessed. Bonds of domestic and foreign corporations and stock in certain corporations^ are taxed locally to the holders for state and local purposes at the low uniform rate of 5 mills on each dollar of actual value.' Foreign Corporations. Foreign railroad, telegraph, telephone, express, manufacturing, mercantile, freight-car, and equipment companies are taxed in the same manner as similar domestic corporations. Other foreign cor- porations of the classes herein treated pay locally the general prop- erty tax for state and local purposes on tangible property only. III. FINANCIAL RESULTS. Classification of Revenue. The proportion of total state taxes for state purposes derived from corporations for 1910 was 26 per cent. Total State Receipts, Taxes from Corporations, Other Taxes, and Receipts FROM Sources Other Than Taxes, Year ended June 30, 1910.' Total state receipts, all sources $4, 347, 528. 22 State taxes from corporations: ==^^= Railroads^ $251, 426. 76 Sleeping cars — paid by railroads ^ 990. 56 Telegraph and telephone companies ° 14, 120. 53 Express companies ° i, 432. 74 Freight line and equipment companies 8, 453. 01 Insurance companies 399, 177. 20 Bank fees 18, 966. 07 Building and loan associations 258. 15 Corporation fees 168, 471. 35 Total state taxes from corporations 863, 296. 37 ' Code, sec. 13 18. ^ Code, sec. 1323. 3 Shares of stock in foreign corporations, unless specifically exempt, are taxable to holders. Morrill v. Bentley, 150 Iowa, 677 (1911). Stock in foreign corporations is taxable to holders regardless of its assessment in the foreign State. Judy v. Beckwith, 137 Iowa, 24 (1908). 'Laws, 1911, chap. 63. ^ Reports of State Auditor, Treasurer, and Executive Council, 1910. ^ Estimated by applying the state rate of 3.9 mills to the assessed values of the 84 TAXATION OP CORPORATIONS. Other taxes: Collateral inheritance $2iSi 473- 02 Hunters and other licenses iii, 569. 00 Motor vehicle registrations 55, 242. 00 General property tax ' 2, 070, 757. 41 Total state taxes not from corporations $2, 453, 041. 43 Total taxes for state purposes, all sources 3j 3i6j 337- 80 Receipts from sources other than taxes: Fees of state oflficers and boards 182, 395. 07 Interest on bank deposits 15, 244. 66 From counties for county patients in state institu- tions 640, 539. 74 Institutions under Board of Control 124, 619. 50 United States Government aid to Soldiers' Home. . 66, 861. 37 Miscellaneous receipts, fines, fees, etc i, 530. 08 Total receipts from sources other than taxes i, 031, 190. 42 Total state receipts, all sources 4, 347, 528. 22 IV. COMMENTS. Historical. It is probable that before annexation to Michigan in 1834 no taxes were collected in the area now known as lowa.^ Upon annexation the Michigan laws appUed and corporations were sub- ject to the general property tax, which was assessed upon a valuation of real and personal estate including property and stock in any bank, insurance company, or other incorporation.^ It would seem from the wording of this provision that both the shares of stock in the hands of holders and the corporate property were taxable. The creation of banks and the incorporation of industrial and business corporations had by 1834 become a large part of the legislative business of the Michigan Territory. From 1838, when Iowa became an independent territory, until the enactment of the first general incorporation act in 1847,* incorporation was by special legislative act. Soon after Iowa became a State, in 1846, an act was passed amending the revenue laws to a large extent, but the only pro- ' Part of this comes from local taxation of corporations, but it is impossible prac- tically to ascertain the amount thus received, except the amounts above estimated which are not included in this item. 2 Noble's Taxation in Iowa, p. 9. ^ Laws of the Territory of Michigan, condensed, arranged, and passed by the fifth Legislative Council, 1833, p. 88. ■• Laws, 1846-1847, p. loi. IOWA. 85 vision pertaining to corporate taxation was the requirement that every person should return with his assessable personal property the value of any interest in the capital stock, undivided profits, or means of every company, incorporated or unincorporated, owned by him.^ This law remained unchanged until the adoption of the 1 85 1 code, which introduced much new legislation pertain- ing to taxation. It contained a provision for the taxation of stock of foreign and domestic banks; ferry franchises — important in the days preceding railroads — were henceforth to be taxed as realty .2 The principal accounting officers of corporations were required to report and to Hst their property to the assessors.^ Yet the most radical changes affected railroad, construction, and insurance companies. The property of corporations or companies constructing canals, railways, and similar improvements was taxed through the shares of the stockholders. The shares of nonresident shareholders were assessable in the county in which was either terminus of the line. The company was required to report to the assessor the names and residences of such nonresident shareholders, and the number, the par, and the market value of shares held by each. In case of refusal to certify the list, the shares were assessed to the corporation. The county first listing was entitled to levy and collect the taxes on such nonresident stockholders.^ Certain foreign insiu'ance companies were assessed at i per cent for state purposes and at i per cent for county purposes on the premiums received in the county. The agents were required to list the receipts to the local assessors and were made personally respon- sible for the pa5rment of the tax.^ The development of the system of corporate taxation since the adoption of the code of 1851 has been slow and rather irregular. One class of corporations and then another has received attention, and the methods applied have been widely different. In i860 railroad property was taxed in the same manner as that of indi- viduals. ° In 1862 a gross receipts tax of i per cent was imposed. It was collected by the State, which retained half, and the remain- der was distributed to the several counties through which the road passed. This was in lieu of all other taxes on the roadbed, track, rolling stock, and buildings necessary for operating the road, but ' Laws, 1846-1847, p. 137. * Ibid., sec. 462. 2 Code of 1851, Title VI, sec. 456. « Ibid., sec. 464. * Ibid., sec. 458. " Revision of i860, chap. 45, sec. 712. 86 TAXATION OP CORPORATIONS. all other property was taxed like the property of individuals.* In 1870 a law was passed taxing railroads on gross receipts,^ and the law was further changed so as to reduce the State's share to one- fifth, and increase the distribution to counties to four-fifths. In 1872 the State Census Board (Executive Committee) began to assess railroad property, except real estate not used in operation. Rolling stock of interstate roads was valued in proportion to the amount of business in the State.^ The amendments to this law from 1872 until this time have been singularly few and have been consistent with the general plan originally adopted, namely, assessment of railroad property by the State, and its taxation locally for state and local purposes under the general property tax. Foreign insurance companies have been assessed upon their gross premium receipts since 1 85 1 . Domestic insurance companies were assessed in the same manner as individuals up to 1897, when they were subjected to a tax on income.* In 1878 the assessment of tele- graph and sleeping and dining car companies was taken out of local jurisdiction and placed under a state board.^ This system has since continued. Express companies have been subject to various methods of taxation. Up to 1 868 they were assessed as ordinary corporations. In that year the legislature passed a peculiar act, taxing these companies and telegraph companies locally on a part of their gross receipts." Two years later the act was repealed, and from that time until 1 896 express companies were assessed in the same man- ner as individuals.' In 1896 a tax of i per cent was placed upon gross receipts,^ but in 1900 the present method was inaugurated. In 1 911 moneys and credits, with certain exceptions, were sub- jected to a low uniform tax rate of 5 mills on each dollar of actual value, payable by the holders locally for state and local purposes in lieu of other taxes. Revenues. It is only within the past few years that receipts from special sources have been large enough to be of importance in the state- ' Laws, 1862, chap. 173. ^ Laws, 1870, chap. 106. ^ Laws, 1872, chap. 26. * See Revision, i85o, sec. 718; Code, 1873, sec. 807; Code, 1897, sec. 1333^ and Laws, 1900, chap. 43. * Laws, 1878, chaps. 59, 114. ° Laws, 1868, chap. 180. ' Laws, 1870, chap. loo. ^ Laws, 1896, cliap. 32. IOWA. 87 revenue system, and even now the greater part of the state revenue comes from the general property tax. Fees from state officers, boards, institutions, and corporations now amount to nearly a half million dollars annually, and the collateral inheritance tax nets the State about one-fourth of a million. Insurance companies pay special state taxes amounting to over one-third of a million dollars annually. The Iowa state auditor, in his last report, says:' "During the year just closed it is estimated that only 53.8 per cent of the total state revenue was raised by direct taxation. The remainder, or 46.2 per cent of all funds raised for the state govern- ment, came from fees and taxes from corporations. Federal aid to Soldiers' Home, payments by counties for the maintenance of their insane or other unfortunates in state institutions, insurance and collateral inheritance tax, and a few minor items. It is an inter- esting and perhaps significant fact that the proportion of revenue collected in the form of direct taxes is growing smaller. Thus, during the period ending June -30, 1899, 76.4 per cent of the total revenue was raised by direct taxation, and only 23.6 per cent b)?- the various indirect methods to which reference has been made. " By direct taxation is meant the revenue raised by the levy under authority of the legislature. The reduction of direct taxation is the result of legislation making more general the taxation and fees of incorporations and collateral inheritances. This indirect taxa- tion includes fees for filing articles of incorporation, taxation and fees of insurance companies, fees for notarial commissions, phar- macy certificates, bank, municipal, and insurance examination fees, and a few other like items." Assessment of property in general has been materially increased in the past few years, and for a more comprehensive study of the increase of assessment of property of public-service corporations in the past decade the following table^ is presented: Years. Railroad property. Telegraph and telephone property. Express companies. All property. 1900. 1901. 1902. 1903. 1904, 1905. 1906. 1907- 1908. 1909. 1910. $46, I94j 727 47,328,911 51,570,242 56,947,711 58,053,770 S8, 785, 749 63,044,617 64,177,327 64. S24, 659 64, 468, 401 65,095,060 $1, 206, 989 1,300, 248 1, 545, 803 1. 9271 783 2,294,115 2) 427. SO3 2,578,412 3; 037, 247 3,397,128 3,670,648 3,991,170 3244, 970 261,587 36s, 88s 420, 283 436,151 408, 059 357.968 408, 192 360,857 367.369 368, 097 $539, 558, 572, 637. 642, 620, 634. 658, 667, 681, 693. 737. S96 462, 618 840, 391 937,386 445.336 894. 110 733.822 083,232 668, 233 835.827 846, 668 ' Auditor's Report, 1910, p. V. ^ Auditor's Report, 1910, p. 200. 88 TAXATION OP CORPORATIONS. While the assessment of all property in the State has increased 22,}4 per cent in the past decade, it will be observed that the assess- ment of the property of these corporations which are assessed by the Executive Council has increased at a greater ratio. The assess- ment of railroad property has increased 41 per cent, that of telegraph and telephone companies 231 per cent, and that of express companies 50 per cent. Distinctive Features. The trend toward centralization of assessment of public-serv- ice corporations has been very slow in Iowa, but state-wide public-service corporations are now assessed by the State Executive Council. Local pubUc-service corporations as well as manufac- turing and mercantile corporations are still assessed by local assessors. There has be^n comparatively little progress toward the di- vorcement of state and local sources of revenue. The gross receipts method of taxing railroads was employed from 1862 to 1872, but caused much Htigation and was finally abandoned. The only state taxes payable directly to the State are those on freight- car and equipment companies and on instuance companies. In regard to the present method of railroad tax distribution on the main track mileage basis. Prof. John E. Brindley (at present secretary of the Iowa Special Tax Commission) in his recent work " History of Taxation in Iowa, " says: ^ * * * "The law deprives cities of the right to tax millions of dollars' worth of property situated within their limits, and * * * confers special favors on a small per cent of townships that happen to possess a large railway mileage. Therefore, it follows logically that the present law, since it does not operate either to the benefit of the cities or to the benefit of a majority of •■rural districts, can not be said to favor a large majority of the voters of Iowa. This has been precisely the situation for a genera- tion, despite the fact that this same majority has the power at all times to enact laws." Treating of the changes in modes of assessment and recom- mending certain other reforms,^ the same author says: " In regard to the assessment of public-service corporations a tmiversal change from a local to a state system has been noted. It would seem that this is both a desirable and a necessary change. Any program of sane, well-balanced reform must, therefore, rec- ognize the principle of state assessment. It logically follows from these considerations that only two fundamental changes are ' Vol. II, p. 200. IOWA. 89 necessary: First, in the plan of tax distribution all nonlocal values should be taxed solely by the State; and second, a state tax commission for expert assessment in lieu of the present ex officio assessment by the executive council should be created." ' ******* " Finally, it may safely be affirmed that any comprehensive pro- gram of reform should embrace the following essential elements: First, a strong centralized fiscal administration, without which efficient and uniform assessment is impossible; second, a more equitable plan of tax distribution as between city, town, township, county, and State; and finally, as soon as conditions will permit, the gradual exemption of credit instruments from general property taxation, and at the same time the evolution of a substitute or substitutes for the so-called personal property tax. In the judg- ment of the writer, the third development should for the most part follow rather than precede the other two. The problem as a whole must necessarily obey the laws of evolution." ^ In accordance with a law passed in 191 1 ^ the governor has appointed a temporary tax commission to investigate the tax sys- tem of Iowa and recommend reforms, and it is probable that much in the way of reform will depend on the report of this commission. Bibliography. The following is a list of the more important publications, in addition to the constitution, the statutes, and the court reports, of value in the study of corporate taxation in the State of Iowa: History of Taxation in Iowa, by John E. Brindley, 191 1. The Law of Taxation in Iowa, by Edwin A. Jaggard, 1902. Taxation in Iowa, by F. H. Noble, 1897. Chapters in Iowa's Financial History, by Frank I. Merriott. (In Annals of Iowa, third series, vol. 5, pp. 352-373, 425-445, April and July numbers, 1902.) Report of Revenue Commission of the State of Iowa, 1893. Some Phases of Corporate Regulation in the State of Iowa, by Frank Edward Horack (in Iowa Journal of History and Politics, vol. 2, pp. 485-519, October number, 1904). The Problem of Tax Reform in Iowa, by John E. Brindley (in State and Local Taxation, International Tax Association, 19 10). Taxation in Various States, Iowa, by George Clapperton (in Report of the United States Industrial Commission, 1901, Vol. XI, pp. 157-170). Report of Executive Council of Iowa, 19 10. Biennial Report of Auditor of State, 1910. Biennial Report of Treasurer of State, 1910. ' History of Taxation in Iowa, Brindley, Vol. II, p. 206. ^ Ibid, p. 212. ' Laws, 1911, chap. 204. NEBRASKA. I. GENERAL VIEW. Chief Features. First. The application of the general property tax to all corpo- rations, collected locally for state and local piirposes. Second. The assessment by local assessors of all state-wide public-service corporations, except railroad, car, and freight line companies. Third. The consideration of gross receipts of express, telegraph, telephone, and pipe line companies as the principal determining factor in the assessment of franchise value. Fotuth. The special local assessment of valuable terminal prop- erty by cities and villages for municipal purposes, and the state assessment and apportionment of the same property for other purposes. General Property Tax. Corporations here under consideration pay locally the general property tax for state and local purposes on all property, including franchises. The statutes provide that property shall be assessed at 20 per cent of actual value. Steam Railroad, Car, and Freight Line Companies. Such companies pay locally the general property tax for state and local purposes. The State Board of Equalization and Assess- ment assesses the roadbed, stations, rolling stock, material, intan- gible personalty, and franchises. All property situated outside the right of way, including repair shops, office buildings, and store- houses, is assessed locally. There is also a separate and additional local assessment of all property of these companies (except rolling stock and intangible personalty) in cities and villages for city and village levies. Express, Telegraph, Telephone, and Pipe Line Companies. These companies pay locally the general property tax for state and local purposes. One of the important items in valuation is 90 NEBRASKA. 91 that of intrastate gross receipts, the amounts of such receipts being obtained by the county and local assessors from the local offices. ■ Public Utility Companies. Street railway, water, electric, gas, and other lighting companies pay the general property tax assessed and collected locally for state and local purposes, on all property in the State, including the value of franchises. Manufacturing and Mercantile Corporations. These companies pay the general property tax, assessed and collected locally, for state and local purposes. Capital-Stock Tax — Occupation Fee. Every corporation under consideration, domestic, and foreign, pays, for the privilege of doing business in Nebraska, a small annual occupation fee based on the par value of subscribed capital stock. This is in addition to the general property tax. Stockholders and Bondholders. Shares of stock in corporations whose property is taxed in Nebraska are, in general, not taxed to holders. Stocks in other corporations and bonds of domestic and foreign corporations are taxable to holders. Foreign Corporations. Foreign corporations of the classes herein treated are taxed in practically the same manner as similar domestic corporations. Administration. The State Board of Equalization and Assessment consists of the governor, state auditor, state treasurer, secretary of state, and state commissioner of public lands and buildings. This board has general supervision over all taxation matters, including authority to equalize and change local assessments of property as a class, by cotmties, and to assess certain railroad and car company prop- erty. It also fixes the amotmt and rate of state tax, but this rate can not exceed 5 mills on the dollar. The readjustment of indi- vidual local assessments rests with the county boards of equaliza- tion. Appeal from the decision of the county board lies to the district cotut, and not to the state board. After equalization, the county and state boards and county clerks levy the taxes for state and local purposes. 92 Taxation op corporations. All taxes paid by the corporations under consideration, except the capital-stock tax (occupation fee), are paid to county treas- urers. The capital-stock tax is paid to the secretary of state.' II. DETAILS AS TO THE CONSTITUTION AND STATUTES. Constitution. The constitution establishes broadly the general property tax as the policy of the State and provides that every person and cor- poration shall pay said tax in proportion to the value of the property and franchises owned. Power is given the legislature to tax certain kinds of business luider general laws which shall be uniform as to each class.^ Counties are limited to a rate of 1 5 mills on each dollar except for payment of debts existing at the time of the adoption of the constitution, unless an increase is authorized by a vote of the people of the county." Municipalities may receive legislative authority to make regular and special assessments, such taxation to be uniform.^ - Only the property of municipal, religious, educational, eleemo- synary, agricultiural, and similar corporations may be exempt from taxation; nor shall there be commutation of taxes. '^ ' Sources of revenue in Nebraska: Municipal and local districts. — (a) General property tax; (6) poll tax; (c) business taxes and licenses; (d) fines, fees, etc. County. — (a) General property tax; (i) inheritance tax; (c) poll tax; (d) business taxes and licenses; (e) fines, fees, etc. State. — (a) General property tax; (6) business taxes and licenses; (c) corporation , taxes; (d) fines, fees, etc. 2 Constitution, 1875, Art. IX, sec. i. No discrepancy or lack of uniformity can be allowed under this provision. State exrel. Ahem -v. Walsh, 31 Nebr., 469, 474 (1891). Both assessment and rate must be uniform. High School District v. Lancaster County, 60 Nebr., 147 (1900). A tax is uniform if the persons subject to it are duly divided into classes and the law operates upon the members of each class uniformly. Aachen & Munich Fire Insur- ance Co. V. City of Omaha, 72 Nebr., 518 (1904'). The constitutional authority in this section to tax business allows consideration of the gross receipts of certain public-service corporations in determining the assessment of franchise value under the general property tax. W. U. Tel. Co. v. Omaha, 73 Nebr., 527 (1905). ' Constitution, Art. IX, sec. 5. * Ibid., sec. 6. ^ Ibid., sees. ^, 4. nebraska. 93 Statutes.* General Property Tax. Corporations, domestic and foreign, are taxed locally for state .and local purposes upon real ^ and personal ' property. The franchise value ^ of corporations is assessed as a part of taxable property. In the case of express, telegraph, telephone, and pipe- line companies the annual gross receipts from business in the State constitute the principal determining factor in the assessment of fran- chise value. The property of steam railroads and car companies is assessed by the State Board of Equalization and Assessment and by local assessors. The property of other corporations under consideration is assessed by local assessors. The principal place of business is made the situs of personal property for taxation purposes. ' The statute provides that all property shall be valued at actual value and assessed at 20 per cent of such value. ^ ' Except as otherwise indicated, the references herein are to Cobbey's Annotated Statutes, 191 1. ^ The term "real estate" includes all buildings, fixtures, improvements, mines, minerals, quarries, mineral springs and wells, oil and gas rights, and privileges per- taining thereto. Cobbey's Stats., sec. lopoo. 3 The term "personal property ' ' includes every tangible and intangible thing which is the subject of ownership and not real property. Ibid., sec. 10901. Deductions from gross credits are allowed for bona fide indebtedness. State ex rel. •u. Fleming, 70 Nebr., 523, 529 (1903); Lancaster County v. MacDonald, 73 Nebr., 453 (1905); Oleson V. Cuming County, 81 Nebr., 209 (1908). The right to deduct bona fide debts from gross credits is not in conflict with Nebraska's constitution. Art. IX, sec. i . Scandinavian Mutual Association v. Kearney County, 81 Nebr., 468, 473 (1908). * Franchise value means the value of intangible property. W. U. Tel. Co. i/. Omaha, 73 Nebr., 527, 539 (1905). * Cobbey's Stats., sec. 10928. « Ibid., sec. 10911. -The object of the fractional assessment is to avoid changes in existing limitations on the various levies for general and special purposes, anid the limitations on bond issues. The assessments tmder the old system had been scaled down by competitive valuation of the full-value requirement to from 15 to 25 per cent of the actual value. Article by Victor Rosewater, in Quarterly Journal of Economics, Feb., 1904, vol. 18, pp. 295-296. Notwithstanding the provision that property must be listed at its fair cash value, the court will take judicial notice of the fact that for general revenue purposes the standard of valuation generally prevailing is far below the actual cash value. State ex rel. v. Savage, 65 Nebr., 714 (1902). 94 TAXATION OP CORPORATIONS. Steam Railroads. Domestic and foreign railroads pay locally the general property tax for state and local purposes.' In addition, they pay the small graduated capital stock tax based upon the par value of subscribed stock. The property of railroads for taxation purposes may be classified as follows : (o) Rolling stock, and intangible personal property, including moneys, credits, and franchises. The value of this property is assessed by the state board and is apportioned to the counties, cities, and minor local districts on the mileage basis. ^ (b) Right of way, tracks, stations, materials, and other tan- gible property located within the right of -way and within station grounds. This property is also assessed by the state board. It is apportioned in the same manner as class a property,^ except that this apportionment does not extend to cities and incor- porated villages. City and village* property of class b is assessed locally ^ but is subject to equalization by the state board. The object of thus separately providing for city and village taxation was to give such municipalities a more adequate return for their extra police, fire, and other protection of railroad property (especially of the valuable railroad terminals) iu the cities and vil- lages, than could be obtained under the usual unit rule apportion- ment plan." ' The taxable property includes "railroad service." Cobbey's Stats., sees. 10985, 10986. The leasehold right of a railroad to use part of the track of another railroad is taxable as "railroad service," even though the trackage so leased had already been taxed to the railroad owning it. Interview with W. T. Thompson, formerly attorney general of Nebraska, May 23, igii. A railroad company need not own a track, right of way, or terminal in Nebraska to be subject to taxation for whatever property it owns, including its franchise to do business in the State. Opinions of Attorney General, 1905-6, p. 164. A railroad is taxable on an unused right of way. Opinions of Attorney General, 1909-10, p. 71. ^ Cobbey's Stats., sees. 10699, 10983. 10985, 10988, logSg, 10995. ' Ibid., sees. 10983, 10985, 10988. Manner of valuing railroad main track and branches discussed in case of State ex rel. V. Sheldon, 79 Nebr., 455 (1907). A railroad bridge across a navigable river owned, used, and operated by a railroad company as a part of its line of road is assessable for taxation by the state board and not by local assessors. C, B. & Q. R. R. Co. v. Richardson County, 61 Nebr., 519 (1901). * A village is an incorporated town of not less than 200 nor more than 1,500 inhabi- tants. Cobbey's Stats., sec. 8881. '' Cobbey's Stats., sees. 10687, 10688 (6), 10697. * " Interview with W. T. Thompson, formerly attorney general of Nebraska, May 23, 1911. NEBRASKA. 95 (c) All real and personal property outside of both the right of way and station grounds, including machine repair shops, general office buildings, and storehouses. Property of this class is assessed . locally for state and local pxirposes.' All railroads situated within the State are required by statute to furnish the state board, county clerks, and city and village authorities annual reports showing certain detailed information.^' Statements of the valuations made and corrected by the state board are sent to the clerk of each county entitled thereto, to be used in extending cotmty, city, and other local taxes on railroad property located therein.' Express, Telegraph, Telephone, and Pipe Line Companies. These companies, whether domestic or foreign, pay the general property tax, assessed and collected locally for state and local purposes. The gross receipts are considered in arriving at the intangible or franchise values.* In addition, they pay the small graduated capital stock tax on the par value of subscribed stock. ' Cobbey's Stats., sees. 10984, 10698. Repair shops, storehouses, and other buildings of a railroad situated on the right of way should be assessed by local assessors, while the right of way and depot grotmds should be assessed by the state board. What constitutes right of way and depot grounds is to be determined by state board. Opinions of Attorney General, 1905-6, p. 173. Elevators situated on the right of way of a railroad are subject to assessment by local authorities and not by state board. That they may be necessary for successful opera- tion of the road is immaterial, and a voluntary listing to the auditor and payment of tax is no defense to assessment by county. Adams County -v. Kansas City & O. Rail- road Co., 71 Nebr., 549 (1904). ^ Cobbey's Stats., sees. io6gr, 10692, 10698, 10986, 10989. These various reports are not conclusive as to value of property. Ibid., sees. 10697, 10988. ' Cobbey's Stats., sees. 10701, 10992-10994. •• Ibid, sees. 10977, 10979, 10981. ii°3i. ii°33- The true value of the tangible property of an express, telephone, or telegraph com- pany should be ascertained from a consideration of its gross receipts for the prior year, and its franchise or right to carry on its business, and by treating it as a going concern. Nebraska Tel. Co. v. Hall County, 75 Nebr., 405 (1906). The word "franchise " as here used, is a generic term, and includes all rights and privileges granted to or exercised by a corporation in the express, telegraph, or tele- phone business in Nebraska. "Franchise value means the value of the intangible property." W. U. Tel. Co. v. City of Omaha, 73 Nebr., 527, 539 (1905). The amount of gross receipts taken in by express, telephone, and telegraph com- panies during the year prior to the time of assessment, taken alone, is not the proper method of ascertaining the value of the franchise. Gross receipts may properly be considered as an item in estimating the value of the franchise, but not as the value of the franchise. (Ibid.) In assessing the property of a telegraph company having property in more than one State, the value of the whole property as an entirety should be considered, and the 96 TAXATION OF CORPORATIONS. Real estate belonging to these classes of companies is assessed in the same manner as that of individuals. Both the value of ^ personal property and the amount of gross receipts for the preced- ing year are, except for the city of Lincoln, reported to county or local assessors in the counties through which the routes pass. The coimty and state boards of equalization and assessment equalize and levy, through the county clerks, the tax for state and local purposes. These reports are verified by the reporting companies and their books are subject to examination by the assessors.^ By reason of provisions contained in the charter of the city of Lincoln assessment for city purposes is made by the city assessor and reviewed by a board composed of certain members of the city council. The degree of consideration given to the reported gross receipts in determining the intangible or franchise value depends upon the local assessor. In the city of Lincoln the reported gross receipts are added to the value of personal property. The total is equalized, assessed, and taxed in the same manner as other property.^ Car Companies. Domestic and foreign car and freight line companies pay locally the general property tax, for state and local purposes. In addi- tion, they pay the small graduated capital stock tax on the par value of subscribed stock. Parlor and sleeping car companies are assessed on that propor- tion of the value of their cars operated in the State during the relation which the value of the property in the taxing district bears to the value of the entire property should also be considered. In arriving at the value of the property of a telegraph company in a taxing district , the total gross and net receipts of the system as a whole, as well as in the particular districts, may be considered, and so also may the amount of company's stocks and bonds and the market value thereof. W. U. Tel. Co. o. Dodge County, 80 Nebr., 18 (1907). Franchise or right to occupy the streets of a city by a telephone company is not identical with the business or occupation of the company. An occupation tax meas- ured by a percentage of the gross earnings of the telephone company, whose franchise is also taxed in connection with its tangible property according to its value as a going concern, does not tax the same {jroperty twice. Nebraska Tel. Co. v. City of Lincoln, 82 Nebr., 59 (1908); Ibid., 84 Nebr., 325 (1909); approved in Lincoln Traction Co. i'. City of Lincoln, 84 Nebr., 327 (1909). ' Cobbey's Stats., sees. 10976, 10980. Pipe line companies report to assessors of minor local districts. If a telephone company refuse to allow inspection of books, the local assessor should value property from best information obtainable. The provision permitting the asses- sor to add 50 per cent is of doubtful validity. Opinions of Attorney General, 1905-6, p. 168. ^ Interview with city assessor, Lincoln, Nebr., Sept. 2, 1911. NEBRASKA. 97 year which the main-track mileage traveled by said cars within the State bears to the entire main-track mileage covered by said cars.i Freight-line companies ^ are taxed on the value of the number of cars necessary to make the total annual mileage covered by such cars in Nebraska.^ Assessment by the state board is based on reports from com- panies,* which are verified by somewhat similar reports from the railroad companies over whose lines the cars pass. These assessments are apportioned by the state board, according to railroad main- track ^ mileage, among the several counties trav- ersed by the railways carrying the gars. They are then reappor- tioned by county clerks to cities, villages, and smaller taxing districts." Property, other than cars, if any, is assessed locally where situated.' Public Utility Companies. Domestic and foreign street railway, water, electric, gas, and other lighting companies are subject to the general property tax ' Cobbey's Stats., sec. 11602. ^ Including stock, furniture, refrigerator, fruit, poultry, tank, etc., cars, not leased, owned, or operated by a railroad company. ^ Cobbey's Stats., sees. 10996, 10998, 10699. To illustrate the procedure, in figuring the number of cars, other than parlor and sleeping cars, data from the 1904 report of a certain car line are here given. This company reported that its fruit cars had traveled in Nebraska during the previous year 7,060,306 miles, and that the travel all over the country of each one of such cars was 275 miles each day. The travel, then, in a year of such one car would be 100,37 j miles; and since the aggregate mileage of all the cars of this class in the State during the year had been 7,060,306 miles, the number of cars required to make this aggregate mileage was taken as the result obtained by dividing 7,060,306 by 100,375, giving about 70 cars. The state board valued each fruit car at $450, and the taxable value, then, was easily obtained. * Cobbey's Stats., sees. 10694, 10996, 10997, 10998, iiooi, 11002. The reports for parlor and sleeping cars show: (i) The number and value of cars of each class used in transacting business upon all the raihoad lines running into or through the State; (2) the mileage of railroad track in the State and coimties over which the cars were used; (3) the total value of such cars due to the State, according to proportionate railroad main-track mileage; .and (4) the value per mile. Reports for cars other than parlor and sleeping cars show: (i) The aggregate num- ber of miles made by the cars on the several lines of railroad in Nebraska during the year; (2) the average daily travel everywhere of a car of a particular class; and (3) the total number of cars owned. ' Cobbey's Stats., sees. 10998, 11002. ' Ibid., sees. 10701, 10995, i°998- ' Ibid., sees. 10687, 10697, 10911. 62466° — 12 7 98 TAXATION OP CORPORATIONS. assessed and paid locally for state and local purposes.' In addi- tion, they pay the small graduated capital-stock tax on the par value of subscribed stock. Emphasis is laid by the law on the assessment of the franchises of such companies; ' and this franchise value includes the value of the intangible property.^ Annual sworn reports are made by the companies to the local assessors.^ Manufacturing and Mercantile Corporations. The property of such corporations, domestic and foreign, is assessed locally under the general property tax, for state and local pvirposes.^ In addition they pay the small annual graduated cap- ital stock tax on the par value of subscribed capital stock. The taxable personal property is listed by each corporation.^ The assessor may inspect the books, stock inventories, and insur- ance policies of a merchant or manufacturer to determine the value of his stock on hand." The property of manufacturers in the hands of an agent is listed as merchandise,^ where the business of the agent is carried on.' The personal property of business corpora- tions is assessed where the principal office or place of business is located.^ ' Cobbey's Stats., sees. 10967, 10969. The value of the franchise is determined principally from the amount of yearly earnings and dividends and from the kind of charter the public utility company may have from the State or city, taking into consideration what the company has paid for its franchise, and whether said franchise is permanent or temporary. Interview with W. T. Thompson, formerly attorney general of Nebraska, May 23, 1911. Taxation of franchises must oe by valuation and in proportion to value. Any rule or method adopted by the legislature to ascertain such value, if the same is fair and just in its operation, will be upheld, but the legislature can not establish an arbitrary rule which has no relation to the value. W. U. Tel. Co. v. Omalia, 73 Nebr., 527 (1905). ^ W. U. Tel. Co. V. Omaha, 73 Nebr., 532 (1905). ^ Cobbey's Stats., sees. 10967, 10968. Such reports give data as to the following items: (i) Name and location of company; (2) the amount and value of capital stock; (3) value of franchise granted by State or city; (4) amount of indebtedness except indebtedness for current expenses; (5) amoimt and rate of yearly dividend; (6) amount of gross and net earnings and profit. * Cobbey's Stats., sees. logii, 10927, 10928. * Ibid., sec. 10927. Ordinary corporations, such as are purely domestic and which are not covered by any specific provision of the revenue act designating any particular method with respect to their assessment, should be assessed imder the general provisions of the act; that is to say, all their property should be listed, including moneys, credits, and all other items of property owned by them on the ist day of April. Opinions of Attorney General, 1905-6, p. 81. * Cobbey's Stats., sec. 10956. ' Ibid., sec. 10931. * Ibid., sec. 10928. NEBRASKA. 99 A person or corporation dealing in grain, designated a "grain broker," is taxed on real estate and other tangible property (except grain on hand) and the average amount of capital invested in the business during the preceding year. "Average capital" includes all grain purchased during the year, whether the same has been sold or is still on hand at the time of assessment. The assessor determines the amount of such capital by inspection of the books of the grain broker.' Capital Stock Tax — Annual Occupation. Fee. Every domestic and foreign corporation for profit (except bank- ing, insurance, and building and loan corporations) doing business in Nebraska pays to the State, for state purposes, an annual tax on capital stock, designated in the statute as "an occupation permit authorizing the transaction of such business in this State." ^ The tax, which in no case exceeds $200, is based on the par value of the paid-up and subscribed^ capital stock, and is graduated.* Stockholders and Bondholders. Shares of stock in corporations whose property is taxed in Nebraska are, in general, not taxed to holders. Stock in other corporations, and bonds of foreign and domestic corporations, are taxable to resident holders.^ Foreign Corporations. Foreign corporations, of the various classes herein considered, are taxed in practically the same manner as similar domestic corporations. ' Cobbey's Stats., sec. 10965. ^ Ibid., sees. 4260, 4264. ' Report of Attorney General, 1909-10, p. 234. * The grant of a charter to a corporation does not exempt it from an occupation tax, and the enumeration by the Nebraska constitution of certain occupations upon which an occupation tax may be imposed does not operate to exempt from such occupation tax occupations not included in the enumeration. Mercantile Incorporating Co. v. Junkin, 85 Nebr., 561 (1909). The capital stock tax is graduated as follows: Capita] stock. Tax or occupation fee. Par Value $10,000 or less Exceeding $10,000 and not exceeding $25,000 Exceeding $25,000 and not exceeding $50,000 Exceeding $50,000 and not exceeding $100,000 Exceeding $100,000 and not exceeding $250,000 Exceeding $250,000 and not exceeding $500,000 Exceeding $500,000 and not exceeding $r ,000,000. . . . Exceeding $1,000,000 and not exceeding $2,000,000 . Exceeding $2,000,000 $5.00 10.00 20.00 30.00 50.00 75- 00 roo. 00 150.00 200.00 ' Cobbey's Stats., sec. 10927. lOO TAXATION OF CORPORATIONS III. FINANCIAL RESULTS. Classification of Revenue. The proportion of total state taxes for state purposes derived ftom corporations for 1910 was 25 per cent. Total State Receipts, Taxes prom Corporations, Other Taxes, and Receipts FROM Sources Other than Taxes, Year ended November 30, igio.' Total state receipts, all sources ' $3, 005, 039. 61 State taxes from corporations: Steam railroads ^ S300, 005. 00 Express, telegraph, and telephone companies ^ 7, 204. 46 Car companies ^ i, 649. 28 Pipe line companies ^ 469. 51 Franchised corporations and franchises ' 21, 985. 39 Insurance and security companies — general property tax 3 3; 815. 14 Insurance companies 133, 003. 95 Incorporation fees ^ 1 84) 636. 98 Capital stock tax * 61, 006. 08 Corporation penalties * 4j 245- 00 State banking board, fees 14, 835. 75 Oil inspection, fees 20, 299. 45 Food Commission, fees 6, 498. 77 Railway Commission, fees 666. 33 Board of Irrigation, fees 456. 15 Total state taxes from corporations 660, 777. 24 Other taxes: Motor vehicle licenses " 9, 308. 63 General property tax ° i, 945, 052. 56 Total state taxes not from corporations x, 954, 361. 19 Total taxes for state ptirposes, all sources 2, 615, 138. 43 Receipts from sources other than taxes: Interest on deposits, securities, etc 62, 536. 30 State University 114, 257. 20 Convict labor. 43, 681. 37 ' Biennial Reports, Secretary of State, State Treasurer, and State Auditor of Public Accounts, igo8-igio. ^ This total obtained by taking one-half of the receipts given in the Biennial Report of the State Treasurer, 1908-1910, pp. 10-14. ^ Estimated by applying the state rate of 5^ mills on the dollar to the assessed values of property, taken from statements of grand assessment roll for 1909, Auditor's Report, 1909-10, p. 190. Railroad valuation, ibid., p. 314. * These figures represent half the amounts given on p. 26 of Biennial Report of the Secretary of State, 1908-1910. * Half the amount shown in the Biennial Report of Secretary of State, 1908-1910. ° Part of this comes from local taxation of corporations, but it is impossible practi- cally to ascertain the amount thus received, except the amounts above estimated which are not included in this item. NEBRASKA. lOI Receipts from sources other than taxes— Continued. United States aid to agricultural and experiment stations f^o, 500. 00 United States aid to Nebraska S. & S 31, 926. 27 Five per cent of sales of public lands 6, 151. 11 Miscellaneous receipts 60, 848. 93 Total receipts from sources other than taxes $389, 901. 18 Total state receipts, all sources 3, 005, 039. 61 IV. COMMENTS. Historical. The history of the taxation of corporations in Nebraska is properly divisible into the periods before and after the enactment of the revenue act, approved September i, 1903. Before the revenue act of 1903 foreign corporations and domestic public-service corporations were not adequately taxed. Moreover, taxation was not equal, corporate property being taxed at net value after deduction of debts,. while individuals were required to pay on their property regardless of mortgages, etc. Corrective legislation was accomplished by the revenue act of 1903.* The 1903 act repealed practically the entire revenue laws in existence at that time, and with the revenue acts of 1907 and 1909 (hereafter described) forms the basis of practically the entire reve- nue system of the State as it now exists. Among the more im- portant provisions contained in this act were those relating to pub- Uc-service corporations and local assessments. Railroad companies under this act are required to furnish more complete data upon which the state board can base assessments not only of its tangible but intangible property. Local assessors are also given authority to demand such data of telegraph, tele- phone, and express companies as will enable them to assess both the tangible and intangible properties of such companies. They may also require inventories of manufacturers and merchants when such inventories are deexned desirable for the purpose of checking reported values of stock on hand. Minute provisions as to the supervision of county assessors over local assessors were also given and assessments were made reviewable by coimty boards and by the state board. Property was assessable under the former law at actual value, but in practice only a small percentage of such value was assessed. ' Interview with W. T. Thompson, formerly attorney general of Nebraska, May 23, 1911. 102 TAXATION OF CORPORATIONS. The new law specifically provides for the assessment of property at 20 per cent of actual value. The Revenue Law of 1903. According to a writer in the Quarterly Journal of Economics,' certain recommendations contained in the 1901 report of a special tax commission of Kansas, while rejected by the Kansas Legisla- ture, were for the most part embodied in the 1903 Nebraska revenue law. The section providing for the assessment of rail- road property, for instance, was copied verbatim from the pro- posed Kansas act. Some of the features of the Indiana tax system were also em- bodied in this law, but the legislative committee was careful to retain, as far as was consistent with their purpose to improve, those principles of the old law which had met the judicial approval of the state supreme court.^ Possibly it is due to this evident desire to avoid future litigation that Nebraska, alone of the States thus far studied, still assesses locally, express, telegraph, and telephone companies. The advantages of the new system as seen by a former attorney general of the State are here given : ^ "The taxation system of Nebraska previous to the general revenue law of 1903 was a failure. The State was running behind in revenue until in 1 5 or 20 years there was a debt of over $2 ,000,000. By 1 9 10, however, this debt had been entirely paid off, and now the State is able not only to pay its necessary expenditures, but can erect enduring fireproof buildings for normal schools, etc. Previous to the revenue law of 1903, the Nebraska grand assess- ment roll was about $185,000,000; now it will amount to more than $400,000,000. Railroads were assessed before 1903 at $24,000,000, while the first assessment of railroads under the 1903 law was $55,000,000. "The 1903 law also unearthed something like $11,000,000 of intangible property belonging to individuals and to manufacturing and mercantile corporations. Under the old law the assessor would come and go in an apologetic manner, and the taxpayer would give the assessor what it was impossible to avoid; now, under the 1903 law, the State Board of Bquahzation and Assess- ment furnishes blanks to the local assessors, and there are something like 125 specific questions covering every conceivable class of property; and to the individual or corporation there is a heavy penalty for evasion of proper answers to these questions." ' Article by Victor Rosewater, Quarterly Journal of Economics, vol. 18, pp. 293-299 (Feb., 1904). ^ Interview with W. T. Thompson, formerly attorney general of Nebraska, May 23, 1911. NEBRASKA. 103 Considerable agitation preceded the passage of this act. As stated in the governor's message of 1905, it "was brought under the searchlight of public opinion and was made the target of extreme criticism." This resulted in a better general understand- ing of the revenue problems, and the approval of the electorate was "such an indorsement of the work of the legislature that framed and passed the law as has seldom been recorded in the history of Nebraska." * * * "The people understood the inequitable provisions of the old system, under which the growing State could not adapt its revenue to its increasing obligations. * * * They knew, too, that the two foundation principles of the 1903 law were the essentials of justice, namely, a listing of all property for assess- ment purposes at its fair cash value,' and the levying of an equitable and tmiform tax upon all property so listed." Assess- ment has been equalized, "both private and corporation property have received their just deserts, and the State has been enabled to raise sufficient revenue to meet the expenses of government economically administered." Important Legislation since 1Q03. Since 1903 Nebraska has passed two important laws affecting taxation, namely, the terminal tax act of 1907 and the capital stock tax of 1909. The purpose of the terminal tax act is to further differentiate between the taxation of local and nonlocal railroad property, and thereby give to the municipalities a larger share of revenue from the taxation of valuable terminals, and the like, located within their borders. The underlying principle of this act is the^ placing of power in the hands of officials of incorporated cities and villages to assess, and to levy municipal rates on the full assessable value of certain railroad property, while at the same time allowing other local districts to share in the distribution of the value of the same property which is again assessed by the state board. The capital stock tax has been sufficiently described on page 99. Centralizing Tendencies. The present tendency toward centralization of taxation in Nebraska is evidenced by the 1903 revenue law. This centraliza- tion was induced by the results of a directly opposite condition, " The 1903 act, as already shown, requires that property shall be listed at fair cash value and assessed at 20 per cent of such value. I04 TAXATION OP CORPORATIONS. namely, a highly localized taxation system. Localization began about 1873, was at its height in 1883, and continued practically without change until 1903. During the localization period the townships assessed and collected taxes so as to help the counties as little as possible, and each county's ambition was to see how little it could yield to the State. The result of the highly local- ized system was unsatisfactory; the centralization movement is forcibly illustrated in the revenue act of 1903. Separation of Sources of Revenue Recommended. The 1908 Report of the State Treasurer ^ calls attention to the difficulty experienced by the state board in making fair equaliza- tions. The report states that the only way the boardhas of know- ing whether one county is bearing its just proportion of state taxes with other cotmties is to see the values upon paper and com- pare them with those of other counties. As a remedy, the report suggests that the necessity for equalization as between counties could be eliminated by providing for the separation of sources of state and local revenue, namely, by taxing public service corpora- tions solely for state purposes, leaving the counties and local taxing districts to raise their tax revenue by means of the general property tax. Peculiar Features in Nebraska's Constitution. The following comparison of constitutional powers is taken from "Annals of American Academy of Social and Political Science." ^ " Our fundamental law was framed at a transitional period in the history of constitution making in America. The constitutions which preceded it were of the old type, containing merely the bill of rights, framework of government, and a few other general pro- visions. Those framed in more recent years are of increasingly widening scope, extending far into the field of general legislation. The Nebraska constitution occupies a position midway between these two types. It has a less extensive scope than those framed during the last decade, but it covers many subjects which would have seemed out of place in the constitutions of the early part of the centtuy." In each one of the States except North Carolina and Nebraska the constitution confers upon the State all power not expressly retained by the people, while the constitutions of Nebraska and North Carolina are Uke the Federal Constitution, conferring only ' 1907-1908, p. 7. ^ May, 1900, vol. 15, pp. 435-436. " Some Original and Peculiar Features in the Nebraska Constitution," by Charles Sumner Lobingier. NEBRASKA. 105 those powers expressly enumerated . The language of the Nebraska section is : "This enumeration of rights shall not be construed to impair or deny others retained by the people, and all powers not herein delegated, remain with the people." ^ The article fiu-ther states that this difference has had as yet little or no effect on Nebraska's constitutional interpretation, but that it may yet work siurprising changes therein. It will be inter- esting to note whether the state system of taxing corporations will be affected by any such changes. The supreme court of Nebraska has, however, held that the enumeration in the constitution of certain subjects for taxation did not preclude the legislature from imposing other taxes where there was no prohibition. ^ Bibliography. The following is a list of the more important publications, in addition to the constitution, the statutes, and the court reports, of value in the study of corporate taxation in Nebraska: Reports and Opinions of Attorney General of Nebraska, 1905-6, 1909-10. Reports of State Treasurer, 1906-1908, 1908-1910. Report of Secretary of State, 19 10. Report of Auditor of Public Accounts, 19 10. Article by Charles Sumner Lobingier, entitled "Some Original and Peculiar Features in the Nebraska Constitution," pubUshed in Annals of American Academy of Social and Political Science, May, 1900, vol. 15, pp. 435-436. Article by Victor Rosewater, "The New Nebraska Revenue Law," published in Quarterly Journal of Economics, February, 1904, vol. 18, pp. 293, 299. The Assessment of Pubhc Service Corporations, by Alfred E. Holcomb, assistant secretary, American Telephone & Telegraph Co., 1911. ' Art. I, sec. 26. ' 2 State V. Vinsonhaler, 74 Nebr., 675 (1905); Mercantile Incorporating Co. n. Junkin, 85 Nebr., 561 (1909), and cases cited. KANSAS. I. GENERAL VIEW. Chief Features. First. The almost exclusive employment of the general prop- erty tax, for state and local purposes, in the taxation of corpora- tions, upon valuations including both the physical and nonphysical elements. Second. The absence of corporate taxation distinctively for state pturposes, except as to car companies, express companies, and foreign insurance companies General Property Tax. Unless otherwise provided, all corporate property is subject to the general property tax collected locally for both state and local purposes. The assessment of the principal public-service corporations is made by the State Tax Commission, the valuation being then apportioned (except in the case of car companies) to the counties entitled thereto. Other corporations are assessed by the local assessors. Assessments usually are about 85 per cent of full value. Taxes for State Purposes Only. Express companies pay to the State for state purposes a 4 per cent tax on annual gross receipts (after deducting transporta- tion charges paid to railroads) from business done " within the State ; car companies, a tax on the value of their property, including intangible values, at the average rate for all purposes in the State during the preceding year; foreign insurance companies, a tax on premium receipts. These are the only classes subject to a tax which is collected exclusively for state ptu-poses. Stockholders and Bondholders. Shares of stock in domestic corporations are not taxed to the holders. Shares in foreign corporations are taxed to resident 106 KANSAS. 107 holders unless the capital stock is listed by the corporation. Bonds of both domestic and foreign corporations are taxed to resident holders. Foreign Corporations. Foreign public-service corporations are taxed substantially Hke domestic, but the assessed valuation of foreign manufacturing, mercantile, and miscellaneous corporations does not include the nonphysical element. Administration. The State Tax Commission, composed of three members ap- pointed by the governor for terms of four years, assesses the prop- erty, including intangible values, of the principal public service corporations doing business in the State, except such real estate of railroads as is not used in daily operation. The commission assesses both the property and gross receipts of express compa- nies, and it is further required to see that the properties of corpora- tions in general are assessed upon a fair and equitable basis and that the assessments are relatively just and uniform and at true cash market value. The commission equalizes the valuation and assessment of prop- erty throughout the State, and has the power to equalize assess- ments between persons, firms, or corporations of the same assess- ment district, between cities and townships of the same coimty, and between the different counties of the State. Appeals from the action of county boards may be taken to the commission. The commission apportions among the several counties, on the basis of the amount of taxable property in each, the burden of the tax to be raised for state purposes. The tax on car companies is paid into the state treasury direct. The gross-receipts tax on express companies is collected by the state auditor, and the premium-receipts tax on foreign insurance companies is collected by the superintendent of the insurance department. The general property tax is collected by the various county treasurers.' ' Sources of revenue in Kansas: Municipal and local districts. — (o) 'General property tax; (6) business taxes and licenses; (c) poll tax; (d) fines, fees, etc. County. — (a) General property tax; (b) business taxes and licenses; (c) fines, fees, etc. State. — (a) General property tax; (6) corporation taxes; (c) inheritance tax; (d) busi- ness taxes and licenses; (e) fines, fees, etc. I08 TAXATION OF CORPORATIONS. II. DETAILS AS TO THE CONSTITUTION AND STATUTES. Constitution. The constitution requires that the legislature provide for a uni- form and equal rate of assessment and taxation, with exemptions apphcable to property used for state, county, municipal, literary, and reUgious purposes, etc.,' and for the taxing of banks on notes , and bills discounted or piu-chased, moneys loaned, etc.^ The power of taxation exercised by cities, towns, and villages must be so restricted as to prevent abuse of such power.^ The legislature is prohibited from conferring corporate powers by special act, but corporations may be created under general laws subject to amend- ment or repeal. The term corporations as here used includes all associations and joint stock companies having powers and privi- leges not possessed by individuals or partnerships.* Statutes."^ General Property Tax. With but slight exception corporations pay the general property tax upon real and personal property. The terms real property and personal property are defined in detail by statute. Capital stock, imdivided profits, and all other assets of corporations are subject to taxation as personalty." Both real and personal property are to be assessed at their full value.' Certain debts may be de- ducted from credits.^ As to all corporations, except those for which special provision is made, the value of real and personal property returned for taxation is deducted from the true value of the paid-in capital stock," and deduction is also made for real and personal property ' Constitution, 1859, Art. XI, sec. i. v ^ And other property, effects, or dues of every description (without deduction), so that all property employed in banking "shall always bear a burden of taxation equal to that imposed upon the property of individuals." Constitution, Art. XI, sec. 2. ^ Constitution, Art. XII, sec. 5. ■* Constitution, Art. XII, sees, i, 6. * Except as otherwise indicated, the references herein are to the compilation known as "General Statutes of Kansas, 1909." ^ Stats., sec. 9215. '' All property, real and personal, must be valued at "its actual value in money." The price at which real property would sell at auction or forced sale must not be taken as the criterion of true value. It is tcf be assessed at "fair market value." "The usual selling price in money" governs as to personal property also. Stats., sees. 9349, 9220, 9247; Laws 1911, chap. 316, sees, i:, 11. * Stats., sec. 9222. But debts may not be deducted from kinds of property other than credits. Proceedings of Convention of Tax Commission and County Assessors, Jan. 28-29, 1908, pp. 24, 25. ° Assessors take value placed on capital stock by the corporation, but check it by published statements, etc. Interview *ith state tax officials, Sept. 5, 1911. KANSAS. 109 belonging to the corporation in any other State, or county in this State, if it be made to appear that such property has been Hsted for taxation in such other State or county. The remainder, if any, is taxed as personalty.' Railroad Companies. On all railroad property in the State the general property tax is collected locally for both state and local purposes. Assessment, except as to real estate not used in the daily operation of the railroad, is made by the State Tax Commission, and the commis- sion makes return of the proper valuation to each cotmty in which any portion of such property is located.^ Real property not used in the daily operation of the business is assessed locally. The intangible value is not separately assessed, but is included in the item of average valuation per mile in the returns made to the coimties by the commission.^ The value of the main track is apportioned at an average rate of valuation per mile, but this rate of valuation usually varies according to the subdivisions of the road. The value of rolling stock, materials, and supplies is distributed on the basis of main track mileage at one average rate of valuation for each item. The second track has one average rate of valuation throughout its length. The value of the sidetrack, buildings, and machinery, and real estate separate from the right of way but used in the daily operation of the road, is localized ; that is, although assessed by the Tax Commission, such property is taxed where located, and its value does not enter into the average value per mile as in the case of the other property mentioned.* The method of arriving at the aggregate assessment valuation is perhaps best presented by quoting the Tax Commission as to its action in 1908, as follows: " The returns of the railroad companies were carefully examined; tours of inspection over the various railroad systems were made, with a view to noting the condition of the property with particular reference to the main track, second track, sidetrack, buildings, water and fuel stations, etc.; consideration was also given to material and supplies on hand, rolling stock, moneys, credits, and all other property of said railroad companies ; the financial features of the properties were considered, such as capitalization, reported cost of construction, gross and net earnings, operating and main- ' Stats., sec. 9229. ^ Ibid., sec. 9306 and sec. 9347, clause 15. ■" Ibid., sec. 9307. * First Report of Tax Commission to the Governor, 1908, p. 91. no TAXATION OF CORPORATIONS. tenance expenses. In fact, as already stated, everything was given weight which could properly be considered in estimating the value of railroad property." ^ Interurban and Street Railway Companies. These companies pay the general property tax locally for state and local purposes. All their property is assessed by the State Tax Commission. The returns of the companies are examined.^ Consideration is given to all facts and conditions bearing upon the value of the property, including capitalization, indebtedness the proceeds of which are used in construction, cost of construc- tion, gross and net earnings, and operating and maintenance expense. The value as thus ascertained is apportioned among the taxing districts wherein the property is located.^ Car Companies. Car companies pay to the State for state purposes a tax upon all their property in the State, including the proportion of the total intangible value to which the State is entitled.^ The rate of tax is the average rate for all pruposes in the State for the preceding year. The method of ascertaining the number of cars on which each company is annually assessed is to divide the total number of days made by all the cars owned by the company, on the several lines of railroad in the State, by the total number of days in the year. The Tax Commission makes the levy and certifies the amount of taxes to the state treasurer and the state auditor. The tax is paid into the state treasury.* Telegraph, Telephone, and Pipe Line Companies.^ The general property tax is paid locally by these companies, for both state and local purposes. Local companies whose lines are ^ First Report of Tax Commission to the Governor, 1908, p. 93. While real estate is defined as including buildings, fixtures, etc. , all property owned, leased, used, occupied, or employed by any railway or telegraph company within the State, situate on the right of way of any railway, is classed as personalty. Stats., sec. 9215. ^ The roads were personally inspected by the Tax Commission in 1908. ' Stats., sec. 9347, clause 15; also First Report of Tax Commission to the Governor, 1908, p. 38. ■* Laws, 1911, chap. 318; also letter Jan. 20, 1912, from State Tax Commission. * It was held unconstitutional, on the grotind of being a tax on interstate commerce in violation of the commerce clause of the Constitution, as well as a tax on property beyond the limits of the State inconsistent with the due process of law enjoined by the 14th Amendment, for the State to require foreign corporations doing an interstate business to pay a charter fee of a certain per cent of their entire capital stock, as a condition precedent to doing local business. Western Union Tel. Co. v. Kansas, 216 U. S., I (1910). KANSAS. 1 1 1 entirely within the Hmits of a single county are assessed by the county assessing officer. Apportionment is then made to the vari- ous townships and school districts entitled thereto.' Intercounty and interstate companies of these classes are assessed by the State Tax Commission. The commission considers all elements usually going to make up the value of this kind of property. The values of property as returned by the companies are studied in detail and compared with the returns of other properties of like character. Cost of construction, gross earnings, capitahzation, indebtedness the proceeds of which were used in construction, supplies, mer- chandise or products on hand, and the relation of the part of the property in the State to its whole as an interstate system, are given due consideration.^ The valuation is apportioned by the Tax Commission among the several counties through or into which the lines run. The counties apportion the value to the proper school districts, cities, and town- ships.^ Express Companies. Express companies pay to the State for state purposes a tax of 4 per cent on gross receipts from business done within the State; this tax is computed upon the total gross receipts from business within the State, less amoimts paid to railroads for the transporta- tion of such business. Express companies also pay the general property tax locally, for state and local purposes, on both real and personal property. Assessment of gross receipts and of all property of express com- panies is by the State Tax Commission. After assessment the valuation of the tangible property is certified to the respective counties through which the routes pass.* Gas, Water, Electric Light, Heat, and Power Companies. These companies pay the general property tax locally for both state and local purposes. The physical parts of the plant are valued as real estate in the districts where they are located, and all such values are localized. If there is personal property it is ' Laws, 1911, chap. 316. ^ First Report of Tax Commission to the Governor, 1908, p. 100. ^ Stats., sees. 9250-9258. * Stats., sees. -9260-9264; and sec. 9347, clause 15; see also First Report of Tax Com- mission to the Governor, 1908, p. 33. The tax may be imposed upon the business done within the State althoug the express company, in carrying the packages from one point to another within the State, passes for a short distance over the soil of another State. Leavenworth v. Ewing, 80 Kans., 58 (1909), citing Lehigh Valley v. Pennsylvania, 145 U. S., 202 (1891), 112 TAXATION OF CORPORATIONS. localized according to its situs. The value of the real estate and the personal property combined is then taken from the actual value of the capital stock and the difference is assessed as capital stock and is assigned to the taxing district where the principal ofl&ce of the corporation is located.^ Mercantile, Manufacturing, and Miscellaneous Corporations. These companies pay the general property tax locally for both state and local purposes on real and personal property. Domestic companies are taxed, under the head of personalty, on the value of capital stock after deduction has been made for real and per- sonal property returned for taxation within and without the State. The capital stock of foreign corporations of these three classes is not considered in determining the amoimt of their personal property. The average monthly amount of raw material on hand for the purpose of manufacture is taken as the taxable value.^ The fin- ished product is also taxable.^ Real estate is taxed in the same manner as real estate belonging to individuals. Stockholders and Bondholders. Holders of shares in domestic and foreign corporations are exempt itom. taxation on. their shares when the capital stock is listed by the corporation for taxation within the State.^ Holders of bonds of domestic and foreign corporations are taxed upon such property as upon other personal property. Foreign Corporations, Foreign public-service corporations are taxed in practically the same manner as similar domestic corporations. A foreign manu- facturing, mercantile, or miscellaneous corporation, imless it has its principal office in the State, is not taxed on the difference ' Stats., sees. 9229, 9336; also letter of Jan. 20, 1912, from State Tax Commission. ^ Stats., sees. 9215, 9229, 9296; see also pamphlet entitled "Revised Duties of Assessors," etc., Kans., 1910, p. 39. ^ State V. Holcomb, 81 Kans., 879 (1910). * Stats., sec. 9229. The resident owner of shares of stock in a corporation which is organized, in another State and has its principal office there, is subject to taxation on such shar&, although all, or practically all, of the capital of such corporation is invested in real estate and personal property which is taxed in Kansas; and such taxation is not double taxa- tion. Hunt V. Board of County Commissioners of Allen County, 82 K^s., 824 (1910). Assessment of shares of capital stock of a foreign corporation in the hands of the holder is not invalid because the taxing officers intended to make a distinction between those corporations which had their principal offices in the State and those which did not. Weis v. Stubblefield, 85 Kans., 199 (1911). See also footnote 1, p. 113. KANSAS. 113 between the value of the capital stock and the value of real and personal property, as is a similar domestic corporation, but pays only the general property tax for state and local purposes on real and personal property.^ III. FINANCIAL RESULTS. Classification of Revenue. The proportion of total state taxes for state purposes derived from corporations for 19 10 was 31 per cent. Total State Receipts, Taxes prom Corporations, Other Taxes, and Receipts FROM Sources Other than Taxes, Year ended June 30, 1910.^ Total state receipts, all sources I4, 710, 688. 26 State taxes from corporations: Railroads ^ $4S9, 286. 31 Telegraph companies ^ 4, 135. 84 Telephone companies ^ p, o6g. 88 Pipe line companies ' 34, 846. 84 Street and interurban railways ' 11, 799. 65 Public-service corporations assessed locally ' 2, 661. 97 Corporation capital stock assessed locally •> 12, 962. 56 Car companies * 15, 992. 69 Express companies * 13, 130. 75 Express companies, general property tax ' 162. 44 Insurance companies 274, 533. 82 Bank fees * 31, 639. 50 Oil companies, fees * 28, 987. 68 Annual corporation fees ' 2, 098. 00 1 Incorporation fees ' 40, 347. 51 Total state taxes from corporations 941, 655. 44 'A foreign corporation having its general office in another State wherein all its stockholders and oflScers reside, its elections are held, its seal kept, and all official and corporate business is transacted, but which maintains a business office in Kansas, in which the business for which the corporation was organized is conducted, can not be taxed on its capital stock in Kansas. The Foster-Cherry Commission Co. v. John Caskey et al., 66 Kans., 600 (1903). A foreign corporation having its principal office in the State must list its capital stock for taxation, and a stockholder need not list his stock. Patterson v. Wilson County, 83 Kans., 224 (1910). ^ Reports of State Tax Commission, State Auditor, and State Treasurer, 1909-10. ' Estimated by applying state rate of iX niills to assessed valuations, found on pp. 145, 155, and 160, Report of State Tax Commission, 1910. ■* $8,743.05 from miscellaneous car companies (p. 75, Auditor's Report, 1909-10) and $7,249.58 from tax on Pullman cars, computed by applying the average, rate of 0.00856 per $1 to the assessed value of $846,921. Report of State Tax Commission, 1910, p. 85. ^ Report of State Auditor, 1909-10, p. 218. " Ibid., p. 95. ^ Letter of State Auditor, Oct. 25, 1911. 62466°— 12 S 114 TAXATION OP CORPORATlONvS. Other taxes; Inheritance tax ' $8, 827. 59 General property tax ''■ .i, 087, 482. 33 Total state taxes not from corporations $2, 096, 309. 92 Total taxes for state purposes, all sources 3, 037, 965. 36 Receipts from sources other than taxes: ' School land principal 209, 853. 77 School land interest 102, 367. 85 Interest on bonds 447, 858. 28 Game and fish warden receipts 30, 150. 40 United States aid to Agricultural College 40, 000. 00 Grain inspection fees 28, 504. 15 Income, state institutions, and miscellaneous re- ceipts 813, 988. 45 Total receipts from sources other than taxes 1, 672, 722. 90 Total state receipts, all sources 4, 710, 688. 26 IV. COMMENTS. Historical. Under the territorial statutes as they existed in 1855, corpora- tions paid a property tax upon the shares of stock but were per- mitted to recover from the owners of the shares the amount so paid.* Shares of stock in domestic corporations were not taxed in the hands of the holders. Bills of exchange, bonds, notes, and other securities were taxable. Thus the bonds of all corporations and shares of stock in foreign corporations were taxable to the holders. In 1866 personal property subject to taxation included the capi- tal stock and undivided profits of corporations. Corporations, as well as individuals, were allowed to deduct bona fide debts from the gross amotmt of credits. Shares of stock in domestic corporations were not taxable in the hands of the holders, the law requiring that the corporation itself should pay the tax on the capital stock at its true value. Holders of corporate bonds and of shares in foreign corporations continued to be taxed thereon.^ The most noteworthy feature of the year 1866, however, is the passage of an act creating the State Board of Equalization with ' Report of State Auditor, 1909-10, p. 109. 2 Report of State Treasurer, 1909-10, p. 35. Part of this comes from local taxation of corporations, but it is impossible practi- cally to ascertain the amount thus received, except the amounts above estimated, which are not included in this item. " Report of State Auditor, 1909-10, pp. 81, 82, 95. * Statutes of the Territory of Kansas (Digest, 1855), chap. 137, pp. 657, 658, 662. ^ I2 per cent upon gross receipts for business done within the State, less amounts paid to railroads within the State for transportation." The rate was increased to 4 per cent in 1909, as the result of the Tax Commission's recom- mendation, after a consideration of the taxes paid by like com- panies in other States.'' The general property tax has never been superseded or supple- mented by any special method, in the taxation of railroads and other public-service corporations (except express companies), 1 Second Report of Tax Commission to Legislature, 1911, p. 10. 2 First Report of Tax Commission to the Governor, 1908, p. 14. ' Laws, 1905, chap. 500. ■* Laws, 1909, chap. 252; also First Report of State Tax Commission to the Legisla- ture, 1909, p. 49. * Laws, 1911, chap. 318. " Laws, 1907, chap. 202. ' Laws, 1909, chap. 246; also First Report of State Tax Commission to the Legisla- tture, 1909, p. 50. Il8 TAXATION OF CORPORATIONS. though gross earnings, net earnings, etc., are considered in arriving at nonphysical values. Separation of Sources of State and Local Revenue. In 1908 the Educational Commission called attention to the fact that it seemed to be generally conceded that under the present system, i. e., apportionment of valuation to localities through which the roads pass, the taxes paid by railroads were unjustly distributed, and recommended that such changes be made in the law, and in the constitution if necessary, as to allow an equitable distribution to all the people of the State of the large sums of money now paid by the railroads. This commission also men- tioned telegraph, pipe line, and other property nonlocal in its nature as being proper subjects of state taxation for the benefit of the whole State. ^ The State Tax Commission in its report of 1911 ^ introduced a table relating to separation of sources of revenue, taken from the publication of this Bureau,^ and, after commenting upon the subject to some extent, said that if the legislature should desire to provide for separation of sources of state and local revenue it could do so quite fully by requiring all taxes laid upon the property of interstate and intercounty public-service corporations to be paid into the state treasury for the benefit of the state general revenue fund; and that, as the amount of taxes now paid by those corporations is about equal to the state revenue raised by direct taxation, the result would be to relieve all other property in the State from a state tax levy, and to give to all the people the benefit of the tax paid by such public-service corpora- tions. The commission continues: " It can not be denied that there would be a large measure of justice in such legislation, because all the people of the State contribute to the ftmds of -the corporations from which the taxes are paid. " There seems to be no reason foimded in justice or equity why a school district whose territory extends perhaps 10 njiles in length along a railway and i mile in width on each side of it should have the benefit of all the school tax derived from the railway property therein, and other school districts situated i or 20 miles away get no benefit. ' Report of State Superintendent of Public Instruction, 1907-8, p. 71. ^ Second Report of Tax Commission to the Legislature, 1911, p. 11, et seq. ^ Report of the Commissioner of Corporations, "Taxation of Corporations, " Pt. II. (Introduction.) KANSAS. 119 " Fiscal subdivisions of the State which under the present plan get no tax from railway property have been often and are yet taxed to pay the principal and interest of bonds voted in aid of railway construction and, by their patronage, directly aid in increasing the value of such property, but are denied the advan- tages enjoyed by the subdivisions in which the railway property is situated, in the way of taxes derived from the fund jointly created. This condition applies particularly to school districts." Double Taxation. Although shares of stock are not taxed in the hands of the holders when the capital stock is taxed in the aggregate against the corporation, the Tax Commission evidently does not believe that this exemption is necessary in order to avoid double taxation. The commission is of the opinion that double taxation is sometimes claimed when in fact it does not exist ; that taxing the instrument of production and at the same time the right to a part of the value of the product, the owner of this right having no ownership what- ever in the instrtunent of production, is not taxing the same subject twice, but that there are here two distinct kinds of property, the rights of the owner of each kind being fully protected by law- The commission says, however, that the most pronounced modem thought upon the subject is probably opposed to this view.* Uniformity in Taxation Among the States. In the study of taxation that has been made and the work that has been carried on by the State Tax Commission, including recommendations upon which the legislature has based new enact- ments, both in the matter of the taxation of corporations and with respect to the whole subject of tax revenue, it is evident from the following paragraph that uniformity of tax legislation among the States was also under consideration by the Commission: "It is obvious that many of the complex problems at present involved in the question of taxation might be much more easily solved if the tax laws of the several States were more uniform. There has been much discussion concerning the necessity for interstate comity in taxation, but as yet there appears no move- ment toward a harmonizing of conflicting interests among the States, except in so far as the action of the international tax con- ference, now being annually held under the auspices of the Inter- national Tax Association, may influence legislation in the several States to that end. For practical purposes it may be considered that the achievement of tmiformity of laws among the States upon this subject may not soon be realized, but the policy of ' First Report of State Tax Commission to the Legislature, 1909, p. 20. I20 TAXATION OP CORPORATIONS. this State should be, at all times when possible, to legislate with that end in view." ' Bibliography. The following is a list of the more important publications, in addition to the constitution, the statutes, and the court reports, of value in the study of corporate taxation in Kansas : First Report of Tax Commission to the Governor, 1908. Second Report of Tax Commission to the Governor, 1908-1 9 10. First Report of Tax Commission to the Legislature, 1909. Second Report of Tax Commission to the Legislature, 1911. Report of State Auditor, 1909-10. Report of State Treasurer, 1909-10. Report of State Superintendent of Public Instruction, 1907-8. Proceedings of Convention of Tax Commission and County Assessors, 1908, 1910. Revised Duties of Assessors, etc., 1910. ' First Report of State Tax Commission to the Legislature, 1909, p. 23. MISSOURI. I. GENERAL VIEW. Chief Features. First. The taxation of corporations under the general property tax. Second. The assessment of property of certain classes of public- service corporations by a state board. Third. Elaborate constitutional provisions respecting taxation. General Property Tax. Domestic and foreign corporations of the classes hereiii treated, except freight car companies, pay locally the general property tax for state and local purposes. While the law provides that property shall be valued at actual value, in practice it is generally assessed at less than 50 per cent. Steam and Street Railroad and Freight Car Companies. Steam and street railroad companies pay the general property tax locally for state and local purposes. Freight car companies are in practice taxed by the State for state purposes at the average rate of taxation. The State Board of Equalization determines the value of certain property of steam railroads and all property used in business of street railroad and car companies. These valuations, except as to freight car companies, are apportioned by the board on the mileage basis to the cotmtieS through which the lines or routes extend. Telegraph, Telephone, and Bridge Companies. Corporations of these classes pay locally the general property tax for state and local purposes on all property, including fran- chise. Assessment is by the State Board of Equahzation. Express Companies. These companies pay locally the general property tax for state and local purposes, and in addition pay to the State a tax on gross receipts. Gas, Water, and Electric Companies. These companies pay locally the general property tax for state and local purposes. Assessment is made locally. Manufacturing and Mercantile Companies. Manufacturing and mercantile companies pay locally tne general property tax for state and local purposes upon their real property 122 TAXATION OF CORPORATIONS. and upon raw materials, finished products, merchandise, tools, machinery, and appliances. Stockholders and Bondholders. Shares of stock in domestic and foreign corporations are not taxed. Bonds of domestic and foreign corporations are taxable to the holders. Foreign Corporations. Foreign corporations, except insurance companies, are taxed on all property in the State in practically the same manner as similar domestic corporations. Administration. The State Board of Equalization, composed, under the constitu- tion, of the governor, state auditor, state treastuer, secretary of state, and attorney general, assesses steam and street railroad, car, telegraph, telephone, and bridge companies. All other property is assessed locally. The state board equalizes and apportions assess- ments among counties. Coimty boards of equalization equalize all local assessments and hear complaints with respect to same. The general property tax is paid to coimty collectors of revenue.^ The gross-receipts tax on express companies is paid to the state treasiu-er. II. DETAILS AS TO THE CONSTITUTION AND STATUTES. Constitution. 2 The chief provisions on taxation in the constitution are in sub- stance as follows: Among the special and local laws which the general assembly must not pass are laws " exempting property from taxation, " and laws "granting to any corporation any special right, privilege, or immunity." ^ Article X, on Revenue and Taxation, provides: The taxing power may be exercised by the general assembly for state p^ir- ' Sources of revenue in Missouri : Municipal and local districts. — (a) General property tax; (6) poll tax; (c) business taxes and licenses; {d) fines, fees, etc. County. — (o) General property tax; (6) poll tax; (c) business taxes and licenses; (d) corporation taxes (half the tax paid by foreign insi^rance companies); (e) fines, fees, etc. State. — (a) General property tax; (6) collateral inheritance tax; (c) corporation taxes; (i) business taxes and licenses; (e) fines, fees, etc. ^ Constitution, 1875. 3 Ibid., Art. IV, sec. 53. MISSOURI. 123 poses, and by counties and other municipal corporations, under authority granted to them by the general assembly, for county and other corporate purposes.' The power to tax corporations and corporate property shall not be surrendered or suspended by act of the general assembly.^ Taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax, and all taxes shall be levied and collected by general laws.^ All property subject to taxation shall be taxed in proportion to its value. ^ All railway corporations in this State, or doing business therein, shall be subject to taxatiorrfor state, county, school, munic- ipal, and other ptuposes, on the real and personal property owned or used by them, and on their gross earnings, their net earnings, their franchises, and their capital stock. '^ The property, real and ' Constitution, Art. X, sec. i. The legislature is vested with power to levy either general or special taxes. It may delegate this power to municipal corporations. State ex rel. City of Springfield v. Smith, 138 Mo., 64s (1897); Express Co. v. City of St. Joseph, 66 Mo., 675 (1877). - Constitution, Art. X, sec. 2. The power of taxation will never be considered surrendered unless it is done ex- pressly or by necessary implication. City of St. Louis v. Savings Bank, 49 Mo., 574 (1872). ^ Constitution, Art. X, sec. 3. Taxation is equal and uniform if all persons engaged in the same business are taxed alike. Express Co. v. City of St. Joseph, 66 Mo., 675 (1877). * Constitution, Art. X, sec. 4. The mandate of the constitution that taxes on all property shall be in proportion to its value does not include every species of taxation. It enjoins a imiform rule in imposing taxes on property. It does not abridge the power of the legislature to provide revenue from other som-ces. Glasgow -v. Rowse, 43 Mo., 479 (1869); Express Co. v. City of St. Joseph, 66 Mo., 675 (1877). In-4evying taxes on property, it sometimes can not be avoided that the same value will be twice taxed, but this does not make the tax illegal and void. St. Louis Mutual Life Ins. Co. t. Board of Assessors, 56 Mo., 503 (1874). Taxing shares against stockholders of a corporation and also the property repre- sented by the capital stock would be duplicate taxation. State v. Railroad, 77 Mo., 202 (1883). * Constitution, Art. X, sec. 5. The same rate of taxation under the Act of 1875 must be applied to both railroad and general property. State ex rel. v. Railroad, 92 Mo., 137 (1887). This section has apparently been construed as providing in the alternative, differ- ent methods of taxing railroad property, to be selected by the general assembly. The real and personal property are represented by the capital stock, and gross and net earnings represent the earnings of the property and franchises together. This has been the construction adopted by the State Board of Equalization. * * * Railroads are therefore subject to be taxed in any one of these methods authorized by the con- stitution, but such property has not been subjected to taxation, except upon its value, as assessed by the State Board of Equalization. Judson, Taxation in Missouri, p. 104 (1900), citing State v. Railroad Co., 77 Mo., 202 (1883), and Valle v. Ziegler, 84 Mo., 214 (1884). 124 TAXATION OF CORPORATIONS. personal, of the State, counties, and municipal corporations, and cemeteries, shall be exempt from taxation; and a limited amount of real property may be exempted when used exclusively for re- ligious, school, or purely charitable purposes, or for agricultural or horticultural societies.' All laws exempting other property from taxation shall be void.^ The state tax on property, exclusive of the tax to pay the bonded debt of the State, shall not exceed 20 cents on $100 valuation; and whenever the taxable property of the State shall amount to $900,000,000 the rate shall not exceed 15 cents. ^ Maximum rates are fixed for local taxes, and tlie valuation of property shall not exceed that made for state taxes.'' The State Board of Equaliza- tion, consisting of the governor, state auditor, state treasurer, secretary of state, and attorney general, adjusts the valuation of property among the counties, and performs such other duties as may be prescribed by law.-^ Every corporation, excepting those for benevolent, religious, or educational purposes, shall pay into the state treasury at the filing of its articles of incorporation $50 for the first $50,000 or ^ Constitution, Art. X, sec. 6. The provision of the constitution, exempting certain property from taxation, has reference only to general taxation for the purpose of revenue. State v. Linn Cotmty Court, 44 Mo., 504 (i86g). Under the constitution the property of the State, county, and other municipal corporations, is exempt from taxation. State ex rel. v. Heman, 70 Mo., 441 (1879); Fitterer-z;. Crawford, 157 Mo., 51 (1900). 2 Constitution, Art. X, sec. 7. This section refers only to affirmative legislative exemptions, and does not refer to statutes which do not in terms exempt certain property, nor to mere casual exemptions. Kansas City v. Building and Loan Asso- ciation, 145 Mo., 50 (1898). ' Constitution, Art. X, sec. 8. The constitution of 1875 introduced for the first time specific limitations upon the rate of taxation. The self-enforcing reduction (in 1894) of the state revenue tax to 15 cents caused a material loss in the state revenues, which has proven at times a source of financial embarrassment in the administration of the state finances. Judson, Taxation in Missouri, pp. 67-68. * Constitution, Art. X, sec. 11. Rates prescribed can not be exceeded. State ex rel. v. Railroad, 92 Mo., 137 (1887); Arnold v. Hawkins, 95 Mo., 569 (1888). ' Constitution, Art. X, sec. 18. This section authorizes the Board of Equalization to act without further legislation. The board is required to keep a full record of its proceedings and decisions, but not of the evidence adduced. It has full power to assess railroad property under the act of 1875, and this act is not in conflict with the constitution. Railroad Co. v. State Board of Equalization, 64 Mo., 294 (1876). The law does not require. the preservation of the evidence upon which the board based its valuation, nor does it designate the evidence upon which such valuation be made. State ex rel. v. Railroad Co., loi Mo., 120 (1890). MISSOURI. 125 less of capital stock, and $5 for every additional $10,000. In case of subsequent increase, $5 shall be paid for every additional $10,000 of capital stock so authorized. ^ Statutes.^ General Property Tax. Domestic and foreign corporations of the classes herein treated pay locally the general property tax for state and local purposes. The assessment of public-service corporations includes franchises and all other intangible property, but the assessment of other corporations is based on tangible property only. The statutes provide that assessment shall be at actual value. In practice, however, the average valuation is less than 50 per cent of actual value. Steam and Street Railroad Companies. Domestic and foreign steam and street railroad companies pay the general property tax locally for state and local purposes on all property owned or leased by them, including franchise and other intangible property.^ For taxation purposes railroad property may be classified as : (a) Roadbed and superstructure, which is assessed by the State Board of Equalization, and embraces main, branch, and side- tracks, switches, and all land and superstructures (except build- ings) necessary for the safe moving, loading, and unloading of cars.'' (b) Rolling stock, which is assessed by the State Board of Equalization, and embraces engines and cars of various kinds, whether moved on the tracks by steam, hand, or other power. (c) Buildings on right of way, which are assessed by the State Board of Equalization, and embrace depots, stations, and other buildings on right of way necessary for operation. (d) Franchise, and other property which is necessary to opera- tion, assessed by the State Board of EquaUzation, and not included in classes a, b, and c. ' Constitution, Art. X, sec. 21. - Except as otherwise indicated, references given herein are to the 1909 edition of the Revised Statutes of Missouri. " R. S., sec. 11551 etseq. * State ex rel. v. Railroad, 135 Mo., 618 (1896); State ex rel. v. Raihoad Co., 162 Mo. , 391 (1901). The right of way of a railroad company is taxable for general govern- mental purposes. Heman Construction Co. v. Wabash Railroad Co., 206 Mo., 172, 179, (1907). 126 TAXATION OF CORPORATIONS. (e) Property which is assessed locally, and which embraces office fixtures, warehouses, and other locally situated property not included in the above classes. Provisions for making, verifying, and certifying reports of railroads are fully set forth in the statutes, but the statutes do not prescribe a method of arriving at valuations, and the system used is not revealed by the State Board of Equalization. In general, however, assessments are based on reports from rail- roads. These companies are required to file annually with the state auditor a statement showing in detail the mileage, value of property, and certain other facts necessary to a proper valuation of railroad property and franchise. In addition, railroads furnish a similar statement to county -court clerks of each county through which their Hues pass. If examination by the clerk shows that these statements have omitted or undervalued property, they are, before certification to the state auditor, submitted to and cor- rected by the county court. ^ The statements made to the auditor and the county-cotu-t clerks are placed before the State Board of EquaHzation,^ which equalizes and assesses the valuation of all property so reported. The assessment of class a property is determined on the value of -such property located wholly within the State. The assess- ment of class b property is determined on the basis of that pro- portion of the rolHng stock which the number of miles in Missouri bears to the total length of the road.^ The board then decides upon arbitrary values by classes for each of the various classes of rolling stock.^ Under class d is added an amount to cover fran- chise and other intangible values. An agreed valuation per mile of main track is placed on the property of each of these classes, and the number of miles of main track in each county, or minor local district, multiplied by the total of the three classes, gives the apportionment thereto. The value of class c property is assigned direct to the county and minor taxing district where located. While railroads are chargeable with the tax on rented equip- ment (including sleeping cars), they may recover taxes so paid from the owners of such equipment.^ If, however, owners of ' R. !3., sec. 11556. ' Ibid., sec. 11558. ' Ibid., sec. 11559. * Journal of State Board of Equalization, igog, pp. 23 and 24. Thus all engines belonging to a certain group of roads were in igog assessed at $5,000 each, standard sleeping cars at $6,500 each, etc. ^ R. S., sec. 11603. MISSOURI. 127 leased equipment have places of business in the State, the tax can be collected directly from the owners. Street railway companies are taxed in practically the same manner as raikoads and are subject to the same tax laws. All property used in the street railway business is assessed by the State Board of Equalization, and the assessment is based largely upon sworn statements of the companies, showing length of all lines and sidetracks, cars, wires, cables, buildings, and all other property, with the length of line in each taxing subdivision.^ Freight Car Companies. Domestic and foreign freight car companies pay to the State for state purposes a property tax at the average rate of taxation ^ upon the number of cars necessary to make the mileage of such cars in Missouri. Assessment is by the State Board of Equalization and is based on statements from the car companies and from raibroad companies over whose lines the cars run. From these statements the board places a value on each car and determines the average daily mileage of each.^ The entire revenue from this tax is required by law to be distributed to the various localities, but the 'total is so small that in practice no part is so distributed.* ' R. S., sees. 11572, 11573. The act of 1897, providing a uniform assessment for taxation of street railroads, extends to a company whose road is partly within the city and partly without. Assess- ments made in accordance with the act are not void because it requires street railway property to be assessed and taxed as is other railroad property. Under this act an assessment of all the property of a street railway by the state board is not void. State ex rel. v. Metropolitan Street Ry. Co., 161 Mo., 188 (1901). "As construed by the state board, this act authorizes the assessment by the board of the entire property of the street railroads. * * * The assessment is thus entirely taken out of the jurisdiction of the local assessors, therein differing from the assess- ment of steam railroads, where property other than the roadbed, terminals, and rolling stock is assessed by the local assessors." Judson, Taxation in Missouri, p. 113. ^ Average rate of all taxes, state, county, and local, combined. ' Journal of State Board of Equalization, 1909, p. 24. "• R. S., sees. 11560-11571. In answer to your letter of inquiry relative to distribution of tax collected from pri- vate car concerns doing business in the State of Missouri, beg to say that this tax is paid direct into the state treasury, and no part of it is distributed to the various localities for the reason that should the board undertake to make the assessment and apportionment as provided by the law in the State, in most instances the valuation apportioned to subdivisions would be a fraction of a dollar and the taxes a fraction of a cent. Therefore the state board has for the last six years made and carried out the assessment against such concerns, as reported in the journal of its proceedings. Letter from state auditor, Jan. 8, 1912. 128 TAXATION OF CORPORATIONS. Telegraph, Telephone, and Bridge Companies. Domestic and foreign companies of these classes pay locally the general property tax for state and local purposes on tangible and intangible property including franchise.^ They are taxed under the same law and in practically the same manner as are railroads.^ Assessment is by the State Board of Equalization and like the assessment of railroads is based on reports from the companies. The various items of property, such as poles, wire, etc., are assessed at a valuation per mile, and an allowance is added to cover franchise and other intangible property. Express Companies. Domestic and foreign express companies pay the general prop- erty tax for state and local purposes on locally situated property, which is assessed and taxed in the same maimer as the property of individuals. In addition they pay to the State for state purposes a tax of 1% per cent on gross receipts.' In practice it is considered to be in lieu of all other taxes on franchise and business. Assessment is based on gross receipts as reported in annual statements to the state auditor. Gas, Water, Electric Light, Heat, and Power Companies. These companies, domestic and foreign, pay locally the general property tax for state and local purposes on all property including franchise.* Stock on hand, machinery, tools, etc., are assessed in 1 R. S., sec. 11608. It is the duty of the State Board of Equalization to assess all the property, real and personal, including franchises, of telegraph companies. In determining the value of the tangible property it is proper to compare the length of the line in the State with that of the entire line or to take the aggregate value of the shares of the capital stock and deduct a valuation proportional to the length of the lines without the State and also the value of the real estate and machinery subject to local taxation. Taxes so assessed constitute an excise tax upon the property or capital of the corporation and not a tax upon any franchise. State ex rel. v. Western Union Telegraph Co., 165 Mo., 502 (1901). 2R. S., sec. 1 1608. ' Ibid., sec. 11607. "This tax on the gross receiptsof express companies, which has been thus judicially sustained (Pacific Express Co. v. Seibert, 142 U. S., 339; 1892) is the only instance in the State of such a tax levied by state authority ^(except the tax upon insurance premiums), being in effect a tax upon the revenue of the franchises of this business. " Judson, Taxation in Missouri, p. 120. * R. S., sees. 11551, 11552. Possessing special privileges, such as the right to use public streets. MISSOURI. 129 practically the same manner as property of manufacturing com- panies. Assessment is by local assessors. Mercantile and Manufacturing Companies. These companies pay locally the general property tax for state and local purposes on real estate, raw materials, finished products, merchandise, tools, machinery, and appliances. Real estate is taxed on the same basis as real estate belonging to individuals. The other items mentioned are taxed under what is in form a license tax, but which is in reality a tax on property. ' As applied to merchants it is levied on the highest amount of goods in then- possession at any time between the first Monday in March and the first Monday in June. As applied to manufacturers it is levied upon the greatest amount of raw material and finished products in their possession at any time between the dates mentioned, and on tools, machinery, and appliances on hand on June i of each year.^ The rate for state purposes is the same as the state rate on real estate; for county purposes it may exceed the state rate by 100 per cent ; for city purposes, except cities of 300,000 inhabitants, it must equal the city rate on real estate. Cities of 300,000 inhabit- ants may levy a less rate than they levy for city purposes on real estate. Assessment is by local authorities. Stockholders and Bondholders. Shares of stock in domestic and foreign corporations are not taxed.* Bonds of domestic and foreign corporations are taxable to holders.'' Foreign Corporations. Foreigii corporations of the classes herein considered are taxed in practically the same manner as similar domestic corporations.^ ' R. S., sec. 11619. ' ' We regard the law on merchants ' licenses as an indirect taxation . Indeed the third section so declares it. * * * That this tax was collected through the medium of a license did not make it less a tax." Cape Girardeau v. Riley, 72 Mo., 220 (1880); State ex rel. v. Alt, 224 Mo., 493 (1909). 2 R. S., sec. 1 1646. Manufacturers whose materials, tools, etc., are valued at less than $1,000 are exempt. ' State -v. Lesser, 141 S. W. Rep., 888 (1911). * R. S., sec. 1 1348. * The franchise of foreign corporations is property and is subject to taxation either separately or as part of corporate property. State ex rel. v. Western Union Tel. Co., 165 Mo., 502 (iQoi)- 62466° — 12 9 I30 TAXATION OP CORPORATIONS. III. FINANCIAL RESULTS. Classification of Revenue. The proportion of total state taxes for state purposes derived from corporations for 1910 was 20 per cent. Total State Receipts, Taxes prom Corporations, Other Taxes, and Receipts FROM SouRfcEs Other than Taxes, Year Ended December 31, 1910.' Total state receipts, all sources $7, 151, 125. 12 State taxes from corporations: Steam railroads^ $212, 586. 02 Street and electric railroads ^ 59, 030. 67 Railway cars, private ^ 770. 05 Bridge companies ^ 8, 341. 05 Telegraph companies '■' 4, 2 12. 13 Telepliofle companies ^ 13, 727. 77 Express companies ~ 17, 091. 68 Freight-car companies 7, 856. 02 Incorporation taxes [or fees] 170, 675. 00 Foreign insurance companies 285, 329. 25 Insurance fees 84, 482. 74 Banks and trust companies 27, 790. 00 Building and loan associations 4, 443. 14 Miscellaneous companies ^ 13S, 238. 53 Total state taxes from corporations ' j-j 031, S74- °i Other taxes: Motor-vehicle licenses 31, 527. 50 Excise fees (liquor) * 41, 313. 75 Beer stamps 492, 534. 62 Dram shops i, 044, 058. 42 Collateral inheritance 314, 288. 05 General property tax * 2, 294, 000. 60 Total state taxes not from corporations 4, 217, 722. 94 Total taxes for state purposes, all sources 5, 249, 296. 99 ' Report of State Auditor, 1909-10. ^ Estimated by applying the total state rate of 17 cents per $100 to the assessed values of the corporation property. Report of State Auditor, 1909-10, pp. 431, 455, 467. Miscellaneous includes banks, trust and domestic insurance companies. Judson, Taxation in Missouri, p. 123 (1900). ' Does not include all corporation taxes collected locally. * This is an excise tax collected in St. Louis alone. See Stats., 1909, Art. II, chap. 63, sees., 7230 to 7237, inclusive. * This amount does not include $433,906.22 estimated to have been paid by cor- porations. Part of this comes from local taxation of corporations, but it is impossible practically to ascertain the amount thus received, except the amounts above esti- mated, which are not included in this item. There is, however, included a small amount of miscellaneous license fees. MISSOURI. 131 Receipts from sources other than taxes; Interest on deposits $86, 128. 50 Oil-inspection fees 92, 836. 32 Game-fund fees 83, 540. 80 Penitentiary receipts 395, 141. 06 Hospital and other funds 814, 551. 64 Miscellaneous receipts 429, 629. 81 Total receipts from sources other than taxes $1, 901, 828. 13 Total state receipts, all sources 7> 15I1 125. 12 IV. COMMENTS. Historical. In the Territory of Missouri, from 1804 to 1820, and in the State until the second constitution, adopted in 1865, the revenue laws specified the various subjects of taxation, fixing rates upon each, and adding to the list of taxables as the State grew in wealth and population. An unusual tax was that upon bachelors from 1804 to 1822, when a poll tax on all white males was substituted for it. The general property tax, as adopted in 1865, still controls tax- ation in the State, though the assessing is divided between the local assessors and the State Board of Equalization, which values certain kinds of corporate property. The taxation of inheritances in 1899 and of franchises in 1901 shows a tendency toward the imposing of special taxes as a method of correcting some of the unsatisfactory features and results of the general property tax. The first corporation, tax was that of one-fourth of i per cent on bank stock in the first revenue adt of the State in 1820; and the first general corporation tax law, in February, 1833, imposed the same rates as on other taxable property upon all stock vested in any corporation except hospitals and literary institutions. Under the law of 1841 the tax on shares of stock was collected from the corporations, a method still retained in the taxation of banking and domestic insurance companies. The property license tax on merchants, in its present form, has been in effect since 1859 and that on manufacturers since 1877, both having been adopted after discriminations made by earlier laws had been declared unconstitutional. Until 1 87 1 the only form of taxation of railroad property was against the shareholders for their shares, with no lien on the prop- erty of the company. In that year the law established the present system of assessing taxes upon railroads through the State Board of Equalization. Since 1877 the taxes on bridge and telegraph companies have been assessed, levied, and collected in the same 132 TAXATION OP CORPORATIONS. manner, telephone companies being added in 1901, and all the property of street railroads has been so taxed since 1897. Constitutional Tax-Rate Making. In the constitution of 1820 the only provision relating to taxa- tion, excepting those against taxing the property of the United States and forbidding discrimination against nonresidents, was: " That all property subject to taxation in this State shall be taxed in proportion to its value." The present. constitution, adopted in 1875, contains elaborate legislative provisions governing taxation and, for the first time, introduces specific limitations in the rates of taxation, establishing maximum rates for state, county, munic- ipal, and school purposes. A few other States — Alabama, Arkansas, Kentucky, Louisiana, Texas, and Wyoming — resemble Missouri in constitutional tax- rate making. Colorado, Idaho, Montana, North Dakota, and Utah establish a maximum for state taxes, and Nebraska and West Vir- ginia limit the rates in coimties, but this constitutional feature is found in only about one-third of the States. The Supreme Court of Missouri said in 1894: " Prior to the constitution of 1875, the power of the legislature to impose taxes was practically unlimited. It is unnecessary to recall the history of the times which led to the call of the conven- tion which framed it to impress the mind with the fact that one of the great purposes for which it was assembled was to put a check upon that power. It stands out upon the face of the instru- ment as the most novel and significant fact in it, and the purpose to limit that power, whether exercised immediately for state pur- poses, or mediately for local purposes, is alike apparent."^ Under the constitution counties having a total property valua- tion of $6 ,000 ,000 or less may levy 50 cents on $ r 00 ; from $6 ,000 ,000 to $10,000,000, 40 cents; from $10,000,000 to $30,000,000, 50 cents; and over $30,000,000, 35 cents. For city and town pur- poses the rates are graded on a basis of population instead of property. In 1910 in the 1 14 counties of the State, excluding the city of St. Louis which has no county organization, there were 68 of the first class, 33 of the second, 10 of the third, and 3 having more than $30,000,000. F. N. Judson, in Taxation in Missouri, says: ' ' These constitutional limitations of the county tax rate * * * have proven * * * veritable strait- jackets in thie adminis- ' State ex rel. v. Railway Co., 123 Mo., 72 (1894). MISSOURI. 133 tration of the county finances and the source of embarrassment and htigation."^ "The limitation of the tax rate has compelled counties which wished to increase their revenues to raise the assessments. But a number assess on so low a basis as to be unable to pay current expenses, and not infrequently assessors ru^ for office on the plat- form of promising not to increase assessments. Thus, if a county has a little over $6,000,000 valuation, it has only the right to levy a 40-cent rate, while if its valuation is reduced to $6,000,000 it can increase its tax rate to 50 cents. The state auditor reports that the members of the State Board of Equalization are besieged by county officials asking for a decrease of the total valuation, so as to bring their counties into a lower class and give them power to levy a higher rate for county purposes." ^ Comments of Tax Commissions. The Tax Commission of 1903 reported: " The revenue laws of Missouri in their main provisions compare favorably with those of other States. Many changes that have been suggested, and some that seem desirable to the commission can not be made on account of constitutional provisions. The legislature is so hedged about and hemmed in by limitations in the fundamental law of the State that, as the constitution stands, no statutory change can be made in the general system of taxation now in force. "^ The commission suggested a separation of the sources of state and local revenues, claiming that the aggregate taxes collected from all the public-service corporations for county, municipal, and school purposes, together with the county apportionment of the tax on foreign insurance companies, were practically equal to the total amount collected for the State from real and personal prop- erty and from merchandise. The commission further said: " By levying a rate upon corporate property now assessed by the State Board of Equalization sufficient to bring into the state treas- ury an amount equal to the sum collected at present from these corporations for all purposes, and by retaining the tax upon foreign insurance companies heretofore apportioned to the different coun- ties, the State might forego its tax upon real and personal property, including the ad valorem tax upon merchandise, without loss of income. Our constitution, however, stands in the way of this method of taxation." ^ ' Judson, Taxation in Missouri, p. 162. 2 Ibid., p. 164. ' Report of State Tax Commission, 1903, p. 4. * Ibid., 1903, p. 8. 134 TAXATION OP CORPORATIONS. The Tax Commission of 1 907 said : "We concur in the conclusion of that commission (of 1903) that no change can be made in our revenue system correcting the exist- ing inequahties without amending the constitution of the State." ' And also: " We see no remedy for this existing inequality and resulting injustice, except in the separation of the sources of state and local revenues."^ Inequalities in Assessment. Uniformity in assessment appears to be unattainable in the prac- tical administration of taxation, and in this respect Missouri is no more successful than other States. The State Tax Commission of 1903 sent a circular letter to the officials of all the counties, asking information on this subject, and the report of the com- mission says : "Reports were received from 98 counties and the city of St. l/ouis. * * * It is within the bounds of truth to say that no two counties in the State have the same rule for the assessment of all classes of property, and, generally speaking, there is abso- lutely no uniformity as to the proportion of the actual cash value taken as the basis for the assessed value." ^ The commission quotes from some of the reports of the tax com- missions of other States on this subject, of which the following are examples : Wisconsin — ^The mandate of the statute that property shall be assessed at the true or cash value has never been followed. Colo- rado — ^The constitution and laws of Colorado require all property to be assessed at its full cash value. Yet not an assessor in the State pretends to obey this law, nor do the county commissioners or cotuls attempt to enforce it. Minnesota — It is obvious that valuations for the purposes of assessment have been but slightly influenced by actual values. State and Local Taxes. There is no separation in Missouri of the sources of state and local revenue, consequently the taxes paid to the State by the important corporations are a small part only of the amount drawn from them by taxation. The $17,000 paid in 19 10 by express companies was a state tax, and $570,000 from the foreign insurance companies was collected by the State, but half of the latter sum was distributed to the counties. All other corporations ' Report of State Tax Commission, 1907, p. 5. ^ Ibid,, 1907, p. 8. ' Ibid., 1903, p. 6. • MISSOURI. 135 paid both state and local taxes, and while the rate for state revenue and interest was 17 cents on $100, the average rate in 19 10 for county and municipal taxes for all purposes was $1.2446, over seven times as much. Of a httle over $26,000,000 levied against lands, town lots, and personal property in the State, over $23,500,000 were for local taxes. The taxes levied on steam and street railroads, bridges, tele- graph and telephone companies, amoimted in 1910 to nearly $300,000 for state purposes, while the same corporations paid over $2,600,000 in cotmty and municipal taxes. No approxima- tion can be made for mercantile and manufacturing corporations, as there is no separation in the pubHshed records of these corpora- tions from firms and individuals engaged in similar occupations, but all the merchants and manufacturers in the State paid in 19 10 a little over $200,000 to the State, and nearly $680,000 in local taxes. Separation Amendment Rejected. At the general election in November, 1908, the voters rejected an amendment to Article X of the constitution, submitted by the legislature of 1907.* This amendment provided for the separation of the sources of state and local revenue; the establishment of local option for counties and municipalities in the selection of the subject of taxation; and the discontinuance of the general property tax. Centralizing Tendencies in Taxation. The first State Board of EquaUzation was created in the act of March 19, 1866, by which the members of the State Senate and the Heutenant governor were constituted a State Board of Equali- zation with authority to equaKze the valuation of real and personal property among the several counties in the State. By the act of March 10, 1871, the state auditor, the state treasurer, and the register of lands were made a special board of equaUzation of raihoad property, with the powers and duties that the state board possessed in reference to all other property. The constitution of 1875 established the present state board, consisting of five state officers, and the supreme coml held ^ that this provision of the constitution required no legislation to put it into effect, and that this board could equaUze and assess railroad • Laws, 1907, pp. 460-462. 2 R. R. Co. V. State Board, 64 Mo., 294 (1876). 136 TAXATION OF CORPORATIONS. property as well as adjust the valuations in the counties, under the powers conferred upon the boards previously existing. It is the duty of the state board to equalize in the counties the valuations, by the local assessors, of urban and farm property, live stock of all kinds, corporate companies, and all other per- sonal property, and also to make an original assessment of public-service corporations. The governor, auditor, treasurer, secretary of state, and attorney general, presumably busy in the work of their respective ofifices, must depend to a large extent upon the returns made under the law by corporations and individuals. A permanent state tax commission, selected for some knowledge of the subject, could, in time, correct the ex parte statements of taxpayers, and if the present constitutional restrictions which now cripple taxation were modified, they could evolve an improved system and more satisfactory methods for the taxation of individuals and corporations for state and local purposes. Bibliography. The following is a list of the more important publications, in addition to the constitution, the statutes, and the court reports, of value in the study of corporate taxation in Missouri: Report of State Auditor, 1909-10. Report of State Treasurer, 19 10. Reports of State Tax Commissions, 1903, 1907. Reports of Superintendent of Insurance Department, 1909, 1910. Taxation in Missom-i, by F. N. Judson, 1900. Journal of State Board of BquaHzation, 1909. INDEX. Page. -A.bstracts of taxation: Iowa 21 Kansas 22 Minnesota 19 Missouri 22 Nebraska 21 North Dakota 19 South Dakota 20 Ad valorem method: Change from receipts or earnings method — Iowa, railroads 86 Minnesota, telegraph companies 36 North Dakota, raihoads 6r Railroads, Minnesota, gross-earnings tax, financial results compared 39 Vessels, Minnesota, tonnage tax, financial results compared 49- 50 Administration of tax laws: Corporate excess system, local adminis- tration unsuccessful 9, 41 Iowa 78 Kansas 107 Minnesota 2Si45 Missoiuri 122 Nebraska gi North Dakota 52 South Dakota 65 Apportionment. See Distribution of taxes. Assessment: Intangible personalty, effect of low uni- form rates in various States (table) 12 Iowa 87,88 By State Executive Council 78 Kansas 114-118 By State Tax Commission 107, 115, 116 Minnesota 25,42 By Tax Commission 25,43 Mining property 33^45-49 Wisconsin " sales method " 42 Missouri — By State Board of Equalization . . . 122, 135 InequaUties 134 Nebraska 101-103 By State Board of Equalization. and Assessment 91 Lincoln, city of 96 North Dakota 61-63 By State Board of Equalization 52 , 62 By Tax Commission S^j 53 Railroads, importance of definite rules for valiung 9 South Dakota 74j 75 By State Board of Assessment and Equalization 65, 66, 75 Broader powers desired 75 See also partictUar companies. Page. Banks. See Finandal corporations; Finan- cial results, imder particular State. Bibliography on taxation: Iowa 89 Kansas ; 120 Minnesota 50 Missouri 136 Nebraska 105 North Dakota 64 South Dakota 76 Bondholders. See Stockholders and bond- holders. Bridge companies: Iowa 79 Minnesota 24)32 Missouri 121,122,128, 131 South Dakota 6S) 70 Brindley, John E., railroads, Iowa 88,89 Building and loan associations. See Finan- cial results, under Iowa and Missouri. Business corporations. See Manufacturing and mercantile corporations. Capital-stock tax, Nebraska 9I) 99 Revenue derived from 100 Car companies: Iowa 77, 78, 80, 81 Historical 86 State taxes contributed by 83 Tax collected from railroads 80,81,83 Kansas 106, 107, no State taxes contributed by 113 Minnesota 24,25,27-29,31 Historical 36*37 Recommendations of Tax Commis- sion 38 State taxes contributed by 34 Missouri 121,122,126, 127 State taxes contributed by 130 Tax collected from railroads 126 Nebraska 90,91,93,96 State taxes contributed by 100 North Dakota si)S7)6i State taxes contributed by 59 South Dakota 65, 68, 69 Freight car companies not taxed .... 68 State taxes contributed by 71 Various States — Methods of taxing (table) facing p. 17 State taxes contributed by (table) ... 6 Centrahzation of administration: Effect on corporate excess system 9 Iowa, trend toward 77, 86, 88 Kansas, trend toward 115-117 Minnesota 25 Argument for 44? 45 Missouri, trend toward 135, 136 137 138 INDEX. Centralization of administration— Contd. Page. Nebraska, trend toward 101-104 North Dakota. 51^52 South Dakota, trend toward 65, 72 Permanent tax conunission recom- mended 75 Classification of personal property. See Per- sonal property, intangible. Classification of revenue. See Financial re- sults, imder particular State. Collateral inheritance tax. See Inheritance tax. Comments on taxation systems. See Particu- lar State. Commissions, tax. See state tax commis- sions. Connecticut: Intangible personalty, low uniform rate (table) 12 Discussion 10, 14-16 Methods of taxing certain classes of corpo- rations (table) facing p. 17 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) Constitutional provisions on taxation: Rates- Nebraska 92 Missouri 124, 132, 133 See also particular State. Corporate excess tax: Kxtent of application to certain classes of corporations, various States (table) facing p. 17 I^cal administration unsuccessful 9, 41 Minnesota, ineffectual 26,32,33,39-41 See also Intangible value; Franchise. Corporate loan tax, Pennsylvania (table), facing p. 17 Corporate taxation : Methods of taxing certain classes of cor- porations, various States (table),, facing p. 17 Relative importance of 3 Revenue derived from certain classes of corporations — Iowa 83 Kansas 1 13 Minnesota 34 Missouri 130 Nebraska lob North Dakota 59 South Dakota 71 Various States (table) 6 Compared with other sources of revenue (table) 3 County revenue, sources. See Sources of revenue. Debts. See Mortgage; Personal property, in- tangible; Secured debts. Deeds, consideration reported: Kansas 116 Minnesota 42*43 Delaware: Methods of taxing certain classes of corpo- rations (table) fdcing p. 17 Delaware — Continued . Page. State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) . 3 Distribution of taxes; diversity of methods. 12,16 Table showing facing p. 17 District of Columbia: Methods of taxing certain classes of corpo- rations (table) facing p. 17 Revenues from certain classes of corpora- tions (table) 6 Revenues from certain taxes (table) 3 Diversity of methods of taxation 17 Table showing facing p. 17 See also Uniformity in taxation. Double taxation, Kansas 119 Earnings. See Receipts or earnings tax. Electric companies. See Heating companies; Lighting companies; Power companies; Street railways. Equalization, boards of. See Administration of tax laws; Assessment. Equipment companies: Iowa 77,78,81 State taxes contributed by 83 See also Car companies. Express companies: Iowa 78,82,86 Assessment increase, 1900-1910 (table) 87 State taxes contributed by 83 Kansas 106, 107, in, 117 State taxes contributed by 113 Minnesota 24,25,27-30 Historical 36 State taxes contributed by 34 Missouri 121, 128 State taxes contributed by 130 Nebraska 90,93,95 State taxes contributed by 100 North Dakota 51, 56? 57, 61 Assessed value, state levy, state tax, 1897, igor, 1905, 1910 (table) 62 Mileage 64 State taxes contributed by 59,61 South Dakota 65, 68, 75 State taxes contributed by 71 Various states; Methods of taxing (table) facing p. 17 State taxes contributed by (table) ... 6 Features, chief, of corporate taxation. See particular State. Ferry franchises, Iowa, considered realty. , . . 79,85 Financial corporations, state taxes contrib- uted by (table) 6 See also Financial results, under particu- lar State. Financial results. See particular State; also Sources of revenue. Flat rate. See Personal property, intangible. Franchise: Iowa — Express companies 82 Ferry 79, 85 Telegraph and telephone companies. 8^ Miimesota, telegraph companies 30 INDEX. 139 Franchise— Contin ued . Page . Missouri — Railroads 1 23 1 1 25 Telegraph, telephone, and bridge companies 121, 128 Otl^er public service corporations. . 125, 128 Nebraska — Express, telegraph, telephone, and pipe-line companies 90,53,95 Railroads 90, 94 Other public utility companies 91,98 North Dakota, steam, street, and inter- urban railroad, express, telegraph, and telephone companies 51.54-57 South Dakota, railroads not assessed on . . 67 Various States (table) facing p. 17 See clyo Corporate excess tax; Intangible value. Freight line companies. See Car companies. Foreign corporations: Iowa } 77183 Kansas 107,112 Minnesota 25,34 Missouri 122, 129 Nebraska 91? 99 North Dakota 52,59 South Dakota 65, 70 Gas companies. See Lighting companies. General property tax. See Property tax. General view of corporate taxation. See par- ticular State. Grain: Iowa 80 Minnesota 24j 33 Nebraska 99 North Dakota 53. 58. 59 Gross earnings. See Receipts or earnings tax. treating companies: Kansas m Missouri 128 Historical notes on corporate taxation: Iowa 84 Kansas "4 Minnesota 35 >Iissouri 131 Nebraska loi North Dakota 60 South Dakota 72 Hurd, Rukard, Minnesota ore property, assessment 46-48 Illinois: Methods of taxing certain class of corpora- tions (table) facing p. 17 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) . 3 Improvements upon realty taxed as person- alty: Iowa 79 Minnesota 27 South Dakota 67 Incorporation, South Dakota 72-74 Indiana: Methods of taxing certam classes of cor- porations (table) facing p. 17 Indiana— Continued . Page. State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) . 3 Inheritance tax: Nebraska 92n State revenue derived from — Iowa 5»84 Kansas 114 Minnesota 5,35 Missouri 5i 130 South Dakota 71 Various States (table) 3 See also Sources of revenue. Insurance companies, State revenue derived from (table) 6 See also particular State; Financial re- sults. Intangible personalty. See Personal prop- erty, intangible. Intangible value, corporations: Iowa 77, 78,79n,82,83 Kansas 107-112, 117 Minnesota 26, 39-41 Missouri 121,123,125,128 Nebraska 90,91,93-96,98 North Dakota 51, 54-58 South Dakota 66-68, 70 See also Corporate excess; Franchise. Interurban railroads: Iowa 78, 79 Kansas no State taxes contributed by 113 Minnesota 24,32 North Dakota 51,61 Iowa: Abstract of corporate taxation system. , , 21 Chief features 77 Conunents on system 84 Constitutional provisions 78 Financial results 83 General view 77 Intangible personality, low uniform rate (table) 13 Discussion 10, 14-16 Methods of taxing certain classes of corpo- rations (table) facing p. 17 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) 3 Statutory provisions 78 Iron ore, Minnesota, assessment 33j37>4S~49 Judson, F. N., Missouri, taxation .. i23n, 132,133 Kiansas: .^■bstract of corporate taxation system. . . 22 Chief features 106 Comments on system 114 Constitutional provisions 108 Financial results 113 General view 106 Methods of taxing certain classes of corpo- rations (table) facing p. 17 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) 3 Statutory provisions 108 140 INDEX. Land grants: Page. Minnesota 37 North Dakota 60 I^ighting companies: Iowa 82 Kansas iii Minnesota 24,32 Recommendation of tax commission . 38 Missouri 121,128 Nebraska 9ii97 North Dakota Si) 57*58 South Dakota f>5> 70 I^incohi, Nebr., assessment 96 Ijiquor tax, revenue: Missouri 23, 130 Various States (table) 3 See also particular State; Financial results. Loans, corporate, Pennsylvania (table). facing p. 17 Local administration of corporate excess sys- tem unsuccessful 9, 41 Local assessments unsatisfactory: Minnesota 4Ij42 North Dakota 62 Local revenue, sources. See Sources of rev- enue; Separation, sources of state and local revenue. Low uniform rate. See Personal property, intangible. Lump-sum tax, Delaware (table) facing p. 17 IVIaine: Methods of taxing certain classes of corpo- rations (table) facing p. 17 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) . 3 Manufacturing and mercantile corporations: Iowa 82 Kansas 112 Minnesota 24, 33 Corporate excess tax inefTectual .*3i 39 Proposed system of taxation 41 Missouri 121, 129, 135 Nebraska 91,98 North Dakota 51, 58 South Dakota 65, 70 Various States — Methods of taxing (table) facing p. 17 State taxes contributed by (table). . . 6 Maryland: Intangible personalty, low uniform rate (table) 12 Discussion 10, 14-16 Methods of taxing certain classes of cor- porations (table) facing p. 17 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) . 3 Massachusetts: Corporate excess tax 40 Methods of .taxing certain classes of cor- porations (table) facing p. 17 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) . 3 Mercantile corporations. See Manufacturing and mercantile corporations. Michigan: Page. Methods of taxing certain classes of cor- porations (table) facing p. 17 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table). 3 Mileage tax. See Route mileage tax; Wire mileage tax. Mining corporations: Minnesota 33,35.37.45-49 North Dakota jg See also Royalties. Mining property, Minnesota, assessment 45-49 Minnesota: Abstract of corporate taxation system. . . 15 Chief features 24 Comments on system 35 Constitutional provisions 26 Financial results 34 General view 24 Intangible personalty, low uniiorm rate (table) 12 Discussion 10, 14-16 Methods of taxing certain classes of cor- porations (table) facing p. 17 Mortgage-registration tax 13 , 27, 34, 50 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) . 3 Statutory provisions 26 Total assessments as returned and equal- ized, 1908-1910 (table) 43n Miscellaneous corporations: Kansas 112 Minnesota 24 Missouri 130 North Dakota 58 South Dakota 70 Various States, state revenues derived from (table) 6 Miscellaneous tax receipts, various States (table) 3 Missouri: Abstract of corporate taxation system ... 22 Chief features 121 Comments on system 131 Constitutional provisions 122 Financial results 130 General view .- 121 Methods of taxing certain classes of cor- porations (table) facing p. 17 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (tabic) . 3 Statutory provisions 125 Moneys and credits. See Personal property, intangible. Mortgage-registration tax: Minnesota 13 , 27, 34, 50 New York .^ iSjSO Municipal revenue, sources. See Sources of revenue. '' Navigation companies. See Vessels. Nebraska: Abstract of corporate taxation system 21 Chief features ". . . . go Comments on system loi INDEX. 141 Page. Nebraska — Continued . Constitutional provisions 92, 104 Financial results 100 General view go Methods of taxing certain classes of corpo- rations (table) facing p . 1 7 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) 3 Statutory provisions 93 New Hampshire: Methods of taxing certain classes of corpo- rations (table) facing p. 1 7 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) 3 New Jersey: Methods of taxing certain classes of corpo- tions (table) facing p. 1 7 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table). 3 New York: ' Methods of taxing certain classes of corpo- rations (table) facing p. 1 7 Mortgage recording tax iS> 3° "Secured debts" law 15 State revenues from certain classes of cor- . porations (table) 6 State revenues from certain taxes (table) 3 North Dakota: Abstract of corporate taxation system. . . 19 Chief features 51 Conunents on system 60 Constitutional provisions 53 Financial results 59 General view 51 Methods of taxing certain classes of corpo- rations (table) facing p. 17 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) 3 Statutory provisions 54 Occupation fee, Nebraska. See Capital-stock tax. Ohio: Methods of taxing certain classes of corpo- rations (table) facing p. 17 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) 3 Ore, Miimesota, assessment 33t37»45~49 F*arIor car companies. See Car companies. Passenger car companies. See Car compa- nies. Pennsylvania: Intangible personalty, low uniform rate (table) 12 Discussion ^°> 14-16 Methods of taxing certain classes of corpo- rations (table) facing p. 17 State revenues from certain classes of corporations (table) 6 State revenues from certain taxes (table) . 3 Page. Per cent of increase or decrease of assessments and taxes resulting from taxing intangible personalty at a low uniform rate (table). . . 12 Discussion 10, 14-16 Per cent of State corporation taxes contrib- uted by certain classes of corporations (table) 7 Per cent of State revenue from certain taxes (table) 4 Per cent of true value assessed. See Valua- tions. Personal property, intangible, low uniform rate: Advisability 10 Iowa 10, 12, 14-16, 77, 79,86 Minnesota 10, 12, 14-16, 27, 34 Table showing results by amounts and percenta^jes 12 Discussion 10, 14-16 Personal property, situs. See Situs. Physical valuation, public-service corpora- tions: North Dakota, necessity for 63 Railroads — Minnesota 39 South Dakota 74 Pipe line companies: Kansas no, 115 State taxes contributed by 1 13 Nebraska 90,931 95 State taxes contributed by 100 Power companies- Kansas m Minnesota, recommendations of Tax Commission 38 Missouri 128 Propertv tax: Extent of application to certain classes of corporations, various stitc^ (ta- ble) facing p. 17 Iowa 77 > 78 Kansas 106, 108 Minnesota 24, 26 Missouri 121, 125 Nebraska '. ■ ■ 901 93 North Dakota 51- 54 Revenues derived from, various States (table) 3 South Dakota 65,66 See also General view, under particular SUte. Public-service corporations, Kansas 106. 115-117 State taxes contributed by 113 Minnesota 3^'S^ Missouri ^25 Nebraska 9o,9i>97 North Dakota, necessity for physical valuation 63 See also particular class. Quarry property, North Dakota 58 Railroad land grants: Minnesota North Dakota 37 60 142 INDEX. Railroads: Page. Iowa 78, 79) 8s, 88 Assessment increase, 1900-1910 (table) 87 State taxes contributed by 83 Taxed on equipment of car companies. 81, 83 Kansas 109 Historical iiSj ^i^j 118 State taxes contributed by 1 13 Minnesota 24,25,27,28,29 Constitutional provisions 36 Gross earnings and ad valorem taxes, financial results compared 39 Historical 36 State taxes contributed by 19, 34 Missouri 121, 122, 125-127, 131 Constitutional provisions. . . 23, 123, 132, 133 State taxes contributed by 130 Taxed on equipment of car com- panies * 126 Nebraska 90)93j94jIoi State taxes contributed by 100 Terminal tax act 9o» 103 North Dakota Si>54)55 Assessed value, state levy, state tax, mileage, 1897, 1901, 1905, 1910 (table) 62 Constitutional provisions 53 Historical 60 Mileage 62, 64 State taxes contributed by 59,61,62 Physical valuation. See Physical valua- tion. South Dakota 65*67,72,74,75 State taxes contributed by 71 Valuation, mileage and assessment per mile, 1895, 1900, 1905, 1910 (table) 75 Discussion of 74 Valuing, importance of definite rules for 9 Various states: Importance of, as source of income. . . 5 Methods of taxing (table) facing p. 17 State taxes contributed by (table) . , 6 Railways, street. See Street railways. Rate, low uniform. See Personal property, intangible. Rate of taxation, constitutional limitations: Missouri 23, 124, 132, 133 Nebraska 92 Real property, assessment: Kansas 116 Mirmesota 42 Wisconsin "sales method" 42 See also Improvements. Receipts or earnings tax: Extent of application to certain classes of corporations (table) facing p. 1 7 Kansas, express companies 106,111,117 Mirmesota: Ad valorem tax, financial results com- pared 39 Extension of system recommended. . 38 Historical 36 Interurban electric lines 33 Railroads, freight lines, telephone, and express companies 24-27,36,37 Sleeping car companies 24,25,31, 37)38 Missouri, express companies 121, 128 North Dakota; Car companies 57 Railroads S3, 60, 61 Receipts or earnings tax— Continued. Page. South Dakota, unconstitutional 72, 75 See also Ad valorem method, change from receipts or earnings method. Recording tax, mortgages: Mirmesota 13,27,34,50 New York i5i so Reproduction value, railroads, Minnesota 39 Results, financial. See Financial results, un- der particular State. Revenue boards. .See Administration; Assess- ment. Revenue, sources of. See Sources of revenue. Review, boards of. See Administration; As- sessment. Rhode Island: Methods of taxing certain classes of corpo- rations (table) facing p. 17 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) 3 Road companies: Minnesota 24,32 South Dakota 6s, 70 Route mileage tax, Vermont (table). . .facing p. 17 Royalties, Minnesota 25n,35 State revenues derived from 35 See also Mining. " Sales method. " 116 Minnesota 42,43 Wisconsin 42,43 "Secured debts" law, New York 15 Separation, sources of state and local revenue: Iowa, extent of 88 Kansas, discussed 118, 119 Minnesota, partial 44 Wider separation recommended 45 Missouri, recommended 133 Rejected 134, 135 Nebraska, recommended 104 Situs, personal property, for taxation: Iowa 82 Kansas 111,112 Minnesota 27,32,33 Nebraska 93, 98 North Dakota 54) 58 South Dakota 70 Sleeping car companies. See Car companies. Sources of information. See Bibliography on taxation. Sources of revenue: Iowa 780,86 Kansas 1070 Minnesota 24, 250 Missouri i22n,i34, 135 Nebraska 92n North Dakota 5211 Railroads, important as 5 South Dakota 66n Various States: Corporations, classes compared (table) 6 Methods of taxing (table) facing p. 17 Taxes, results compared (table) 3 See also Financial results under particular State; Personal property, intangible; Separation, sources of State and local revenue. INDEX. 143 South Dakota: Page. Abstract of corporate taxation system ... 20 Chief features 65 Comments on system 72 Constitutional provisions 66 Financial results 71 » General view 65 Methods of taxing certain classes of cor- porations (table) facing p. 1 7 State revenues from certain classes ot corporations (table) 6 State revenues from certain taxes (table) . 3 Statutory provisions 66 State revenue, sources. See Sources of reve- nue; Separation, sources of State and local revenue. State tax commissions: Iowa — Permanent tax commission recom- mended .' 89 State Executive Council 78 Temporary tax commission created . . 88,89 Kansas 107, 115,116 Minnesota 25 Missouri — Special tax commission 133, 134 State Board of Equalization 12a Nebraska, State Board of Equalization and Assessment gi North Dakota: State Board of Equalization 52, 53 Tax Commission 52,53 South Dakota: State Board of Assessment and EquaUzation 65,66 Tax commission recommended 75 Statutory provisions on taxation. See par- ticular State. Steam railroads. See Railroads. Steamboats. See Vessels. Stockholders and bondholders: Iowa 77)^3 Kansas 106, 112, 114, 119 Minnesota 25,33 Missouri 122, 129 Nebraska p 91.99 North Dakota 52,58 South Dakota 65, 70 Uniform rate, low (table) 12 Street railways: Iowa 82 Kansas no, 113 State taxes contributed by 1 13 Minnesota 32 Recommendations of Tax Conunis- sion 38 Missouri 121,122, 125-127,132 State taxes contributed by 130 Nebraska 9i)97 North Dakota Si'54'5S>59 Assessed value, State tax, State levy, 1897, 1901, 1905, 1910 (table) 62 State taxes contributed by 61 South Dakota 65, 70 See also Interurban railroads. Tables; Page. A — State taxes for 1910 in 24 States, amounts and percentages contrib- uted by specified taxes 3 Discussion of 3,5 B — State taxes for 1910 in 24 States, amounts and percentages ccntrib- uted by certain classes of corpora- tions 6 Discussion of ? C — Intangible personal property, results, by amounts and percentages, of taxing at low uniform rate, 5 States . 12 Discussion of 10, 14, 16 D — Corporate taxation systems in 24 States, affecting railroad, car. ex- press, telegraph, telephone, and manufacturing corporations, facing p. 17 Discussion of 2, 17 Iowa, assessment of railroad, telegraph, and telephone property, express com- panies, all property, i9cx>-i9io 87 Kansas, efforts to assess at true value, effect of administration by Tax Com- mission 116 Minnesota, total assessments as returned and afterwards equalized, 1908-1910.. . . 43n Minnesota, ore, assessment, rate and levy, 1906-1910 49 North Dakota, assessed values, state taxes, state levy, railroad mileage, 1897. rgoi, 1905, 1910 63 South Dakota, railroad property, total valuation, mileage, and assessment per mile, 189s, 1900, 1905, 1910 75 Tax commissions. See State tax commis- sions. Telegraph companies: Iowa 78,81, 86 Assessment increase, 1900-1910 (table) 87 Historical 86 State taxes contributed by 83 Kansas 110,115 State taxes contributed by 113 Minnesota 24,25,28,30,32 Historical 36 Recommendations of Tax Commis- sion 38 State taxes contributed by 34 Missouri 121,122,128,131 State taxes contributed by 130 Nebraska 90)93>9S State taxes contributed by 100 North Dakota 5I'56,S7j6o,6i Assessed value, state tax, state levy, 1897, 1901, 1905, 1910 (table) 62 State taxes contributed by S9t 61 South Dakota 65, 68 State taxes contributed by 71 Various States: Methods of taxing (table) facing p. 17 State taxes contributed by (table) ... 6 144 INDEX. Telephone companies: Page. Iowa 78j 8i Assessment increase, igoo-1910 (table) 87 State taxes contributed by 3 Kansas no* 115 States taxes contributed by 113 Minnesota 24,25,27,29,32 Historical 36 States taxes contributed by 34 Missouri 121, 122, 128, 132 State taxes contributed by 130 Nebraska 9o,93>95 State taxes contributed by 100 North Dakota Si>56,S7j6i Assessed value, state tax, state levy, 1897, 1901, 1905, 1910 (table) 62 State taxes contributed by S9» 61 South Dakota 65, 6» State taxes contributed by 71 Various States — Methods of taxing (table) facing p. 17 State taxes contributed by (table) ... 6 Terminal tax act, Nebraska 90, 103 Toiuiage tax, Minnesota 24,25,31,37,49 Ad valorem tax, financial results com- pared 49> 50 Revenue derived from 34 Transmission companies. See Heating, Light- ing, Power, Telegraph, and Telephone com- panies. True value. See Valuation. TVust companies. See Financial corporations; Financial results under particular State. Uniform rates. See Personal property, in- tangible. Uniformity in taxation, importance of 17, 119 See also Diversity. Valuatic'!;;' ' Page. Per c«i>l <.. i-Tue value assessed — Iowa 77j79 Kansas 106 Minnesota 24, 27, 39 Recommendation 43 Missouri i2iji2s Nebraska 9o>93>93n.jioijio2 North Dakota Sit54 South Dakota 6S) 67 See also Assessment; Physical valuation. Vermont: Methods of taxing certain classes of cor- porations (table) facing p. 17 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) . 3 Vessels, taxation of, Minnesota 24,25,31,37,49 Recommendation 50 State revfenue derived from 34> 49) 50 "Water companies: Iowa 82 Kansas in Miiuiesota 24,32 Recommendations of Tax Commis- sion 38 Missouri 121,128 Nebraska 91? 97 North Dakota 5Ij S7j S8 South Dakota 65> 70 Wire mileage tax (table) facing p. 17 Wisconsin: Methods of taxing certain classes of cor- porations (table) facing p. 17 State revenues from certain classes of cor- porations (table) 6 State revenues from certain taxes (table) . 3 Wisconsin "sales method" 42i34 O :m,.y<^^' >.,- ■w^'-^^.i^!